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THE WORLD ECONOMIC RECESSION, NIGERIA’S ECONOMY AND CHALLENGES FOR THE WORKING CLASS

Femi Aborisade[1]

aborisadefemi@yahoo.com or aborisadefemi@gmail.com

INTRODUCTION

The world economy entered a turning point with the financial crunch of September-October 2008. Assessing the effects of the global meltdown on the Nigerian Stock Exchange, the former NSE President, Oba Otudeko, stated:

it would be pretentious of anybody to say that we have solution to what is currently happening in the market…the DG has been here for 27 years, I don’t think she has seen anything like this since she has been here. And throughout the world, there hasn’t been anything like this; even the 1929 recession was not exactly like this (Oba Otudeko, 2009: 11).

Though the above comparison of the 2008 world financial crunch with the 1929 recession is not accurate, the assessment of the crisis is indicative of the shock waves which the global meltdown has sent, not only to the Nigerian capital market but also through the Nigerian economy as a whole. Since the occurrence of the world financial crisis, attempts have been made by the Nigerian governments to pass the burden of the crisis on various strata of the working class, whilst at the same time, using state resources to rescue the failing banks. This paper assesses the world economic meltdown with a view to appreciating the challenges it poses to the working class, nationally and internationally.

THE WORLD FINANCIAL MELTDOWN: DESCRIPTION AND EXPLANATION

In September-October 2008, there was a financial crunch in the US. The immediate cause was rooted in the housing market. Since the late 1990s, the US Federal Reserve Board had sought to prevent a major economic crisis by flooding the American economy with cheap consumer credit - workers whose real wages had stagnated or shrunk had been encouraged to borrow in order to maintain demand for goods and services. It was the inability of numerous borrowers in the housing sector to repay, which is technically called ‘subprime defaults’ that caused the onset of the financial crunch. The subprime default-induced financial crunch has caused great unhappiness, not only for the victims who stood to lose their homes; it has also hurt investors and bankers in the housing market while raising the specter of a recession in the world economy. The ‘subprime sickness’ has been able to spread to other sectors of the economy internationally because so many banks are usually exposed to housing mortgages, directly or directly, in the processes of repackaging and reselling mortgages as security for credits. The spread of risks involved in the syndication of financial credits among banks internationally also means the spread of crisis whenever the bubble bursts.

However, the financial meltdown of 2008 should be located in the inherent weakness of the capitalist system to take society forward in the current period. The growth of the global financial system has its origin in the decline of profit rates in the productive/manufacturing sector, particularly since the early 1970s and the failure to sufficiently restore them from the low levels they had reached by the 1980s, in the industrial world. Though accounts of declines in rates of profits vary from scholar to scholar, there is unanimity that there have been declines. Kliman (2009: 3-4) for example gives the trend of average rates of profits in the US to be 28.2 per cent in 1941-1956, 20.4 per cent for 1957-1980 and 14.2 per cent for 1980-2004. On his own part, Lapavitsas (2009: 13) produces the following profit rates figures for the US – from 12/13 per cent in the 1980s to about 10 per cent through the 1990s and then falling to about 5/6 per cent in the current decade. The problem of the tendency of profit rate to fall and the actual falls have influenced the banks to shift focus from lending for productive activities to scrambling for alternative outlets for profits in areas that are not directly connected to the generation of value and surplus value. These outlets usually consist in purely speculative gambles in unproductive spheres such as real estate, commodities markets, shares, and so on, whose prices by nature hardly have any relationship with the reality of actual value created in the productive sectors of the economy. Investors in those speculative outlets tend to have an illusion of rising profits until the bubbles burst. (Choonara, 2009: 83-85). Estimation of profits in the balance sheet based on rising prices of assets in the non-productive sectors is what Blackburn (2008: 69) has called ‘fantasy valuation’. This refers to the tendency of the financial sector to swell far beyond the scale justified by the value created in the productive sector of the economy. In this context, Husson (2008: 2) opines that financial crisis should be seen as ‘a call to order by the law of value’. Since finance in itself does not create new value, profits must be obtained from the productive sector of the economy. Thus, the collapse of some unprofitable big companies in the financial sector has the capacity to drag down the profitable companies in the productive sector.

