Job losses loom as Naira crashes further
Written by Funmi Komolafe, Labour Editor, Babajide Komolafe, Victor Ahiuma-Young & Franklin Alli
Tuesday, 13 January 2009
*Banks plan massive lay-offs

A thick cloud of uncertainty descended on the nation’s foreign exchange market yesterday as the Naira fell further by N6 to N150 per dollar in the official market, with dire implications for the national economy.

Reacting to the development, the Nigerian Employers Consultative Association (NECA), the Nigeria Labour Congress (NLC), Manufacturers Association of Nigeria (MAN), and other members of the organised private sector warned that the continued fall of the Naira would lead to widespread increases in prices of goods and services, unemployment, and increases in costs of capital projects across the country.

Already, there are indications that the banking industry would soon experience massive job cuts as banks have concluded plans to lay off thousands of workers as part of strategies to cope with the impact of the global financial crisis.

At the inter-bank market, N153 exchanged for one dollar as against N147 on Friday, while the parallel market, Bureaux de Change (BDCs), said they do not have any specific exchange rate for the Naira owing to uncertainty on the official exchange rate and supply of foreign exchange by the Central Bank (CBN).

With the latest drop, the naira has depreciated by N18.73 or 14.3 per cent in the official market since the beginning of the year. Last week, from N131.27, the naira depreciated to N144 in the official market, losing N12.73 to the dollar.

Foreign exchange dealers of banks and BDC operators, who spoke to Vanguard, expressed concern over the silence of the CBN, saying this is fuelling uncertainty and speculation in the foreign exchange market. A senior bank dealer said the apex bank had been very secretive since it started depreciating the Naira last month.

“Hitherto, the CBN announces results of foreign exchange auction and the ruling official rate, but since the beginning of the year, the apex bank has not been doing this. Rather, it keeps the banks and BDCs in the dark on how much it is selling and what rate it sold,” the dealer complained.

“As a result, nobody is sure of what is going to happen, whether the CBN will sell foreign exchange and the quantity it will sell, whether it will further depreciate the naira, and by what margin. The situation has got to a point that nobody knows what to do and there is increasing dependence on rumours and speculations.”

Experts warn on inflation

Members of the Organised Private Sector and banking experts have warned that the depreciation of the naira would occasion widespread increase in prices and increased unemployment.

According to the Nigeria Employers Consultative Association (NECA) and the Nigeria Labour Congress, the crash of the naira will lead to job losses, drop in capacity utilisation, higher cost of production and a drop in the purchasing power.

Speaking to Vanguard, Director-General of NECA, Mr. Olusegun Oshinowo, said “the managers of this economy should address the state of our economy and our currency.”

He saidthe implication is that “costs will go up, capacity utilisation will drop, there will be lay-offs and purchasing power will drop.”

NLC’s General-Secretary, Comrade John Odah, described the crash of the naira as tragic. He also called for transparency on the part of the government.

His words: “It is tragic and it shows that our economic managers have not been able to protect our currency and economy from the global financial meltdown. It shows the hollowness of claims that we are not going to be affected.”

NECA Director-General said: “We need somebody to come up and tell us what is going on. We are in a crisis and we are not acknowledging this.”

Speaking in the same vein, NLC General-Secretary, John Odah, said “something must be done urgently. Government and our economic managers must tell the people what is being done about the economy.”

Both Oshinowo and Odah said governments of other developed countries have informed their people about the state of the economy and what is being done.

In the words of Comrade Odah, “in other countries, people know what their governments are doing. The Central Bank of Nigeria must tell Nigerians what it is doing with our national economy and currency.”

Mr. Oshinowo said Government’s statement on the state of the economy is urgent and necessary now. He recalled, “in December 2008, we had to dip our hands into our foreign reserves to the tune of $6 billion. In the light of dwindling oil production, government must come out to say something.”

Speaking in the same vein, Manufacturers Association of Nigeria (MAN) President, Alhaji Bashir Borodo, said the depreciation would have an adverse effect on the cost of production in two ways.
First, he said cost of imported raw materials will rise which will further hike the cost of production and lead to increase in price levels across the country.

He further asserted that the falling value of the naira, if not arrested, could lead to increase in interest rates.

“As more naira is generated to buy dollar in the foreign exchange market, what would be left for lending to businesses would be less, which will in turn, push up the lending rates by banks,” he noted.

"The Central Bank of Nigeria (CBN), should intervene effectively to save the value of the Naira and protect the macro-economic gains achieved in the last four years, otherwise, we will be repeating our experiences four years ago,” said Borodo.

The year would be characterized by a number of macroeconomic shocks. There is the naira depreciation shock. The foreign exchange market fundamentals clearly reflect the inevitability of the naira exchange rate depreciation.

The continued funding of the foreign exchange market at pre-2009 levels had become unsustainable. Since ours is an import-dependent economy, the depreciation of our domestic currency presents potential significant shocks.

Corroborating Borodo's assertion, President of the Lagos Chamber of Commerce and Industry (LCCI), Chief Solomon Onafowokan, said the depreciation would fuel inflation through increase in procurement costs, higher absolute values of import duties, VAT and port charges all of which would increase proportionately to the degree of depreciation. These would be transmitted to the economy through higher prices.

