Business

Global Economic Crisis: Implications For Africa (1)

Published

15 years ago

August 24, 2009

Ike Ekweremadu

Being a paper presented at the 40h CPA African Region Conference, Port Harcourt.

The theme of this year’s Conference, ‘Commonwealth at 60- The Challenges and Opportunities” is very apt and a demonstration of our collective resolve to exploit available opportunities by taking stock of our challenges. Therefore, I strongly believe the CPA, Africa Region was most correct in listing the current global economic crisis and its implication for Africa as a critical challenge and subjects for discussion at this Conference. It is a matter of common sense that since the economic crisis cuts across nations, it is only natural that efforts to address it take systemic cooperation and strategizing across nations. And where else could have been best suited in charting a course for the rebound and development of African economies than Nigeria, the most populous nation and key player on the continent’s and global economy?

As we probably know, the current global economic crisis is the second round of the financial crisis, which began in United States of America (USA) in August, 2007. The crisis has its roots in a banking practice called sub-prime mortgage lending in the USA. It is traceable to a set of complex banking problems that developed over time. The crisis was caused specifically by housing and credit markets mismatch, poor judgement by borrowers and/or the lenders, inability of homeowners to make mortgage payments, speculation and overbuilding during the boom period, risky mortgage products (financial innovations with concealed ed default risk), high personal and corporate debt profiles and inactive/weak central bank policies.

The benign environment then led investors, firms and consumers to expect a bright future and underestimate risk. Housing and other asset prices went up in U.S. as several risky mortgages were approved and sold as being nearly riskless. Therefore, when housing prices fell and sub prime mortgages and securities based on them reduced in value, the stage was set for a crisis. The crisis became contagious and quickly moved across assets, markets and economies in view of global integration and connections among financial institutions.

It is therefore relevant to ask, what does the global economic crisis mean for Africa? What are the channels through which the crisis is spreading and affecting Africa? What strategies can Africa use to counter the effects of this global economic crisis? The aim of this Paper therefore, is to examine the implications of the global economic crisis for African economy.. For a better understanding of the subject matter, relevant concepts are clarified and an overview of past and present global economic crises is presented followed by the implications of the global economic crisis on Africa with emphasis on the Nigerian economy.

Global: This is a synonym of worldwide and relates to the entire world. It means covering or affecting the whole world. It also mean comprehensive. It has been argued that global has replaced international as a way of referring to issues, processes and structure.

Economic Crises: Economic means ‘connected with the economy of a country or an area’ in aspects like production, trade, services, and development of the wealth of the society. Crisis on the other hand refers to a time of difficulty or confusion when problems must be solved or important decisions made. Therefore, economic crisis relates to difficulties that affect the growth and performance of the economy in question; unlike financial crisis which mainly involve financial institutions or assets suddenly losing a large part of their value. Crises will mean different periods of economic crisis.

Relationship between Concepts: An economic phenomenon is global in outlook when it is worldwide in character and wide spread influence. Hence, global economic crisis refer to economic problems, which affect the economies of several countries.

Analytical framework

The global economy is a network of economic linkages. The domestic economy is linked to the economy of the rest of the world through three markets. These are: goods market, factor market and assets market (money and credit market. Economic activities in other parts of the world influence the domestic economy through each of these markets. The extent to which this occurs depend on the level of integration of the domestic economy to the rest of the world.

The most obvious link of the domestic economy with other economies is through exports and imports of goods and services. The rest of the world influences the prices at which trade takes place and the quantities (for some goods) traded in the world markets. Thus, the effects other economies on the domestic economy are essentially through:

– prices and quantities of exports and imports.

– terms of trade (price of exports divided by price of imports)

– purchasing power of exports (terms of trade X export volume)

The terms of trade, measure is one of the most important indicators of external shocks to the economy. An improvement in terms of trade is a good thing but deterioration is adverse.

The factor market of a domestic economy is linked to other economies through two channels: international mobility of labour and international capital movement. The effects of labour movement, whether short-term or longterm/permanent, are through (1) Influence on labour supply in the home country; and (2) Influence on home country’s income through remittances.

