Nigerian economy - a turbulent period ahead

Not so long ago Nigerian economists were claiming Nigeria would be immune from the world financial meltdown. Now the Nigerian economy is being hit very hard as the world economy is pushed more and more into recession. The dramatic fall in the price of oil is having a devastating impact on Nigeria's finances and the coming period will see this translated into even greater suffering for the working masses.

Introduction

Finally, the Nigerian currency (Naira) has started its free fall, while the stock exchange crash continues unabated. The 2009 budget is expected to be based on deficit financing. A huge 3.9% of GDP deficit is proposed. The budget has failed even before it was debated by the National Assembly. The budget, which is based on $45 per barrel of crude oil, is obviously destined to suffer failure as the price of crude oil is already $37 per barrel and it is still plummeting.

The Nigerian currency (Naira) has started its free fall (Photo by Danny McL on flickr)
The Nigerian currency (Naira) has started its free fall (Photo by Danny McL on flickr)

Unemployment keeps rising with more factories closing as the infrastructure keeps collapsing and the cost of doing business is rising. Michelin has finally stopped production in Nigeria and Dunlop has finalized an arrangement to follow suit. The textile industries have almost become extinct in Nigeria. The financial sector is equally not spared, with bank chiefs groaning under the exorbitant inter-bank exchange rate, crushing credit shortages and they are already begging the government for a bailout.

We need not waste our precious time debunking all the lies and the baseless analysis of the bourgeois economists who had been so vocal in the recent past, claiming that Nigeria would not in anyway be affected by global economic woes. Events currently have proved them utterly wrong. What they are struggling for now is to completely erase all their documented positions of the past; they now publicly deny all that they have said without any shame. With their hands folded behind them, they watch with surprise how all their unintelligent predictions are failing one after the other. Only a Marxist analysis can come to the rescue when the situation gets as complex as it is now. No amount of academic exercise can.

Why was there a feeling of everlasting economic progress?

Bourgeois economist had spent the past period convincing us that the merriment could never end, that we had entered a period of everlasting prosperity, that Nigeria had an unlimited capability to grow its economy, and that Nigeria would be among the top 10 economies in the World by the year 2020! What alternative conclusion could we expect from these intellectually unsound thinkers when the price of oil was $147 per barrel?

Nigeria earns 83% percent of its foreign earnings from oil exports. Over 90% of government revenue is from oil. By contrast, manufacturing's share of export revenues is estimated at 1 percent. With high oil prices at $147 per barrel, the Naira could be kept relatively stable and high economic growth could be maintained. Also as a result of this in 2007 Nigeria posted a US$23billion trade surplus, importing about US$39billion of goods and exporting about US$62billion of goods, thereby saving US$60billion in external reserves. On this basis Nigeria settled almost all its external debt of US$37.5billion.

We can see how an enormous amount of money entered Nigeria in the recent period, but ironically enough, poverty has continued to increase, despite the oil wealth. Nigeria has a Human Development Index (HDI) of 0.470, and ranks 158 out of 177 countries surveyed in the world. The Nigerian Index puts Nigeria in the category of Least Developed Countries (LDCs), and the Nigeria HDI is below the average for the LDCs and that of sub-Saharan African countries. Youth unemployment at 60%, university graduates constituting 25% of total unemployment and with the formal sector only generating 7% of employment for all those in the labour force. Due to inflation, per capita GDP today remains lower than in 1960 when Nigeria declared independence. In 2007 the World Bank found that Nigeria had the thirteenth highest TB infection rate in the world and the fifth highest in Africa.

We witnessed even more collapse of the infrastructure within this same period. UN investigators recently published a document which disclosed that as a result of corruption, over 80% of the oil wealth went into private purse of less than 1% of the population. And as long as the money keeps on pouring in, bourgeois economists can keep on predicting without thinking.

What actually went wrong?