Marx (1972: 465-468) also terms this phenomenon ‘fictitious capital’. However, ‘fictitious capital’ neither means the capital does not exist nor does it involve some kind of fraud. Rather, it is investment in ‘paper claims’ over a share of value to be produced. The fact that fictitious capital entitles the owner to a stream of income makes it appear like real capital, which the owner or beneficiary can throw into production to generate value or loan out for interest (Choonara, 2009: 105). Examples include bonds issued by the government, which entitle bond holders to a share of future revenue to be generated by the government, or share purchase in companies which entitles shareholders to a portion of surplus value to be generated by the company in the future. The market prices of the shares might rise or fall depending on how the income inflows compare with alternative investments. In this process of ‘fictitious accumulation’, companies’ shares tend to be pushed well above the actual value of its assets. However, there is nothing like a permanent reservoir of fictitious accumulation because it is possible for a portion of the capital to find its way into production as it may happen when assets are sold or loans taken and ploughed into real production. But in the end, the burst of the bubbles, in the long run, tends to force the economy into line with the actual value created.

The Spread of the 2008 Financial Crisis in Developed Economies

The 2008 world financial meltdown which started in the US later sucked in other industrial countries, bringing about a contraction in their economies. In 2008, the IMF projected that the global economy which grew by about 5% the previous year, would lose considerable speed, slowing to 3.9% by the end of 2008 and that it could weaken even more - to just 3% in 2009, marking the worst showing since 2002 (Vanguard, 9 October 2008: 5). According to the IMF, a global growth of 3% or less is equivalent to a global recession (IMF, 2008: 5). In reality however, the state of the economy tends to show that the downswing in the economy might be worse than the predictions. According to Business Times (May 18, 2009:29), quoting EU’s statistics agency, the Eurostate, the economies of the 16 countries that make up the Eurozone declined by 2.5% in the first three months of 2009. It predicted a contraction of 4% across the eurozone by the end of the year. The GDP, which measures the value of all goods and services produced in a country, fell 4.6% on a year-on-year basis. The GDP for the wider 27 countries in the EU also fell 2.5%.

A sharp fall in Germany’s exports and investments was considered a key factor in the decline. Germany is Europe’s biggest economy. The German economy fell by 3.8% during the period - its largest contraction since reunification. The German economy shrank by 6.7% on a year-on-year basis. By the end 2009, Germany’s economy was expected to contract 5.4%.

Provisional data showed the French economy also contracted 1.2% in the first quarter of 2009 as against 1.5% in the previous quarter. The French economy was expected to contract by 3% in 2009. The Italian statistics agency, ISTAT, was also quoted to have reported that Italy’s GDP declined 2.4% in the first quarter – the largest fall since 1980. As far as the Spanish economy is concerned, Spain’s National Statistics Institute found that the Spanish economy suffered its largest contraction in 50 years, with GDP falling by 1.8% in the first quarter.

It should be noted however that during 2009, the governments of most of the OECD countries flooded their economies with credit and central bank interest rates were reduced to record low levels. This action succeeded in refloating the world economy – at least in the short term. So, for example, the World Bank is now predicting 3.8% growth of the African economy in 2010 and 4.8% for Nigeria. However, many of these countries now have much higher levels of debt and it is not clear how these debts can be reduced without provoking another recession.

Consequences of the World Economic Meltdown on the Nigerian Economy

The importance of the economic contraction in the industrial economies described above is how it may pose economic problems for primary products, oil-dependent and export-oriented economies of developing countries, including Nigeria. The world economy is so intrinsically intertwined that whatever happens at the core industrial economies automatically affects periphery economies. In other words, what transpires in the global economy is determined by developments in the industrial countries. This is because the industrially developed countries collectively produce on average 80 percent of the world’s total output and account for 70 percent of all international transactions. (Ifediora, 2009: 1 & 2).

Some of the key specific effects of the 2008 world economic meltdown on the Nigerian economy are identified and discussed below.

Effects on GDP Growth Rate

Muhtar and Babalola (2009: 6) assert that as a result of the lingering effects of the global economic crisis, only a real GDP growth rate of 5.86 per cent is envisaged for 2009 compared to 5.98 per cent in 2008.

