A lot of uncertainties have gone into the year 2019 due to global economic slowdown, downward trend of oil price and the impact of US-China trade war and in Nigeria we have the upcoming elections. Uncertainty is definitely not a word anyone will like to hear especially in the business world. Uncertainty many at times leaves you with almost no clue as to what next step to take. Businesses will be seen treading softly while consumers will be spending less in order to curtail cost. It is however vital that a position be taken.
A World bank report, Global Economic Prospects, The Turning of the Tide? stated that the U.S import tariffs and China retaliatory response will likely translate into economic losses for exporters of the targeted products which could also affect upstream suppliers, downstream industries and consumers. Additional measures by these two economies could affect a much broader list of products and cause significant harm to global value chains, which would imply cascading trade costs and accentuate welfare losses. Given their major role in the global economy, a trade war between the US and China would result in significant spillovers for the rest of the world through trade confidence, financial and commodity markets channels.
The report also stated that the risk of increased trade protectionism could lead to cumulative trade loss equivalent to those experienced during the global financial crisis of 2008-09 with particular severe consequences for Emerging Market and Development Economies (EMDEs) as a sudden tightening of global financing conditions would leave highly indebted EMDEs vulnerable, with rising debt service costs hampering investment and heightening financial stability risk. The report advised that in the EMDEs, monetary and fiscal buffers need to be rebuilt in order to prepare for monetary tightening in advanced economies and restore the scope for policy support against negative shocks. Rising global interest rate may heighten corporate vulnerability and raise EMDEs debt service cost and fiscal sustainability gaps.
I would say that this is one of the side effects of globalization as any negative impacts causes a ripple effect around the world since the world has become so integrated. Technology has further made the world a global village. Protectionism, being an economic policy of restricting imports from other countries through methods such as tariff on imported goods, is intended to protect local business and jobs from foreign competition and boost one’s economy. When tariff is placed on goods, they become expensive and people do not tend to buy them. It is obvious that U.S is trying to protect their economy as President Donald Trump has said time and again, how their economy has been taken over by foreigners especially China. He has gone ahead to impose tariff on products such as solar panels, steel, aluminum, and proposed to impose on over 1,300 categories of Chinese imports. China responded by imposing tariff on 128 products it imports from US. Talk about protecting your own first above the hurts other nations may be experiencing.But then again is it just a ‘get back on China for past years’ plan or to actually protect the economy from importation?
It is therefore imperative for an emerging market like Nigeria to continue to take proactive positions rather a than reactionary one towards these threatening global shocks seeing that we are high in debt, high in importation, highly dependent on Oil and our exports have not grown enough to topple the contribution of Oil to GDP. We must continue to grow domestic market side by side with importation. How possible that is depends on how committed we are to that cause. Most of the necessities for our daily lives today are imported as people tend prefer foreign made goods over local because of the belief of its quality and superiority over locally made ones and these that locally made one are not readily available. Then there is the question of cost as it may be cheaper to purchase foreign goods than local one but it no longer remains cheap if negative global financial conditions hit. This belief of quality and superiority has eaten deep into the fabric of the nation so much so that it is going to take hard work, consistency, innovation, ingenuity and setting good examples by the government and this citizenry to change this perception. We too must protect our own. It is the basic natural thing to do, which in the long run will be of immense benefit to us as a whole. 2019 may seem challenging but it is still pregnant with a whole of opportunities giving us a fresh canvass to write our own economic story. Against all odds we can still come out unscathed.
Onyinyechukwu Mbidom
Mbidom is an economist and writes from Lagos. [email protected]
