ArticlePDF Available

Management of Global Economic Crisis in Nigeria: Lessons from South Africa

Authors:

Abstract

The effect of the global economic crisis on the African continent is enveloped in external and internal factors, which has further complicated the escape routes for the continent. In a highly integrated and global world though an imbalanced one, the developed societies wield preponderance of the economic-political power which gives them an interdependent states, while developing polities who are not favored by the present international economic order gets a dependent status. With the present global economic recession, the economic configuration of the global system has been exposed, questioned and attempts are make to restructure. The African continent especially Nigeria and South Africa are responding to these crises from different perspectives. This paper explores Nigeria's response to the crisis and the lesson to be drowned from South Africa. This paper posits that present economic meltdown poses a major challenge for African leaders to contest and change their dependent status in the international economic order. This paper concludes by posting that Nigeria needs focused, determined, and sincere leadership that would transform the continent from a dependent polity to a self reliant, and productive polity like South Africa.
International Journal of Academic and Applied Research (IJAAR)
ISSN: 2643-9603
Vol. 4, Issue 3, March 2020, Pages: 31-41
http://www.ijeais.org/ijaar 31
Management of Global Economic Crisis in Nigeria:
Lessons from South Africa
Dr. Desmond O. Nnamani1, Dr. Okeke Martin Ifeanyi2, Dr. Uche Ojukwu3, Ugwuanyi, Chigozie Freda4
1Department of Public Administration, Enugu State University of Science and Technology, Agbani.
2Department of Political Science, Nnamdi Azikiwe University, Awka.
3Department of Political Science, Chukwuemeka Odumegwu Ojukwu University Igbariam, Anambra state,
Nigeria.
4Department of public Administration and Local Government, University of Nigeria Nsukka.
Abstract: The effect of the global economic crisis on the African continent is enveloped in external and internal
factors, which has further complicated the escape routes for the continent. In a highly integrated and global
world though an imbalanced one, the developed societies wield preponderance of the economic-political power
which gives them an interdependent states, while developing polities who are not favored by the present
international economic order gets a dependent status. With the present global economic recession, the economic
configuration of the global system has been exposed, questioned and attempts are make to restructure. The
African continent especially Nigeria and South Africa are responding to these crises from different perspectives.
This paper explores Nigeria’s response to the crisis and the lesson to be drowned from South Africa. This paper
posits that present economic meltdown poses a major challenge for African leaders to contest and change their
dependent status in the international economic order. This paper concludes by posting that Nigeria needs
focused, determined, and sincere leadership that would transform the continent from a dependent polity to a self
reliant, and productive polity like South Africa.
Keywords: Economic meltdown, Dependency, Recession, Financial crisis, Inter-dependent.
Introduction
Global economic meltdown is a topical issue because it seems to have affected may polities across the
globe. It has various implications for both developed and developing economies. if America, the European
Union Zone, Asia and Africa countries are experiencing serve closures of companies, job losses, crash in share
prices, squeeze in consumes credit facilities, crumbling mortgage facilities among others. In the case of
developing societies of which Nigeria is one, the implications are noticeable in the areas of crash in share prices,
dwindling revenues, and few direct investments from developed polities, dwindling remittances and aid from
Nigerians abroad and donor agencies and erosion of foreign reserves among others. United Nations Special
Adviser on Africa, Check Sidi Diarra, has noted in this regard points that international economic crisis is
provoking a deep and prolonged downturn in the world economy, Africa is feeling more and more of its
negative effects (Diarra, 2009). in a fast interdependent wired, what happens in one county will ultimately
affect other countries of the world. Going by the above premise, Africa cannot be insulated from the global
economies crisis happening in the United States of America, which has speed to other parts of the world.
Africans are in story of slavery, colonialism, neo-colonialism and her subsequent integration into the global
capitalist economy, she finds herself in a marginalized position concerning the current global crisis. No
economy whether developed, emerging or developing is, so far insulated from what Greenspan refers to as
“once in a century credit tsunami”.
The global economic crisis continues to demand urgent policy responses as growth rates plunge in all
of the major advanced and emerging economies‟ to stem the tide of economic woes and restore economic
growth numerous countries have unplemated fiscal stimulus plans. The United States of Africa, G 20 nations,
European Union, China, France Great Britain, South Africa and Nigeria among others have pledged since 2008
to use fiscal measures to reinvigorate their economies. Have they been doing on that promise and what do the
stimulus plans they have announced so far look like? This paper will address this question using the South
African example so that Nigeria can draw lessons from her experiences. To achieve this objective, the first
section of the paper addresses definitional and theoretical framework of analysis issues. The second section
discusses the origin of the crisis and the responses Nigeria and South Africa took to arrest the situation. The
third session analyzes the implications of the crisis and concludes the paper.
Theoretical Perspective: Economic Meltdown
In a generic sense, a common man‟s perception of global economic crisis, meltdown or down turn
refers to a financial and investment distortion that started at one point (Wall Street, USA) which gradually but
steadily affected all financial and investment institutions and economies in the world negatively. Tenuche and
International Journal of Academic and Applied Research (IJAAR)
ISSN: 2643-9603
Vol. 4, Issue 3, March 2020, Pages: 31-41
http://www.ijeais.org/ijaar 32
Agba (2009) conceived the concept as a recession. A recession is a downturn in a nation‟s economy. The
consequences typically include increased unemployment, decreased consumer and business spending and
declining stock prices. Ogunyele (2009) adds that recessions are typically shorter than the periods of economic
expansion that they follow, but can be quite severe even if brief. Recovery is slower for some recessions than
from others. Adamu (2007) applied the concept more broadly by positing that it is variety of situations in which
some financial institutions or assets suddenly lose a large part of their value (Kindleberger and Aliber, 2005).
Laeven and Valencia (2008), states that many financial crises where associated with banking panics in 19th and
20th centuries, recessions coincided with these panics. Other situations that are after financial crisis are stock
market crashes of other financial bubbles, currency crises and sovereign defaults.