Oil Prices

A key index of the effect of the global financial crisis can be seen in the sharp drop in the prices of crude oil in the international market. Oil prices tumbled from over $147 per barrel at the height of its climb in July 2008 to $37/ barrel as at December 2008 (Muhtar and Babalola, 2009: 8). The price picked up in January 2009, hovering between $42 and $45. It only rose to $60 per barrel about 12 May 2009 - the highest since the third quarter of 2008. Given the drastic collapse of oil price in the international market, the 2009 budget was based on a benchmark of $45 per barrel. The oil price rose to about $60per barrel, only due to the genocidal attacks by the JTF on communities in the Niger Delta oil producing areas. On the basis of the fluctuations in oil price, the overall growth of Nigeria’s economy was estimated to slow to 1.5 percent in 2009. (Bloomberg, quoted in BUSINESSDAY, 2 APRIL 2009:1 & 4), even though, as indicated above, Muhtar and Babalola (2009: 6) and the Nigerian National Bureau of Statistics (NBS) estimated GDP growth rate of 5.99 per cent and 5.98 per cent for 2008 and projected GDP growth rate of 5.33 and 5.86 per cent for 2009 respectively. (The Guardian, 2 September 2009: 2). The oil price currently still hovers around $85 per barrel, compared to over $140/barrel.

Effects on Government Finances

Business Times (18 May 2009: 8) reports that the revenue shared among the three tiers of government has continued to nosedive in the face of fluctuating crude oil prices and a shortfall in exports. In April, N317 billion was shared, compared to N323 billion shared in March, indicating a difference of about N6 billion. In January and February 2009, the revenue available for sharing fell by N150 billion and N35 billion, respectively, bringing the total reduction to N185 billion in two months.

The effect of the world economic recession can also be assessed from the CBN’s report (cited in Nigerian Tribune, 31 August 2009:45) of fiscal deficit and decline in total federally-collected revenue for the second quarter of 2009. A budget deficit of N382.2 billion was recorded by the Federal Government in the second quarter of 2009. This was against the N57.96 billion deficit in the first quarter and the budgeted sum of N209.15 billion. As a percentage of GDP, the fiscal deficit for the review period was 5.7 per cent. Similarly, the total federally-collected revenue of N1,044.89 trillion during the same period represented declines of 21.2 per cent and 11.6 per cent from the budget estimate and receipts in the first quarter. Oil receipts of N696.61 billion constituted 67.7 per cent of total receipts and represented declines of 10.5 per cent and 17.3 per cent of budgetary estimates and receipts in the preceding quarter, respectively. The fall in oil receipts was attributable more to decline in crude oil and gas sales occasioned by militant activities and repression by the state in the Niger Delta oil producing areas, rather than just the world economic crisis. It should be noted that military genocidal attacks by Federal forces on militants’ bases in the Niger delta in May of last year have, perhaps for the first time, influenced the extension of sabotage of oil installation outside the Niger Delta, with the attacks on key oil facilities in Atlas Cove, Lagos, the economic nerve centre of the country. By these events, oil production was drastically cut.

Muhtar and Babalola (2009: 8) also capture the state of Federal Government finances for the first nine months, January to September, of 2009 – revenue from both oil and non-oil sources fell below projections. On the one hand, aggregate revenue fell short of projected estimate of N2,687.55bn by N666.07bn or 24.8 per cent. On the other hand, oil revenue underperformed by N171.73bn or 23.63 per cent relative to the projected level of N726.8bn. Nonoil revenue also underperformed by N274.3bn relative to the projected level of N662.07bn. The total revenue available for implementation of the Federal Government Budget, including the budgeted unspent balance of N225bn for the first half of 2009 from the 2008 fiscal year was short of budgeted estimates of N1,698.9bn by N404.59bn or 23.81 per cent. The question then is: how was the Federal Government able to cope with the declines in revenue. Muhtar and Babalola (2009:8) explains that the financing gaps were filled by withdrawing from the Excess Crude Account.

Rising Debt Stock

Nigeria’s economic crisis, consequent on the world economic meltdown can also be assessed from the point of view of rising debt stock. Nigeria’s external debt profile has again been on a gradual rise. Before the exit from the Paris Club debt as at end of December 2004, the external debt stock was about $35.94bn. After the uneconomic and slavish payment of over $12bn in 2005/2006, the debt stock dropped to $3.54bn. As at end of March 2009, it rose to $3.62bn (The Punch, 5 August 2009: 70-71) and as the end of September 2009, external debt stock had risen to $3.86bn while domestic debt stood at N3.06 trillion or $20.4bn (Muhtar and Babalola (2009: 7). It is important to note that much of the stock of the existing and new loans being incurred are from multilateral sources – the World Bank, African Development Bank, International Fund for Agricultural Development, and so on. Though they are termed to be ‘soft loans’ with certain concessional terms , including no interest charges, repayment grace period of 10 years and long repayment of between 20 and 40 years, they carry a service charge of 0.75% per annum. The critical implication of this nature of loan is that the future of the coming generation is being mortgaged and enslaved. The debts are being incurred, stolen and enjoyed by the current ruling class but the burden of repayment is to be borne by future generations.

