Presentation at IT Public Private Forum Kano
by Dr Jimson Olufuye, President, Information Technology (Industry) Association of Nigeria (ITAN) on 29.09.09
There is no doubt that transformed leadership is what matters most in the quest for national development in the contemporary world of today. There is no magic to it. Leadership requires deft and clear knowledge of the path way to success. Imagine a leader that wants to go to London and decided to first drive with his convoy through the Sahara desert to Egypt and then takes a Liner from there to London. How does such leaders grasp the intricacies of the present economic challenges talk less of addressing them? The long and short of the matter is that SMART levers must be identified, recognized and pursued in the thrust for economic recovery and reform by Transformed Leaders.
The questions on our minds are: What are levers? Why recovery and reforms? What are other nations doing? How do we recover faster? What are the key levers of recovery and reforms?
1.0 What are levers?
Lever in this context is a way of achieving something. It could be a device, tactic, or situation that can be used to advantage
There are a number of levers that are key to turning round our economy in the face of the current global financial crises. Though there are signs of recovery in some developed and developing economies like that of the US and China; same cannot be said of ours. Nevertheless, it is a good idea to properly locate those key levers of recovery and in essence the imperative levers for reform for desirable short term economic recovery and long term prosperity.
2.0 Why Recovery and Reforms?
As we all know, the collapse of the American housing market created a domino effect that led to more than just the foreclosure of house buyers’ homes. Non-payment of subprime mortgages that were leveraged by layer upon layer of securitization and re-sold as triple-A assets to the world resulted in a liquidity crisis in mid 2007. However, the key culprit was the increasing globalization and containerization that make it possible for major companies in US and other developed countries to locate their factories in China because of cheap labour and then import the goods to US and Europe creating huge cash holding for China. Chinese do not spend but safe and in the quest to invest the cash invested in US government bond and granted cheap loans to financial institutions. This in turn propelled mass unsolicited mortgage offers that cannot be sustained.
It exposed a global financial architecture that was weak and highly susceptible to catastrophic failure. By September 2008, some of the world’s largest financial institutions began going under. First Lehman Brothers, once an established investment bank. Then another household name, Merrill Lynch. In the following months, others came close to the brink – giant mortgage lenders Fannie Mae and Freddie Mac, investment firms Morgan Stanley, Goldman Sachs and the world’s largest insurer, AIG.
It is now a matter of history that the US Government stepped in with rescue packages to bail out most of these financial institutions. As the crisis deepened, their counterparts in Europe also started failing. Banks were not the only ones to fall. So did the Government in Iceland, where a high degree of leverage funded by foreign currency debt fuelled the recent economic boom. Before long, stock markets around the world collapsed, wiping out corporate investments and personal savings in months what it took years to generate and accrue.
Bloomberg has estimated that the crisis has swept away 14.5 trillion US dollars or an astonishing one third the value of the world’s companies. The financial bubble has well and truly burst after a considerable period of global economic boom.
Many of the world’s wealthiest and most industrialized nations have slid into recession in the wake of the global financial meltdown.
The US economy is expected to contract by 1.6% by end 2009 and the UK by 2.8%. Japan, the world’s second largest economy, also expects to register negative growth of 2.6%. What started out in the US has leapt across borders to the rest of the developing world as a contagion. South Korea, Taiwan and Singapore, all economies with strong links to the export market, are looking down the barrel at contractions of between 2% and 9%. The situation is so grave that the International Monetary Fund or IMF revised downwards its 2009 forecast for world economic growth from 2.2% to just 0.5%.
None of us has been spared as we live in an increasingly inter-connected world. Not Asia, not South America, not even Africa. Global businesses are reeling, dampened by declining sales due to the drastic drop in private consumption that in turn, was caused by the credit crunch.
Likewise, the flagging fortunes of many multinationals are setting off a chain reaction. Local vendors are forced to supply to a smaller market. Spin-off industries reliant on these vendors face the same scenario, and the list goes on. Against this backdrop, corporate cut backs and retrenchment are becoming endemic. At the same time, opportunities are drying up for the creation of new industries and businesses.
It is fair to say that our livelihood and way of life are under threat. It is also fair to say that developed countries can better weather this storm than emerging nations where poverty levels are more susceptible to striking changes.
In Asia, nations have grown accustomed to a golden period of rapid growth and wealth creation. Two of the world’s fastest growing economies in Asia are China and India. Yet because their growth is tied to increasing integration with the global economy, both nations have been unable to insulate themselves against the debilitating effects of the crisis. Already, China and India are projecting a slowdown in their growth rates for 2009 – China from double digits to about 7% and India from 9% to 5%. These no doubt have an effect on the other economies in Asia.
Compared to other parts of the world, Africa and Nigeria in particular has a much lower level of integration with the world economy. This can be affirmed by the fact that our economy (Nigeria’s), is largely built around oil and related products. Nevertheless, the effect of the global economy distress is evident in Nigeria. There is reduction in Foreign Direct Investment (FDI), Low crude prices imply lower earnings and by extension reduced government take-home for on-going and new critical projects.
3.0 How are other nations addressing the challenge of the global economic meltdown? (ie Nations Recovery and Reform strategies)
Let us start with the United States, the world largest economy with GDP $13.16trillion, more than 27% of the of the world economy.
In February this year, President Obama unveiled a US$787b stimulus package over and above former President Bush’s US$700b bailout of financial institutions. This package comes in the form of tax breaks designed to promote job creation and support small businesses. It also includes substantial reinvestments in renewable energy and significantly, in ICT. While the American package is sizeable, this according to Bloomberg represents only the tip of the iceberg. The news agency has estimated that US taxpayers will eventually bear the cost of some $9.7t in bailout packages and plans.
Europe (the Euro zone – 12 EU members that had adopted the euro before December 31, 2006: Austria, Belgium, France, Finland, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain) has followed suit with a 200 billion euro or US$259b stimulus package on top of US$2t in other rescue and bailout packages.
So has Japan, which recently unveiled a new stimulus package worth US$150b and above the combined injections of US$120b since last September.
Just as impressive is China’s response with a US$586b plan spread over two years to boost domestic demand, an amount equivalent to almost 15% of the country’s GDP.
We can say that Nigeria injected first in January this year and over the fiscal year 2009 through its 2009 budget more than N3trillion naira (~US$17b). In August 2009, another N460b (US$2.9b) injection was effected to stabilize the effect of the meltdown on the financial sector.
It is hoped that this injections will stabilize the critical financial sector, create jobs and build some capacities for the future.