The International Monetary Fund (2009) noted that the crisis reflects several factors:
i. The pre-crisis period which was characterized by surging assets prices that proved unsustainable,
prolonged credit expansion leading to accumulation of debt, the emergence of new types of financial
instruments, and the inability of regulators to keep up (compare this with Nigeria‟s current banking
crisis).
ii. There was a new rapid expansion of securitization (not itself a new phenomenon), which changed
incentives for lenders and lowered credit standards. Systems became fragile because balance sheets
became increasingly complex (further complicated by increased use of off balance sheet instruments)
financial market players were highly leveraged and they relied on wholesale funding and external risk
assessments. Cross border spillovers intensified after the crisis broke out because financial institutions
and market across borders were closely linked and the risks they bear are highly correlated (IMF,
2009).
The global financial crisis/meltdown also manifested in the following forms:
a. Advanced economies are suffering their worst downturn since World War II occasioning dramatic
decline in aggregate demand, leading to extensive destruction of jobs and livelihoods. Credit freeze
which has led to virtual halt in lending for investment and consumption; the sharp drop in spending by
businesses and households that led to massive layoffs which have further exacerbated the crisis and a
myriad of other socio-economic ripple effects too numerous to list here.
b. Productivity and economic growth rate has also fallen in china, brazil, India and other emerging market
economies which have been dragged down from 6 percent in 2008 to about 3¼ percent in 2009. This
has been due to falling export demands, subdued capital inflows, and lower commodity prices.
Correspondingly, growth in all emerging market and developing economies, in sub- Saharan Africa
slowed down to 31/3 percent in 2008 (IMF, 2009).
The current global economic meltdown is characteristically contagious in view of the inextricable
interlacing character of international economic relations. This is basically why the fiscal and monetary
escapades of the world are leading financial and capital and market exhibit roughly similar patterns. A critical
study of the crisis throws up the futility of untamed predatory capitalism which modus operandi rests on making
a tiny minority of the population overly rich while the teeming majority is deprived of the basic necessities of
life. Onigbogi (2009, p.2) predicted that the whole world will be affected by the global economic meltdown
“and all individual will be called upon to carry part of the cost of this debacle”. Indeed it has been predicted that
this crisis carries with it the seeds that will lead to the total collapse of the international financial system. Global
economic crisis refers to the complex interaction of macro economic mismanagement, in complete financial
regulation, and defective corporate governance that is affecting different economies across the globe since 2007.
Theoretical Framework of Analysis
The dependency theory will serve as our theoretical framework of analysis. Baran, and others
frequently spoke of the international division of labour skilled dependency theory is a body of social science
theories predicted on the notion that resources from the “peripheryof poor and underdeveloped states to the
core of wealthy states, enriching the latter at the expense of the former. It is a central contention of dependency
theory that poor states are improvised and rich ones enriched by the way poor states are integrated into the world
system. Dependency theory developed in the late 1950s under the guidance of the Director of the United
Nations Economic Commission for Latin America, Raul Prebisch. Prebisch and his colleagues were troubled by
the fact that economic growth in advanced industrialized countries did not necessarily lead to growth in poorer
countries. Indeed, their studies suggested that economic activity in the richer countries often led to serious
economic problems in the poorer countries. Such a possibility was not predicted by neoclassical theory, which
had assumed that economic growth was beneficial to all even if the benefits were not always share.
In order words, the theory arose as a reaction to some earlier theories of development which held that
all societies progress through similar stages of development, that today‟s developed areas at some time in the
past, and that therefore the task in helping the underdeveloped areas out of poverty is to accelerate them along
this supposed common path development, by various means such as in investment, technology transfer and
closer integration into the world market. Prebisch‟s initial explanation for the phenomenon was very straight
International Journal of Academic and Applied Research (IJAAR)
ISSN: 2643-9603
Vol. 4, Issue 3, March 2020, Pages: 31-41
http://www.ijeais.org/ijaar 33
forward: Poor countries exported primary commodities to the rich countries that then manufactured products out
of those commodities and sold them back to the poorer countries. The “value Added” by manufacturing usable
products always cost more than the primary products used to create those products. Therefore, poorer countries
would never be earning enough from their export earnings to pay for their import.
Dependency theory rejected this theory, positing that underdeveloped countries are not merely
primitive versions of developed countries, but have unique features and structures of their own; and
significantly, are in the situation of being the weaker members in the world market economy, whereas the
developed nations were never in an analogous position, they never had to exist in relation to a bloc more
powerful countries than themselves. Dependency theorists posited, in opposition to free market economists, that
underdeveloped countries needed to reduce their connectedness with the world market so that they could pursue
a path more in keeping with their own needs, less dictated by external pressures.
Prebisch‟s solution was similarly straightforward: poorer countries should embark upon programmes of
import substitution so that they need not purchase the manufactured products from the richer countries. The
poorer countries would still sell their primary products on the world market, but their foreign exchange reserves
would not be used to purchase their manufactures from abroad. This idea is known as the Singer-Prebisch thesis.
Prebisch, an Argentinean economist at the UNCLA went on to conclude that the underdeveloped nations must
employ some degree of protectionism in trade if they were to enter a self-sustaining development path. He
posited that import-substitution industrialization (ISI), not a trade- and-export orientation, was the best strategy
for underdeveloped countries.
Three issues made this policy difficult to follow. The first is that the internal markets of the poorer
countries were not large enough to support economies of scales used by the richer countries to keep their prices
low. The second issue concerned the political will of the poorer countries as to whether a transformation from
being primary products producers was possible or desirable. The final issue revolved around the extent to which
the poorer countries actually had control of their primary products, particularly in the area of setting those
products abroad. These obstacles to the import substitution policy led others to think a little more creatively and
historically at the relationship between the rich and poor countries. At this point, dependency theory was viewed
as a possible way of explaining the persistent poverty of the poorer countries. The traditional neo-classical
approach said virtually nothing on this question except to assist that the poorer countries were late in coming to
solid economic practices and that as soon as they learned the techniques of modern economics, then poverty
would begin to subside. Marxist theorists viewed the persistent poverty as a consequence of capitalist
exploitation. And a new body of thought, called the World system approach, posited that the poverty was a
direct consequence of the evolution of the international political economy into a fairly rigid division of labour,
which favoured the rich and penalized the poor. Dependency can be defined as an explanation of the economic
development of a state in terms of the external influences political, economic, and cultural on national
development policies (Sunkel, 1969). Theotonio Dos Santos emphasized the historical dimension of the
dependency relations in his definition:
Dependency is a historical condition which shapes a certain structure of the
world economy such that it favours some countries to the detriment of
others and limits the development possibilities of the subordinate
economies. A situation in which the economy of a country is conditioned by
development and expansion of another economy to which their own is
subjected to (Dos Santos, 1971).
