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Saturday, December 24, 2016

BUHARINOMICS: WHAT GOES WRONG?

         After about nineteen months into the forty eight months tenure of President Buhari, the major challenge to his yet to be declared second tenure ambition is in economic front. Continuation of what happen in the economy in the past months into next year will prove costly for the government. What happen to agriculture is also important. For example, should Buhari take sectors like education, agriculture, infrastructures, etc., just like any other sector, NO. Agriculture shall be treated as a special area - a strategic sector. Without that what ever bad happen to the sector will spill over to the economy through higher inflation (high price of food) and lack of local raw materials. Up to now Buhari is yet to have concrete blueprint on how to turn the sector and if he has one at all he is keeping it to his chest. The earlier he and his team get a road map for the sector the better for every one. Now that Boko Haram crisis has been reduced to the lowest level possible (to use the President word 'crush'), Buhari focus shall turn to Economy! yes Economy!! Economy!!! because his 2019 electoral success depends on it. Despite these, rating agency Moody recently commended the government success in maintaining a strong balance sheet despite having turbulent economy, when compared with peers in the same condition. The banking sector need special attention in order to help make other government objectives achievable. The current lending level by the banking sector is below capacity, government must provide incentives to enable the sector to lend more. As we  enter 2017 CBN shall consider reducing interest rate during next MPC meeting.
         As many analysts have observed Buharinomics is old economic model that operated during the 1970s and 1980s central focus of which was nationalism and self reliance. Pursuing industrialisation and self reliance are not bad in them self, but where the problem lies is the method to be used in realising that objective in today complex world. A financial times article describe Buhari economic policies as replica of "Venezuela’s exchange rate policy and China’s failed equity market strategy
Source: https://thewhistler.ng/story/buhari-s-economic-policies-height-of-foolishness-financial-times
". Though, our foreign exchange problems will not just banish as we want them to do, Buhari needs to find an effective way of managing them in the short run so as to reduce the hardship caused by the scarcity of Forex in the wider economy. Thus, of priority shall be need to find solution to current rationing of Dollar. Our system as it is cannot be relied upon to distribute scarce dollar to those that need it, corruption, and bureaucracy will be in the way of achieving any desired objective. The unnecessary shocks that Nigerian economy has gone through in the last one and half years would have been avoided has Buhari plan well at the beginning of his tenure and did not take the economy for granted with appointments that can well be term as mediocre (learning on the job). Just like with any other human endeavor there is no alternative to recruiting the best hands, people who are experts in their fields to advice any government. Now that there is talk of cabinet reshuffle Buhari shall look for competent hands to manage the economic front, not any other person. Buhari's pre-inauguration state of mind that Nigeria of today can be put on rapid economic progress with 1970s and 1980s economic models, not minding that things have changed will not work. Economics as a discipline in itself is more dynamic than what Buhari thought it to be, models of 1970s/80s have been improved upon since. More advance successors who can handle today economic complexities better are available and President Buhari has no excuse for not looking for them.
        The link between economic growth and development of higher education sector has been emphasised by many past academic studies, recently a study by London school of economics noted that doubling the number of universities in a country resulted in increase in GDP of about 4.7%. Here it seems Buhari government's advisers are not aware of this connection, looking at their slow responds to the demands from the education sector. Just like Buhari saw the need to develop agricultural sector, he also must see the need to develop our education sector if we are to achieve economic growth and development. One of the immediate benefit of doing so is it will reduce pressure on foreign exchange as the number of Nigerians going abroad for higher education will come down. There is no alternative to having the right people to manage your affairs. Despite recent efforts by his government to respond to the growing cry on how the economy is being run, Buhari needs to get more experts on the economy on board to help advise him on the economy. Currently, there are insinuations in the media that the caliber of ministers Buhari recruited have failed him. It therefore, become necessary for him either to reshuffle his cabinet or appoint competent advisers to assists in handling the economy and other strategic sectors. The whole world must see Buhari fulfilling his promises to fight corruption no matter who is involve. Whether that person is in his government or outside of it, big or small.

Monday, December 12, 2016

Why this government must create more Dangote


          In a period nations states around the world are competing to create their national champions, Nigeria (an African giant) is left behind. According to Wikipedia "National champion is a governmental policy in which large organisations are expected not only to seek profit but also to 'advance the interests of the nation'; the government sets policies which favour these organisations.". Examples of national champions around the world are very easy to notice and they are as varied as the nations that produce them. For example, mention South Korea and Samsung, LG, Hyundai, KIA come to mind; Name Brazil and Embraer, Petrobras, come as the nation's champions; India? You have Tata, Infosys, Wipro; Japan? has Toyoto, Honda, Sony; China on it own has Alibaba, Baidu, Haier, and Lenovo. Over the last two decades, economic power has shifted gradually from the so-called developed countries to what is now refers to as 'emerging economies'. Today's world second largest economy China was not long ago referred to as a third world nation. China was forecast to overtake the United States as the world biggest economy in not distant future. According to some estimates, it is already the world largest economy measured in term of purchasing power parity (PPP). The so-called BRICS, an acronyms coined by a former Goldman sachs executive to refer to Brazil, Russia, India, China, later joined by South Africa, demonstrated that shift in economic power from Western World to Asia and other emerging nations. Another group of emerging global players the next eleven (N-11), identified by the same Goldman Sachs executive Jim O'Neill, included Nigeria as a potential global player. How Nigerian authorities work to remain in the list is any one guess?


