GLOBAL ECONOMIC CRISIS AND ITS IMPLICATIONS ON

NIGERIA’S INTERNAL SECURITY

The origins of the economic crises – D.E. John, oon, fwc
The current Global Economic Crisis which started in 2007 is

the third major economic and financial rumbling that has affected

the economies of nations across the globe. Economic History

records that the first major global economic downturn was in the

1830s when the United States of America experienced

unprecedented economic crisis which spread to some other

countries in Europe.

In the 1930s, a second economic crisis again hit the United States

and because of its unparalleled severity was described as the

“Great Depression”. Its spread and effects were more global due

partly to the more closely knit nature of the world following

advancements in information and communication technology. The

current global economic crisis also has its roots in the United

States and has spread faster than the previous experiences to

other parts of the world mainly because of the integration of world

economies or Globalization. The British Prime Minister, Gordon

BROWN captured the situation succinctly when he pronounced that

“the current economic crisis more dramatically than ever before

exposed the true nature of global interdependence”.

1 of 9
Apart from originating from the United States, another common

feature of the three major global crises is the fact that they have

all primarily been caused by reckless and careless lending by banks

and mortgage institutions. In the 1830s, the checks placed on state

banks by the Bank of United States were virtually removed. The

banks had free rein and provided credits without the necessary

collaterals. They could not cope with the pressure of demand for

more credits and the inability of creditors to repay the loans

compounded the situation. The development affected businesses

and thousands of farmers who had speculated on land through

mortgage foreclosure lost their farms. Several businesses and

projects particularly in the construction industry were grounded as

unemployment reached an all time high. That was the first global

economic crisis.

In the 1920s, United States capital market witnessed an

unprecedented boom. The market value of stocks hit astronomical

levels as speculators had a field day. Again, funds were made

available by the banks in form of loans to be paid on demand. The

prices of equities sold as much as fifty times their nominal value.

The market began to weaken in September 1929 and by October

1929, the crash set in. There was panic sales of stocks which led to

the collapse of the United States economy. Investors lost over

$30billion as the prices of stocks were reduced by half. They

2 of 9
became debtors and the Great Depression consumed many who not

only lost their money but also their jobs and those who could not

absorb the downturn, committed suicide.

The current crisis was again triggered off by reckless lending by

banks and mortgage financial institutions in the United States. The

availability of excess liquidity created commodity and housing

bubbles. Several enterprises, especially the two that were

government sponsored, Freddie Mac and Fannie MAY provided

mortgage for the housing market. These were sub-prime mortgages

which entailed availing of loans to borrowers who did not qualify for

the credits. The main collateral was their income levels or their

credit history. It was assumed that they will always pay back

because they had fulfilled similar obligations in the past. These

mortgages had risen to about $1.5trillion in March 2007 and by

June 2008 turned out to be bad loans.

The effect was extensive as commercial and investment banks,

investors, real estate investment firms were infected by the bug

when borrowers could not pay back. The subsequent decline in the

prices of houses affected the stock market. These developments

generated panic in the financial market and forced investors to

disinvest in mortgage bonds considered risky. The aggregation of

all these brought about the credit squeeze which has ravaged not

only United States economy but also the global economy.

3 of 9
 THE FACE OF THE GLOBAL ECONOMIC CRISIS IN NIGERIA

Consequent upon globalization and advancements in information

and communication technology, the world has in the words of

Marshall Mac LUHAN become a “global village”. This fact has made

it impossible for Nigeria to be insulated from the global financial

and economic crisis. The effect of the crisis is already evident in

Nigeria despite unconvincing appreciation of the situation by

officials in the financial sector. It has created panic, fears,

anxieties, disappointments, frustration and oppressive feeling of

insecurity among individuals and corporate citizens. The economic

environment is at best hazy and is sneering at the political sphere.

The effect of the global recession has been hastened in Nigeria by

hedge funds and the pulling out of money from the country by

portfolio investors including Renaissance Capital et al. The

situation was compounded by the indiscriminate lending by banks to

investors to purchase shares without the necessary collaterals. It

contributed immensely in the crash of equitY prices and depression

of the capital market. The investors that secured the loans to buy

stocks could not pay back and the Banks which had invested over

50% of its funds in the sector are left in the lurch. In the face of

the cash crunch, uncertain future and increasing default in loan

repayment, banks are holding on to their funds and/or lending

selectively.

4 of 9
The global economic crisis is headed for a prolonged sojourn with

grave consequences for the nation. The crisis has manifested in the

sharp drop in the market capitalization on the Nigerian Stock

Exchange (NSE) from over N12 trillion in August 2008 to N4.8

trillion in the first week of February 2009. This amounts to a loss

of about N8 trillion in six months.