Most dependency theorists regard international capitalism as the motive force behind dependency relationship.
Andre Gunder Frank is quite clear on this point:
Contemporary underdevelopment is in large part the historical product of
past and continuing economic and other relations between the satellites
underdeveloped and now developed metropolitan countries. These relations
are an essential part of the capitalist system on a world scale as a whole
(Frank, 1972).
According to this thesis, capitalist system has enforced a rigid international division of labour, which is
responsible for the underdevelopment of many areas of the world. The dependent states supply cheap minerals,
agricultural commodities, and cheap labour, and also serve as the repositories of surplus capital; obsolescent
technologies, and manufactured goods. These functions orient the outside: money, goods and service do flow
into dependent states, but the allocations of these resources are determined by the economic interests of the
dominant states, and not by the economic interests of the dependent state. This division of labour is ultimately
the explanation for poverty and there is little question but that capitalism regards division of labour as a
condition for the efficient allocation of resources. The most explicit manifestation of this characteristic is in the
doctrine of comparative cost advantage.
Moreover, to a large extent the dependency theorists rest upon an assumption that economic and
political power are heavily concentrated and centralized in the industrialized countries, an assumption shared
International Journal of Academic and Applied Research (IJAAR)
ISSN: 2643-9603
Vol. 4, Issue 3, March 2020, Pages: 31-41
http://www.ijeais.org/ijaar 34
with Marxists theories of imperialism. If this assumption is valid, then any distinction between economic and
political power is spurious: governments will take whatever steps are necessary to protect private economic
interest, such as those held by multinational corporations (Ferraro, 1996, p.3). The theory explains why Nigeria
in particular cannot escape the present global economic crises; the continent may be the last to recover from the
crises. These is predicated upon the notion that reverses flow from a periphery poor and under developed states
to a “core” of wealthy states, enriching the latter at the expend of the former as a result of her integration with
the world system. Sub-Saharan Africa has great diversities, but the 53 political entities of the region share many
common features. They range significant in terms of population, size and economic scale. The region‟s
population was 650.6million mid 2000, according to UN estimates. Climate and topography vary greatly and
include Mediterranean, tropical, and semi-tropical, desert, rainforest, savannah, mountain and plains. Some
countries are more intensively urbanized than others. Educational levels, life expectancy and endowment of
natural resources vary greatly.
The economies of Sub-Saharan Africa are, for the most part, small, and fragile, and the region is
rapidly being left behind in the global economy. The congruent threat of war and civil conflict poses grave
questions about the economic performance of the continent. Given these threats and diversities, it is,
accordingly, difficult to draw general conclusions about the continent‟s socio-economic and political
performance as a whole during any given year. As a result, The Economist of May 2000 tagged Africa: “the
hopeless continent”.
World Bank (2000, p.1) adds that despite gains in the second half of the 1990s, Sub-Saharan Africa
enters the twenty-four century with many of the world‟s poorest countries. Average per capita income is lower
than at the end of the 1960s. Moreover, many development problems have become confined to Africa. They
include lagging primary school enrollments, high child mortality and endemic diseases including malaria and
HIV/AIDS. One part in five lives in countries severely disrupted by conflict. Put differently, one of the stark
realities in the 21st century Africa is that people need government. Often times, the abilities of people to
articulate their demands are not matched by the capacities of governments to provide security and public
services. Increasingly, as the populace demands a stake in their future, the initial task of the state is to
simultaneously provide services and conduct nation building. Yet in country efforts in service delivery and
nation building is hard fought and the result seems less spectacular.
Global Economic Crisis: Africa in perspective
Africa has come of age, but ironically has little to how for it, economically we are stagnant if not
retrogressive and politically we are confused. Although, Africa has recorded some progress in the area of
economic growth, development in the real sense of the word has continued to elude us. An x-ray on Africa‟s
economy would reveal that Africa has witnessed economic growth without economic development, and this
scenario brings to bear the question of leadership.
The economy of Africa consists of the trade, industry, and resources of the people of Africa. As of
2006, approximately 922 million people were living in 53 different countries. Africa is the world‟s poorest
inhabited continent. However, parts of the continent have made gains over the last few years, of the 175
countries reviewed in the United Nations Human Development Report 2003, 25 Africa‟s nations ranked lowest
amongst the nations of the world. This is partly due to its turbulent history and holistically due to failed
leadership. The decolonization of Africa was fraught with instability aggravated by cold war conflict. Since
mid- 20th century, the cold war and increased corruption and despotism have also contributed to Africa‟s poor
economy.
The biggest contrast in term of development has been between Africa and the economy of East Asia.
The economies of china and India have grown rapidly, while Latin America has also experience moderate
growth, lofting millions above subsistence living. By contrast, much of Africa has stagnated and even regressed
in terms of foreign trade, investment, per capita income, and other economic growth measures. Poverty has had
widespread effects, including low life expectancy, violence and instability, which in turn has perpetuated the
continents, grew at problems. The world band reports that the economy of sub-Saharan African countries grew
at rates that match global rates; while the economies of the fastest growing Africa nations experienced growth
significantly above the global average rates. The top nations in 2007 include Mauritania with growth of 19.8%,
Angola at 17.6%, Sudan at 9.6%, Mozambique at 7.9%, and Malawi at 7.8%. No fewer than 14 countries made
the list of the largest 60 world economies. Only three African countries, South Africa, Nigeria and Egypt made
the list in 2006, according to the world development indicator. By the close of the 21st century, South Africa
might be the only African country among the 60 strongest economies in the world if Africa continues to tread
the present path of its economic development. The development indicator shows that Africa has retrogressed
economically since 1980 in relation to other developed and developing world economies.
