NIGERIAN ECONOMY: Bad Case Worsened by Global Economic Recession
NIGERIAN ECONOMY: Bad Case Worsened by Global Economic Recession
By Peluola Adewale
Barack Obama, alarmed by the depth of recession in the US economy and its proclivity to go deeper, described recession as a continuous disaster. Yes, it is indeed a disaster, not only for the US, but also for the entire world. British Prime Minister Gordon Brown has revealed that the world is in recession. Anyway, nobody needs Brown’s binoculars to see the monster; the socio-economic indices have been scary and freezing. There is no advanced capitalist economy that worth its salt which is not in recession. The economies of China and Asia have been slowing down. There are record job losses in the US and Europe. Both the financial system and real economy across the world have been receiving a serious battering. Many big companies which are global brand have experienced their first losses in decades. The US auto industry is kept afloat by tax payer’s money. There is rapid collapse of production in some of the main imperialist countries and Asia.
Several trillions of dollars of public funds have been injected to arrest the rampaging economic tsunami, yet it appears there is no light at the end of the tunnel. On the top of over $1 trillion that had been spent to bail out the financial gamblers, $787 billion economic stimulus package has been approved by the US congress. This is expected among other things to create between 3 million and 3.5 million jobs in a country that has already recorded about 4 million job losses since recession started in December 2007. Another 3 million are set to be thrown to the labour market. In 2008, 2.6 million jobs were lost, the highest since 1945. To underscore the failure of global capitalism, protectionism is now on the agenda. Brown is talking of “British jobs for British people” while Obama has included a “Buy America” clause in his stimulus package.
Most bourgeois leaders and commentators have hitherto avoided the word “recession” like a plague when qualifying the crisis. This is no more; truth is intractable and indelible. The crisis has metamorphosed from financial meltdown through economic meltdown to economic recession. The speed of transformation has been supersonic. Possibly, the next port of call is a global economic depression. Whether it could reach the level of 1930s Great Depression is a moot question. While recession is a disaster, capitalism itself is horror. Lenin called it horror without end. Already, two persons have committed suicide, one on the account of losing life investment to Bernard Madoff ‘s Ponzi scheme. As defined by Encarta, a Ponzi scheme is a pyramid investment swindle in which supposed profits are paid to early investors from money actually invested by later participants. Through this big racket, possibly the largest the world has seen, Madoff bilked investors of over $50 billion. This is only symptomatic of flaws and frauds that fuelled the hitherto boom in world economy and have turned back as its Frankenstein’s monster.
Corporate greed and lack of proper regulation of the financial market have been made the scapegoat of this global crisis the scakle of which has not been seen since the Great Depression of the 1930s. In Europe and US there is hatred for the bank executives which has become deeper with the bumper bonuses they paid themselves after receiving bail-out from the taxpayers’ money. Obviously, financial speculation triggered the crisis, but it is a fundamental crisis of capitalism. There is no capitalism without greed and blind pursuit of profit, and re-introduction of regulation cannot stop the capitalist cycle of boom and burst.
In the absence of an international revolutionary working class movement that could seize the opportunity of the crisis to enthrone socialism, capitalism will sprout from its own rubble, though weaker. The economic upswing that just came to an end was built and maintained on cheap finance or credit. Thus, when there is, eventually, a recovery from the worst of this crisis, growth will be very limited because the ruling class will not be able to use credit in the same way to extend the market.
NIGERIA IN DOLDRUMS
The current crisis of capitalism is indeed pandemic. The contagion has caught up with the countries like Nigeria which had thought that, by not being fully integrated into the world economy, they could at worst receive a mere scratch. Globalisation has made the economic maelstrom to be truly global even more than what obtained in the Great Depression. The recession in West and the slowdown in the East have dragged down the prices of commodities, which are the mainstay of the economies at the periphery. Nigerian economy is in doldrums. Though it has always been a battered economy for the poor working masses who benefited precious nothing from the longest run boom in the annals of Nigeria, the crisis has helped cast into the wind the veneer of pretext and paper economic achievement of the past period.
