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Columnists

Resolving the global debt and liquidity crises, issues and possible solutions

The solution to the world’s debt and liquidity crises is purely an economic issue but it is laced with a new social and political order.

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Since the global financial crises of 2008 which pushed financial institutions to the brink of collapse and saw central banks stepping in to offer bailout funds, the international monetary system has been on trial with a rapid rise in the price of gold, showing wavering confidence in the United States Dollar as a hegemony and reserve currency, as investors look for a safe haven to preserve their wealth.

We also witnessed the debt default crises of Greece, Spain, Portugal and Italy with the European Central Bank (ECB) and the International Monetary Fund (IMF) coming to their rescue.

Consequently, there has been surreptitious and clandestine moves by central banks to shore up their gold reserves to serve as buffers and a hedge against inflation and currency devaluation. Massive bailout packages were embarked upon in the form of quantitative easing also known as asset purchases or printing of currency from “thin air” to provide liquidity for the financial institutions that were affected and jumpstart the economy. This has put tremendous pressure on most nations’ ability to service their debts because of accrued interest. With successive increases in budget deficits, many nations have resorted to rolling over the principal sum by extension of the tenor of these debts.

The global pandemic which led to a total shutdown of the global economy in the year 2020 has compounded this debt-based economy that has been in place since 1971 with the world’s total debt stock reaching the sum of two hundred and eighty-one trillion United States Dollars ($281,000,000,000,000.00) as at 31st December 2020 according to Bloomberg News.

The United States of America whose currency, the Dollar, covers over 60% of the world’s trade has over twenty-eight trillion dollars in debt with an external debt to GDP Ratio of 129.99%; while the Eurozone whose currency is the Euro covering over 20% of the world’s trade and comprising major trading nations like Germany, United Kingdom, France, Netherlands, and Belgium have recorded a combined sum of about ten trillion dollars with an average external debt to GDP Ratio of 324.17% (See world debt clock).

The sustainability of these debt levels globally is seriously in doubt. Coupled with the shrinking of revenue streams and the global recession, most forecasts predict a slow recovery and depressed economic growth.

As the world transitions into a new international monetary system with the use of distributed ledger technology as expounded in my last article, “The Fourth Industrial Revolution and The Birth Of A New International Monetary System,” the following questions arise. Would these debts be transited from the old system to the new system? Who is to bailout these nations from these debts? Does the Special Drawing Rights (SDR) instruments of the IMF as presently constituted have the capacity to bail out the world in these debt crises and also provide liquidity to jumpstart the global economy? Would a complete write-off of these debts as debt jubilee not have consequences on the creditors as these are assets in their books? What are the instruments or assets that would serve as possible options/solutions to these debt crises without having hyper-inflationary impact or stagflation globally?

I strongly opine that these debts from this present debt economy would not be carried over to the new international monetary system otherwise known as “THE GREAT RESET” to ensure a level playing field for all trading nations. The IMF has muted the idea of debt rescheduling and restructuring for under-developed and poorer nations under this pandemic. This is just a precursor to the overall plans in place to resolve these debt crises.

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Gold, though in limited supply, is the oldest asset and a good store of value with a total market capitalisation of about eight trillion dollars. It is being muted as an instrument to be used to offset these debts by a revaluation of the asset from its present price of $1,741.70 per ounce to over and above $10,000.00 per ounce. This increase is to provide a cover to clear these old debts and also provide liquidity for the global markets. By implication, this makes the total market capitalisation over a quadrillion dollars and it replaces the quest for crude-oil dollars. This is a major reason for the aggressive accumulation of gold by these nations.

Poland recently announced plans to acquire one hundred tonnes of gold by its central bank. China has been secretly acquiring gold in African countries like Mozambique, Nigeria and the Sahel Region. Russia, Turkey, and Kazakhstan have been accumulating gold with the first two countries announcing plans to dump the Dollar. Venezuela and Germany have repatriated their gold reserves from New York to their countries in the period between 2011 and 2017.

