March 26, 2009
The current economic downturn is taking its toll on every sector of the global economies. Whatever word we choose to describe the current situation-Recession or depression, the obvious truth is we are neck deep in an economic crisis that maybe comparable to the great Depression of the 1930s.
At the present, no body could for sure say how long it will last but many leading and renowned economists are optimistic and suggesting it would be a “V Shape” recession curve. However though, not a few voices are pessimistic and are predicting an “L-Shape” curve with a more severe and stagnating economic consequences.
While it may be acknowledged that governments at various levels all over the world have been reacting and taken steps to cushion the effects and jump-start the economy again, it remained to be seen to what extent these measures taken so far could help restore consumers confidence and boost the economies. Many national governments are already feeling the heat leading to the collapse or resignation of the government in power as has been the case in Iceland, Hungary and most recently the Czech Republic.
There is gloom everywhere you look; credit is frozen as banks are not lending to businesses, people are not speeding, producers are cutting down production due to lack of effective demand as they would not want to produce goods they are not sure will ever leave their warehouses. In factories man-hours are being slashed and in extreme cases workers are being lay off. As a result consumers are holding back on speeding as they are not sure when and where the next income will come.
In this kind of scenario, the real sector or manufacturing sectors are always the first victim but may not necessarily be the worst hit. Today the focus is on the automotive industries and the banking sector because the impact of the economic crisis seems very visible in these two sectors now. Everywhere you turn to, the most likely news item you are bound to hear are all manner of automotive industries bailout policies or banks take over. Among these various bailout policies, the most prominent one is the “Car Scrapping incentive” initiated by the German government, to which many other national governments are already keying into. The primary aim is to keep the automotive industries afloat by boosting demand for new cars through government support of scrapping or trading in of cars older than 9 to 10 years for a new one.
Over 20% increased in sales for new cars was reported in Germany due to this policy in the month of February. Many countries including Slovakia, France, UK, Spain, Italy and the US are at various stages of adopting and applying the same policy to their ailing auto industries. In this short run, this policy seems very plausible but in the long run, there is limit to the purpose which this policy could serve. In a case of protracted recession, there is limit to the number of cars an average person or individual can have at a given point in time. At this stage, the demand for new cars will fall drastically again and we will be back to square one.
The focus on the automotive industries is fine given the very important role it plays in the economies of most countries and its strategic position in job creation through many related and allied sectors. However, I feel that some primary sectors like food/Agriculture, mining, forestry and fisheries have been grossly neglected at the expense of the auto and banking sectors in this matrix. At some point in point in time on a personal reflection, I was tempted to ask- what happens when we all have cars in our garages but without foods on our tables? Since this crisis began, hardly has one heard any government make reference as to how to boost food production or support the farmers to keep production at a sustainable and profitable level especially in developing countries. No body is talking about how to reduce the cost of food items on the shelves by removing some basic taxes like VAT on basic food items to make them affordable to consumers. No body is thinking of how to support the farmers to still keep them on the fields. The farmers are already operating under very difficult production constraints and the downturn is putting them into more disadvantage situations. Today there are already demonstrations by farmers groups protesting the below profit margin for most farming operations. Farmers are raising their voices in protest the world over, in Greece, in Czech Republic, Argentina and everywhere. This may only be an indication of some worse things to come.
During the great depression, the primary sector industries were worst hit, farming and rural areas suffered most as prices for farm produce fell over 60%. Looking back into the past, the most prominent features of the great depression of the 1930s were not empty car garages or empty bank accounts, rather empty stomachs of hungry and starving people turning destitute. It was visible by the look on people faces at that time.
Very soon, precisely in the first week of April, the leaders of the world 20 great countries will be meeting in London to discuss how to save the world from this self-imposed and human created crisis but let it not surprise anyone that it may not be anywhere in their agenda to discuss how to help the world most vulnerable people in this crisis and save them from becoming destitute. World leaders need to learn from history for people who failed to learn from history are bound to repeat the same mistakes of the past. As leaders and national governments plan to support people to own cars, let them also plan on how to ensure that everybody has food on the table.
The time to act is now, as time is a Luxury that the world does not have at the moment. Who knows? We might just be heading into a very long cold “winter”, the type that has never been experienced before. Or could it just be true that the whole world is on the “Road to Hell” as the Czech Prime Minister, the current EU President said? I hope not!
Nigeria as a nation has got all what it takes to come out of this crisis a stronger nation. We have got vast arable land that is excellent for agriculture, large mineral deposits in different locations across the country, great human capital with unequal entrepreneurial spirit. It only take the will of the power that be in Abuja to take the bull by the horn and harness all these potentials and put them into meaningful uses that will make Nigeria great, a country to reckon with when next the submit of the world G-20 nations will be convened.
