Kola Ibrahim
9 November 2008
opinion
Ile Ife — The effect of the current global financial crisis is being felt by third world countries which produce primary commodities. Prices of mineral commodities like Diamond, Nickel, Iron are plummeting as a result of the shrinking market for capital and industrial goods (which are produced by Europe but sold mainly to China).
This is as a result of declining market in US in reaction to the credit crunch which has led to collapse of over 3,400 small and medium scale industries in China and huge sale reduction for major corporations. Expectedly, this will mean retrenchment and huge unemployment in China and thus a declining living standard. The end result is the fall in economic growth in China which as at today is estimated at around 9.8 percent as against 10 percent some months ago. Also, in the South East Asia, Russia and India, despite Singh government's efforts, the economies growth will fall drastically. Of course, G7 economies and Japan hold over 60 percent of world's stocks, their economic survival in terms of markets, cheap labour sources, cheap credit and wealth, depend on emerging and third world markets, more than ever before. With declining prices of commodities in the world, most third world economies are in deep crisis. Even when there are huge surpluses, poor people hardly get anything.
The use ofbio-fuel may reduce as a result meltdown in production but food prices will still be high as a result of declining production and the need for producing countries to protect prices. If on the other hand, bio-fuel use increase in attempt to reduce higher cost of fossil fuel, it will accentuate the food price crisis while only the rich farmers will benefit in food. However, other agricultural goods, especially those used for industrial production will reduce as production worldwide plummets. The over 50% cut in crude oil prices will seriously hit the oil producing countries as there will be serious austerity measure against the poor people as social services will be seriously under funded while salaries will freeze; unemployment will rise as many local companies and banks will cut cost while many foreign companies will either close shop or embark on serious redundancies. Already, many billion-dollar bank-financed projects already planned by big corporations and subsidised by governments in many third world economies like Nigeria are being put on hold which will foreclose the elusive possibility of any development in these economies in the coming period. The reduction in crude oil prices will not reduce fuel prices in oil-deficient third world economies, as further austerity to stay afloat will annul any fuel prices reduction possibility. With many advanced economies already officially declaring depression, regular financial support to poor countries will cease while many creditor corporations and nations that lend to third world economies through multilateral organizations will demand for more collateral, increase rates and even recall some credits in order to stay afloat. The summary ofthis entire are: 1) there will be increase in poverty and falling living standards; 2) there will be increased social tension and working poor struggles and 3) the already elusive short or long term development in the third world economies will further accentuated as multinational companies will be more ferocious in quest for profit and liquidity.
In Nigeria, the financial sector, despite all the lies and propaganda of banks, are in deep shit. They have been gainers in the ridiculous gambling at the stock and equity markets, despite crude underdevelopment in the country. Government (both federal and state) deliberately supported this madness by not only providing banks with public finances to gamble with but by also being the major borrowers from the banks. For instance, while workers are extorted through the dubious pension policy, the banks, through their mutual funds and hurriedly set-up pension managing firms; have had access to this huge wealth, running to over N1 trillion as at,September, 2008, not to invest in productive business but gambling at the stocks. As government provided wealth for these sharks, it also provided markets through issuance of treasury bills at very costly rates -a deliberate attempt to hand over public resources to private hands fraudulently. Furthermore, many of the privatizations and oil well sales carried out are funded by banks at exorbitant though with direct connivance of buyers of these privatised corporations which buy these corporations at rock-,bottom prices and sell them in parts to realise immediate profit from where bank loans and interests are paid. The so-called bank consolidation is nothing short of brazen fraud.