In the era of the boom in oil price that engendered increasing annual growth and piling up of foreign reserves, the government and its economic managers beat their chest with magic wand as great achievers. Whereas, the phenomenal rise in oil price that reached the all time high of $147 last July obtained in spite of them. Now the oil price has plummeted to around $40. The 2009 budget proposal that is based on $45 per barrel was lame on arrival at the National Assembly. Even at that there is budget deficit of N1.1 trillion which is the largest in Nigeria’s history.
Partly to fund the deficit the Central Bank at the instance of Yar’Adua government has devalued the naira against the dollar. This will stimulate artificial increase the oil revenue in naira terms. But fraudulently or erroneously, Chuwkuma Soludo, the Governor of the apex bank, has cited example of China to justify the devaluation of naira. Yuan, the currency of China, is held low in the order to make Chinese exports cheap and competitive. This has already put China and US on the brink of trade war as the latter wants yean to be revalued (to have higher value) in order to be able to compete with China’s products. On the contrary, the devaluation of naira does not accord any balance of trade advantage on Nigeria. The main export of Nigeria, crude oil, is denominated in dollars, which we have no control over. Nigeria is essentially an import dependent economy which imports every basic goods including refined petroleum products. Thus, the devaluation can only make goods and service expensive. For instance, the importers of refined crude oil products used the devaluation of naira as reason the decrease in crude oil in the international market could not reflect at the pumps locally.
Notwithstanding the official reason of government, the free fall of naira against dollar reflects an economy in serious crisis. Nigeria’s foreign reserve has shed about $13 billion from its $63 billion mark in September. The global economic recession has meant that the reserve can only grow slimmer. Deploying the reserve to the level of matching the rate of demand for dollar will make it further emaciated. This will be nightmarish for a government that has only huge reserve to show as index of economic achievement. Hence, the Central Bank has had to constrict the supply of dollar in its intervention in the foreign exchange market.
CATCH 22 SITUATION
Indeed, on monetary management, the economy is facing tripled edged challenges. In addition to the falling-naira exchange rate are the crippling inflation rate put at 14.8 percent as of last December and usurious interest rates which are as much as 28%. This has put Nigeria in a Catch 22 situation. This is because to tackle this crisis, there must be strong infrastructure base that will provide enabling atmosphere for business. But when the government made huge fortune from the oil boom there was nothing to show for this in term of infrastructural development along with improved standard of living for the vast majority of Nigerians, let alone now that the revenue is on the slump. The crisis of infrastructure has forced many factories and businesses to close shop. Michelin, the tyre manufacturer, has shut down its factories in Nigeria while its counterpart, Dunlop has been forced to scale down operation in the country. The textile industry, which used to be the second employer of labour after government has almost become carcass. All this has left on its trail huge job losses.
Talking of job losses, the global economic recession has added more venom to the festering sore in Nigeria. Cadbury has retrenched 300 workers while Vehicle maker Peugeot Automobile Nigeria (PAN) has sent home 565 of its 753 workers and placed the rest on half salary due to the recession (The Nation, February 9, 2009). The plans by some banks to reduce their workforce have also been reported.
Yar’Adua government has resolved to rely on private initiative for infrastructure financing. In the face of global financial meltdown, this has become anachronistic. International financial institutions have not only cut credit line, they also rely on public funds as lifeline to remain in the business. For sure, Nigerian banking sector cannot provide the succour, don’t mind the claim they are now heavily capitalized. Besides, as a “hot and quick” profit industry, Nigerian banks cannot commit resources to a long term return yielding projects like infrastructure provision. The Compass newspaper reported Sonnie Ayere, the Managing Director of UBA Global Marketing Limited, stating that there is a limit to which the banks can provide finance for infrastructure development, as they can only provide short term facilities, if banking sector will not plunge down (Nigerian Compass, November 3, 2008).
What all this has meant is that the Yar’Adua government is poised to leave infrastructure to go to rack and ruin. The paltry capital votes for power, education, health care and transport in the proposed 2009 budget has shown the policy thrust of the anti-poor, neo-liberal government.
Already, the exchange and interest rates have compounded the cost of doing businesses thereby further worsening the inflation. Most manufacturers import the raw materials used in production. The banks consider it too risky to lend money to the real sector in the face of infrastructural decay. For instance, in absence of public power supply, alternative energy contributes about 45% to the cost of production. Banks are in business to make super profit and not to aid development of the economy as against one of the major reasons advanced for the storied banking consolidation exercise.