State of the Nigerian Economy Prior to the Crises
International Journal of Academic and Applied Research (IJAAR)
ISSN: 2643-9603
Vol. 4, Issue 3, March 2020, Pages: 31-41
http://www.ijeais.org/ijaar 35
Nigeria, as a country, is blessed with abundant human and materials resources. These natural resources
include petroleum, gas and solid mineral resources. Nigeria is the 13th largest petroleum oil producer and the 6th
largest OPEC oil exporter. As at January 2007, according to Aham et al. (2009), Nigeria‟s proven oil reserves
were estimated at 36.2 billion barrels, with an expected increase in her reserve to about 40 billion barrels. As the
largest oil producer in Africa, it is estimated that its total oil production in 2006, including condensates, natural
gas and crude oil average 2.45 million barrels Per day (bpd), with oil accounting for 2.28 million bpd. With a
GDP of about $45 billion in 2001, and per capital income of about $300, Nigeria, as at 2000, had earned
approximately $300 billion from oil exports since the mid 1970s. Generally, statistics show that between 1956
and 2007, estimated revenue from crude oil is about N29.8 trillion (Aham, et al., 2009). The Federal
Government recorded a budget deficit of N249.10 billion in the first quarter. This is in spite of the fact that a
total of N7.66 trillion was generated at the end of 2008 translating to N9.82 billion increase over the N6.65
trillion budgeted revenue target fro the year. Again, 979.25 billion was generated between January and March
2009 as against the budgeted amount of N1.228 trillion for the period (Taiwo and Aderinokun, 2009). Presently,
the economic structure and revenue sources remain largely undiversified, as crude oil has continued to account
for over 70% of government revenue. This has exposed the Nigerian economy to the vagaries of oil process in
the international market. Again, the mining of solid minerals in Nigeria account for only 0.3 of its Gross
Domestic product (GDP). Thus, the domestic mining industry, according to the Minister of Mines and Power,
Mrs. Deziani Allison-Madueke, is underdeveloped, leading to Nigeria having to import minerals that could have
been produced domestically (The Nation, Editorial, 2009, p.19)
The crucial dependence of the economy on oil and the attendant revenue has not been translated into
the development of the non-oil sector, like manufacturing. Consequently, the performance of the manufacturing
sector has been very poor. This situation has persisted, even with the recent price of crude oil, which sold at
almost $150 per barrel. In short, what the country has been experiencing is the process of gradual closure of
companies who can no longer operate in the country due to the high cost of transaction (Agboola, 2009). This is
more with the textile industry. Agriculture contributes about 27.2% to Nigeria‟s GDP, after oil. It is also to
believe that the sector also employs a substantial fraction of the population-up to 35%. Yet, this sector is
characterized by low level of productivity, because of lack of attention from the government and financial
institutions (World Bank, 2006; Oronsaye, 2009). There is problem of food insecurity and high poverty
incidence among the rural dwellers (NBS, 2007). It is against this background that the study attempts the impact
of meltdown on Nigerian economy and lesson to be drawn from South Africa.
Impact of the Financial Crisis on Nigerian Economy and Mitigate measures Adopted
In Nigeria, it is in other primary commodity producers and mono-cultural economies, the effect, to put
it mildly, have been harrowing. Implicit in the above is that the agonizing reality of the global economic
recession is here. Unfortunately, when the real import of the global crisis came, the regulatory institutions were
found ill prepared to contain the effects. Evidence of this could be seen in the reactions of the Central Bank of
Nigeria (CBN) and the Federal Ministry of Finance, who kept assuring Nigerians falsely, as regards the health
and true state of the domestic economy (Abadullahi, 2009). Most perplexing perhaps, is the fact that crisis has
uncanny capability to render useless extant systems and/or make a mockery of known economic solutions. It is
therefore pertinent to note that an economy is said to in recession when it experiences negative GDP for two
consecutive quarters; and crisis in the context here, is a sharp change in asset prices that leads to distress among
financial market participants (Eichengreen and Portes, 1987).
Specifically, Nigeria began to take its share of the financial crisis on March 6, 2008, when the capital
market, which its capitalization peaked at N12.6 trillion, started to record unprecedented losses in value of
shares of companies listed in the capital market. At the height of its performance, Nigeria‟s capital market was
rated as one of the best on the scale of markets with highest returns in the world. But since the second quarter of
last year, the market has plunged 62% as the capitalization fell from a peak of N12.6 trillion in March 3, 2008 to
N4.9 trillion in March 3, 2009. The All-share index also declined by 66.4% from 66,377.20 to 21, 170.21
(Omeife, 2009).
Earlier, the campaign by the Director-General of the Nigeria stock Exchange, Dr. Ndi Okereke-
Onyiuke to most European countries and America attracted investors to the tune of about N500 billion. In 2008,
this fund was pulled out by foreign nationals, who because of the economic meltdown, in their home countries,
had to shore up their native economies (Aluko, 2008). This led to lack of confidence in the market on the part of
Nigerians.
The global financial crisis is equally hilting hard in the banking sector. In Nigeria, the negative impact on the
banking sector has been colossal with about 5 billion in bank equities reportedly lost so jar on the stock market.
As aptly observed by the immediate past Governor of Central Bank of Nigeria, Prof. Soludo, the global capital
flows have frozen, credit crunch persists despite massive global liquity injections, global aggregate demand has
fallen sharply with about $50 trillion value lost through capital markets, housing. This observation was very apt
in the case of the Nigerian Banks (Akerele, 2009).
International Journal of Academic and Applied Research (IJAAR)
ISSN: 2643-9603
Vol. 4, Issue 3, March 2020, Pages: 31-41
http://www.ijeais.org/ijaar 36
In reaction to this gloomy scenario banks have embarked on a number of survival strategies. They
raised the lending rates so high to the extent that customers are already bearing the brunt. Allowances and esta-
codes of banking staff have been drastically slashed (Alabi, 2009). On the part of the Central Bank of Nigeria,
some measures were put in place to manage the situation. For example, the CBN made some policy moves in
the following areas:
Briefly, its impacts on Nigeria are as follows:
a) Reduction in capital inflows and divestment, leading to crash of Nigerian market;
b) Exacerbated demand pressure at the foreign exchange market arising from repatriation of capital
dividends by foreign investors leading to high exchange rate;
c) Funding growing demand for foreign exchange which led to draw down on external reserves;
d) Depreciating exchange rate due to demand pressure at the foreign exchange market as demands far
exceeds supply;
e) Loss of jobs in stock broking firms and capital markets;
f) Gradual de-industrialization of manufacturing firms, and;
g) Incessant labour conflicts in both public and private sectors.