The third link between the domestic economy and other economies in the world is through the market for assets, (the money and credit market). In this respect, people decide on where they want to invest their capital or keep their wealth. Some people may choose to hold their wealth abroad despite obstacles legal and physical while others may prefer the local economy. In any event, capital tends to flee from countries with unstable finances, and where the rewards associated with holding assets, (e.g. interest rates and dividends) are relatively low. This linkage between asset markets is perhaps the immediate and strongest of the three linkages. For instance, domestic prices may take sometime to have effect on the economy. Nevertheless, when interest rates, adjusted for exchange rate depreciation, get out of line, there is an immediate, highly visible pressure from capital flight. External reserves will fall or the country’s exchange rate will depreciate.

A financial crisis can metamorphose into a global economic crisis, manifesting in deepening recession, contraction of growth, employment and, hence, aggregate demand in a number of developed countries and some emerging market economies.

Overview of Global Economic Crisis

The world has witnessed several financial and economic crises. Notable among them is the Great depression of 1929-33, regarded as the worst in modern times. It reflected previous excesses and subsequent incompetence. A short list of some major financial crises since 1980 includes:

Latin American debt crisis of 1980s which began in Mexico U.S. Savings and Loans crisis in 1989-91

Nordic Banking and Economic Crises, 1990-94 ? The 1994-95 Mexican Economic Crisis. The Asian Financial Crisis in 1997-98

1998 Russian Financial Crisis 1999-2002Argentine Economic Crisis 2008 U.S. Financial Crisis

The U.S. Savings and Loans (S&L) Crisis of the 1980-91 was a massive collapse of the thrift industry. S&Ls financed long-term fixed-rate residential mortgages with savings and time deposits at a restricted interest rate. This mismatch exposed Savings and Loans to considerable interest rate risk when inflation rose in the 1970s and monetary policy was tightened. Savings and Loans experienced enormous losses of net worth in 1979-82, and the early 1980s recession exacerbated the problem. From 1986 to mid-1995 about one-half of all Savings and Loans holding in assets were closed. The resulting slowdown in the finance industry and the real estate market may have contributed to the 1990-91 economic recession in America. However, the recession was short-lived and relatively mild.

The three Nordic countries (Norway, Sweden and Finland) experienced banking and economic crisis in the early 1990s though the timing and severity of the crisis were different but there were important common elements. The crisis in Norway preceded the other two as it was closely linked to international oil price fluctuations while the crisis in Finland took the form of a severe depression (cumulative Gross Domestic Product GDP) fell by 14 percent over 1990 – 94 and the unemployment rate exploded from 3 to 20 per cent over that period).

In the case of the Asian financial crisis, the slowdown in the East Asia region during the crisis had global repercussions. The global economy witnessed slow growth and fall in commodity prices. The drop in oil prices adversely affected the export earnings and economic growth rates of oil- export countries like Nigeria. The financial crisis also affected the other non-oil producing Sub Saharan African (SSA) countries through the declining prices of key non-oil export commodities such as cotton, timber, etc. However, the financial effect of the East Asian financial crisis was effectively limited to South Africa because it was the only country in Sub Sahara Africa with sophisticated financial markets and substantial capital inflows. So, it was the only one fully exposed to contagion from the world financial crisis at the time. In recent years, however, some Sub Sahara Africa countries like Nigeria have liberalised their financial sectors and internationalised the capital markets thus making the economies highly vulnerable to the financial contagion.