Foreign Reserves

The Central Bank of Nigeria (CBN) figures show that the reserves, which had risen to over $63 billion by 10 October 2008, have declined progressively since then. The foreign reserves dropped by $4.3billion or 6.85% in two weeks, from $62.7billion on 14 October to $58.4billion on 29 October (Ogbu, 2008). Indeed, it declined to $48 billion as at February 2009 (BUSINESSDAY, 30 MARCH, 2009: p.60) and plummeted further to $42.2bn as at 24 November 2009 (Muhtar and Babalola (2009:7).

Capital Flight

One of the early observations relating to the effects of the world economic meltdown was capital flight. The SEC Committee on the Capital Market had reported that Foreign Direct Investment was $5 billion in 2005, $14 billion in 2006, and $12 billion in 2007. The Federal Government claims FDI in 2008 was $13 billion (Nigerian Compass, 31 August 2009: 16). Contrary to this trend, massive flight of hedge funds, foreign direct and portfolio investment from Nigeria was observed. Ifediora (2009: 1 & 2), a Nigerian USA based Professor of economics, speaking at the 50th Anniversary celebration of the Central Bank of Nigeria CBN, explains the justification for the development of capital flight - debt and portfolio equity have been found overtime to be very volatile. He asserts that FDI follows economic development, and is not a cause of economic development. In his words:

Capital, like all other economic agents, moves to areas where the return is highest. They move to countries that provide potential investors with proper social infrastructure, a pool of relevant work force, a safe environment, and a strong market outlook for their products (Ifediora, 2009: 1 & 2).

Crash in the Capital Market

The doom in the Nigerian capital market could be appreciated from the rapid decline of the Nigerian Stock Market. On the basis of the policy of making the private sector the engine of economic growth and massive privatization programme, the Nigerian Stock Market became the fourth best performing in the world with market capitalization growing from barely N280 billion by early 2000 to over N15 trillion by March 2008, within a period of less than a decade (Editorial, The Punch, 3 September 2008:14; and The Report of the National Assembly SEC Committee on the Nigerian Capital Market in Business Day, Monday 30 March 2009: 20 - 21) However, from the peak of N15.265 trillion in March 2008, market capitalization began to experience an unprecedented bearish trend, dropping to N10.920 trillion in June, N8.8 trillion on 2 September 2008, and to about N4trillion on 19 March 2009 - over 73 per cent crash in price values! All other market indicators, especially the All Shares Index, have similarly witnessed a free fall. The ASI fell from around 65,000 in early 2008 to a third of this in January 2009. (Editorial, The Punch, September 3, 2008:14; Nigerian Compass, 20 March 2009 and Povey, 2009: 4). As at the first quarter of the year, the Nigerian Stock Exchange All Shares Index was estimated to have fallen 37 percent - the steepest quarterly decline in more than a decade and the worst of 89 benchmark indexes tracked by Bloomberg (BUSINESSDAY, 2 APRIL 2009: 1 & 4). Indeed, as at 27 January 2010, Channels 7pm Newstrack reported market capitalization to have fallen to N5.3trillion (as against the previous N15trillion) while All Shares Index (ASI) collapsed to 22,000 (as against the previous N65,000), that is declines of about 67% and 66% respectively, compared to the situation in 2008.

Effects on the Currency

One of the panicky measures adopted by the CBN in reacting to the global and national economic meltdown, including the capital market, was devaluation of the national currency, the Naira. The 2009 National Budget was based on $45 per barrel of crude oil at the exchange rate of N117. The Naira was then devalued in order to get more Naira per dollar, because of the massive collapse in oil price – from $147/barrel at the peak, to $37/ barrel as at December 2008. The reaction of Aluko (2009:20) is apt for Nigerian policy makers:

Money is what money does. If the value of the Naira is N117 and the value of the Naira is changed to N200 to the dollar, what N117 will do is what N200 will now do. So, instead of paying N117 for your imports you are going to pay N200. Simple arithmetic and simple common sense. That is why I said economics is common sense, it’s not difficult. If you devalue your currency, you are devaluing your revenue, you are devaluing your government and your people. Why then devalue your currency? The greatest sin of a country is devaluing its currency…(Aluko, 2009:20).