While failed bank managers who lent over N53 billion to themselves are investing the monies in consolidated banks, small shareholders, whose monies were looted could not get their refund! In summary, while government squeeze the poor working people, public monies are handed over to the private business sharks who gamble in all fronts to gain unmerited profit. It should be noted that virtually all manufacturing and non-financial companies in Nigeria have direct link with the banking frauds and gambling through where business people use their positions as bank big shareholder to get favourable credits to run their business without collateral, bank checks or recognised agreements), investment in banks, etc. It is the availability of huge funds realised from exploitation of the working people by government and business class, and the above noted official fraudulent practices that buoyed the maddening gambling at the stock markets in the past one year; and like every other delicate capitalist arrangement, the withdrawal of foreign funds invested in marginal businesses disoriented the whole stock market, which has lost over N2.4 trillion within six months, (though the lost value is itself abstract/unreal) while the rest of the financial system, despite their criminal silence, will face unprecedented problems in the coming period. The end result will be the collapse of big banks and associated companies (either in the real or financial sector). This collapse may not be total but it will impact seriously on their profits (which they may falsify anyway) as already their real stock value is serious taking a free fall. These banks have been lying about their losses at the foreign markets, but we will not be surprised when any of those very close to foreign funding collapses. This will lead to further private sector retrenchment as many medium scale factories that depend (many of which also invest in stocks) will face serious crisis - as energy cost will not abate. Also, suspension of many big capital projects like West African gas project will lead to further crisis for the working people as most companies that were salivating for these projects will have to cut cost. Already, over 25% of pension funds were invested in stock markets while banks hold major portion of this amount; which in the coming period will lead to serious battle with pensioners who will find their pension seized. In 2007, out of over N6.7 trillion shareholder funds in banks' accounts, about N2.5trillion was used for marginal trading, i.e. gambling by banks. International financial crisis (a direct result of the capitalist system) coupled with the crass opportunism ofthe Nigerian ruling and business class will stall in the long term any attempt at development of Nigeria.
It is pertinent to know whether the intervention of advanced countries governments (of US, Europe, Japan and South East Asia), both monetary and managerial will resolve the impasse. This is necessary because many Nigerian and African commentators have started using this as excuse to make governmets to commit public resources to bail out rapacious private businesses. In the first instance, governments of these a vance capItalist economies not even ave any trust in actions they have taken. The British prime minister just few days ago stated that European and American economies will recede completely come next year, after his government committed over $400 billion to clear the financial mess. The stock markets have also been responding to this in negative terms. Analytically, the over $2.5 trillion being spent by advanced capitalist economies - an amount that can provide water, education, public housing, electricity, good transport for majority ofthe poor countries - can not in any sense resolve the fundamental problem of the world economy. In the first instance, the money was lodged in private banks, most of which either suffered losses or almost lost their feat in the financial hurricane. In the fitst instance, part of these funds will be used to resolve some of the debt obligations of these banks while. Furthermore, these banks will surely utilise the fund in such a manner that will help them restore back their profits. This means that lending will still be restricted to lucrative businesses (despite reduction in lending rates by central banks) that will yield short-term profits.
Even, ifthese monies are lent to the manufacturing sector, it will never spur medium term production or consumption increase as most of these corporations will rather shrink their businesses and concentrate oflucrative businesses. This will not solve any ofthe impending job losses estimated at over 35,000 this year and 165, 000 in the next two years in New York alone. Already, many companies have started declaring their job loss forecast for 2009, as companies such as Nissan, Merrill Lynch, etc are cutting their labour force. Moreover, governments' bailout will definitely have consequences in the public sectors, as there will be chronic under funding of social services while governments' employment will slowdown, as governments will try to balance budgets in an attempt to avoid more deficits. Already, New York governor, in a televised interview in CNBC has proposed almost $2 billion deficit which he wants to wipe out of the next year budget, after serious cut have already being made. No matter who emerges as president in US presidential election or which party controls the congress, the over $1.2 trillion being spent by Bush government will lead to squeeze in social funding. Already in Europe, since last two years, there has been deep cut in social funding while job losses had increased seriously, therefore, the current bailout, even if it has any effect (which is not possible anyway), it will not bring back the effect of past cut. Internationally, trade is falling which is having serious impact on transportation as shipping cost has drastically fallen by more than 60 percent. The overall effect of this is that there will not be any way out in the next few years, while the working people will be worse off. Even if the world come out of the present quagmire, it will take few years before another crisis erupt in the world capitalist relation. Already there is a growing interest of capitalist financial sharks to shift from stock markets to treasury bills which again will recycle the crisis in another, if not worse dimension.
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