There is evidence that the global economic meltdown, whose impact showed significantly in a measurable manner since the middle of 2007 and into 2008, especially as it affected the world stock markets, had its routes traceable to the economic policies of the United States of America in the early 2003 through 2005. The problem was caused by the fact that American ideologues supporting the current economic models were so vocal, influential and very inconsiderate of others’ viewpoints and concerns.

In effect, following a period of economic boom, a financial bubble burst in the middle of 2007. The immediate consequence was the collapse of the US sub-prime mortgage market and the reversal of the housing boom in some other industrialized economies. These have had a ripple effect around the world. In addition, other weaknesses in the global financial system have surfaced. Some financial products and instruments have become so complex and twisted that trust in the whole system started to fail.

The general consequences of the economic crisis include the falling of world stock markets, the collapse of large financial institutions, the buying out of some other mega financial institutions and sudden government intervention programmes, in the form of rescue packages to bail out their financial systems, in some of the wealthiest countries in the world.

The peculiar nature of the global financial crunch is that those who have been responsible for orchestrating the crisis are the ones who are getting bailed out. This is against the background of the fact that the global financial crisis is, in real terms, affecting the livelihoods of almost everyone in an increasingly inter-connected world. The effect of the meltdown on the livelihood of the citizens of third world countries is certainly more far-reaching, particularly in those countries where there are no stable economic indicators.  

The United Nation’s Conference on Trade and Development, in its 2008 Trade and Development Report noted in clear terms that the global economy is teetering on the brink of recession. The real indices include the soaring commodity prices, increasingly restrictive monetary policies in a number of countries and stock market volatility. These are in addition to the domestic financial crisis and the bursting of the housing bubbles in the United States and other large economies which have global proportion. More and more people from across the globe are being affected by the collapse of the global financial system originating from the United States.

It should be underlined that given the critical role banks play in the current market system in the world, when the larger banks show signs of crisis, it is not just the wealthy that suffer; it affects almost every other person. This is particularly so in a globalized system. This means that a credit crunch can ripple through the entire (real) economy very quickly turning a global financial crisis into a global economic crisis.

In this respect, an entire banking system that lacks confidence in lending as it faces massive losses will try to shore up reserves and may reduce access to credit, or make it more difficult and expensive to obtain. This “credit crunch” and the accompanying higher costs of borrowing naturally affect many sectors, leading to job cuts/losses. People correspondingly find their mortgages harder to pay, or remortgaging could become expensive. The general result is that people are left in negative equity. This leads people to cut back on consumption as they attempt to weather the economic storm. In addition, more businesses struggle to survive leading to further job losses.

In the light of the global financial crisis which has become a global economic crisis, many nations, including wealthy and industrialized nations as well as poor and developing nations, are sliding into recession if they are not already there.

THE GLOBAL ECONOMIC CRISIS

AND DEVELOPING COUNTRIES

 

Developing countries suffer from a set of complexes as a consequence of the global economic crisis. In this regard, the rises in food prices as well as the knock-on effects from the financial instability and uncertainty in industrialized nations are having a compounding effect on developing countries. Accordingly, high fuel costs, soaring commodity prices together with fears of global recession constitute obstacles to development in many developing countries.

 

In real terms, the uncertainty and instability in international financial, currency and commodity markets, coupled with doubts about the direction of monetary policy in some major developed countries, are contributing to a gloomy outlook for the world economy and, in fact, present considerable risks for developing countries. This is particularly so because commodity-dependent economies are exposed to considerable external shocks stemming from price booms and busts in international commodity markets.

In addition, market liberalization and privatization in the commodity sector have not resulted in greater stability of international commodity prices. Indeed, there is widespread dissatisfaction with the outcomes of unregulated financial and commodity markets, which fail to transmit reliable price signals for commodity producers. In recent years, the global economic policy environment seems to have become more favorable to fresh thinking about the need for multilateral actions against the negative impacts of large commodity price fluctuations on development and macroeconomic stability in the world economy.