Business

Paper Industry’s Economic Contribution Hits N398bn

Published

4 days ago

April 22, 2024

The Tide

The contribution of the paper industry rose to N398.8billion in 2023 from N356billion it recorded in 2022.
Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Musa Yusuf, disclosed this in a report released to mark the inauguration of World Envelopes Day in Lagos.
Marking the event, which also commemorated the 50th anniversary of envelope manufacturing firm, FAE Limited, Yusuf stated that the paper industry has a profound economic impact across all sectors of the economy.
He, however, noted that the growth in digital technology had greatly disrupted the sector, especially as a mode of communication.
“As of 2023, the value of the Nigerian paper industry was N398.8billion naira, according to the National Bureau of Statistics.
“The value was N365bn in 2022; N363 billion in 2021; and N255billion in 2020. This is a significant contribution to our GDP. However, when compared to the size of our economy, which is estimated at N230trillion as of 2023, it is still very small”, the CPPE boss stated.
Yusuf said the paper industry had been largely in recession because of the digital technology disruptions and other macroeconomic headwinds, especially relating to exchange rate depreciation, forex liquidity crisis and high cost of fund and energy cost escalation.
He emphasised that the paper industry had a profound economic impact across all sectors of the economy, which underscored the need for government intervention in the sector.
In her opening remarks, the Managing Director of FAE Limited, Funlayo Bakare, described World Envelopes Day as the brainchild of the company, which sought to set aside April 16 as a day to celebrate the fundamental role envelopes play in daily communication.
“As we celebrate our golden jubilee, we are delighted to announce the inauguration of World Envelopes Day, to be celebrated annually on the 16th day of April.
“This is a pioneering initiative by FAE Ltd in accordance with our leadership position in the sector.
“The establishment of World Envelopes Day is to raise awareness about the importance of envelopes in various aspects of human endeavour, including personal correspondence, business transactions, and creative expressions”, she said.
The Publisher of The Guardian Newspaper, Maiden Ibru, who chaired the occasion, stressed the need to strike a balance between digitalisation and physical paper production, especially due to the indispensable role paper plays in cultural preservation.
Nigeria once had three paper mills: the Nigeria Paper Mill Limited, located in Jebba, Kwara State; the Nigerian Newsprint Manufacturing Company Limited, Oku-Iboku, Akwa Ibom State; and the Nigerian National Paper Manufacturing Company Limited in Ogun State.
The mills are no longer operational, and the country has had to depend on importation to make up for the shortfall.
The Asset Management Company of Nigeria has taken over the management of NNMC over unpaid debts.

Business

Aviation Union Threatens Strike Over Revenue Deduction

Published

4 days ago

April 22, 2024

The Tide

The Air Transport Services Senior Staff Association of Nigeria (ATSSSAN) has said it would embark on industrial action if the Federal Government refuses to exempt aviation agencies from a directive that seeks to deduct 50 per cent from their Internally Generated Revenue (IGR).
ATSSSAN disclosed this in a communique issued by its National Executive Council (NEC) after its National Economic Council meeting in Ibadan, Oyo State.
The NEC, which had in attendance all 17 affiliates of ATSSSAN comprising all branch Chairmen, Secretaries, and national officers, reiterated calls for the exemption of the aviation agencies from the deduction of 50 per cent of their IGR under the Fiscal Responsibility Act.
The association said the agencies were not established for profit, hence stifling them of the required funds would jeopardise the effective performance of their safety and security mandates.
ATSSSAN warned that if the Federal Government insist on the deduction, it would compound the current financial state of the agencies, and “we may be forced to direct all aviation workers to down tools until the government reverses itself”.
Last year, the Federal Government directed the Office of the Accountant General of the Federation to immediately commence the presidential directives on a 50 per cent automatic deduction from the IGR of Federal Government-owned enterprises.
The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, had issued a circular titled, “Re: Implementation of the Presidential Directives on 50 per cent Automatic Deduction from Internally Generated Revenue of Federal Government Owned Enterprises (FGOEs)”.
According to the circular, all partially-funded Federal Government agencies and parastatals (receiving capital or overhead allocation from the Federal Government’s budget) should remit 50 per cent of their gross IGR, while all statutory revenues, like tender fees, contractor’s registration, and sales of government assets, among others, should be remitted 100 per cent to the sub-recurrent account.
ATSSSAN stated its apprehension over what it perceives as deliberate efforts by certain private airlines to stop their employees from forming labour unions.
Citing Section 40 of the Nigerian Constitution and international labor norms, the association contends that such actions constitute a violation of workers rights.
The statement, however, did not specify the airline operators suppressing workers from joining unions.
Part of the statement read, “The NEC-in-session calls on all employers in the private sector in the aviation industry to respect collective bargaining agreements in order to avert industrial crises at the workplace.
“NEC-in-session was seriously disturbed by the continuous willful acts by some private airlines towards frustrating the unionization of their employees, contrary to the letters and spirit of Section 40 of the Constitution of the Federal Republic of Nigeria and relevant international conventions and laws”.
The association, therefore, called upon the Federal Ministry of Labour and Employment to uphold and enforce employees’ rights to unionise within the aviation industry.
It urged the Minister of Aviation and Aerospace Development, Festus Keyamo, to orchestrate a dialogue involving all relevant stakeholders, including the non-compliant airlines and labour unions, under the auspices of the Labor Ministry.
At the meeting, other issues affecting workers, especially members’ welfare and working conditions, and the aviation industry at large were discussed, and positions and resolutions were taken.
The aviation group decried what it perceive as a dearth of avenues for career progression within government-owned aviation entities.

