When Merill Lynch declared Nigeria as one of the safest economies last month, various economic scholars and commentators were quick to challenge the findings. With claims that Merill Lynch skewed facts to protect its interests in Nigeria to allegations that Nigerian banks did not fully disclose critical data, critics dismissed the report. While we are unsure of the severity, it is certain that the global economic crisis will affect Nigeria. Dr. Obidiah Mailafia, Chairman of the Centre for Policy and Economic Research (CEPER), Abuja gave a speech last week at the Annual Dinner Lecture Organised by the Banking and Finance Committee of the Kaduna Chamber of Commerce, Industry, Mines and Agriculture (KADCCIMA). Dr. Mailafia, the former deputy governor of the Central Bank of Nigeria claims that the global recession will have 7 major effects on the Nigerian economy.
- Aggravate the ongoing stock market crisis. As of last week, it was reported that foreign portfolio investors have withdrawn some US$15 billion from our capital markets.
- Dwindle petroleum prices . Lower fuel prices will lead to a severe reduction in foreign exchange earnings. It has been predicted by some experts that petroleum prices may come down to as low as US$30 per barrel over the coming years.
- Affect the national budget. Already, the 2009 federal budget proposals have an inbuilt deficit of 1.09 trillion naira.
- Reduce development funds. Due to lower oil revenue, there will be less funds available for much-needed investment in infrastructures.
- Reduce net capital flows, both in terms of investment and concessional resources.
- Lower growth estimates. Earlier estimates about growth exceeding 10 percent would have to be revised to 7 – 8 percent for 2008.
- Worsen poverty. Lower growth would also mean a slowdown in the fight against poverty.
In order to effectively address the possible slowdown, Dr. Mailafia proposes that the Nigerian government implement cost-cutting measures such as e-governance. He views the current situation as an opportunity “relaunch our development on new and more robust foundations.” Priority should be given to addressing the severe infrastructure constraints, supply-side issues as well as the institutional environment in general. Mailafia also calls for an effective anti-monopolies regime. “Our economy has a fearful symmetry of cartels that are feeding fat on our country and defrauding customers by charging exorbitantly for poor services and products. ”
Read the full speech on AllAfrica.