Impending world economic crisis: how will it affect Nigeria?

In spite of the bulk of the population being employed in agriculture, the main source of revenue for the Nigerian state is the export of oil. At the moment a lot of money is coming in, and yet poverty and income inequality have never been so high. When the US recession finally hits Nigeria it will have a tremendous impact on the political life of the country.

Nothing can be truer than the graphic description of the present economic mess, as described by Mick Brooks in World economy in crisis - The financial panic: where are we now? On 23 January 2008, as published on www.marxist.com, he wrote:

"The upswing since 2001 has been one of the most lopsided in the history of capitalism. It has been powered by the American consumer, referred to by some economists as ‘the consumer of last resort,' so important are they conceived to be to the functioning of the world economy. Though comprising less than 5% of the world's people American consumers' demand has been responsible for an incredible 19% of the growth of the world economy in recent years. How is this possible? After all American workers' incomes (and most American consumers have to work for a living) have not risen in real terms for three decades. Yet they have more money in their pockets to spend, and to buoy up a world economy of six billion souls in the process. The answer to this question is because of what is called the wealth effect. House prices have been going up so Americans have felt richer. Consumers have been able to borrow against the rising value of their houses. In effect they have been using their homes as ATMs, spending like there's no tomorrow. Now tomorrow has arrived."

The arrival of tomorrow brings in its wake, a bubble burst. Prices have since been going up because people are buying things, and they were buying because the prices were going up, now it is turning to its opposite, prices are coming down because people are selling, and they are simply selling because the prices keep on going down, thereby landing the system in its present impasse.

As the US economy is melting down, one thing is very clear: it will obviously bring the whole world economy down along with it. How and when it will affect each country may vary, it will surely affect every one.

The present article takes a holistic view of how Nigeria will most likely be affected in the coming period, not for the purpose of preventing the impasse in Nigeria, which is absolutely impossible on the basis of Capitalism, but for us the Marxists to get our self prepared for the political implication of impending crisis, after all, Lenin said "Politics is a concentrated economics".

Structure of Nigerian economy in relation to the world economy

Nigeria primarily supplies raw material to the world market. The main agricultural products of Nigeria include peanuts, palm oil, maize, rice, sorghum, millet, cassava (tapioca), yams, rubber, cattle, sheep, goats, pigs, timber and fish. Of all these products, Nigeria exports only cocoa and rubber. 71% of the Nigerian workforce works in the Agricultural sector of the economy, and yet only two products are deemed exportable. The absence of mechanized farming is largely responsible for this.

However, the major export produce of Nigeria since the1970s has remained petroleum and petroleum products, making up 96% of the country's export commodities. Nigeria exported a total of $55.34 billion worth of commodities in 2007. Nigeria's major exporting partners are the United States (47.4%), Brazil (10.7%) and Spain (7.1%) according to 2004 figures.

Nigeria's major import commodities include: arms, machinery, chemicals, transport equipment, manufactured goods, food and live animals. Major import partners include the People's Republic of China (9.4%), United States (8.4%), United Kingdom (7.8%), the Netherlands (5.9%), France (5.4%), Germany (4.8%), Italy (4%) according to 2007 figures.

The figures given above have a lot of implications. Most significantly, with the oil price hovering around $102 per barrel, Nigeria is relatively rich now. Nigeria has an external debt of $3.3 billion with London Club and external reserves of $55 billion.

These figures also explain why Foreign Direct Investment (FDI) has been consistently increasing in Nigeria, reaching a whopping 62% of GDP in 2007, 87% of this FDI goes to the oil sector of the economy, mainly from the USA.

Nigeria is said to be growing at an average of 6.5% per annum (2007 figures), while at the same time the installed capacity utilization in manufacturing industry has plummeted from 62% in the 1980s to 25% in 2007. At the same time, GDP per capita has increased from $860 in 2003 to $2,660 in 2007 (estimated figures).

The Nigerian stock exchange is widely acknowledged as one of the fastest growing in the world, but on what real economic activities does it rely on? There is only one live wire that connects Nigeria to the world economy, and that is Oil. Nigeria is "sound", only when the oil price is sound. The Nigerian economy is absolutely tied to the fluctuations of oil prices.

With the economic slow down in the USA, the demand for oil will be negatively affected. The oil price is presently going up largely as a result of panic and instability in the Middle East. How long this can be maintained is an important question bothering the mind of serious bourgeois analysts.

Just as the bubble burst in the US when tomorrow comes the oil bubble will inevitably burst too and in its wake, will come a serious catastrophe for the Nigerian economy.

In conclusion

Despite the enormous wealth that Nigeria is presently milking out of the world market, rather than developing the economy and bettering the life of the masses, the population living below the poverty line keeps on increasing. Now it stands at 72% of the population. Privatisation means more and more loss of jobs and more poverty. Rather than carrying out a fair distribution of this wealth, which is absolutely impossible under capitalism, what we see is an increasing gap between the rich and the poor.

The figure doe income distribution is becoming more and more difficult to get, because it is described as being extremely provocative and alarming. A rough estimate has it that, 10% of the lowest household owns 1.6% of the national wealth, (this was 2.6% in 1997), and the 10% highest income households own 67% of national wealth, (this was 35.8% in 1997).

As more wealth comes in, under capitalism, this gap keeps on getting wider, and nothing different from this is expected in the coming period. When the impending world economic recession finally touches the Nigerian economic lifeline, and the time is fast approaching; it will inevitably bring along with it huge political implications.

The confidence, the arrogance and spree of political settlement that characterizes this regime will be wiped off in no time. The slightest concession will become impossible, while the already excessively pulverized masses will be incapable of absorbing more attacks on their standard of living, and Nigerian ruling class will be incapable of relaxing this attack and as a result, a tumultuous class struggle will emerge from all this. This will end up either in total chaos and barbarism or a triumph for socialism led and consolidated by the Nigerian working class. There is no middle road to this.

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