Specifically for the banks, the system felt it in the following ways:
1) The tightening of liquidity as banks experienced difficulty in sourcing new credit lines from
multilateral agencies abroad;
2) Existing line of credits to banks sourced from abroad were not renewed and in fact most of the credits
were called in;
3) Depression of the capital market; and drop in the quality of part of the credits extended by banks for
trading in the capital market.
4) Potential exchange rate risks on foreign lines/credits obtained by banks from multilateral financial
institutions;
5) Rise in domestic interest rate due to liquidity pressures; and
6) Banks had to stop lending and had to recall some of their loans.
Another sector that the economic crisis is adversely affecting is the insurance industry. The
consolidation, which was embarked on 2001 in the sector, saw about 51 insurance companies scaling through
the hurdle on February 28, 2007. The industry, with annual gross premium income of N76.32 billion in 2005
(and ranked 65th in the world and 6th in Africa), record a premium income of N117 billion from N82 billion it
posted in 2006 a 42% rise. Furthermore, its capitalization increased almost ten-fold, from N25.9 billion in
2006 to N206 billion in 2007 (Onyenweaku, 2009). Regrettably, the market crash as a result of the economic
meltdown; the industry is affected as they lack patronage. The money market and real estate instruments where
the sub-sector operators are good players face grave challenges. Thus, their investment windows are not
insulated from the current market crisis.
The ravaging crisis, in the global financial system, the Nigerian Insurers Association organized an
international conference on the crisis with the theme. “The challenges of Ethics, market Adjustments and
Reforms in the Face of Current Global Economic Meltdown, held at Abuja, between 7th and 11th May 2009. The
conference was aimed at making the participants carryout a critical analysis of the challenges of current global
financial meltdowns; assess its impacts on the Nigerian insurance market and develop strategies for the
promotion of international best practices that will enable the Nigerian insurance industry overcome the threats
from the crisis (Financial Standard, 2009).
Also, the oil and gas sector in Nigerian insurance industry, has, for decades, been a major source of
capital flight from the country. This is because the risk is enormous and involves huge capital outlays and sound
technical capacity to accurately alive oil and gas industry. The policy target is that by 2010, 100% of businesses
in the sector should be domiciled locally. The National Insurance Commission has directed that oil and gas
business be placed 100% with Nigerian registered and domiciled insurance companies (Popoola, 2009).
There is has been a drastic reduction in the revenue of the government. Nigeria, as noted earlier, being
a monocultural economy, and with the see-sawing price of crude oil and prospects for economic recession in the
developed world, with its attendant reduced energy needs, coupled with violent militant activities in the Niger
Delta, as well as interest in innovative energy resources (bio-fuels) in developed countries, is bound to have
problems with its economy. It is no longer news that the federal government has lost billions of dollars in oil
revenue, as a result of the crash in crude oil prices in the international market due to declining demand.
Moreover, with decline in oil revenue external reserves, which the country boosted to about $70 billion in 2007,
has dropped to about $50 billion in 2008 (Omoh, 2008).
There is abrupt reduction in revenue generation through the Nigeria custom service collection. The
numbers of containerized good (both consumer and luxury goods) that come into the country through the ports
have drastically reduced by about 80% since January 2009 (Alozie-Erendu, 2009). This has resulted to customs
collection of only N89 billion in the first quarter of 2009; a shortfall from N166 billion targets set for the period.
Empirical evidence indicates that the situation has persisted in the ports could be been from the fact that while
International Journal of Academic and Applied Research (IJAAR)
ISSN: 2643-9603
Vol. 4, Issue 3, March 2020, Pages: 31-41
http://www.ijeais.org/ijaar 37
602 containers were positioned daily for examination in January 2009 at the premier port, it reduced to 438 in
March and reduced further to 262 and 181 in April and May respectively. The fundamental reasons for this are,
firstly, banks no longer give importers credit facilities because they want to consolidate their liqudity. Secondly,
importers are no longer ready to import because of the fluctuating rate of the Dollar against the Naira (Alozie-
Erondu, 2009).
Other areas, which the current global economic crisis is, affecting Nigeria includes foreign portfolio
investment withdrawal and withholding in other to service financial problems at home, as well as reduced
foreign direct investment (FDI) are affecting investors‟ confidence in and the economic health of Nigeria.
Nigeria has lost over $4 billion to panic divestments by foreign investors in the course of the ongoing global
economic crisis (Kujenya and Ugwuanyi, 2009). This is particularly now in Nigeria, where Public-Private
Partnership (PPP) in the provision of infrastructural facilities and practical steps to confront the economic
situation that is as adequate as the cases of the above-mentioned countries. It is unbelievable that in the face of
the above realities that our response to the crisis, has been largely timid and unimaginative non-response.
The response of the government was the inauguration of a blue-ribbon national economic management
committee, with the mandates to deal holistically with the impact of global economic recession on Nigeria by
President Umaru Musa Yar‟Adua. Members of this Presidential Steering Committee include Governors
Babatunde Fashola of Lagos State, Isa Yuguda of Bauchi State, and Adams Oshiomhole of Edo State, the
Minister of Finance, National Planning and Petroleum, the Economic Adviser to President and Governor of
Central Bank of Nigeria (CBN). The committee made the following recommendations, which have been
approved by the government. These are:
1) Reduction by 5% of excise duty on all locally produced goods except cigarette and alcohol;
2) Full deregulation of the downstream sector of the oil industry;
3) Cancellation of the funding of refineries;
4) Government release of the sum of N70 billion into the textile industry, with disbursement to be done
through the Bank of the Industry (BOI),
5) President Umaru Yar‟Adua, through the Central Bank of Nigeria (CBN), established a N200 billion
Commercial Agricultural Credit Scheme to promote Commercial agricultural enterprises in the country.
The fund, to be disturbed by the apex bank, will be administered by the United Bank for Africa Plc and
First Bank of Nigeria Plc. 40% of the first release will be to small and medium scale farmers; while the
large-scale farmers will share 60%.
6) All agreements on major projects in the oil sector which the Nigerian National Petroleum Corporation,
(NNPC) entered into with its key partners are to be reviewed. This action is informed by difficulties in
funding the prime projects as a result of the present global economic crunch. In order to keep the
projects on course, it has adopted austerity measures in capital expenditure and reviewed the cost of the
affected projects. It also proposes to review the Memorandum of Understanding (MOU) it signed with
some companies on new oil and gas projects in the country.