An electronic special drawing rights ‘e-SDR’ has been muted at the World Economic Summit as the international reserve currency since 2018 to be fully backed by reserve currencies as the world transits to the use of blockchain technology or distributed ledger technology with the use of cryptocurrencies. The ecosystem for this new payment system (plumbing of the payment rails infrastructure, connectivity amongst banks and Central Banks through nodes and automated programming interface, API) has been successfully experimented and tested. We are currently at the last stage which is regulatory clarity for individual nations and governance policy issues around this new technology before a global consensus for mass adoption would be reached at G20 and G30 Summit levels meetings.

Nigeria’s debt stock is currently over one hundred and fifteen billion dollars (see world debt clock). We are using over 30% of our budget to service debt. With a declining revenue stream from crude oil sales and successive budget deficits in the last thirty years, we are not too far from a debt default despite our very low Debt to GDP Ratio of 9.97%. This is very deceptive and should not be used as a basis for assessing the debt sustainability of the country due to our very weak infrastructural base and the insecurity bedevilling the nation.

It is worrisome that the Northwestern part of the country is experiencing widespread banditry and terrorism, particularly around Zamfara, Kebbi and Niger States. These are areas with proven gold deposits with illegal mining currently gaining grounds. Unfortunately, the nation has not taken proactive steps to declare these areas as national assets for exploitation of the gold to add to the nation’s reserves with the Central Bank, rather insecurity has been used to obfuscate the illegal trade going on with the active connivance of foreigners. The recent procurement of gold by the Central Bank from Zamfara State is a complete irony of fate as the world pivots away from the petrol dollar economy.

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It is my earnest hope that this insecurity is properly contained and nipped in the bud as future increases in the price of gold way above its current price will lead to a scramble for prospecting for gold with heightening insecurity. The eastern region of Goma in the Democratic Republic of Congo which supplies 90% of the world’s coltan comes to mind. The solution to the world’s debt and liquidity crises is purely an economic issue but it is laced with a new social and political order to be exerted by the State through more central planning and control of our nationhood.

 

Written By Anitche Ndudim Rowland

Nairametrics frequently publishes articles from experts such as financial analysts, economists, researchers and investors. We also feature articles from guest writers and bloggers who wish to push their views and opinions through our platform.To get your articles on Nairametrics, kindly send an email to [email protected] and we will publish it within 24 hours of approval by our editorial team.

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Columnists

The role of healthy communication in the workplace

To foster a healthy work environment, employers should take communication more seriously.

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Networking, way to success in Nigeria

Profit is the purpose of every business organization. The best way to sustain profit is to strengthen the “Employer-Employee” relationship and the “Buyer-Seller” relationship. The profit of every business organization depends on these two. The success and failure of every business organization also depends on these two.

Communication is one of the major concerns in an organization and it is very necessary in our workspace and among people around us. Constant communication helps to build a strong connection in the relationship between an employer and an employee. It is crucial to the growth and success of your business and it allows everyone to provide input and feel that their ideas are valued.

Everyone can communicate as long as it is with words. In an organization, both the employer and the employees should develop good communication skills.

Your employees are part of the vision of your company and their opinions and innovations should be considered. This will go a long way in building a positive workplace culture.

Communication can be in oral or written form; and while written communication is the preferred form of communication in organisations, oral communication should neither be limited or downplayed. As an employer, your employees should be able to communicate freely with you. Communication reminds your employees about the goals of your company and helps you to delegate responsibilities effectively.

According to research, 57% of employees report not being given clear directions. A survey of 400 companies with 100,000 employees cited an average loss of $62.4 million per annum because of inadequate communication between the employer and the employees.

It is the responsibility of an employer to communicate the organisation’s vision, mission, goals and objectives to employees. Goals must also S.M.A.R.T (Specific, Measurable, Achievable, Realistic and Timely). Where communication is absent or ineffectively handled, employees can become unproductive, unresourceful, demotivated, and disorganised. There may also be high employee turnover which ultimately affects the profitability of the business. Without effective communication, an organisation will most likely be unable to retain its star performers or motivate average-performing employees into becoming highflyers.

Communication in organisations should not be left only to the Human Resources department, but feedback should also be encouraged from employees. Where there is a gap in communication, employees are left with no choice but to fill these gaps with rumours, (wrong) assumptions, gossip and the spread of misinformation. This creates an unhealthy work environment that is detrimental to the business.

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To foster a healthy work environment, employers should take communication more seriously. They should not only learn the art of effective communication but should also encourage and be receptive to feedback from their employees.