  Dangote group of companies employ thousands of people across Nigeria, imagine having five more Dangote-like organisation in Nigeria? How the fortune of the country will change and our unemployment menace reduce to the lowest limit possible?  But, how Buhari create more of these big employers of labor? Shall Buhari just empower the rich by given them preferential treatments such as tax holidays, import quotas, subsidize foreign exchange, and government contracts, a big NO. Government shall create a level playing ground where potential entrepreneurs succeed. Favoring one business mogul at the expense of another only harms the larger economy, as previous experiences in this country and in others show. Favoritism poster corruption and inefficiency.  A lot of those favor by, for example, Babangida military government failed to develop into employers of labour instead become crony entrepreneurs who help in sabotaging government efforts to create a competitive environment. The same thing applied to Obasanjo efforts to create South Korea type Chaebol by means of selling government properties to friends and associates. The top global brands we have today started as national champions before graduating to global champions. Countries around the world have been supporting their own national companies to compete with those of other countries as far back as one can remember. The goal is the same whether in Europe, North America or Asia, the only difference is in methodology - the path followed in achieving the goal. 


      US internet giant Google total market capitalization is bigger than many economies around the world, but it is still a private not government organisation. Other US giant companies such as General electric, Apple, General motors, Boeing, HP, and Walmart employ hundred thousands of people more than many nation states do. US internet heavy weight like Facebook, Google, Microsoft, Amazon, Yahoo, still lead the world in research and innovations while at the same time generating billions of dollars for their owners (shareholders) and the US government in form of tax. By creating our own Steve Jobs, Mark Zuckerberg, Bill Gates, Sergey Brin, Jeff Bezos, etc., Nigeria will not only create jobs and wealth but help build enduring institutions. America's Stanford,Carnegie Mellon, and Cornell Universities, were founded by wealthy citizens so are Ford, Rockefeller and MacArthur foundations. Private enterprise including small scale business is the most enduring way to create successful economy. The earlier Buhari economic managers understand this and start to put policies in-place for it realisation the better. Government agencies like CBN, ministries of finance, agriculture, commerce, labour, and mining must put heads together with other private sector actors to make this dream a reality. Smaller countries such as Singapore, UAE, and Taiwan have succeeded in creating there own champions, Nigeria shall learn from them as it moves to have its champions.

Sunday, December 4, 2016

AN OVERVIEW OF ISLAMIC BANKING IN AFRICA


     Having the largest Muslim population in Africa, one would have expected Nigeria to be the leader in Islamic finance in Africa but that position goes to Sudan. Nigeria is late comer to Islamic banking and finance having gotten her first Islamic bank in 2012. Sudan is the first African country to accept the Islamic banking system and convert it whole financial system to level compatible with the Islamic system, it also issued Africa's first Sukuk bond through a Sudanese cement company{1}. It remains among the  few countries in the world to attempt total conversion of their monetary and banking system to Islamic. While the first modern Islamic bank in the world is believed to have being established in Egyptian town of Mit Ghamr in 1963, though it operation was short lived as it was closed. Sudan still remains the biggest market for Islamic finance followed by Egypt. South Africa a country where Muslims are in the minority is doing better in term of adaptation of the Islamic banking model than either of Nigeria, Algeria and Morocco. The first Islamic bank to open in South Africa was Albarka Bank in 1989.


      According to some estimates{2} Africa has only about 2% of the global Islamic banking assets and only 0.5% of outstanding Sukuk despite having over a quarter of the total global Muslim population. Muslims make up about half of the population of Africa. Another study{3} put the share of Islamic finance in Sub Saharan Africa, as part of the total global market, as 16.6 in 2012. There are currently Islamic banks in Algeria, Botswana, Chad, Djibouti, Kenya, Egypt, Tunisia, Gambia, Guinea, Liberia, Libya, Niger, Nigeria, South Africa, Mauritania, Mauritius, Morocco, Sudan, Senegal, and Tanzania. Kenya, despite having its Muslims not in position of being the majority, its first Islamic bank was established back in 2005 by Barclays bank. Since that period more Islamic banks have opened their doors in Kenya. In Nigeria, the first Islamic banking window was open by Habib bank Nigeria plc (a subsidiary of Habib bank Pakistan) in 1992, but Nigeria's first fully fledged Islamic Bank Jaiz Bank Nigeria plc only open its door in 2012 despite raising capital for that purpose way back in 2003. Other banks operating Islamic banking window in Nigeria include Stanbic IBTC plc and few micro finance banks. Senegal first Islamic bank Banque Islamique du Senegal (BIS) its biggest Islamic bank was established in 1983{4}


    Just last week, the governor of Bank of Uganda Prof Emmanuel Tumusiime-Mutebile was quoted saying: "We should not think that Islamic banking and finance is only for Muslims. It is for all of us. Therefore, you need to come out and stress the unique tenets that distinguish Islamic banking from the conventional banking and compare the similarities too," Ugandan central bank is putting things in place for the introduction of supervisory manuals and regulatory framework on Islamic banking in the East African nation. Among the major factors slowing the growth of Islamic banking in Africa are: Ignorance about the system, absence of initiative on the part of African leaders, lack of Shari’ah compliant investment vehicles, poor legal and regulatory frameworks, unnecessary oppositions (base on ignorance of the system) from non Muslims, absence of commitment from Africa based research institutes, and lack of trained manpower. In view of these, multinational financial institutions like African Development Bank shall lead the initiative just like the IMF and World Bank are doing at the global level. Considering the position of Nigeria in Africa, base on its economic and population strength, Nigeria shall also join in leading the initiative to make Africa a world leader in Islamic finance.