7) Government, recently, proposed to release the sum of N500 billion to revive the nations‟ industries. It
proposes to release additional N100 billion to the textile industries. The industries revival funds find
justification to target specific challenges of industries in the areas of upgrading of ageing plants, fund
for manufacturers to bring in raw materials and needed parts and to reposition industries to play pivotal
role of wealth creation and employment generation.
8) The Revenue Mobilization Allocation and Fiscal Commission (RMAFC), which increased the salaries
and allowances of political office holders (POHS) in April 2008, have been directed to reverse the
policy. Specifically, the President and Vice President are to forgo their severance allowances, which
under the remuneration package that terminated at the end of June 2009 were 300% of the basic salary
of each of the affected functionaries. The Hardship Allowance of the two was also slashed from 50 to
30%. Members of the legislature are to forgo benefits such as Wardrobe Allowance and Entertainment,
while Accommodation and Housing Allowances have been halved. Before June, each member of the
National Assembly had received N500, 000 and N600, 000 yearly as wardrobe and entertainment
Allowances respectively.
The federal government has gone into agreement with private sector towards providing one million
housing units for low and medium income Nigerians before the end of 2011. A total of housing units for low
and medium earners targeted is 400,000 housing units per annum. From the above policies enunciated to
confront the economic situation, one can appreciate that we do not lack the intellect to articulate a well-rounded
response to the present situation. Regrettably, as former president of the country, Chief Olusegun Obasanjo
rightly noted: It is acknowledged that one of the failures of public policy in
Nigeria has not been the dearth of policies but actually the non-
implementation of such policies (Nnebe, 2006: ix).
International Journal of Academic and Applied Research (IJAAR)
ISSN: 2643-9603
Vol. 4, Issue 3, March 2020, Pages: 31-41
http://www.ijeais.org/ijaar 38
Management of Global Economic Crisis: Lessons from South Africa
South Africa has one of the most comprehensive, well-thought out and imaginative blue prints for
containing the crisis. For example, their stimulus package envisages a public investment Programme of R 787
billion over a 3-year period designed to expand and improve South Africa‟s infrastructure. The policy
Programme was premised on the collective responsibility to work together to withstand the crisis and ensure that
the vulnerable are protected as far as possible from its impacts. Specifically, the massive investment in public
infrastructure entails expansion and improvement of road, and rail networks, public transport, housing
construction, including low-income housing, energy generation capacity as well as education and health
infrastructure. The programme is designed to create additional work opportunities because of its emphasis on
labour intensive activities.
The macro-economic measures adopted include fiscal and monetary measures put in place to ensure
that the crisis does not cause job losses in the real economy, the South African reserve bank discuss the interest
rate regime with stakeholders as well as ways of lowering the cost of capital and reduce the real interest gap
between South Africa and key trading partners. In addition, labour and the business community and government
are discussing towards tax relief for low-income workers and companies in distress. The blue print encompasses
industrial policy measures aimed at rebuilding industrial capacity to avoid de-industrialization and competitive
performance of local industries, vulnerable sectors and small businesses.
Now, what can one deduce from the above comparative analysis of strategies adopted by the respective
countries. It is clear that practically that the review shows the necessity for concerted action in the form of a
financial stimulus package to contain the fall-out from the crisis. The respective responses are meant to help
jumpstart and resuscitate the economies of the countries concerned in the face of the dwindling revenues,
lessening commodity prices, mass loss of jobs and threatened economic collapse. Moreover, strategies that
could lead the above conclusions:
1. All the countries, in their packages, recognized the need to provide some form of safety net for the
most vulnerable and marginalized believing that both the upper and middle classes can easily work out
exit strategies from the economic vicissitudes that their countries are experiencing;
2. The responses to the crisis reveal the poverty of relying on big players like the Wall Street or other
capital or money markets to do the right thing in the interest of their economies and public interest.
3. The policy options show the need for foreign exchange controls to deplete foreign currency reserves
and stem the tide of capital flight by local and foreign investors.
4. All the countries reviewed showed sensitivity to the enormity of the problems and took decisive steps
in the face of ravaging impending global financial disaster.
Conclusion and Recommendations
The effect of the global financial crisis on Africa is multi-dimensional. It is enveloped in both external
and internal factors, which has further complicated the escape route for Africa. However, positioning the
internal factors on the pathway of efficiency, effectiveness and development, the external factor can be
conditioned to favour the continent of Africa. That Nigeria is deep into the economic crisis, from the above
analysis, is not in doubt. The immediate challenge to the government is how to stop the slide and re-invigorate
the economy. One sure key socio-political challenge in Nigeria, which must be addressed squarely for the
country to achieve recovery and long-term stability, is the problem of Niger Delta crisis, where the production
takes place. The crisis has seriously affected production because of the activities of militants.
The rationale for stimulus package is to reduce economic recession on the citizens of a particular
country. In spite of fiscal pressures brought about by the current economic crisis, resulting in lower than
expected revenue, government should maintain social transfers to other key social expenditures, including
increasing access to free basic services such as water and electricity, as is the case in South Africa. Presently,
government‟s approval of N500 billion is just palliative as no comprehensive plan is available on how majority
of the citizens will benefit from the bailout. The outline of the stimulus package should not only be
comprehensive and holistic but should identify time horizons of expenditure and expected benefits to the
economy and citizens. For instance, expenditure for job creation should estimate the number of such jobs
expected to be created within a specified time period.
The government is advised to devise appropriates strategies to kick-start the economic recovery and
ensure sustained growth in the country. The time is ripe for strengthening our regulatory agencies so that all
manner of malfeasance in institutions are effectively checked. We have to do everything to block all the
leakages in the financial system so that such our financial resources will be re-directed to critical areas of need
in the economy instead of private hands. The crisis has reinforced the need for Nigerian government to
undertake the structural reforms that are needed to improve efficiency in expenditure management and increased
domestic resource mobilization.
International Journal of Academic and Applied Research (IJAAR)
ISSN: 2643-9603
Vol. 4, Issue 3, March 2020, Pages: 31-41
http://www.ijeais.org/ijaar 39
We should demand, in uncertain terms, and to question, unethical, sharp practices such as insider
trading, rigging the stock market, tax and custom duty evasion, all of which result in undoing the economy, job
losses and impoverishment of the people. The people should insist on good corporate governance, transparency
and accountability in the different facets of the economy in line with tested standards and international best
practices.
