April 2022, Sri Lanka literally ran out of money. Normal life became impossible, and when massive protests broke out about sixty days after, the country’s President, Gotabaya Rajapaksa, resigned and fled the country. Sri Lanka is historically known as Ceylon, a unitary state with an estimated population of about 22 million (World Bank, 2022). The country, officially the Democratic Socialist Republic of Sri Lanka, is an island country in South Asia.
It lies in the Indian Ocean, southwest of the Bay of Bengal and separated from the Indian peninsula by the Gulf of Mannar and the Palk Strait.
Prior to the April 2022 unrest, the country’s economic crisis was already at crescendo. There was soaring prices of goods and services, increasing power outages, lack of fuel supply, shortages of essential goods, inflation rising and hovering at about 50 per cent and also crippling foreign debts. Sri Lanka ran out of fuel supply with no provision available for essential services and public transportation (buses, trains) since the country did not have enough reserves of foreign currency to import any more. The shortages caused petrol and diesel prices to rise astronomically thereby causing the government to ban sale of petrol and diesel for non-essential services. In attempts to help ameliorate the dire situation, employees were asked to work from home while schools were closed. Since the country could no longer honour its debt servicing obligations, the damaged goodwill with creditors made it difficult to borrow more money from international markets.
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How come Sri Lanka grinded to a halt? Though the country’s government blamed it on inability to recover from COVID-19 impacts; and the country’s thriving tourism industry that was destroyed as a result of spate of deadly bomb attacks (in 2019) which chased tourists away, not a few economy watchers put the faults on the economic policies of the country’s president. It is on record that after the country’s civil war in 2009, Sri Lanka preferred to focus on importation of finished products by supplying foreign goods to its local market, instead of making efforts to boost its own local production for foreign trade. The lack of exports to other countries put the country at negative to the tune of about $3bn every year, a situation that led the Asian country to run out of foreign currency. By 2021, Sri Lanka faced food insecurity as a result of crop failure caused by inability to import fertilizers. The efforts of local farmers to use locally-produced organic fertilisers yielded little. By April 2022, it was chaos all over: monumental protests that led to the president running away, and the prime minister now trying to find a way by first declaring a nationwide state of emergency in the country and raising income taxes to more than 36% for higher income earners.
During the 10-year period of Great Depression (1929-1939), the world experienced economic downturn that caused drastic declines in outputs, severe unemployment, reduced consumer demands, financial panics, and misguided government policies that caused productivity (economic outputs) to fall and acute deflation was experienced in countries. The world, especially the industrialised countries witnessed human suffering and a serious drop in standards of living dropped quickly. It’s on record that about 25 per cent of the labour force in industrialised countries were unable to find work. Exemplified by the stock market crash, famously known as ‘Black Tuesday” in the US, the unemployed were literally begging to be given food and queues were formed outside soup kitchens with storefront signs reading: “Free Soup.” According to Brittanica: “The fundamental cause of the Great Depression was a decline in spending (sometimes referred to as aggregate demand), which led to a decline in production as manufacturers and merchandisers noticed an unintended rise in inventories.”
The revelations above would make patriotic Nigerians shiver because all the symptoms of failed economies as revealed by the Great Depression and Sri Lanka experience are currently being witnessed in Nigeria. If one may ask, is it therefore possible for Nigeria’s economy to grind to a halt or totally fail? The hardships that Nigerians are currently passing through is a call for concern. The worsening situation in the past eighteen months whereby costs of living since fuel subsidy removal and currency floatation become intractable positioning Nigerians for Sri Lanka experience. The inadequate fuel supply and its ever-rising costs coupled with the turning of this basic energy need to a political product has heaped untold hardship upon households and made doing business in Nigeria a hard nut to crack. Just like it was experienced during the Great Depression, there is a decline in production, and, worse still, the purchasing power of the people has decreased so drastically. The current economic situation in the country has destroyed the purchasing power of the working class thereby leading to decline in spending. To mention again the increasing unemployment, acute hunger, food insecurity, and daily increase in transportation costs makes one to sound like a broken record. The Central Bank of Nigeria has been working frantically to prevent bank failures. And despite all these signs and parallels, it doesn’t seem as if Nigeria’s political leaders are learning any lesson from history. Let’s hope it will not be too late before Nigeria gets its bearing right.
. Ola Emmanuel is a business planning consultant.