Note:

1- Global Islamic Finance Report (GIFR 2010)
2- Post Conference Report INTERNATIONAL ISLAMIC BANKING SUMMIT AFRICA, DJIBOUTI 2016
3-Gelbard, E., Hussain, M., Maino, R., Mu, Y., and Yehoue, E.B. (2014), "Islamic Finance in Sub-Saharan Africa: Status and Prospects", IMF Working Paper WP/14/149
4- Abdullahi, S.I., "Islamic banking in West African Sub region: a survey", Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.7, Feb. 2013

Wednesday, November 30, 2016

Recent Developments in Nigeria Real Estate Industry


      It is indeed a difficult moment for the Nigerian economy, share prices on the stock market have collapsed, both the inflation rate and interest rate are in double digit, value of Naira relative to the Dollar has fallen to an unprecedented level, price of crude oil (major Nigerian export) has remain where it was in the past two years and above all our new APC government is sort of fighting it out with different economic models not sure which one to adopt. While the monetary and fiscal arms of the government behaves as if they are at logger head with one another. As the year come to an end, 2016 budget is not yet implemented up to 60% while on the other end the recessionary phenomenon moves on. This climate of uncertainty made many investors skeptical of putting their money in Nigeria until when they are quite sure of the economic direction of this government. But, another aspect of the economic crisis (which can be categorized as positive) is Nigerians in all spheres of life are looking inward (including those involve in the real estate sector) for made in Nigeria products and services. As a result of this renew vigor real estate actors in Nigeria have started using locally produce raw materials for building of houses instead of the long overdue reliance on markets such as China's for doors, glasses, titles, electric wares, etc. This help the economy in maintaining our dwindling reserve of highly needed foreign exchange. But, taking into consideration the fact that both the real and monetary sectors of the economy are expected to move in unison, Federal government must do more than it is currently doing through policy harmonization. There is no single Nigerian billionaire that is not investing in the real estate sector of the economy in one way or the other, whether directly or indirectly. This tell you a lot about the potentials of the sector and how Nigerian Billionaires such as Dangote, Dantata, Adenuga, Isyaka Rabius, to mention just a few, are using the sector to diversify their investment holdings and hedge against risks.


      Property developments in strategic locations around Nigeria are still going on despite the economic challenges, this tell you much about how investors see the sector as promising with a lot of future potentials to turn the fortune of the Nigerian economy. In relation to this, some clever Nigerian investors have started purchasing real estate properties (at today's lower prices) keeping them for when the economy rebound, while others are investing in building commercial spaces including mega shopping malls. Unlike the developed markets, Nigerian real estate market is underdeveloped; this mean high expectation of returns from investments in the market, higher than obtainable elsewhere around the world. In Kano state for example, the state government has made it easy for land owners to acquire title to their properties at short period of time and at lower cost: around N5,000.00 in the lower income group. An innovative interest free mortgage system introduced by Islamic banks around the world provide an easy way for prospective home buyers to own homes. Nigeria first fully fledged Islamic bank Ja'iz Bank plc has been running the scheme for the benefits of its clients for some time now. In Lagos, the Eko Atlantic city is one project that promise to revolutionize the real estate landscape of Lagos. Already work has reached advanced stage with some projects at near completion. According to the developers of the project Eko Atlantic city promise luxuries obtainable in developed countries here in Nigeria.


       Another important plus for the real estate sector is Buhari's government current focus on building infrastructures with billions of Naira already allocated in this years budget for roads, railways, bridges, electricity and airports. These are major components in the development of real estate sector in any economy around the world. Nation states such as Dubai, Singapore and even Hon Kong could not have made it without heavy investments in infrastructures. One trend worth mentioning here is how this government policy forced wealthy Nigerians into investing in Nigerian real estate market instead of moving their investments to real estate properties of Dubai and London. As a result, thousands of jobs are being created weekly in the construction industry ranging from ordinary laborers work to production of doors, windows, painting, glass work, etc. The gradual restoration of security in Nigeria is another plus for the sector as it will go along way in attracting foreign investors back to the sector. APC government, according to the minister of power, works and housing Babatunde Raji Fashola will build thousands of houses across the country. Under another scheme, the Federal Civil Servants Housing Scheme (FISH), government promised to build 5,000 houses in each state of the federation for civil servants within three years of the lunch of the program. The program was lunched in August of this year.  Federal government, according to Mr. Fashola, was trying to borrow from housing programs of Great Britain and Singapore who have (as their hallmark) uniformity of design throughout the duration of the respective housing programs.

Friday, October 21, 2016

PULLING NIGERIA OUT OF ECONOMIC QUAGMIRE II

    Let me begin by saying that President Buhari has started heeding to calls to change the economic direction his government has taken in the last one and half year. Already there are positive signs that our economy is responding positively to government economic stimulus. Price of food stuffs have started to decline, thanks largely to harvest of this year's farm products. In the manufacturing sector there is an indication that our manufacturers have started looking inward for local inputs and are retooling their machinery to adopt to local materials as well. Figures from CBN show credit expansion in the third quarter (Q3) of this year despite the widely discussed lack of liquidity in the economy. Rating agency Fitch in it just release report has projected Nigerian economy to grow by about 2.6% next year, a welcome development. The IMF in it latest World Economic Outlook report has rated Nigeria as Africa's largest economy ahead of South Africa and Egypt. This came after Nigeria was estimated to have been overtaken by South Africa last year. I really appreciate current government initiative of securing upfront payment from buyers of our crude oil. The plan initiative will help us built our foreign reserve and reduce our borrowing cost. If the Indian government plan of paying $15 billion upfront against future supply of crude oil from Nigeria materialized it will really help our way out of recession. The Indian government also benefit from the deal in forms of Indian companies participation in Nigeria's oil and Gas industry, building of infrastructures, and guarantee of future oil supply. Buhari government efforts to sell some national assets in order to finance this year budget if done in the most transparent and efficient manner will compliment borrowing from external agencies and other existing innovative methods created to get Nigeria out of recession. Even prominent economists and businessmen as well as former President Obasanjo have supported the sale of national assets to get Nigeria out of recession.