 

AFRICA AND THE GLOBAL ECONOMIC CRISIS

There had been an initial expectation that as a consequence of Africa’s generally weak integration with the rest of the global economy, many African countries would not be constitutively affected by the global financial and economic crises. This was viewed to be an advantage for the poorer African countries; whereas the richer African countries, especially those that have some more or less systematic exposure to the rest of the world, may face similar economic problems as the west. In addition, as a result of the apparent increasing Asian interest in Africa, particularly the Chinese economic interest in the continent, it was expected that Africa would enjoy increased trade, at least for a while.

However, the initial hopes and wishes for Africa in the face of the global economic crisis have lost the logical basis for their justification. In this respect, the International Monetary fund (IMF) warned in May 2009 that Africa’s economic growth will plummet as part of the global economic meltdown. IMF predicted that in sub-Saharan Africa, growth will slow to 1.5% below the rate of population growth at the term of 2009. This prediction constituted a reversal of an earlier March 2009 prediction according to which sub-Saharan Africa growth was put at 3.25%.

In addition, it is obvious that South Africa, which is Africa’s largest economy, has since slid into recession. This is perhaps the first time that South Africa is experiencing recession since 1992. The current predicament is due to the sharp decline in the key manufacturing and mining sectors.

It should be noted that within the context of impact of the global economic crisis on Africa, the IMF has promised more aid to the region. These aids are to be accompanied by looser conditions. That is, the same looser conditions that have been very detrimental to African development in the past. What this means is that the proposed IMF bailout of Africa from the global economic crisis would only constitute the instauration of higher level of exploitations and poverty in the continent.

In the long run, it can be expected that foreign investment in Africa will reduce as the credit squeeze continues. In addition, foreign aid/assistance, which is ordinarily very important for many African countries, is likely to diminish.

In the light of the global economic crisis, it is evident that African countries are increasingly facing pressures of debt repayment. This situation will not likely improve particularly as the crisis gets deeper and the international financial institutions and western banks that have lent funds to African countries need back such funds in order to shore their reserves. The institutions will certainly demand debt repayment which, in turn, will mean fewer funds for development in Africa. The direct impact of such a scenario will involve further cuts in social services such as health and education. These services have already suffered reduced funding and development as a result of crises and policies deficiencies from previous eras in African developmental trajectory.

It should be noted that much of the debt owed by many African countries are simply odious and out rightly unjust debts. This will make any aggressive demand for repayment too worrisome for the livelihood of Africans.

In addition, it should be noted that as a consequence of the global economic crisis, many African countries have already started cutting their health and HIV/AIDS budgets which had been constrained for many years, even before the crisis.

This situation is of severe significance especially at the background of the fact that large percentages of sub-Sahara African households are already terminally poor. This is compounded by the increasing rate of HIV/AIDS incidence in the region which means increasing treatment programme costs. In fact, the dismal situation is reflected in the fact that though sub-Saharan Africa accounts only for about 1% of global health expenditure and only 2% of the global health workforce, currently, only one-third of HIV/AIDS-positive Africans in need of anti-retroviral (ARV) treatment can access it.

It should be emphasized that it is not only poor nations’ health funds that are at risk as a result of the global economic crisis. In fact, there is evidence that International Donor Organizations are experiencing the effect of the global financial crunch. In this regard, the Global Fund to fight AIDS, Tuberculosis and Malaria has announced that it is at least $4 billion short of the funds that it will need to continue funding essential HIV, TB and Malaria services in 2010. The coalition also announced that there is a $10.7 billion funding gap for regional implementation of the global Plan to Stop TB alone.

 

NIGERIA AND THE GLOBAL ECONOMIC CRISIS

 

It is perhaps obvious that at the earliest manifest incidence of the global economic crisis, the Nigerian economic framework was taken unawares. As such, the key players in the Nigerian economy demonstrated evidence of ignorance about the real connection between the Nigerian economy and the larger global economy. This could have been very unfortunate for officials who should have been sufficiently knowledgeable about the facts of the Nigerian economy which is dependent on export trade and thus subject to external influence in a determining manner.

 

In effect, in 2008, the Governor of the Central Bank of Nigeria, Charles Soludo announced that the Nigerian economy was immune to the global economic crisis. He noted that the banking consolidation which he pursued and realized in 2004 had repositioned the banking sector in Nigeria and made it impervious to any storm that could rage in the global financial system. Mr. Soludo noted that the consolidated banking sector in Nigeria coupled with the increased foreign reserve of the country and the excess crude account collectively meant that Nigeria could not be subject of any financial crisis, no matter its magnitude.