Business

NCDMB Rakes In $1m Return On NEDOGAS Investment

Published

4 days ago

April 22, 2024

The Tide

Management of the Nigerian Content Development and Monitoring Board (NCDMB) says it has received a cheque of $1 million from Nedogas Development Company Limited (NDCL).
A statement made available to newsmen by the Directorate of Corporate Communications and Zonal Coordination of the Board said the sum received was part of the return on investment (ROI) on one of its strategic investments.
The statement added that: “The cheque was presented by the Chairman of the company, Engr. Emeka Ene, when he visited the Nigerian Content Tower in Yenagoa, Bayelsa State, where he was received by the NCDMB’s Executive Secretary, Engr. Felix Omatsola Ogbe, and other members of the Board’s management.
“Nedogas Development Company Limited (NDCL) is a joint venture company between Xenergi Limited and NCDMB Capacity Development Intervention Company.
“As part of the project, Nedogas NDCL constructed and commissioned a 300 MMscfd Capacity Kwale Gas Gathering (KGG) and injection facility located in the Umusam Community, near Kwale in Delta State, Niger Delta, Nigeria.
“The KGG Facility was designed to handle stranded gas resources in Nigeria’s OML56 oil province by providing the opportunity for independent operators in the area to monetize natural gas from their fields through the gas gathering, compression, injection and metering infrastructure of the KGG for quick market access.
“Nedogas is one of the several strategic and successful investments of the NCDMB funded from the Nigerian Content Development Fund (NCDF), in line with the Board’s mandate to build capacity and catalyze local projects in the Nigerian oil and gas industry as enshrined under the Nigeran Oil and Gas Industry Content Development (NOGICD) Act”.
In his remarks, according to the statement, the NCDMB Executive Secretary stated that the success story of NEDOGAS at Kwale, Delta State, could be replicated in other oil and gas producing communities to minimise gas flaring, saying that Ogbe also declared the Board’s readiness to continue collaborating with the company.
“Their model should be extended to other parts of the country where gas flaring is continuing.They have shown that with the modular system, we can quickly remove flaring from our operations in Nigeria.
“The NCDMB had continued to receive briefings from its investment partners. We’re still waiting for them to come back with success stories. Some of them are near completion and have not started operations yet”, the NCDMB’s Executive Secretary said.
In his remarks, Chairman of NEDOGAS, Mr. Emeka Ene, conveyed the company’s excitement in returning part of the credit and profit, adding that it was a proof that the NCDMB’s investment was a success and they are getting back that investment, adding that the firm looks forward to further collaboration with the NCDMB to expand its scope.
Responding, the NCDMB boss said the Board was now doing effectively and practically and tangibly what it was set up for, saying its mandate was to impact the economy by direct interventions.
“That’s the way the economy can grow, improve the gas infrastructure in such a way that’s sustainable despite the tight economic conditions”, he said.
He added that, “the value propositions of the Nedogas project include total eradication of flared gas and conversation of environmental pollutants into products of value and creation of a strategic gas gathering hub and injection node for quick access to market for gas owners to monetize gas”.
Other benefits, according to Ogbe, include the provision of alternative gas supply to western flank of the OB3 line to add to the volumes of economic sustainability and increase in Nigeria’s Gross Domestic Product (GDP).
“The partnership with NEDOGAS is one of NCDMB’s 15 strategic investments geared towards actualizing the Federal Government’s aspirations in key areas of the oil and gas industry.
“Most of the projects were targeted at actualizing the Federal Government’s Decade of Gas programme.
“Some of NCDMB’s notable third-party investments include Waltermith’s 5000 barrels per day (bpd) modular refinery in Imo State, Azikel Group12,000 bpd hydro-skimming modular refinery in Gbarain, Bayelsa State, and Duport Midstream’s 2,500bpd modular refinery in Edo State.
“Other investments of the Board include Better Gas Energy for LPG terminal and gas distribution, partnership with Rungas Prime Industries Limited to establish a cooking gas cylinders manufacturing plant in Polaku, Bayelsa State, and Alaro City in Lagos and the partnership with Butane Energy to deepen LPG utilization in the North”, he stated.
The Executive Secretary also noted that there was the partnership with BUNORR Integrated Energy Limited in Port Harcourt, Rivers State, to produce 48,000 litres of base oil per day and partnership with the Nigerian National Petroleum Corporation (NNPC) Limited, Brass Fertilizer and Petrochemical Company Limited, and DSV Engineering to establish a 10,000 Ton Methanol Production Plant, Odioama, in the Brass Local Government Area of Bayelsa State.