The authorities must not lose sight of the imperative for human capital development, which was a
constant in the miraculous socio-economic transformations recorded in China, India and newly industrialized
nations. Nigeria is not ready for this experience, considering what she is presently doing with her educational
system, especially the tertiary sector. Nigeria is at a crossroads leads to recovery and re-invention of our self-
confidence and innate ability to tackle the existential problems confronting the nation‟s economy. The other
leads to inaction, perdition and ultimate collapses of the economy.
Macroeconomic management must be able to identify asset bubbles and to muster the political will to
respond. We must be careful to recognize that regulatory reforms often have pro-cyclical motivations:
accentuating dangerous phenomena.
Financial regulation must be understood as a special financial regulation must be understood as a
special response to the particular incentive incompatibilities of financial institutions. We must recognize that
corporate governance alone can be inadequate to restrain short- sighted management. It must be noted that
shareholders of financial institutions may themselves have inadequate incentives to ensure that financial
institutions avoid excess risk. The deposit insurance and government bailouts absorb significant components of
the risk. This moral hazard often requires regulatory response. The changing global economic crisis needs global
financial supervision and regulation to avoid excess leverage, capital inadequacy and weak management and
financial innovations are necessary to achieve these goals.
References
Abdullahi, I. (2009). The Effect of Global Economic Crisis on New Democratic Nigeria. A paper presented at
the National Conference on a Decade of Democracy (1999 2009): Reflections on Nigeria‟s Fourth
Republic, held at IBB University, Lapai, Niger State, Nigeria, 18 20 May.
Adeoye, A.J. and Iyalla, K. (2009). Season of Anger. The Nation, May 17.
Agboola, T. (2009). NACCIMA Decries Exodus of Foreign Firms. The Nation, February 19.
Agaba, D. and Tenuche, (2010). “Managing the Global Economic Meltdown in a Consolidated Banking Sector
of Nigeria: Rhetoric or Realities, Current Research Journal of Economic Theory, 2(1): 16-21.
Aham, U. (2008). Oil and Development: More Money More Problems. Tell (Special Edition), No. 7, 26-28.
Ajibade, A. (2009). “World Bank Budgets $ 2bn. for Poor Countries”, The Nation, August 5.
Akerele, O. (2009). “The State of Health of Nigerian Banks”, Business day. June 27.
Alabi, W. (2009). “Banking Distress Alert”, The Nation, February 6.
Alozie-Erendu, C. (2009). “Cargo Scarcity Hits Nigeria”, Business day, July 29.
Aluko, M.E. (2008). “The Global Financial Meltdown: Impact on Nigeria‟s Capital Market and Foreign
Reserves”, 5.
Aluko-Olokun S. (2009). “Global Economic Meltdown in the Nigerian Economy”, Being a paper presented at
the 10th post-yearly general meeting Luncheon talk of the International Chamber of Commerce Nigeria
(ICCN) held on May 11.
Amin, S. (1976). Unequal Development: An Essay on the Social Formations of Peripheral Capitalism, New
York: Monthly Review Press.
Asuquo, A. (2009). Peasants and the N200 billion Agriculture Funds. Business times May 11.
Baran, P. (1957). The Political Economy of Growth, New York: Monthly Review Press.
Cardoso, F.H. (1977). “The Consumption of Dependency Theory in the United States”, Latin American
Research Review, 12(7) 7-24.
Cardoso, F.H. and Faleto, E. (1979). Dependency and Development in Latin America, Berkeley: University of
California Press.
Chukwunyem, T. (2009). “Banks: Agriculture, Now the Beautiful Bride”, Business Hallmark. April 6-12.
International Journal of Academic and Applied Research (IJAAR)
ISSN: 2643-9603
Vol. 4, Issue 3, March 2020, Pages: 31-41
http://www.ijeais.org/ijaar 40
Crotty, J. (2008). “Structural Causes of the Global Financial Crisis: A Critical Assessment of the „New Financial
Architecture‟ Political economy Research Institute (PERI) University of Massachusetts Amherst
Working paper no. 180 September.
Dos Santos, T. (1969). “The Structure of Dependency”, American Economic Review, Papers and Proceedings,
60, 2 31-6.
Eichengreen, B. and Richard, P. (1987). The Anatomy of Financial Crisis. In Portes R. and A. Swoboda (eds.)
Threats to International Financial Stability. Cambridge: Cambridge University Press.
Eichengreen, B. (2004). “Financial Instability”, in Bjorn, L. (ed). Global Crisis, Global Solutions. Cambridge:
Cambridge University Press.
Enebeli-Uzor, S. (2008). “Global Financial Crisis: Emerging Challenges for Capital Market. Zenith Economic
Quarterly, 3 (2) 70-75.
Eme, O.I. and Asogwa, M. (2009). The Global Economic Crisis and the Challenges for Public Administration in
Nigeria, Mimeo.
Financial Standard (2009). Insurers Search for Solution to Global Financial Crisis. May 4.
Frank, A.G. (1969) Latin America: Underdevelopment or Revolution? New York: Monthly Review Press.
James, C. (2008), Structural Causes of the Global Financial Crisis: A Critical Assessment of the „New Financial
Architecture‟. Amherts: University of Masschusetts
Jacob, J. (2009). “The Global Financial Crisis and Leadership Challenges in Africa”, African Journal of
Contemporary Issues, Vol. 9 no, 3, September pp 194-2002.
Kohler, G. and Tausch, A. (2002). Global Keynesianism: Unequal Exchange and Global Exploitation,
Huntington NY: Nova Science.
Nwokah, M., Anyanwu, A. and Momodu, A. (2009). Global Financial Meltdown and Implication for Marketing
in Nigeria. Journal of Money, Investment and Banking Issues. 11, 61-77.
Ogunleye, (2009). “How Global Financial Meltdown has Affected Nigerian Banks”, The Sun News Online 5
March, 2009.
Ogundipe, Y. (2009). “Global economic meltdown and survival of Microfinance banks”, Being a paper
presented at the 3rd Bi-Annual International Conference of management and Social Issues.
Okpanku, J. (2009). “Meltdown: How Operators, Governments Mitigate Impact. This day June 12.