The present economic crisis we are witnessing is the inevitable result of capitalist production and distribution. The wealth produced is not going into any productive investment. The growth of fictitious capital we have witnessed in the past period has been unprecedented in Nigerian history. Banks were gambling with depositors' money on the floor of the stock exchange, and workers pension deposits were also not spared in this foray of crazy cheap money making games. Middle class money was flowing into the stock exchange and other absolutely unproductive sectors like graft, Forex and many other speculative activities. The capital base of the Nigerian stock exchange rose to almost ten times the size of Nigeria's GDP, consequently, headline inflation in July surged to 13.9% year-on-year, the highest level since November 2005, from 12.1% in June. The rise in inflation was again driven by the rise in food inflation, which hit 20.9% and makes up 64% of the CPI basket.

No capitalist will risk investing in an economy where over 70% of the population lives on less than $1 per day with its attendant crime rate and low purchasing power. Nigeria is ranked 108 out of 178 countries in the World Bank's 2008 Ease of Doing Business Index. The previous investments are facing enormous difficulties of high costs of production as a result of the collapsed social infrastructure, so why go through the risk of investing more when you can make even much more money in an unproductive way under capitalism? Therefore, during the last boom, no new wealth was actually produced in Nigeria, but the country was being pushed more and more into a parasitic and highly unproductive economy. Money was just being made out of money without real production. Marx explained this about 150 years ago; wealth can only come out of production and not out of mere exchange. The reality of this wise saying of Marx has finally caught up with us.

What to expect in the coming period on the basis of capitalism

The coming period will witness unheard of austerity measures. Fictitious capital must be squeezed out at all cost, and while this is being undergone many more jobs will be lost as credit becomes more and more scarce. The Naira will continue its downward movement and many bourgeois economists will even come to the public arguing for a conscious effort to devalue the Naira on the part of the government. This will make the oil proceeds grow in Naira value within the local economy, a measure to finance domestic debt and finance infrastructural development, so they will argue.

The bank chiefs are already crying silently and begging for a bailout from the government. Foreign credit has almost completely dried up and the banks have lost almost N401billion in the Stock Exchange crash. The Inter-Bank rate, which is 16%, will keep on rising as credit becomes more and more expensive. There will be pressure on the government to increase taxes, both Personal and Corporate and this will further worsen the investment climate. It will increase the cost of doing business and further cut the aggregate demand. A profound cut in public spending will affect Education, Health, Agriculture and all other social amenities.

At the back of this austerity, will be rising inflation, rising unemployment and worsening conditions for the Nigerian working class and poor masses. On the basis of capitalism, hell is awaiting the Nigerian masses in the year 2009 and immediate future. Any solution on the basis of capitalism will be hellish for Nigerians.

Is there any genuine solution for the workers, youth and poor?

Any solution to a problem needs to flow from a clear understanding of the problem itself. The cause of this crisis we are in is not the result of recklessness of some individuals or unintelligent actions of the ruling classes, though these have contributed at a certain stage. The main culprit is capitalism. That is why even the giant countries like the USA, Germany and so on are not being spared.

The ultimate aim of any capitalist is to make profits and not necessarily to produce anything of value. It does not matter if his action is beneficial to humanity or not, the ultimate remains making a profit. The nature of capitalism itself makes making a "fair" profit very difficult. It impoverishes the people and thereby cuts its own market. It produces and cannot sell because people are too poor to buy its products.

What the capitalist calls his profit is actually the sweat and proceeds of the workers he employs in production. Now the workers can no longer buy all his product and his profit is diminishing. Instead of accepting this simple maxim, the capitalists keep dragging on. Rather than surrendering, the capitalists abandon productive investment and embrace a simple formula of making money out of money without the sweat of production. With this action, the capitalists have landed the whole of humanity in an economic impasse. At the root of the present global economic crisis is the crisis of capitalist overproduction.

There is no any way out for humanity on the basis of capitalism, because the capitalist option means more crises for ordinary people. In Nigeria as in other countries, capitalism must be overthrown for there to be a genuine and qualitative improvement in the standard of living of the working class and poor masses. At the root of the solution to this crisis is fair distribution of material wealth of the country and this is absolutely impossible under capitalism because it rests on severe inequality, unfair distribution and the aggressive quest for profits, coupled with greed, mercilessness criminality and barbarism. Only its overthrow can save the world.


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