     Multinational institutions such as the IMF have already warned that Nigerian economic crisis risk spilling into other West African countries. Already our immediate neighbors such as Niger, Benin and Chad have started feeling the impact of Nigeria's economic crisis.  IMF also forecast that economic growth in the whole of Sub Saharan Africa for 2016 will  grow by only 1.6% a figure far lower than expected. One of the major factors responsible for that according to IMF is declined in commodities price that most of these economies depend on and failure of their governments to diversify the economies. But, both IMF and World Bank expects Nigeria to start recovering from next year. Latest figures from IMF put Nigeria’s GDP at $415.080 billion in 2016, from $493.831 billion at the end of 2015, this affirm Nigeria as the biggest economy on the continent. The decreasing level of our foreign reserve, falling revenue from oil sells, and weak export base have continued to exasperate fall in Naira value against Dollar. Already holders of external loans domiciled in dollar are feeling the heat, as the value of their debt skyrocketed and become difficult to service. Those who fall victims include federal and state governments, Banks and other major corporate entities. I still can't understand our minister of finance Mrs. Kemi Adeosun, whether she is ignorant of macroeconomics or it is just lack of competent hands to assist her on the matter. In an interview with the media recently he was quoted as saying that "I don’t want to predict when we will get out of recession. Let me tell you that we will get into growth and that’s how you get out of recession, because of the stimulus that we are providing". With the most advanced macro-econometrics packages you have today and availability of reliable data any one can predict when we get out of recession or not, but IMF and World Bank have done that for her.

     IMF has also called for more structural adjustment and tight fiscal and monetary policies, though some analysts may have reasons to disagree with this recommendation in face of need to inject money into the economy in order to pull it out of recession. World Bank on it part has also called for tight monetary policy to help fight inflation, seeing it as a good move to boost real interest rate and attract investment into the country. A Price water house Coopers (PwC) report shows that Nigeria is on her way to become $1.4 Trillion economy by 2030 on the backdrop of sustain fight against corruption and implementation of good policies. But, Buhari major plus for the future of Nigerian economy is his desire and determination to built sustainable institutions, a corrupt free Nigeria, as well as his fight to institute property right. These factors are very important for building of strong Nigeria with equally strong economy. Institutions such as the judiciary, military, police, civil service as well as the business community must be purged of corruption for Nigeria to reach the dream land. Property right on it part is very important for the development of private sector and attraction of foreign investors, because no investor put his money where he is not sure of  title of his property tomorrow. With good institutions Nigeria's journey to become one of the largest economies in the world is assured. Our current bureaucratic system must be reformed in order to put Nigeria on the top in world bank's Ease of business ranking. Nigerian judiciary and civil service are the most affected by the bureaucracy virus. Only thorough reforms in these sectors will rid Nigeria of the problem.


    Our current foreign exchange regime, the manage float, is increasingly being adopted by countries around the world and remain the most popular foreign exchange regime. On the sliding value of Naira against Dollar CBN must take measures to ensure transparency in Dollar trading. Government shall take immediate measures to address the activities of currency speculators who have contributed in fueling the current problem. But, in the long run the only way to ensure efficiency in distribution of Dollar is to increase it availability and that will only happen when we increase the total value of our exports as a major source of foreign exchange. Policies such as the recent sale of Diaspora remittances to Bureau De Change (BDCs) are making positive contributions as indicated by recent improvements in the value of Naira against Dollar. The combine annual remittances from diaspora Nigerians runs into billions of Dollars, therefore policies that ensure maximum utilization of these Dollar remittances are good for the economy. If what CBN is telling Nigerians that it is working to renew Naira-Yuan swap deal abandon immediately after it was announced materialized, it will help reduce Nigeria dependence on Dollar and restore some level of stability to the exchange rate. Nigeria has adopted the Chinese currency as one of its reserve currencies during tenure of Sanusi Lamido as CBN governor , it is therefore more logical to take the relationship a bit further. As it looks now, CBN decision not to lower interest rate is good, as it was done with the intention of helping Naira regain it value against Dollar. As Nigerian stock exchange recovers more investors will return to the market. For those Nigerians dreaming of Naira returning to its 1980s to 90s value they need to quickly catch up with the existing realities, that nothing like that will happen in the next five years. Naira will do well if it at least return to its value of 100 plus to the dollar of the last fifteen years in the next five years. Foreign exchange is a reflection of major economic fundamentals which as at now are in favour of low value of Naira against Dollar.

  This government needs to get it tax collection system right, because without that all efforts to maximize government revenue will meet obstacles. It is not a matter of charging high taxes but charging the optimal rate  in order to allow for efficiency in the process. A situation where tax payers are colluding with tax authorities to avoid paying tax or pay lower than the amount they are expected to pay is bad for any government. Thus, Buhari government need to wake up and fight the bureaucracy and corruption in Nigeria tax administration. This will go along way in increasing revenue generation and help reduce deficit in this year's budget. Agriculture requires more than Buhari's government is allocating to it at the moment, if at all we want to diversify our economy away from dependence on oil. Africa's fastest economy Ethiopia, depend on agricultural export for most of it foreign earnings, why can't we do the same. If you look at our rural agriculture it is in very bad shape, rural farmers still use hoe to farm their lands, they cannot access fertilizer instead resort to using manure, and they are ignorant of the latest developments in modern farming. The whole government's agriculture policy is not well spell out leaving prospective investors in the sector in darkness on directions the government is taking. For production of large quantities of agricultural output government must develop rural areas and reduce rural urban migration, emphasis mechanize farming, woo larger private investors into the sector and make fund available for onward distribution to actors in the sector in forms of soft loans and assistance. People shall not expect significant improvement in current agricultural output without changes in the existing technological and policy base on which our agricultural sector depends. To reduce current level of unemployment in the country agriculture and manufacturing must be prioritized. Hence, the emphasis on farming here.