 

The official attitude of the Nigerian government to the global economic crisis was proved unsustainable by the dramatic fall of the price of crude oil in the international market in mid 2008. Accordingly, the revenue base of government became immediately weakened in an irretrievable manner. Nigerians suddenly woke up in the middle of the night to the fact that the country is not an island and, therefore, not immune to the raging global economic crisis.

 

Subsequently, it has become obvious that Nigeria is far more vulnerable to the global economic crisis than it could have been possible to imagine by members of the economic intelligence of the country. Accordingly, Nigeria has been confronted by several facets of the global economic crisis. The country has been facing a dwindling GDP since early 2009 and incapacity to meet up with its social services obligations. In addition, the purchasing power of the citizens has been crippled while the banking sector which otherwise constituted the point of reference of the immunity of the country has become more problematic than ever.

Other indicators of the impact of the global financial crisis on Nigeria include the persistent instability of the value of the national currency, the dwarfed agricultural production of the country and contradictions in policy implementation strategies which are indications of shocks and fright.

 

NIGERIA’S RESPONSE TO THE GLOBAL ECONOMIC CRISIS

 

There is a common feature that characterises the respective responses of nations, both developed and developing countries, to the global economic crisis. In effect, there is a widely disparate set of solutions to the crisis. This is compounded by the reluctance of economic managers to focus and tackle the real cause of the crisis