The monetary policy of the Central Bank that entails mere manipulation of figures has proved too artificial to improve the realities of an economy in crisis. In the last two years, the apex bank has severally mopped up excess liquidity from the system with the aim of taming inflation. This has failed woefully as the rate of inflation keeps soaring. In fact, inflation skyrocketed from 6.6% to 15.1% in just 12 months from January to December 2008. Rather, the exercise has only ended up gifting out public funds as returns/interest to the banks on the idle funds they have refused to lend to the real sector but kept in their vaults.
OIL BOOM LOOTED
When the foreign reserve, which is now shedding weight, ought to have been injected into infrastructural development that could have laid solid foundation for a productive economy, a considerable amount of it was put at disposal of global financial sharks and their local vampires to gamble with. The government has kept the nation in dark how much in real value have been the returns on the investment. The flip side looks more the reality, though. The global financial meltdown that affects most of the banks the money is invested has shown that such returns could only be found in castles in the air.
Besides, according to the Revenue Mobilization Allocation and Fiscal Commission (RMAFC) Nigeria earned N30.78 trillion (about $257bn) in eight years from May 1999 and June 2008. Out of these earnings, N13.63 trillion, representing 44.3 percent was transferred to the Excess Revenue Account, which is not only illegal but also fraudulent and unaccountable (Punch, October 31 2008). The excess revenues, the difference between the market price of crude oil and budget benchmark, are shared between federal and state governments without appropriation in addition to statutory monthly allocation. There has been nothing to show for this huge revenue in terms of infrastructure development, social welfare, jobs creation and improved standards of living for the ordinary Nigerians. The thieving ruling elite in government at all levels has been looting the treasury in addition to jumbo pay package to its over-bloated top functionaries.
Labour and pro-masses’ organizations must demand the injection of a large part of the foreign reserve and public resources from other sources into infrastructural development and social services like power, transport, education, health care, etc. The mismanagement of $16 billion power project has shown that it is not enough to allocate public funds to finance infrastructure. Ensuring open democratic control of the projects by working people, communities’ representatives and professionals is imperative.
Labour must prepare for a series of political actions in order to drive home the demand for the minimum wage of N52, 200 without job losses. The government has declared that wage increase is not part of its so-called agenda to cushion effects of global economic recession on Nigerian economy. Besides, the only cushion a neo-liberal government in a non-productive economy could provide is the one laced with thorns or another avenue for looting.
The 2009 budget has revealed that ordinary Nigerians are in for more neo-liberal attacks. Labour and pro-masses organizations must prepare to go back to the trenches. On the basis of capitalist neo-liberal policies, it is clear that Yar’Adua government will not commit public resources to infrastructure development and basic needs of poor working people, more so now there is slump in the oil revenue.
SOCIALIST ALTERNATIVE ON FRONT BURNER
The global economic recession is a bold statement on the failure and failing of capitalism. This is more profound in a country like Nigeria which has been suffering from a form of Dutch Disease socio-economic hardship and non-productive economy in midst of huge revenue from crude oil even before the global capitalist crisis. Capitalism has failed to develop Nigeria, despite the country’s enormous natural and human resources. The Nigerian ruling class is parasitic and generally not prepared to invest in Nigeria. In the world economy dominated by imperialism they see no chance to compete, so they loot and ultimately run. These thieving ruling elite must be chased out of power.
Labour, socialist and pro-masses’ organizations must build a fighting mass working people that could lead workers, youths and poor masses in a struggle for political power and social change. Such a party, when in power, has to take into public ownership, the commanding heights of economy with democratic management and control by working people. Such socialist nationalisation would allow a democratic plan to be drawn up to mobilize adequate resources to develop the country, finance infrastructure, public education, healthcare, housing, etc, and raise living standards. More importantly, capitalism has to be defeated. Hence, the party must strive to develop to a revolutionary socialist movement.
Already, this crisis, which has led to the collapse of Iceland government and attracted mass protests in France, Greece, Ireland etc and social tension around the world, has put socialism and Marxism in the front burner of public discourse globally. More and more workers and youths will rediscover socialist ideas while searching for alternative to the rotten capitalism.