implication of the global economic crises on nigeria
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8/7/2019 Implication of the Global Economic Crises on Nigeria
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GLOBAL ECONOMIC CRISIS AND ITS IMPLICATIONS ON
NIGERIA’S INTERNAL SECURITY
The origins of the economic crises – D.E. John, oon, fwc
The current Global Economic Crisis which started in 2007 is
the third major economic and financial rumbling that has affected
the economies of nations across the globe. Economic History
records that the first major global economic downturn was in the
1830s when the United States of America experienced
unprecedented economic crisis which spread to some other
countries in Europe.
In the 1930s, a second economic crisis again hit the United States
and because of its unparalleled severity was described as the
“Great Depression”. Its spread and effects were more global due
partly to the more closely knit nature of the world following
advancements in information and communication technology. The
current global economic crisis also has its roots in the United
States and has spread faster than the previous experiences to
other parts of the world mainly because of the integration of world
economies or Globalization. The British Prime Minister, Gordon
BROWN captured the situation succinctly when he pronounced that
“the current economic crisis more dramatically than ever before
exposed the true nature of global interdependence”.
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Apart from originating from the United States, another common
feature of the three major global crises is the fact that they have
all primarily been caused by reckless and careless lending by banks
and mortgage institutions. In the 1830s, the checks placed on state
banks by the Bank of United States were virtually removed. The
banks had free rein and provided credits without the necessary
collaterals. They could not cope with the pressure of demand for
more credits and the inability of creditors to repay the loans
compounded the situation. The development affected businesses
and thousands of farmers who had speculated on land through
mortgage foreclosure lost their farms. Several businesses and
projects particularly in the construction industry were grounded as
unemployment reached an all time high. That was the first global
economic crisis.
In the 1920s, United States capital market witnessed an
unprecedented boom. The market value of stocks hit astronomical
levels as speculators had a field day. Again, funds were made
available by the banks in form of loans to be paid on demand. The
prices of equities sold as much as fifty times their nominal value.
The market began to weaken in September 1929 and by October
1929, the crash set in. There was panic sales of stocks which led to
the collapse of the United States economy. Investors lost over
$30billion as the prices of stocks were reduced by half. They
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became debtors and the Great Depression consumed many who not
only lost their money but also their jobs and those who could not
absorb the downturn, committed suicide.
The current crisis was again triggered off by reckless lending by
banks and mortgage financial institutions in the United States. The
availability of excess liquidity created commodity and housing
bubbles. Several enterprises, especially the two that were
government sponsored, Freddie Mac and Fannie MAY provided
mortgage for the housing market. These were sub-prime mortgages
which entailed availing of loans to borrowers who did not qualify for
the credits. The main collateral was their income levels or their
credit history. It was assumed that they will always pay back
because they had fulfilled similar obligations in the past. These
mortgages had risen to about $1.5trillion in March 2007 and by
June 2008 turned out to be bad loans.
The effect was extensive as commercial and investment banks,
investors, real estate investment firms were infected by the bug
when borrowers could not pay back. The subsequent decline in the
prices of houses affected the stock market. These developments
generated panic in the financial market and forced investors to
disinvest in mortgage bonds considered risky. The aggregation of
all these brought about the credit squeeze which has ravaged not
only United States economy but also the global economy.
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THE FACE OF THE GLOBAL ECONOMIC CRISIS IN NIGERIA
Consequent upon globalization and advancements in information
and communication technology, the world has in the words of
Marshall Mac LUHAN become a “global village”. This fact has made
it impossible for Nigeria to be insulated from the global financial
and economic crisis. The effect of the crisis is already evident in
Nigeria despite unconvincing appreciation of the situation by
officials in the financial sector. It has created panic, fears,
anxieties, disappointments, frustration and oppressive feeling of
insecurity among individuals and corporate citizens. The economic
environment is at best hazy and is sneering at the political sphere.
The effect of the global recession has been hastened in Nigeria by
hedge funds and the pulling out of money from the country by
portfolio investors including Renaissance Capital et al. The
situation was compounded by the indiscriminate lending by banks to
investors to purchase shares without the necessary collaterals. It
contributed immensely in the crash of equitY prices and depression
of the capital market. The investors that secured the loans to buy
stocks could not pay back and the Banks which had invested over
50% of its funds in the sector are left in the lurch. In the face of
the cash crunch, uncertain future and increasing default in loan
repayment, banks are holding on to their funds and/or lending
selectively.
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The global economic crisis is headed for a prolonged sojourn with
grave consequences for the nation. The crisis has manifested in the
sharp drop in the market capitalization on the Nigerian Stock
Exchange (NSE) from over N12 trillion in August 2008 to N4.8
trillion in the first week of February 2009. This amounts to a loss
of about N8 trillion in six months.