The response of Nigeria to the global economic crisis is expressed in the recommendations of the steering committee set up by President Umaru Musa Yar‘Adua in response to the crisis. The recommendations centre on:  Full deregulation of the downstream sector of the oil industry, the privatisation of our refineries and the removal of fuel subsidies; reforming the Petroleum Products Pricing and Regulatory Agency (PPPRA); The adoption of a common year end for commercial banks and the adoption of International Financial Reporting Standards ( IFRS) by all banks in the system; The establishment of an Asset Management Company and the setting up of a Regulatory Financial Services Committee to monitor and review developments in the financial system. These policy recommendations collectively demonstrate that; in the first place, Nigeria admits that things are getting out of hand in terms of the impact of the global economic crisis on Nigeria and that Nigeria must adopt tough policy measures as effective strategies towards a comprehensive strengthening of the financial service sector. In the second place, policy recommendations demonstrate that the foundation of the economy of Nigeria is based on the financial and oil sectors. In effect, with crude oil contributing about 95% of the total foreign exchange earnings of Nigeria and the banking sector constituting about 65% of the capitalisation of the capital market of the country, the ultimate argument would be that once these two sectors work properly, every other thing will work alright. Accordingly, it was expected that if all policy recommendations are implemented to the letter, they would certainly alter the face of the entire financial system in the country and thus reposition Nigeria against the impact of the global economic meltdown. However, it should be underlined that the exclusive focus on fiscal measures is a clear indication of the failure of the policy posture of Nigeria to address the real factors that the Nigerian economy needs in order to produce good outcomes for all and attract international investors looking for a safe haven to invest their funds, away from the troubled western financial system. The focus on fiscal measures all constitutes short term solutions which on the long run will only become a disastrous failure since it would not have laid any solid foundation for future prosperity while at the same time addressing the root causes of the current crisis. It should be noted that the current crisis in Nigeria may not be immediately traceable to the sub-prime mortgage malaise that precipitated the crisis of confidence and the freezing of credit in the global financial system. In fact, within the context of Nigeria, it can be highlighted that the crash in the price of crude oil $157 per barrel to $40 per barrel precipitated a fall in the market capitalisation of the Nigerian Stock Exchange by about 60 per cent in local currency terms from its historic high of March 5, 2008. The unfortunate thing is that Nigerian regulators were quick to blame the collapse of the capital market on foreign investors who withdrew their funds from the capital market as response to the intensification of the global credit crisis. But when viewed comprehensively and against the background of the fact that foreign investors perhaps never held more than 10% of the total share capital in the Nigerian stock market, one discovers immediately that the argument according to which the collapse of the Nigerian stock market is attributable to foreign capital flight, does not present the full story. In fact, it should be noted that the flight of foreign capital from the Nigerian stock market must be properly contextualized in order to appreciate its relevance to the impact of the global economic crisis on Nigeria. Accordingly, it should be emphasized that it is not the size of the foreign holding in the capital market that made the difference. That fact was that the foreign holders discovered the extent of manipulations and insider dealings in the Nigerian stock market. The discovery was alarming to the foreign investors. Its immediate consequence was that it precipitated the initial run from the capital market. Incidentally, the state of affairs made the Nigerian stockholder kingpins to start selling and running from the Nigerian capital market. The final consequence was that the Central Bank Governor, Soludo's house of cards collapsed when confronted with empirical facts. Accordingly, it should be noted that prior to the crash of the Nigerian stock market, investors had been “troubled by high valuations, dubious corporate governance, rampant speculations, and suspicions of market manipulation” in the over-inflated stock market. In effect, the sudden collapse was thus rooted in the widespread practice of banks loaning money for share purchases, which allowed soaring valuations to lose touch with market fundamentals. As a consequence, financial transactions became increasingly opaque and ever more leveraged. Economic policy makers played the ostrich. Then the bubble burst. NIGERIAN RESPONSE TO THE GLOBAL ECONOMIC CRISIS WAS FAULTY  The economic regulators of Nigeria could have been aware of the risks involved in the dubious connexion between the stock market and the banking sector. But their confidence could have been based on the faulty premise that the high oil price would continue and that expectedly, things would work out well and thus no one would need to worry about systemic risks. It was most unfortunate to have relied exclusively on the higher oil earnings. The huge profits bankers reaped reinforced their collective blindness to the illusory value of the assets they traded. This constitutes the crux of the failure of the Nigerian economy for which the ordinary citizens will continue to pay for a very long time to come.   WHAT NIGERIA NEEDS As a constitutive measure and response to the global economic crisis, what Nigeria needs more than ever is to build up concrete confidence and trust in the economy through fostering, sustaining and facilitating the credibility of the economy. In effect, for the Nigerian market and economic system to function efficiently, there is urgent need to promote: In the first place, confidence in future values. Otherwise the market system can only collapse. In the second place, there is need to provide space for enforceable property rights and contracts and in the third place, full information is an absolute necessity for the efficiency of any market system. These are conditions sine qua non for effective adaptation and response to the global economic crisis as far as Nigeria is concerned. In effect, for as long as Nigeria insist on practising an unregulated capitalist economy, there is no alternative to the implementation of the basic conditionalties of fostering and sustaining  the existence  of a virile opposition, a free press, the rule of law, strong and independent judiciary and a functioning criminal justice system Against this background, it should be noted that the Nigerian stock exchange had been conducted and operated in very non-transparency conditions to the extent that many Nigerians began to view the market with suspicion and distrust. It is, therefore, very important for Nigeria to facilitate the development and existence of independent institutions, such as Universities, think-tanks, Institutes, Chambers of Commerce, Consulting Firms, Financially strong and investigative Press, Business Groups, so that these institutions can constitute alternative sources of information as well as oversight agencies that would be able to dig, research and come up with challenging figures that would enhance proactive actions in the country. The existence of these institutions will go a long way towards mitigating the non-transparent financial sector as well as unwarranted valuations that could potentially have negative impact on the economy. In addition, the fight against corruption should be viewed as a critical strategy towards an appropriate response to the global economic crisis by Nigeria. The fight against corruption should be inclusive and integrated. It should focus on corporate governance, public and private institutions as well as on Civil Society initiatives and programmes. There is no doubt that effectively fighting corruption would engender confidence, in the public as well as investors in the real and financial sectors. Political and economic management should be done transparently and in a way that engenders confidence in the private sector community. Nigerian banks must adopt much more transparent accounting procedures. In the final analysis, Nigeria needs to diversify its economy. There is need to look at other sources of income apart from oil; e.g. the agricultural sector, the application of biotechnology because of its potentials in ensuring food security and wealth creation. In effect, because of the rising grain prices behind the world food crisis, Nigeria should embrace biotechnology to help generate employment of the jobless youths, while feeding the hungry masses at fairly affordable prices. In this way, it would be possible and easier to overcome the global economic crisis.