Ben Nkemachor
Deventer, The Netherlands 25.03.2009
At the present, no body could for sure say how long it will last but many leading and renowned economists are optimistic and suggesting it would be a “V Shape” recession curve. However though, not a few voices are pessimistic and are predicting an “L-Shape” curve with a more severe and stagnating economic consequences.
While it may be acknowledged that governments at various levels all over the world have been reacting and taken steps to cushion the effects and jump-start the economy again, it remained to be seen to what extent these measures taken so far could help restore consumers confidence and boost the economies. Many national governments are already feeling the heat leading to the collapse or resignation of the government in power as has been the case in Iceland, Hungary and most recently the Czech Republic.
There is gloom everywhere you look; credit is frozen as banks are not lending to businesses, people are not speeding, producers are cutting down production due to lack of effective demand as they would not want to produce goods they are not sure will ever leave their warehouses. In factories man-hours are being slashed and in extreme cases workers are being lay off. As a result consumers are holding back on speeding as they are not sure when and where the next income will come.
In this kind of scenario, the real sector or manufacturing sectors are always the first victim but may not necessarily be the worst hit. Today the focus is on the automotive industries and the banking sector because the impact of the economic crisis seems very visible in these two sectors now. Everywhere you turn to, the most likely news item you are bound to hear are all manner of automotive industries bailout policies or banks take over. Among these various bailout policies, the most prominent one is the “Car Scrapping incentive” initiated by the German government, to which many other national governments are already keying into. The primary aim is to keep the automotive industries afloat by boosting demand for new cars through government support of scrapping or trading in of cars older than 9 to 10 years for a new one.
Over 20% increased in sales for new cars was reported in Germany due to this policy in the month of February. Many countries including Slovakia, France, UK, Spain, Italy and the US are at various stages of adopting and applying the same policy to their ailing auto industries. In this short run, this policy seems very plausible but in the long run, there is limit to the purpose which this policy could serve. In a case of protracted recession, there is limit to the number of cars an average person or individual can have at a given point in time. At this stage, the demand for new cars will fall drastically again and we will be back to square one.
The focus on the automotive industries is fine given the very important role it plays in the economies of most countries and its strategic position in job creation through many related and allied sectors. However, I feel that some primary sectors like food/Agriculture, mining, forestry and fisheries have been grossly neglected at the expense of the auto and banking sectors in this matrix. At some point in point in time on a personal reflection, I was tempted to ask- what happens when we all have cars in our garages but without foods on our tables? Since this crisis began, hardly has one heard any government make reference as to how to boost food production or support the farmers to keep production at a sustainable and profitable level especially in developing countries. No body is talking about how to reduce the cost of food items on the shelves by removing some basic taxes like VAT on basic food items to make them affordable to consumers. No body is thinking of how to support the farmers to still keep them on the fields. The farmers are already operating under very difficult production constraints and the downturn is putting them into more disadvantage situations. Today there are already demonstrations by farmers groups protesting the below profit margin for most farming operations. Farmers are raising their voices in protest the world over, in Greece, in Czech Republic, Argentina and everywhere. This may only be an indication of some worse things to come.
During the great depression, the primary sector industries were worst hit, farming and rural areas suffered most as prices for farm produce fell over 60%. Looking back into the past, the most prominent features of the great depression of the 1930s were not empty car garages or empty bank accounts, rather empty stomachs of hungry and starving people turning destitute. It was visible by the look on people faces at that time.
Very soon, precisely in the first week of April, the leaders of the world 20 great countries will be meeting in London to discuss how to save the world from this self-imposed and human created crisis but let it not surprise anyone that it may not be anywhere in their agenda to discuss how to help the world most vulnerable people in this crisis and save them from becoming destitute. World leaders need to learn from history for people who failed to learn from history are bound to repeat the same mistakes of the past. As leaders and national governments plan to support people to own cars, let them also plan on how to ensure that everybody has food on the table.
The time to act is now, as time is a Luxury that the world does not have at the moment. Who knows? We might just be heading into a very long cold “winter”, the type that has never been experienced before. Or could it just be true that the whole world is on the “Road to Hell” as the Czech Prime Minister, the current EU President said? I hope not!
Nigeria as a nation has got all what it takes to come out of this crisis a stronger nation. We have got vast arable land that is excellent for agriculture, large mineral deposits in different locations across the country, great human capital with unequal entrepreneurial spirit. It only take the will of the power that be in Abuja to take the bull by the horn and harness all these potentials and put them into meaningful uses that will make Nigeria great, a country to reckon with when next the submit of the world G-20 nations will be convened.
Ben Nkemachor
Deventer, The Netherlands 25.03.2009
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