10. The global economic crisis is headed for a prolonged sojourn

with grave consequences for the nation. The implications of the

crisis on internal security arise from its fall-outs which include

drop in national revenue occasioned by falling oil prices in the

international market, depreciation in the value of the Naira,

dwindling external reserves, reduced budgetary revenue, shortage

of external funding for national development and reduction in

Foreign Direct Investments (FDIs). For an import-dependent

nation, the declining value of the Naira means high prices of goods

and services. This will expand the nation’s threat profile and

heighten insecurity.

11. The net effect of the foregoing will be a general shrinking of

the economy and stunted developmental initiatives. It is worth

appreciating that development and security have organic and causal

relationship. As a result of this nexus, the economic and financial

recession will affect development and increase security challenges.

It will affect investments in new projects and the completion of old

5 of 9
ones. Economic opportunities will decline resulting in massive jobs

and pay cuts in all sectors of the economy. The retrenchment of

workers and non-employment of qualified hands would widen the

labour market and engender resentment and despair. The

combination of a high proportion of disappointed poor, millions of

disenchanted unemployed young people, disillusioned intellectuals,

frustrated retirees, disgruntled politicians, confused, and shell-

shocked business community, who are partly the by-products of the

recession, will deepen social tension. They pose a major challenge to

internal security. Their frustrations could manifest in violent

protests and sabotage of critical government infrastructures.

Many hapless retirees who have lost their benefits invested in

stocks and several other Nigerians who secured loans to invest are

not only predisposed to hypertension and mental derangement but

could embrace suicide.

12. The decline in investible funds will affect the already lean

budgetary allocation to the security sector. In the face of rising

threat profile, the limited financial resources will stretch the limits

and capabilities of the various agencies to manage emerging

intelligence and operational challenges.

13. Apart from forcing illegal immigrants to move into Nigeria,

the global economic downturn will expand the crime circle with new

dimensions introduced in cyber crimes, armed robbery, drug

6 of 9
trafficking, money laundering, advance fee fraud, kidnapping and

counterfeiting of local and foreign currencies. Their fusion with

returnee Nigerians who are victims of the economic downturn in

other countries and jobless locals will heat up the socio-economic

landscape. Recently, this Service uncovered the activities of two

(2) syndicates based in Kano and Lagos who are into the printing and

circulation of foreign and local currencies with external outlet in

Abidjan, Cote d’ivore.

14. The economic recession can also engender radical evangelism

by religious extremists who typically will blame the government for

the global crisis. The illegal immigrants and idle youths are ready

tools in what could turn out to be unceasing attacks on the

governments and its institutions.

15. The economic and financial crisis will have grave implications

for the Niger Delta region. It is generally believed that the

solution to the militancy and youths restiveness in the region lie in

its development. Already the N18 billion allocated for capital

projects in the area in the 2009 budget has been criticized as

inadequate to tackle the numerous problems. The rising pressure in

fiscal management as a result of the meltdown could force a review

of sectoral allocations. This might affect the Niger Delta

Development Commission (NDDC) and the Ministry of Niger Delta.

7 of 9
Any development in that direction will further militancy and

aggravate the hazy security situation in the area.

16. The economic downturn could be a boost to the threat of

terrorism. The phenomenon sprouts faster in the face of poverty

and unemployment which are sources of disenchantment among the

populace. The present situation is likely to expose Nigeria to a more

veritable threat from terrorists who may exploit the situation to

recruit agents and open cells in the country.

17. The economic and financial crisis which has affected the

finances of the nation will lead to declining personal income. This

has the capacity of undermining loyalty and suborning of persons

entrusted with the security of the nation. The compromise of

official secrets/documents is a major breach that impacts on

security and governance.

18. The Federal Government like other governments of the world

is fashioning out measures to checkmate the effects of the crisis in

the country. The critical areas for consideration should include the

diversification of the economy, strengthening of the small and

medium scale industries to form the launching pad for the nation’s

industrial take off, proper funding of the real sector, close

supervision of money and capital markets operators by the

regulatory agencies and ensuring fiscal responsibility by public

officials. The effective management of public perception on the

8 of 9
crisis and efficient power supply to reduce the burden of

investors/manufactures are no less important in managing the crisis.

These will reduce untoward reactions.

19. Despite the grave implications of the economic recession on

internal security of the nation, the ability to appreciate, neutralize

and/or contain emerging threats will remain a major challenge for

security agencies. The success of the efforts will be predicated on

the effect of Government’s remedial measures.

D E JOHN, OON, fwc

9 of 9