    
    The current focus on infrastructural development is most welcome, all the major countries of the world that made it to the league of developed nations had first tackled their infrastructural shortages before they reached the point of being called developed nations. Thus, the ongoing initiative by federal government and World Bank to establish Nigerian Development Bank is timely. With the right kind of infrastructures this government will be able to attract the right kind of foreign investors into the Nigerian economy. For example, our FDI figure for 2015 is put at $3.4 billion which is lower than in 2014 with  $4.7 billion, a fall of 27 percent, the figure must rise for us to realise our ambitions. At the heart of previous governments slow responds to infrastructural investment was long term nature of large capital projects, whereby government that started these projects are not the one that finished it and enjoy the benefits. Hence, the nature of democracy which promise short periods for leaders in position of authority. The fact that voters on their part are not patient enough also explain the behavior of people in power to projects that brings immediate benefits at the expense of long term projects. Though, power supply has begun to improve concrete measures must be taken to ensure it long term sustainability. This will come only with huge capital investment in the sector which normally take long time to materialized. Power projects like Manbila hydro power, various other thermal power works currently going on must be pursued and finished on time. Renewable and Nuclear energy sources must also be explored in order to meet our current and future energy needs.The next two biggest economies in Africa have power generation of 52,811 MW and 24,700 MW for South Africa and Egypt respectively, while the biggest economy Nigeria has only about  4,500 megawatts. This show that we are far below our actual potential as a nation.

Thursday, September 15, 2016

PULLING NIGERIA OUT OF ECONOMIC QUAGMIRE I


      It was Lord Maynard Keynes that popularized the adage, in the long run we are all dead! This adage was coined on the back drop of great depression of 1930s when major world economies went into depression which was far worst than the recession we are talking of now. It takes the general adaptation of what is today known as Keynesian economic thought to get the world out of the great depression. Nigeria will equally need something like that to get out of it recession. The Keynesian school of economics believe that an economy needs government influence to get out of recession, while the classical school of thought believe an economy is capable of self regulation. The government interference Keynesian are talking about is in term of fiscal policies such as tax reduction and increase government expenditure to increase availability of money in the economy. Thus, an economy like that of Nigeria that is in recession need an expansionary fiscal policy to get the economy out of sluggish growth. This bring us to the question of whether we need TSA at this moment of crisis when government need to pump more cash into the economy? Central Bank on its part needs to pump more money into the economy for the same reason of need to increase liquidity in the economy. This is the stand of monetarist who called for use of expansionary monetary policies to get out of recession. To achieve macroeconomic stability in any economy there is always an interplay between fiscal and monetary policy; that is why it is wrong to put too much blame on Nigerian Central Bank who control monetary policy at the expense of the executive arm of the government that control fiscal policy. Central Bank alone through changes in interest rate and foreign exchange controls cannot pull the economy out of recession. Federal government must come-in through expansionary fiscal policy. This is the reason why many analysts see the delay in signing budget as very dangerous. Both the executive and legislative arms of the government were playing with fire that would come back to burn them which we have started to witness at the moment. Up to this moment we do not precisely know the nature of our recession and how long it is going to take; whether it is V shape that is short, U shape that is prolong, W shape which is double recession or L shape that is characterized by 8 consecutive quarters. 


$1,026 and $12,475

Read more at: file:///C:/Users/Dell/Desktop/Nigeria,%2012%20other%20countries%20classified%20lower-middle-income%20countries%C2%A0%20-%20Vanguard%20News.htm.......are classified as middle income countries. What this means is that we have a lot of potentials for getting out of recession quickly. We can start by boosting consumer confidence who through increase in purchases will help our businesses back into profitability. Thus, more people that are out of job will be able to get back to work. As i have forecasted in my previous write up about the devaluation of Naira that it will lead to appreciation in capitalisation of Nigerian stock exchange, this has began to happen though it is happening gradually. Due to weak Naira relative to dollar foreign investors are now returning there money back to Nigeria. Nigerian authorities must stabilised the price of Naira if they want more invesors to come back and invest there money in the economy. It is the unstable nature of the currency that is scaring them from  coming to Nigeria. Here the federal government shall give CBN all the support it need to stabilised the value of Naira. This also explain why some wealthy Nigeria hoarded about $20 Billion in their account within the country, refusing to sell them to the market. Though, is not fair for any one to put the entire blame for the harsh economic situation we are in today on the APC government, previous government must take larger share for the current woes. For example, Jonathan government according to federal government left a debt of N65 billion owed to fertiliser suppliers.
countries with a gross domestic income (GDI) per capita of between $1,026 and $12,475 in 2015 and are classified as middle-income countries.

Read more at: file:///C:/Users/Dell/Desktop/Nigeria,%2012%20other%20countries%20classified%20lower-middle-income%20countries%C2%A0%20-%20Vanguard%20News.htm
lower Middle-Income Countr

Read more at: file:///C:/Users/Dell/Desktop/Nigeria,%2012%20other%20countries%20classified%20lower-middle-income%20countries%C2%A0%20-%20Vanguard%20News.htm
lower Middle-Income Countr