On High Interest Rate

Another measure adopted by the CBN in rescuing the capital market from collapse was to peg interest rate at 22 per cent. But the 22 per cent interest rate is considered high in the context of the need for economic revival. Indeed, Kolapo (The Punch, 27 March 2009: Back Page) expresses disgust over the attitude of manufacturers who had earlier described the previous 18 percent banks’ average lending rates between 2007 and mid 2008 as monstrous, now welcoming the pegging of interest rate at 22 percent with open arms. According to Kolapo in the The Punch (27 March 2009: Back Page), the European Central Bank (ECB) has cut rates for the fifth time in six months, bringing the cost of borrowing to as low as 1.5 percent, while lending rates in the US are now as low as 0.5 percent. Given the wide gap between basic needs and supply of goods and services, developing countries ought to operate a lower interest regime than the industrial countries. However, it is one thing to declare a policy pegging the rate of interest, it is quite a different thing enforcing the policy. There is a public perception that the CBN has been helpless enforcing the previous 18 per cent interest rate regime on banks. The banks have a way of raising the interest rates indirectly through all sorts of charges, without any sanction by the CBN.

Effects on the Banking Industry

In spite of all the assurances by the then CBN Governor Soludo, that Nigerian banks were healthy, the state of the banks had long ago been disturbing. Perhaps, the worst hit of all the sectors of the Nigerian economy is the banking sub sector. According to BusinessDay (2 APRIL 2009: 1 & 4), quoting Bloomberg, Nigeria’s stock market, Africa’s best performer during the past decade, posted the biggest declines worldwide in the first quarter of 2009 as bad loans to speculators pushed bank valuations to an all-time low. According to Bloomberg, which relies on Bank of America Corp and Eurasia Group, the New York-based research firm that publishes the Global Political Risk Index with Citigroup Inc., it was estimated that the banks might be holding as much as $10 billion of toxic assets,(that is bad debts) equal to about half of their capital.

Both local and international analysts had earlier expressed concern over the state of health of Nigerian banks. The Financial Counsellor and the Director of the IMF’s Monetary and Capital Markets Department, Jose Vinals, once stated that there were lendings not fully covered by the deposit base of the banks (Olubu, 2009:17 & 36).

It was perceived that one of the sources of the problems faced by the banks was the fact that they provided at least N1 trillion or $6.8 billion margin loans, that is, credit facility extended by stockbrokers to their clients to purchase securities. The implication of all this is that bank lending to the productive sector of the economy has over time been low and has in fact declined. According to the Report of the National Assembly SEC Committee on the Nigerian Capital Market Business Day, 30 March 2009: 20-21):

in 2002 bank claims on the private sector accounted for almost 1/3 per cent funding whilst the equity market contributed slightly more than 25% with the remainder being funded by domestic debt. By 2006 the equity market was financing more than 50% whilst bank claims had decreased marginally to less than 30%.

It should be noted however that even the more than 50% financing of the private sector from the capital market was also sourced from the banks. In other words, the banks were providing short term facilities for long term investments. No surprise then that as the joint audit of five of the banks by the CBN and NIDC revealed, there were predominant cases of non-performing loans. Though, this alone may not excuse the role of corruption in loan processes.