LCCI, he stated, has noted that there is also a direct relationship between inflation and interest rate, warning that the cost of fund would come under pressure in 2009.

His words: “I have reviewed the economic outlook to put in context the policy choices in this potentially challenging year. The LCCI feels strongly that appropriate policy choices by government could go a long way to mitigate the challenges and shocks, and some of the policy choices we propose include the following:

•Governments at all levels should refrain from the imposition of new taxes or raising tax rates on the private sector in 2009.

The current investment climate is bad enough. An added tax burden would completely stifle and strangulate the private sector and stagnate the economy. We believe that Governments at all levels could achieve marked improvement in revenue through improved efficiency in the collection and administration of existing taxes.

•Fiscal prudence in the public sector is now more critical and imperative than ever before. Governments at all levels should demonstrate greater prudence in the management of their finances. The spending patterns of the last eight years are no longer sustainable.

Thus drastic cuts in public sector spending (especially recurrent spending) are imperative in the spirit of the prevailing economic conditions.

•The recent imposition of Excise duty on detergent, cosmetics, alcoholic beverages and fruit juice, spaghetti and noodles, toilet paper and facial tissues, cartons should be reviewed in 2009 in the light of the numerous challenges already facing the real sector. The proposal for an upward review of VAT should be put permanently on hold.

•The state of the power sector has become an inexcusable national embarrassment. Government should resolutely and sincerely commit itself to the target of 6000mw of electricity generation by end of 2009. Transmission and distribution issues should also be concurrently tackled very urgently.

The economy would stagnate if the present state of the power sector does not improve dramatically.
Bankers who spoke to Vanguard also stated that the depreciation will translate to further increase in the price level and that it is consumers that will bear the burden.

A former CBN director noted that, “the depreciation cost is borne by the private sector as it has a pass through effect and price level changes, which means inflation will rise. The government revenue will increase.

However what goes round comes around as cost of government import (that is, for IPP project) will hit the roof."

Meanwhile the CBN Governor, Professor Chukwuma Soludo will today meet with chief executives of the 23 banks on recent developments in the industry.

The meeting tagged breakfast meeting with the bankers, scheduled to hold in Lagos, would among other things, deliberate on strategies to end the free fall in which the Naira has found itself in recent weeks.

Banks plan massive lay offs

CONTRARY to the continued reassurance by managers of the Nigerian economy that the nation’s economy, especially the banking sector is insulated from the global financial meltdown, the banking sector is planning to lay off thousands of workers as part of strategies to cope with the global financial turmoil reminiscent of what is occurring in Europe, Asia and America.

Vanguard authoritatively gathered that a leading first generation bank (names withheld) and two new generation banks (names withheld) have almost concluded plans to retrench no fewer than three thousand workers in response to the consequences of world economic slow down.

Since the 2005 banking sector consolidation, the said first generation bank had carried out not less that three retrenchment exercises which affected over two thousand workers, while the other two banks had also carried out one or two retrenchment exercises.

According to a senior staff in the first generation bank who spoke to Vanguard on condition of anonymity, “the effect of the global financial meltdown is already here.

Banks like ours that have direct link and are collaborating with some banks in Europe and America are already feeling the heat.

The job losses is going to be massive. In our case, for a start, the job losses cannot be less than 1000. The other two banks may each retrench more than one thousand staff. Never mind what the government and its agents are saying.

I think they are just economical with words probably to avoid panic. You can see what has been happening in the stock market since last year.”

Vanguard's investigation revealed that organised labour in the nation’s financial sector may have gotten a wind of the planned massive retrenchment exercise and is calling for a united front by labour movement in the country and its allies to confront the impending mass job purge.

Under the umbrella of the Association of Senor Staff of Banks, Insurance and Financial Institutions (ASSBIFI), labour, in a recent statement called for the immediate detachment of Nigeria from the Bretton Woods institutions such as the International monetary Fund (IMF) and the World Bank, to save the nation’s economy from the imminent economic predicament.

President of ASSBIFI, Comrade Adeshina Lasisi, in a statement said: “As the global financial turbulence spreads, if not quickly checked by severing our strings with neo-liberal, Bretton Woods institutions like IMF/World Bank, many socio-economic rights of workers and political rights of citizens would be attacked.

The most apparent threat is the imminent and menacing mass retrenchment of workers, embargo on employment, arbitrary reduction of staff emoluments especially in sectors like the oil/gas, financial and communication, and of course, attacks on the terminal benefits of workers.

All unions and workers must join hands to build a vibrant movement to protect the rights of Nigerian workers in this year because during the period of crisis and economic stagnation, workers are usually the first causalities.

The organized labour and the informal sector must link up with the progressive civil society groups to contextualize the campaign for the protection of workers’ rights.

The immediate past is replete with instances of how labour and civil society served as the only formidable opposition in the country. We can do it better.”


Sorry Nairalanders that my post is very long.But what do you think about this?Does this mean that the global meltdown has finally reached our doorsteps?I know like a thosand people that work in banks. Is it going to affect our brothers,sisters,aunties,uncles,boyfriends,girlfriends,husbands,wives and even our enemies?

Culled from Vanguard Newspaper.Tuesday,13 2009.