Read more at: file:///C:/Users/Dell/Desktop/Nigeria,%2012%20other%20countries%20classified%20lower-middle-income%20countries%C2%A0%20-%20Vanguard%20News.htIn the figure just released by the National Bureau of Statistics (NBS), Nigeria’s export increased to N1.873 trillion in the second quarter (Q2) of 2016, an increase of N725.6 billion or 63.3 per cent, over the value first quarter (Q1). NBS attributed the  increased in the value to depreciation in the value of Naira compared to other major world currencies. Telecommunication sector has achieved positive growth adding N1,580 billion to GDP in the second quarter, i.e. 9.8% growth, representing an increase of 1.0 per cent relative to first quarter. with these figure telecom sector made the largest contribution to the economy during the quarter under review. Time is of essence here, democracy is the most time conscious system of governance in the world. Buhari has only four years for his first term and another four if he win re-election, because of this Buhari must quickly introduce policies that people will benefit from. Nigeria people have no patient for what his team is proposing like i heard finance minister was saying time and patient. Election is just about two and half years away.  As he wins the battle against Boko Haram the next big battle is the economy. Already the opposition PDP has noticed Buhari main weakness is in the economy, they are not fools that is where they will concentrate their criticism at him. President Buhari the earlier the better.The delay in signing 2016 budget shall carry part of the blame for the current recession. If those with the responsibility of passing it both among the executive and legislative arms of government have done their job on time, we would not have been in the current mess we found ourselve    
      Whenever i look at some of Buhari's economic policies i see a lot of policy inconsistencies and contradictions. Imaging introducing new types of tax such as the communication tax when the economy is in fact down in recession and badly need blood through injection of money into the economy to revive the critical sectors of the economy. What government should have done was to release more money into the economy and not to squeeze it the more. This has been the worst recession to hit Nigeria since 1987, according to data from IMF the economy will experience negative growth for the whole of 2016. Even the national leader of the ruling All Progressive Party has called for "economic restrategising and re-planning". At the current level of foreign exchange rate deterioration Nigerian economy will lost a lot if we continue with the importation of all kind of things. According to the minister of agriculture Audu Ogbe, Nigerian importers require the sum of $2.5 billion every week in order to pay for imports. Now consider a situation when there is no any source of getting those billion dollars used in paying for the import, what do we do?  This justify the need for domestic production of goods and the liberalisation of Naira in order to make our export cheaper. The move towards diversification of the economy is good in itself. It will take the economy out of the grip of the oil sector and make it dynamic. Thus, the revival of agriculture embark upon by this government is good. But, what is now being done is not enough. You can not revive agriculture by just closing your border and banning imports, it is not a mere mechanical thing. It is more than that. Government needs to carry every one on board, whether you are in PDP, APC, poor, rich, currently living in Nigeria or in diaspora. As we move towards diversification of the economy, federal government must equally find a lasting solution to the militancy in Niger Delta. Oil is still the major earner for Nigerian government anything that affect it will touch government revenue and it ability to execute it projects. 


     The government move to borrow from international creditors is not bad as it looks, but it must be done in the most efficient manner. The interest on the debt should be manageable not something that will return us to the era of debt overhang of the 1980s and 1990s. The borrowed money will help bridge the gap left by falling oil revenue and help inject most needed liquidity into the economy. Increase government spending on power projects, railways, roads, construction of dams, housing projects, and agriculture will help revive the economy in the medium to long term. The just release NBS statistics on the economy show that agriculture and telecom are the major movers of the economy in the second quarter of this year. A top IMF official Mitsuhiro Furusawa  in a recent interview observed that there appear to be a conflict between inflation and economic growth in Nigeria, just like i have observed in my last post on inflation in Nigerian economy. He called for Nigerian authorities to go for price stability as they strive to achieved economic growth. He also called for more independence for Central banks in matters related to monetary and foreign exchange policies, which has been the unanimous opinion of top economist around the world for about two decades now. Political interference of any kind in economic policies is at the heart of our current problems, so are other big economies such as Russia, Brazil, South Africa, and Egypt. The earlier politicians learn to appoint competent people and allow them to do their work the better. Too much interference is bad for economic progress. Among the measures being taken by government to diversify the economy includ attracting foreign investors in solid minerals, telecommunication and agriculture by giving tax holidays and import waivers. Nobody is condemning Buhari 1970s and 80s sort of economic policy of import substitution industrialisation, but it shall be done gradually inline with today's realities. we cannot just go back to those periods, the world has changed. Thus, we must take notice of the fact that at the same time we are trying to revive industrialisation through stopping imports, some people are suffering because of it through higher prices and scarcities of necessities. It therefore become necessary for Buhari government to adjust in such a way that it does not hurt the poor man that bring it to power.

  
    In a recent interview with Aljazeera TV, former minister of finance Ngozi Okonjo-Iweala advised Buhari to concentrate on achieving macroeconomic stability which involves controlling inflation, foreign exchange stability, and control of fiscal policy. Those that are calling for revert to import substitution industrialisation as solution to our current economic problems are also right but they should remember that you cannot start producing any substitute without putting the enabling environment on the ground. The needed environment here is macroeconomic stability. You also need stable power supply, good roads and rail line, security of investments, access to capital, highly skills workforce, to mention just a few. But, these cannot come in a single day they took time before they are put on the ground. Hence, the need for gradual approach to any kind of import substitution. You cannot just close your border and say let start producing rice without tractors, fertiliser, sending extension workers to farmers, making loan available, providing good seeds for planting, etc. If you do that there will be hunger in the land just as we are experiencing now. But, you can do that gradually as we have done in the case of cement production. For example, government can say let reduce import of rice this year by 25% another year by 50%, next 75%, in the fourth year you will stop importing any rice, as you are self sufficient. Buhari economic team is thinking like bunch of accountants whose main concern is bookkeeping. We are not dealing with how to keep government record properly here (though that is also important), but what we are dealing with is how to put economic managers who are creative enough to devise most accepted method of getting Nigeria out of  present quagmire. The minister of finance should have been somebody with track record of knowledge of macroeconomics and not a practicing accountant, who is more or less a bookkeeper. Government as i mentioned earlier shall make use of both fiscal and monetary policies to get us out of recession. Recently UNIDO classified Nigeria as a lower middle income country, this signal that demand boosting strategies will work in reviving our businesses back to profitability.