10. The global economic crisis is headed for a prolonged sojourn
with grave consequences for the nation. The implications of the
crisis on internal security arise from its fall-outs which include
drop in national revenue occasioned by falling oil prices in the
international market, depreciation in the value of the Naira,
dwindling external reserves, reduced budgetary revenue, shortage
of external funding for national development and reduction in
Foreign Direct Investments (FDIs). For an import-dependent
nation, the declining value of the Naira means high prices of goods
and services. This will expand the nation’s threat profile and
heighten insecurity.
11. The net effect of the foregoing will be a general shrinking of
the economy and stunted developmental initiatives. It is worth
appreciating that development and security have organic and causal
relationship. As a result of this nexus, the economic and financial
recession will affect development and increase security challenges.
It will affect investments in new projects and the completion of old
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ones. Economic opportunities will decline resulting in massive jobs
and pay cuts in all sectors of the economy. The retrenchment of
workers and non-employment of qualified hands would widen the
labour market and engender resentment and despair. The
combination of a high proportion of disappointed poor, millions of
disenchanted unemployed young people, disillusioned intellectuals,
frustrated retirees, disgruntled politicians, confused, and shell-
shocked business community, who are partly the by-products of the
recession, will deepen social tension. They pose a major challenge to
internal security. Their frustrations could manifest in violent
protests and sabotage of critical government infrastructures.
Many hapless retirees who have lost their benefits invested in
stocks and several other Nigerians who secured loans to invest are
not only predisposed to hypertension and mental derangement but
could embrace suicide.
12. The decline in investible funds will affect the already lean
budgetary allocation to the security sector. In the face of rising
threat profile, the limited financial resources will stretch the limits
and capabilities of the various agencies to manage emerging
intelligence and operational challenges.
13. Apart from forcing illegal immigrants to move into Nigeria,
the global economic downturn will expand the crime circle with new
dimensions introduced in cyber crimes, armed robbery, drug
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trafficking, money laundering, advance fee fraud, kidnapping and
counterfeiting of local and foreign currencies. Their fusion with
returnee Nigerians who are victims of the economic downturn in
other countries and jobless locals will heat up the socio-economic
landscape. Recently, this Service uncovered the activities of two
(2) syndicates based in Kano and Lagos who are into the printing and
circulation of foreign and local currencies with external outlet in
Abidjan, Cote d’ivore.
14. The economic recession can also engender radical evangelism
by religious extremists who typically will blame the government for
the global crisis. The illegal immigrants and idle youths are ready
tools in what could turn out to be unceasing attacks on the
governments and its institutions.
15. The economic and financial crisis will have grave implications
for the Niger Delta region. It is generally believed that the
solution to the militancy and youths restiveness in the region lie in
its development. Already the N18 billion allocated for capital
projects in the area in the 2009 budget has been criticized as
inadequate to tackle the numerous problems. The rising pressure in
fiscal management as a result of the meltdown could force a review
of sectoral allocations. This might affect the Niger Delta
Development Commission (NDDC) and the Ministry of Niger Delta.
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Any development in that direction will further militancy and
aggravate the hazy security situation in the area.
16. The economic downturn could be a boost to the threat of
terrorism. The phenomenon sprouts faster in the face of poverty
and unemployment which are sources of disenchantment among the
populace. The present situation is likely to expose Nigeria to a more
veritable threat from terrorists who may exploit the situation to
recruit agents and open cells in the country.
17. The economic and financial crisis which has affected the
finances of the nation will lead to declining personal income. This
has the capacity of undermining loyalty and suborning of persons
entrusted with the security of the nation. The compromise of
official secrets/documents is a major breach that impacts on
security and governance.
18. The Federal Government like other governments of the world
is fashioning out measures to checkmate the effects of the crisis in
the country. The critical areas for consideration should include the
diversification of the economy, strengthening of the small and
medium scale industries to form the launching pad for the nation’s
industrial take off, proper funding of the real sector, close
supervision of money and capital markets operators by the
regulatory agencies and ensuring fiscal responsibility by public
officials. The effective management of public perception on the
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crisis and efficient power supply to reduce the burden of
investors/manufactures are no less important in managing the crisis.
These will reduce untoward reactions.
19. Despite the grave implications of the economic recession on
internal security of the nation, the ability to appreciate, neutralize
and/or contain emerging threats will remain a major challenge for
security agencies. The success of the efforts will be predicated on
the effect of Government’s remedial measures.
D E JOHN, OON, fwc
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