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Global economic crisis and effects on Nigeria

By Joel Nwokeoma

An depth analysis of the official pronouncements and statements of top government functionaries in Nigeria on the current global financial crisis reveals one of two things: Either a clear lack of understanding of the depth and ramifications of the issue at hand or an outright trivilisation of how to go about it, which, essentially, is a function of the former.

The earliest recorded response of any government official in the country on the matter was the declaration made by the Governor of Central Bank of Nigeria, Professor Chukwuma Soludo, who, while speaking when summoned at the National Assembly late last year, bamboozled the federal law makers with the “facts” on how the Nigerian economy is immune to the global financial crisis.

According to Soludo, the banking consolidation exercise, which the apex bank had labouriously carried out in 2004, had repositioned Nigerian banks and strengthened them to weather whatever storms might rage in the financial system, such as the one the world is witnessing. As he enthused then, the financial crisis seems to have proved the foresightedness of the CBN in that with a bigger capital outlay, Nigerian banks could now energise sundry economic activities that could grow the economy well.

Another reason Prof Soludo reportedly gave then why Nigeria could not be vulnerable to the impending economic cataclysm was the rising foreign reserves of the country, which he reckoned would provide the country with a buffer of sorts in times as these as well as the excess crude account which also was indicative of the readiness of the government to stand strong amidst surrounding weaknesses.

As it has since turned out, the wind has blown thereby exposing the underbelly of the fowl, or something like that, as they say.

Now, it has become obvious that, if Soludo is to be used as guide, either the government underestimated the problem at hand or it was plainly not telling it as it is. The first tell tale sign that Soludo’s assurances were based on ‘sinking sand’, as it were, was the dramatic fall of the price of crude oil in the international market, the country’s major source of revenue, from the peak of $147 barrel per day in July 2008 to about $41 currently.

The immediate consequence of this is that the revenue base of the government is weakened irretrievably. As President Umaru Yar’Adua, himself, lamented at the inauguration of the Public Service Institute in Abuja the other day, “ Nigeria is not immune to the debilitating effects of the global financial crisis, especially considering the loss of substantial national revenue arising from falling oil prices in the international market.

This is happening in the face of rising expectations by the citizenry.” So, between Soludo and Yar’Adua, you would ask, whom does the nation believe? The latter, of course, but methinks it tells so much about the government that there is no unanimity in comprehension of issues.

Suffice it to say however, that Soludo has since being singing a new tune of the vulnerability of the nation to the debilitating effects of the global crisis-the time and place our own Saul became Paul on this matter being unknown.

But this still did not stop another top government official, Dr Shamsudeen Usman, from singing a discordant tune recently on the matter. The Minister of Planning was reported to have said, in a meeting with the National Steering Committee on Nigeria Vision 2020, that the current financial crisis threatening world economies would not derail the country’s quest to be one of the most industrialized nations in the world by 2020. Dr Usman noted that rather than serve as an impediment to the country’s rediscovery, the financial crisis would further accelerate the spate of things.

In all modesty, there is nothing as further from the truth as this claim from Dr. Usman as the basis of his optimism is surely speculative, unfounded and unclear. What, one never ceases to wonder, informed the minister’s optimism? Even when the country was not contending with the added negative effects of the financial crisis, not a few analysts had argued that the lofty objectives of Vision 2020 were too unrealistic.

For instance, between 2006 and 2008 when oil prices persistently nudged up from about $70 a barrel to a peak of $147, the country’s Gross Domestic Product grew between 5.6 per cent and 6.6 per cent, how realistic then is the assumption of a GDP growth rate of 8.9 per cent, more so at a time when the prices of crude oil for a mono- cultural economy like Nigeria’s, is at an all- time low?

And to add salt to injury, the country has not even been able to meet its production quota owing to the many challenges in the Niger Delta region.

Instructively, JP Morgan estimates that at a price of $43 per barrel, Nigeria may only be able to muster a GDP growth rate of 4.4 per cent.

What this means is that when juxtaposed with the projection that what the nation needs to attain the core goals of Vision 2020 is an uninterrupted 12 per cent GDP growth rate for the next eleven years, the reality becomes clearer. Yet, Usman chooses to bury his head in sand like the proverbial ostrich by denying the impact of the crisis on the country’s economic aspirations.

Another indicator of the effects of the global financial crisis on the country is the persistent decline in the value of the national currency, the Naira. The free fall of the Naira at the Foreign Exchange (Forex) market climaxed with the Naira being exchanged with the Dollar at 153.

Interestingly, Prof Soludo had argued that the decline was a deliberate measure of the apex bank to absorb shocks in the prices of crude oil in the international market, when everyone knows that being an import dependent economy, Nigeria’s national currency was bound to suffer from the high demand of foreign exchange as against the short supply at the forex market, ostensibly caused by our inability to export more in order to earn more foreign exchange.

It is this evident lack of consensus among government functionaries that seems to have defined the recent measures being mooted in response thereto by government, which essentially border on desperation, such as the directive by the President to cut the pay of public office holders.

Essentially, it bears noting that if Nigeria is to come out of this global crisis home and dry, it should begin from the basics: Let there be a unanimity of opinion and understanding among the policy makers on what is at stake, for as they say, a problem identified is half solved.

Then, the measures outlined would benefit from such collaborative and common understanding. My fear is that it seems like our government does not have a firm understanding of the crisis as exemplified in the doublespeak of its top functionaries. And, my greater fear is that for so long would the country be mired in economic hardship arising from applying the wrong measures on a sickness barely diagnosed.

Nwokeoma, a researcher and development analyst, lives in Lagos