Thursday, August 25, 2016

Buhari's management of Nigerian economy: Economics, Politics and Diplomacy


     Last week, in the course of Africa Central Banks Governors meeting in Abuja, President Buhari told the conference participants that his government would not bow to any pressure from IMF and World Bank in order to do their economic bidding in management of Nigerian Economy. He equally warned other African countries against accepting economic prescriptions from the two major financial institution or any other external pressure. This came amid growing concerns on the way his government is managing Nigerian economy. But, in a situation where you face serious domestic pressure on the economic front you are in no shape to issue economic advice to others; you first put your house in order. That way other countries will learn from your perceived economic management prowess, and rush to accept advices you offer. I do not see much difference between Buhari's current economic policies and what IMF-World bank are asking developing countries to do, may be except for his initial refusal to liberalize foreign exchange market and increase domestic price of fuel. Now that his government has done that, he looks like someone following IMF advice. Other lists of IMF-World Bank policies in this government programs include: this government refusal to subsidize fertilizer used by rural farmers despite earlier government call on people to go back to farm. After all, Buhari is not the socialist some people mistaken him for. He was never reported asking government officials to release (free of charge) foods kept in government stores around the country to Nigerian masses who came in large numbers to vote him last year.


     Buhari seem to be obsessed with foreign qualifications and first class graduates in his recent appointments, that notwithstanding, the CVs of his so called economic team are not that impressive. His finance minister is a Bachelor degree in Economics holder turn accountant, his recently sworn in economic adviser is low on highly needed working experiences to turn Nigerian economy around at this moment of crisis. His CBN governor is also low in academic experiences and qualifications, unlike his two predecessors. His only plus is in commercial banking experience with Zenith Bank plc. Hence, he is not suitable as crisis period governor which is what CBN needs at the moment. In an era when large economies (like Nigeria) are being managed by highly qualified economists, Buhari's team is an exception to the rule. The US lead the rest of the world in appointment of highly qualified professionals and academic economists to serve in its economic team. Past members of US economic teams were egg-heads who had distinguished themselves in their respective fields. They include past Nobel prize winners such as Samuelson, Friedman, and distinguish academics like Bernanke. I hope President Buhari will learn from countries such US, India, and China when next he is reshuffling his cabinet. From Boko Haram to economic crisis, Nigeria's problems look like they will never end. Last week, APC national chairman Mr Oyegun was quoted as saying that APC government was deceived by PDP government into believing that Nigeria's economic problems were not that severe. But on deeper look, according to him, they found out that the hole left by Jonathan government was deeper than it was portrayed in the handing over notes. Jonathan regime alone was estimated to have earned some 51 trillion Naira in it five and half year history. But must of it was wasted with nothing to show.


      Nigeria was recently overtaken by South Africa as Africa's largest economy. It is now second according to some estimates. It shall be noted that both the two largest economies in Africa witnessed reductions in their respective GDPs growth rates, but only that Nigeria's is a bit severe, hence it was overtaken by South Africa this month. While Nigeria was estimated to have slow down in it GDP of about 43%, South Africa's GDP dropped by about 15%. But, whether Nigeria's economy is bigger than South Africa's or the other way round, in term of real economic development South Africa is ahead of Nigeria. Economic development and upliftment of Nigerian poor out of poverty shall be the main concern of this government. An unprecedented moment call for unprecedented measures: just as recession continue to bite hard into Nigeria's people live, Buhari economic team is now waking up from it slumber by proposing to the President the idea of seeking emergency powers from the national assembly to deal with the current economic problems. It is just like what the US did after it was hit by financial crisis in 2007/2008 - using stimulus packages gear towards easing fiscal tensions and pumping money into the economy. Among measures proposed by the economic team includes, releasing trapped UBEC fund to state governments in order to boost education expenditures around the country; increasing government contract mobilization sum from 15% to 50%; increasing the nation competitiveness and ease of doing business by faster issuance of visas to foreigners; as well as leasing or selling of some government's assets to raise around $50 billions for financing government projects.


      Sometimes during the year President Buhari visited Beijing the capital of China, among items on his agenda was purported plan to exchange Chinese Yuan for Nigeria's Naira, what is called currency swap. His spokesmen told a press conference in Beijing that Nigeria and Chinese authorities had agreed on that plan. The plan would have help check foreign exchange crisis facing the government, by checkmating the influence of Dollar on Nigeria's foreign exchange transactions. But, immediately President Buhari returned to Abuja his government denied ever signing such a deal. What caused the denial? Curious observers noticed that a day before the denial, President Buhari met a powerful delegate from the United States government where they discussed many ranging issues. The conclusion people get from that allege meeting was simple, though Buhari desired to show the world that he was as tough as when he was military President, he was also very aware of few power blocs such as the US. But, this is not new in politics, even major world powers like the US play politics depending on the scenarios they found themselves. Double standard and hypocrisy is the norm in international diplomacy.The problem many Nigerians might have had with President Buhari was that long held perception of him as someone who dislike hypocrisy even if it was necessary.

Wednesday, August 10, 2016

Turbulent Time: Managing Inflation in Period of Rising Cost


    The last time i write about inflation here was on May 30th  2012, with title "INFLATION HISTORY IN NIGERIA, IMPENDING REMOVAL OF CBN AUTONOMY, AND OTHER ISSUES"; i am back again on the same inflation monster, looking at how time has changed since then. Today Nigerian inflation rate is hovering around 16.5% the highest in recent time and 8th highest in Africa according to some analysis. According to analysis from Trading Economics, it is forecast to reach 18.20% by end of this quarter. If one look at the trend since January, this year's inflation rate has increased month-after-month; looking at the condition of the economy we must worry about the near future.