Omeife, I. (2009). “How Investors Lost Nbillions”, BUSINESS Hallmark May 11-17.
Omoh, G. (2008). “Economic Crisis Management Team: What Nigerians Expect”, Sunday Vanguard, February
8.
Onimode, B. (1985). An Introduction to Marxist Political Economy”, London: Zed Books.
Oladesu, E. (2009). “How Lagos is Coping with Global Economic Meltdown”, The Nation, June 30.
Olaoye-Osinkolu, D. (2004). “Employers Group says No to New Minimum Wage”, The Nation, May 22.
Orosanye, S. (2009). “Meltdown and Banks‟ New Interest in Agriculture Funding”, Financial Standard, May 4.
Otikhenua, J. (2009). “States Raise Demand from Excess Crude Cash to N1.4 trillion”, The Nation, January 26.
Popoola, N. (2009). “Challenges of Meeting Local Content Target”, The Punch, June 20.
Prebisch, R. (1963). Towards a Dynamic Development Policy for Latin America, New York:
Sampson, E. (2008). Global Financial Crisis: Recession, Depression and other Threats. Zenith Economic
Quarterly, 3(4) 68-73.
Sunkel, O. (1966). The Structured Background of Development Problems in Latin America”, Weltwirtsch,
Archive. 97 (1).
Sweezy, P. (1978). “Multinational Corporations and Banks”, Monthly Review, January, 1-9.
Taiwo, J. and Aderinokun, K. (2009). “FG Records N249 bn. Q1 Deficit”, Thisday, June 12.
International Journal of Academic and Applied Research (IJAAR)
ISSN: 2643-9603
Vol. 4, Issue 3, March 2020, Pages: 31-41
http://www.ijeais.org/ijaar 41
Tausch, A. (2003). Social Cohesion, Sustainable Development and Turkey‟s Accession to the European Union:
Implications from a Global Model, Alternatives, Turkish Journal of International Relations, 2 (1)
Spring.
Tausch, A. and Hermann, P. (2002). Globalization and European Integration, Huntington NY: Nova Science.
Tausch, A. and Prager, F. (1993). Towards a Socio-Liberal Theory of World Development, New York:
Macmillan.
Trachtman, J. (2009). Global Financial Trouble: Causes, Cures, Responses. America Government on Facebook,
May 1.
Vernengo, M. (2004). “Technology, Finance and Dependency: Latin America Radical Political Economy in
Retrospect”, Working Paper No. 2004-06, University of Utah, Department of Economies.
Wallerstein, I. (1974). The Modern World System: Capitalist Agriculture and the Origins of the European
World Economy in the 16th Century. New York: Academic Press.
Wolf, E. (1969). Peasant Wars of the Twentieth Century, New York: Harper and Row
World Bank (2006). Getting Agriculture Going in Nigeria. Washington: The World
www.cnn.comhttp:llen.wikipediaorg/wiki/Listofbankruptoracquiredbanks.
ResearchGate has not been able to resolve any citations for this publication.
Article
Full-text available
Global financial meltdown is a topical issue because it seems to have affected many countries all over the world. It has various implications for both the development and developing economies. United States of America and other developed countries are experiencing serve closures of companies, loss of jobs, crash of share prices, squeeze in consumer credit facilities, crumbling mortgage facilities among others. In the case of the developing countries of which Nigeria is one, the implications are noticeable in the areas of crash in shares prices, dwindling revenues, few direct investments from developed countries, dwindling remittances from Nigerian's abroad, developed non~oil exports, possible erosion of foreign reserves among others. Nigeria is called upon to re-orientate the economy towards productions activity, deploy the available financial resources adequately, and utilize the excess crude oil revenues more judiciously, among other suggestions.
Article
A study of the determinants of world development from 1960 onwards, using advanced statistical techniques and data from up to 171 countries and territories. Arno Tausch also debates the perspectives for world socialism and for neo-corporatism in the industrialized West.
Chapter
The theory of imperialist capitalism, as is well known, has so far attained its most significant treatment in Lenin’s works. This is not only because Lenin attempts to explain transformations of the capitalist economies that occurrred during the last decade of the nineteenth century and the first decade of the twentieth, but is mainly because of the political and historical implications contained in his interpretations. In fact, the descriptive arguments of Lenin’s theory of imperialism were borrowed from Hobson’s analysis. Other writers had already presented evidence of the international expansion of the capitalist economies and nations. Nevertheless, Lenin, inspired by Marx’s views, was able to bring together evidence to the effect that economic expansion is meaningless if we do not take into consideration the political and historical aspects with which economic factors are intimately related. From Lenin’s perspective, imperialism is a new form of the capitalist mode of production. This new form cannot be considered a different mode of economic organization, insofar as capital accumulation based on private ownership of the means of production and exploitation of the labor force remain the basic features of the system. But its significance is that of a new stage of capitalism.
Article
Multinational corporations (MNCs) are forms and mechanisms of imperialism, not its essence. This of course does not mean that they are unimportant. Imperialism could not exist without appropriate forms and mechanisms. In what follows we shall be discussing imperialism in the period since the Second World War, and MNCs are both products and necessary conditions of the way it has developed and its mode of operation in this stage. This article can also be found at the Monthly Review website, where most recent articles are published in full. Click here to purchase a PDF version of this article at the Monthly Review website.
Article
This article investigates the determination of 14 indicators of development in 109 countries with complete data. The empirical record, presented in this essay, speaks a clear language in favor of Islamic democracy and against those in the West that attempt to treat Islamic cultural heritage as a general development burden. It should be also clear that a reliance on the "Washington Consensus" alone will not "fix" the performance of countries beyond a better and more predictable development stability". The most consistent consequence of the "dependency" analysis of this essay is the realization that a reliance on foreign capital in the short term might bring about positive consequences for employment - especially female employment - but that the long-term negative consequences of dependence in the social sphere, but also for sustainable development, outweigh the immediate, positive effects. Our three-fold empirical understanding of the process of globalization - reliance on foreign savings, MNC penetration and unequal exchange, - goes beyond the average analysis of the workings of dependency structures and shows how different aspects of dependency negatively affect development performance. The integration of the countries of the periphery into larger currency blocs - quite contrary to what the "Washington Consensus" has to say about "competitive currencies" - will be one of the most important tasks for international development strategies for years to come.