 

 

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Columnists

Why NNPC’s Borno power plant may not materialise 

The glaring security challenge cannot be overlooked in considering a major power plant project in Borno State.

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Only a few days ago, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, led a delegation to Borno State to meet with the Governor of the State, Babagana Zulum.

In the conversation with Zulum, Kyari promised the establishment of a gas-fired power plant in Borno State within a maximum of 4 months to solve the recent blackouts that resulted from insurgents cutting off Borno from the national grid since January this year.

In Kyari’s words, “We have talked to each other and we think it’s very possible to establish a dedicated power plant in Maiduguri which will serve current needs of power supply not only in Maiduguri but to other parts of the neighbouring cities.”

READ: NNPC GMD says AKK pipeline, Nigeria’s biggest gas project is 15% complete

Yet, there is a significant possibility that the power plant promised by Kyari may not materialize for many reasons, the first of which is security. In the meeting with Kyari, Governor Zulum had noted: “The ongoing insurgency has cut off the entire Borno from the national grid in the last three months. We put all our efforts and restored it back… but unfortunately, after 48 hours, the same group of insurgents went back and destroyed the main tower again.”

This glaring security challenge cannot be overlooked in considering a major power plant project in Borno State, particularly noting that the State and its surrounding communities have been the hot zone of insurgent and terrorist attacks by Boko Haram insurgents since 2009. Borno, Yobe and Adamawa have particularly been states where the insurgents have set up shop and carried out various activities, including kidnap, extermination of entire communities, burning of markets and religious buildings and the attack on the United Nations compound, in each case claiming tens or hundreds of innocent lives.

READ: Analysis: NNPC and its refining losses

One report reveals that at least 37, 500 people have been killed by the insurgent group since May 2011, a modest number, some say. Also, till date, some of the secondary school girls kidnapped in the April 2014 Chibok incident are yet to be returned to their families. It is then bewildering how Kyari intends to see to the construction and operationalizing of this gas power plant.

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Additionally, while the Minister of Petroleum for State, Chief Timipre Sylva, announced last year about the discovery of oil and gas deposits in the North, we have not seen any exploration and production kick-off. It then begs the question of where the gas for the Borno power plant intends to be sourced. The only gas pipeline that runs through the North – the AKK- is still in its first phase of construction out of three phases and has been earmarked at the earliest, to be completed in 2023 – not counting the typical delays the project will experience along the way.

READ: NNPC, only Nigerian company to cut losses by N800 billion in one financial year – GMD

Should the AKK by some stroke of luck materialize much earlier than the target date, the pipeline route is a considerable distance from Borno. It runs the route of Ajaokuta-Abuja-Katsina-Kano, its endpoint, a striking 481km from Borno State. Thus, there would have to be construction of a tie-in pipeline almost as long as the AKK from Kano to Borno State to get gas to Borno.

Optimists may reference the oil and gas discovery in the North and how production may start soon, thus obliterating the need for a 481km pipeline. This optimism however is not well-founded, as insecurity has been shown to be a major risk to oil and gas projects everywhere in the world. One of the major reasons the Trans-Saharan Gas Pipeline proposed to run from Nigeria to Algeria was abandoned was due to security challenges posed by Nigeria’s Movement for the Emancipation of the Niger Delta (MEND), the Tuareg guerilla movement in Niger and other insurgent groups along the proposed route of the pipeline.

READ: Why NNPC should be commercialised

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These increased the risks across board, including for completion and operations through the lifecycle of the project. As such, failing to fix the security threats in northeast Nigeria makes any proposed gas plant project a pipe dream. Transporting gas via LNG trucks is not a better option, given that the drivers and their cargoes would be in danger of being kidnapped, shot at or bombed. The risks for both personnel and investors are high.

In any event, promising a power plant in 4 months for the people of Borno is unconscionable, since a typical gas power plant will take between 1 to 6 years to construct in relatively peaceful regions. What the government needs to do instead of making promises it cannot keep is to work arduously to fix the security challenges in Northern Nigeria and at the same time consider using decentralised solar power to provide power supply to homes, government institutions, schools and businesses while plans to produce gas in the region or transport gas to it are underway.

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