The CBN has been involved in salvaging the banking sector for some time. According to Olubu (2009: 17 & 36) the CBN had lent over N400 billion to the banks, as at May 2009 (See National Daily, 18-22 May: 17 & 36). The loans were advanced from the CBN’s Expanded Discount Window (EDW). The EDW was created by the CBN to prevent bank failures under the weight of the global economic recession. Under the EDW, banks can borrow for up to 360 days. Before the crisis, they could only borrow over night. Previously, overnight borrowing by the banks attracted 14.75 percent. Under the EDW, interest rate dropped to 17 percent per annum. Earlier in the year, the Nigerian Compass (6 January 2009:1& 5), had reported that the CBN had salvaged the banks from going under by not less than N800billion, ‘without following due process in order not to send the wrong signal to the troubled financial services system’. The third reported injection was the pumping of N420 billion into five of the banks – Intercontinental Bank, AfriBank, Finbank, Oceanic Bank and Union Bank (The Guardian, 15 August 2009: 1 & 49), to salvage them from collapse. According to the Governor of the CBN, this facility would be for a period of between five and seven years. (The Guardian, 29 August 2009: 1 &50). The CBN Governor later clarified that ‘much of that money will never come back because the bulk of the money is in the stock market’ (The Nation, 2 September 2009: 1). There was also the fourth injection of about N200bn??? into the banks, after the August N420bn. Altogether, as at the fourth injection, the CBN pumped over N1.82 trillion into the banks to salvage their collapse. The sum of N1.82 trillion injected to save the banks as at 2009 amounts to 54% of the N3.4 trillion 2009 Federal Budget. If the Federal Government had committed the N1.82 trillion pumped into the banks as a salvage measure into any social service for the welfare of the poor, radical changes of revolutionary proportions would have been recorded in such sector.

Pensions

According to the Director-General of the Nigerian Pension Commission (PENCOM), Ahmad, about N 3.14 billion Nigerian pensioners’ fund is trapped in the capital market as an unrealised loss, due to the capital market crash (Nigerian Tribune, 19 March 2009:1).

Factory Closures

Though the world economic crisis and the collapse of the Nigerian capital market may not be the root or immediate cause of factory closures, it has contributed to it. Banners displayed on Workers Day, 1^st May 2009 revealed factory closure of several textile factories in the following locations:

Isolo industrial estate: Five Star, Afprint, Dalamal Textile, Varaman, Royal Spinners, GDM, Aswani Textile, Arcee Textile, Rekha Industires, King Carpet, Emar Textile, President Industries.

Ilupeju: Enpee, NELCO, NSF, Weaving & Processing, Hassan Industies, Jaybee, K-Issardas, Bhojraj, Ad-Gulab, Swantex, Teev-Gold Star, Amarilo-Umbrella.

Ikeja Industrial Estate: Kay Industries, Nigerian Textile Mills, Specomill Industries, Reliance Textile, Oriental, Madhu, Enpee.

Amuwo Odofin: Texlon, Diamond Spinners, etc.

(Olaoye-Osinkolu, 2009: 1).

Effects on Jobs

Internationally, many companies have also failed, leading to massive job losses. The World Bank has recently predicted that 53 million more people in the developing world would likely slip into extreme poverty (income less than $1.25 a day) in 2010, due to the world economic crisis. This is in addition to the 64million increase in 2009. Already, 1.5 billion live in abject poverty worldwide, with majority living in the developing world and Nigeria being host to the third largest concentration of chronically poor people. The International Labour Organisation recently estimated that, in sub-Saharan Africa, the unemployment rate rose to 8.2 per cent in 2009 and is likely to show very little change between in 2010.

Salako (2009) has aptly established the link between the collapse of the banks and the other sectors of the economy. He explains that the new managements in the affected banks have frozen credits and those still running are being called. The banks are not prepared to grant any credits for now. This policy means that many businesses will be grounded and the economy will further nosedive.

Effects on Unionism

On the basis of the economic crisis, unionists must expect vicious attacks. Outspoken unionists are usually the first targets. Tendency for de-unionisation will likely be on the increase. New recruits are likely to be subjected to signing undertaking not to unionize before they are employed. The phenomena of outsourcing, casual and contract staffing will tend to be put on a higher scale than ever before. All these would have implications for the capacity of the unions to fight. Salako (2009) reminds us that prior to this era, everyone who worked in the bank was a permanent staff and that there was no casual, contract or outsourced staff. But the negative trends can be stopped if labour organizes to put up stubborn resistance, on a united basis. But this is only possible if there is shared alternative world outlook, in contradistinction to the world outlook of the ruling class which gives the impression that there is no alternative to poverty.

