Now, where does that leave Nigeria and Nigerians? Our economic managers say all is well with Nigeria. Praise God for that. But is that the whole truth? In fairness one or two of them have been forthright enough to point to the effect of the plunging oil price, which as at Wednesday was down less than $68 from a height of about $147 on July 11 will have on the 2009 budget. One of them also spoke about the need not just to redenominate our external reserves away from the dollar, but also review the list of foreign banks in which they are domiciled. Central Bank Governor, Professor Charles Soludo does not appear to share this latter opinion, obviously preferring to ride out the storm. I wish him all the best, for all our sakes.
Morris Cerullo, an icon of the Pentecostal movement said it many years ago. Even if nobody else listened, Rev Bayo Oniwinde sure did and internalized it. So, at every opportunity, he’ll remind his audience, particularly at the Rehabiah Centre of Christ Chapel International Churches, Ikeja what Cerullo said God told him about two decades ago. Tell, my people, he quoted God as saying to Cerullo, “to fix their faith firmly on things of eternal value; because everything that can be shaken would be shaken.”
Well, think about it: what is there that can be shaken that is not already being shaken? Before 9/11, the United States of America was thought to be impregnable. It was thought that only its interests outside its geographical boundary were susceptible to terror attacks of any serious magnitude. But that myth was shattered in the most cynical manner by a crop of meticulous devil-may-care suicidal terrorists with such horrific results that infamous day.
Since then we’ve had the highly unlikely incidences of corporate failures in the world’s largest single economy and the bastion of capitalism. Enron, Worldcom happened in quick succession. Although the impact was deftly managed, it was clear, from that point on, that the resilience of the so-called self-regulating, market modulated capitalist system was becoming suspect.
And all such suspicions have been confirmed by recent events. Collectively known as the global market’s meltdown, it all began innocuously enough with the so-called sub-prime mortgage lending crisis. This extract from a Peter Gumbel article of October 8 paints a graphic picture of the situation: "The mess caused by fast-and-loose mortgage lending in the U.S. has now blown into a perilous global crisis of confidence that has revealed both the scale and the limitations of globalization. Finance is built on trust, and suddenly that trust has been replaced by fear: fear among depositors from Madrid to Macao over the safety of their money; fear among banks worldwide about lending to one another; and now fear among politicians, central bankers and regulators that they don't have adequate tools to fix the problem.’
He continued: “At the root of the troubles are the "toxic assets" — the highly leveraged securities mainly linked to U.S. mortgages — that banks around the world still have on their books. In its latest estimate this month, the International Monetary Fund (IMF) calculated that losses on these now virtually worthless securities could amount to $1.4 trillion. So far, banks have written off less than half that. Concern about who is still holding dud paper has gummed up credit markets, with banks refusing to lend to one another for fear that the borrowers may default or may have themselves lent to other banks that could default. That in turn is causing solvency problems for some financial institutions that rely on short-term borrowing to fund their operations.”
Of course, if you have been following the developments, you already know that the leaders of the capitalist world are not exactly sitting on their hands. George Bush sought, and with the assistance of the presidential gladiators in a bruising battle for the White House (Obama & McCain), got a so-called bail-out package of $700 billion rushed through the American Congress. By October 14, $250billion of that huge chunk of taxpayer’s money was already being put into the banking system to buy equity in selected private financial institutions. This, in the neo-capitalist post-Reagan era, is the closest thing to sacrilege, particularly under a conservative Republican administration. The British government and the European Central Bank have all also put rescue packages in place bringing government back into business!
Why, you may ask, are Bush and his Western capitalist friends committing ideological suicide? The reason, as Gumbel put it, is that “The pain will soon come to Main Street.” That is to say, the seemingly obscure statistics will ultimately affect Joe at the grocery shop, as much as, Peter at the burgher franchise. In other words, this is about real people, not cold statistics. In one particularly melodramatic case, a grandmother in her 80s was reported to have attempted suicide when her mortgage company threatened foreclosure because she could not meet her mortgage responsibilities. Thank God that her case became known and she was rescued and the company compassionately reversed itself.
Gumbel’s piece says it like this: “Economists are already outlining the downward spiral that they predict will follow. Banks will cut back on their lending to households and businesses. Mortgages and car loans will become harder to get. That in turn will stifle consumer spending and crimp investment in companies, leading to production cuts and job losses. Judging by previous crises, it can take about 18 months to two years for a financial squeeze to spread to the rest of the economy, which means that 2009 is shaping up to be a bleak year everywhere”.
But is this all about America, their America and perhaps, some European allies of her’s? Think again. As Gumbel says, even as the current crisis arose from an American export known as the sub-prime mess, so would the consequences be exported. His words: “…As the go-go economies of China and India hit the brakes, so too will demand for American goods and services. That will have a knock-on effect on jobs and the earnings of companies that rely heavily on international sales...In its latest economic outlook, published on October 8, the IMF predicted that the U.S. economy will grow just 0.1% next year, its worst showing in 18 years. Europe is expected to fare no better, and China, India and other emerging economies that have been critical drivers of global economic growth over the past five years are also expected to slow markedly. That means nobody will be able to take over for the U.S. as the locomotive of the world economy, and everyone will drag down everyone else. Overall, the IMF expects world economic growth to slow to 3% in 2009, from 5% in 2007, and it warns, "The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s…"
Now, where does that leave Nigeria and Nigerians? Our economic managers say all is well with Nigeria. Praise God for that. But is that the whole truth? In fairness one or two of them have been forthright enough to point to the effect of the plunging oil price, which as at Wednesday was down less than $68 from a height of about $147 on July 11 will have on the 2009 budget. One of them also spoke about the need not just to redenominate our external reserves away from the dollar, but also review the list of foreign banks in which they are domiciled. Central Bank Governor, Professor Charles Soludo does not appear to share this latter opinion, obviously preferring to ride out the storm. I wish him all the best, for all our sakes.
What is not subject to any controversy is the fact of the recent downward spiral at the Nigerian capital market. Largely an implosion caused by its own internal contradictions, it has made debtors of many erstwhile billionaires. Many fringe players have been wiped out as the gravy train that was Broad Street left the station. Just because you have not heard about attempted suicides does not mean that all is well. Interestingly, in our peculiar economic environment, we are being told that the fundamentals are good. And I am wondering, if a stock exchange all-share index nosedived about 50% over a short period, and that exchange’s trading is dominated, according to available statistics, 80% by less than 30 companies, mostly banks, what magic insulated the dominant companies from the crash? It is probably closer to the truth that but for the interventionist role of the Presidential Advisory Team on the Capital Market, we would have had a major crisis on our hands. Otherwise why is Soludo talking about another round of recapitalization? Or is there something I am missing here? Somebody, please help me.
Interestingly, this crisis has led to a fresh new debate about the continued viability of capitalism, the conqueror of socialism and communism. Fukiyama’s dance on the grave of communism is today being touted as hasty. These are indeed interesting times. (Continues Next week).
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