The new International Monetary Fund (IMF) report on regional economic outlook for sub-Saharan Africa presented recently indicates that Nigeria could spend 100% of its income on debt service by 2026. The country currently spends 89% of his currently low income to debt. which the IMF Resident Representative for Nigeria, Ari Aisen, has called an “existential problem” for Nigeria.
He pointed out that the country’s inability to take advantage of high world oil prices to increase its reserves is due to the massive drop in oil production, due to theft, vandalism and the like at a time when the price of oil was above $100 a barrel. In fact, the latest data from the Organization of the Petroleum Exporting Countries (OPEC) reveals that Nigeria has lost its status as Africa’s top oil producer due to a drop in production of 195,000 barrels per day (bpd). ) to 1.02 million bpd in May 2022. .
The Bretton Wood institution, which oversees the stability of the global monetary system, said: “Inflation in Nigeria reached 17.71% in May this year, driven by a further spike in food prices, exacerbated by the war in Ukraine, raising food security concerns as more than 40% of the population lives below the poverty line. A recent World Bank Nigeria Poverty Report whose objective is to reduce poverty by offering assistance to middle and low income countries, also indicates that by the end of 2022, an additional one million Nigerians will fall into poverty, indicating that inflation in Nigeria, already one of the highest in the world before the war in Ukraine, will rise further due to rising global fuel and food prices caused by the war.
In fact, the Russian military operation in Ukraine and the subsequent economic sanctions deployed against Russia by the Group of Seven, made up of Canada, France, Germany, Italy, Japan, the United States and the United States, and their allies, have entered a new phase in international relations with implications for the global economic order, a slowdown in activity and mounting pressures on the prices of oil, gas , metals and food.
”Together, Russia and Ukraine account for 12% of total food calories traded globally, and both are key exporters of commodities such as wheat (28% of global trade) and coconut oil. sunflower (69%), according to the International Food Policy Institute.
The war not only severely disrupted trade flows and the supply chain, but also caused a tightening of financial conditions through the weakening of many economies and indirectly through a faster than expected tightening of monetary policy in advanced economies. . The IMF estimates that countries that sanction Russia now account for 64.9% of global economic output. And by 2027, he predicts that number will drop to 58.5%.
The IMF projects that China and India together will have a higher gross domestic product (GDP) on a purchasing power parity basis by 2040, than the United States and the other eight sanctioned countries combined, as well as other emerging market economies such as Brazil, Mexico, Indonesia and Turkey.
This projection reveals a sudden change in the underlying geopolitical tectonic plates resulting from the sanctions earthquake. The danger is that these plates could move further apart, fragmenting the global economy into blocs with different ideologies, political systems, technological standards, cross-border payments, trading systems and reserve currencies.
Trade could be even more complicated given that there are many dimensions of cooperation. Western views on homosexuality could complicate its geopolitics with conservative countries. Nigeria, for example, would be one of the 15 largest economies and the largest in Africa by 2040. It, along with many other Islamic and African countries, criminalizes same-sex relations.
The rise of China is a threat to American dominance, as these countries will have an alternative for development funds and commodity exports, especially when the authoritarian Chinese government does not require its allies to adopt human rights reforms.
This development could end two centuries of Western global domination. But today’s united response to Russia could be the Western swan song if current economic trends force non-sanctioning powers to form an informal alliance to compete with and displace the West. The United States’ share of global output, and therefore the share of global output that it can safely back up through its official debt instruments, is bound to decline as emerging market economies develop thanks to this alliance.
Dollar-gold convertibility ended in 1971, yet the dollar’s dominance has instead increased due to interlocking, self-reinforcing network effects and the unchallenged liquidity and safety of US Treasury bonds. These self-perpetuating network effects are now threatened by current sanctions. With a declining share of global output, the United States cannot remain the world’s sole provider of safe assets indefinitely.
With falling revenues from crude oil exports which account for 70% of the country’s foreign exchange, the Central Bank of Nigeria (CBN) is unable to meet the ever-increasing demand for dollars from Nigerians. This situation forced the CBN to sign a three-year, 720 billion naira currency swap agreement with the People’s Bank of China in July 2018 to facilitate trade between the two countries and increase its reserves. The agreement aims to provide liquidity in naira and yuan to Chinese and Nigerian companies respectively, to improve the speed, convenience and volume of transactions between the two countries.
The 2018 agreement expired in April 2021 and was renewed to encourage the use of an alternative trade currency to the US dollar, especially as Nigeria imports heavily from China. With this move, the country is clearly making its way to be part of the new emerging global economic bloc that war-induced sanctions against Ukraine are forcing unsanctioned countries to form for their economic survival.
Muhammad writes from Kano
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