SOLUTION TO THE CRISIS

An economic downturn means a slowdown in the economy. What is critically needed is a stimulation of economic activities by facilitating access to money by all segments of the society and investing in public enterprises rather than cutting or removing subsidies on public goods. Within this fundamental understanding, the following minimum measures should be advocated and fought for:

1. Nationalize all ailing private companies, including the banks, and renationalize all previously sold public enterprises and put them under democratic management and control of the workers in those enterprises. Nationalization is one of the fundamental lessons to be learnt from the measures being taken internationally to tackle the current economic meltdown. Thus, in September 2008, the US Government carried out the takeover of the mortgage giants Freddie Mac and Fannie Mae, in what a US Professor of history termed the ‘greatest nationalisation in the history of humanity’. Nigeria cannot afford to turn its back to the direction faced by the rest of the world. Therefore, it is not enough to bail out failing private enterprises with public resources; they ought to be nationalized and put under democratic management and control of the workers, who work in them, so that the surplus generated can be available for public goods, including funding of education. The use of enormous public resources to bail out private companies is nothing but socialization of private losses. Rather, such resources should be used to provide for the welfare of ordinary people and enhance their purchasing power. Some people may argue that even the poor also save in the banks and that the bail out of the banks is equally in their interest. To such people, we have the following to say: Lift the Veil of Incorporation on Ground of Fraudulent Trading

2. There is a Need to Lift the Veil of Incorporation on Ground of Fraudulent Trading. There is a need to ‘lift the veil of incorporation’ on ground of fraudulent trading where applicable, in the running of companies in crisis, including the banking sub-sector. This calls for the enforcement of S. 506 of the Companies and Allied Matters Act, CAMA. This section provides that where a company carries on business recklessly or with intent to defraud creditors, any persons knowingly parties to such business shall be personally responsible, without any limitation for all of the debts and other liabilities of the company. The relevant key word here to justify lifting the veil of incorporation is ‘reckless’. In particular, the processes of consolidation of banks have been revealed, not only to be reckless but indeed fraudulent. Rather than bringing the culprits to book by lifting the veil of incorporation, the owners of the banks are being bailed out of collapse with enormous public resources.

3. Increase National Minimum Wage: Another lesson to be learnt from measures being taken internationally in stimulating the economy is raising of the minimum wage. For example, in the U.S., the federal minimum wage has been raised with effect from 24 July 2009 from $6.55 (N1,048.00) per hour to $7.25 (N1,160.00 at the prevailing exchange rate of N160:$1) per hour. Though most States have their own minimum wage rates, employers are required to pay whichever is higher. According to a CNN report (cited in Vanguard, 27 August 2009: 33), an economist with the US Economic Policy Institute (EPI) asserts that the wage increase will inject $5.5 billion worth of extra spending into the US economy over the next year. But in Nigeria, the minimum wage rates (N7,500 at the federal level and N5,500 at the state and local government levels) which were fixed since 2000 have not been reviewed, despite the fact that the 1999 Constitution provides for a National Minimum Living Wage (Section 16(2)(d). For the minimum wage to be an effective economic stimulator, wage indexation should operate such that wages and salaries rise as inflation rises.

4. Development of Economic Stimulus Package: Since the outbreak of the world economic meltdown, various countries have developed different economic stimulus packages. Muo (2009:12) has aptly captured this trend of state interventionism to put money in the hands of the people so as to bring about economic revival in the context of the current economic downturn:

Across the globe, more than $2trn has been spent on various types of stimulus packages and some countries have had to upgrade their packages as the challenges became more complicated. In the US, the Bush government launched the $750bn Troubled Assets Relief Program (TARP) while Obama has passed The American Reconstruction and Recovery Act (TARRA)which involves the commitment of $787bn to revive the economy, ensure growth, put people back to work and put money into their hands. …But beyond macro and sectoral issues, governments are directly empowering the people to spend and thus stimulating their economies. In the US, there is a $8000 subsidy for every new home buyer while in Germany, the car scrapping incentive scheme grants 2500 Euros to anyone scrapping cars that have been up to 9 years on the road to facilitate the purchase of new ones. France has a similar scheme that grants 1000-2000 Euros. Just last week, Japan reduced the weekend tolls on its highways outside Tokyo & Osaka to Y1000. But the ultimate is in Thailand which has adopted the printing press or helicopter option by distributing 2000 Baht ($55) cheques directly to its citizens to stimulate the economy! (Muo, 2009:12)

In contradistinction to the above international trend, in Nigeria,

various tiers of government have shared $1.5bn dollars from the excess crude account so as to cushion the impact of dwindling revenues…But Nigerian citizens…are receiving negative cushioning instead of the stimulus packages as done all over the world (Muo, 2009:12)