     Inflation as most of us are aware is bad for business, and politician facing election shall be wary of it too. Around the world, Nigeria is not alone in this, most oil producing nations are passing through the same situation; the result of global decline in oil price, their main source of foreign earning - causing short falls in government budgets. But in the developed economies of the world, inflation is no longer a concern to policy makers; these economies have been operating with inflation rate of around 1.5%  over many years. If not for recent events, the main concern in the rich world is deflation.

     Numerous factors are to blame for the high inflation rate in Nigeria, and not least is the recent increase in interest rate which is expected to negatively affect the inflation rate in the short run.The CBN motive for increasing the rate is mainly to protect the value of Naira against Dollar and boost banking sector performance. In economic parlance we know that Central banks increase interest rate when they want to attract savers (not only from within the country but from abroad as well), that in return boost domestic currency as demand for it by investors increases. This mostly concern foreign exchange matters and how inflation is related to it. As a matter of fact for a country like Nigeria that is import-depended, inflation can be imported to the country, when there is inflation in our major trading partners' economies. It can also result from high cost of foreign exchange as we are passing through at the moment.


        The current CBN management is under intense pressure to find an end to Nigeria's foreign exchange crisis, adding inflation to the fire will make their case worst. As government borrow to finance this year budget, inflation will prove difficult to control; everywhere around the world, deficit budgeting is inflationary. The rising cost of food items, hike in fuel price and bottlenecks in the supply of other widely use things are also to blame for the inflation. As most analysts expect, the recent liberalization of Naira in the foreign exchange market is linked to inflation, at least in the short to medium term period. According to an IMF study (Nguyen, Dridi, Unsal and Williams, 2015), in the last 25 years, the main drivers of inflation in Africa have been domestic supply shocks and shocks to exchange rate and monetary variables. The study also observes that, in recent years, the contribution of these shocks to inflation has fallen; "domestic demand pressures as well as global shocks, and particularly shocks to output, however, have played a larger role in driving inflation over the last decade".

   Many previous empirical works have shown negative relationship between inflation and economic growth (Chimobi, 2010; Doguwa, 2013; Idih and Olu, 2015). This is particularly true in case of double digit inflation such as we are experiencing at the moment. Our rate of growth has been declining since January 2016, at the same time inflation was rising. Hence, the negative relationship between the two major economic variables. Though, there is much debate among academicians on the actual threshold from where negative relationship between inflation and economic growth set in, most studies agreed that inflation such as at our current level is harmful to growth. As our new government try to understand the Nigerian economy, we shall not expect a quick end to our inflationary condition.


       Nigerian government is introducing a lot of changes, some of which are not welcome by the private sector actors, who move (discretely) to undermine these reforms. Government economic team itself is not quite aware of methods to quickly find an end to the inflationary condition. We can safely say that some of them are learning on the job. As a recent IMF study of inflation across Sub Saharan Africa succinctly observes, "country characteristics matter—the extent of oil and food imports, vulnerability to weather shocks, economic importance of agriculture, trade openness and policy regime, among others, help in explaining the role of shocks" (Nguyen, Dridi, Unsal and Williams, 2015). Thus, our war against inflation is just starting. Finally, when you fight corruption, corruption too fight back; those persistent bottlenecks in key areas of the economy may be connected to this fact.


REF:

Chimobi, O. P. (2010), "Inflation and Economic Growth in Nigeria", Journal of Sustainable Development Vol. 3, No. 2; June 2010

Doguwa, S. I. (2013), "Inflation and Economic Growth in Nigeria: Detecting the Threshold Level",CBN Journal of Applied Statistics Vol.3 No.2

Idih, J. F. and Olu, E. O. (2015), "Inflation and economic growth in Nigeria", Journal of Economics and International Business Management Vol. 3(1), pp. 20-30

Nguyen, A.D., Dridi, J., Unsal, F. D. and Williams, O. H. (2015), "On the Drivers of Inflation in Sub-Saharan Africa", IMF Working Papers WP/15/189

Thursday, July 21, 2016

WHY ISLAMIC BANKS ARE BETTER PREPARED FOR CRISIS THAN MAINSTREAM BANKS


      Islamic banking is a system build to avoid some shortcomings and loopholes of the conventional banking system, the major one being interest charging by banks. It has so far survive for some forty plus years, despite pessimism of those who initially saw it as a fail project and not sustainable.Today there are hundreds of Islamic Banks spread all around the world, that are operating according to Islamic business contracts.While recognition of the system has come from major western institutions such as the World Bank, International Monetary Fund, investment banks like Goldman Sachs, universities such as Harvard University, Oxford, Cambridge, just to mention a few.There is more than $2 trillion under Islamic finance with the system growing at double digit rate over the last three decades.

   Islamic banking system came in for a test during the last global financial crisis of 2007/8 when the whole foundation of global financial system was shaken. Banks such as US Lehman Brothers and  Wachovia, were wiped out of the banking landscape. In Nigeria, banks like Intercontinental bank, Oceanic bank, BankPHB were declared insolvent and sold to new owners or taken over by the government. Banks that remain after the crisis were left with bigger holes in their balance sheets to the extent that governments around the world had to intervene to serve them. Trillions Dollars of tax payers money were spent in bailing out those banks from an injury that was clearly self inflicting. According to many commentators the major causes of the crisis were accumulated interest-dominated debt, greed inherent in the system, speculative investment, lax regulation on the part of central banks, absence of a moral restrainer, etc.



    As the Economist of London (Sep 7th 2013) put it, referring to the causes of the crisis: "The most obvious is the financiers themselves—especially the irrationally exuberant Anglo-Saxon sort, who claimed to have found a way to banish risk when in fact they had simply lost track of it." Then there was reckless financial engineering, where all kind of financial products were developed and put into the market without regulators doing the thorough assessment of the products expected of them. This go contrary to what obtains in the sciences, where before any new discovery (product, system, etc) is put to public use, they must undergo thorough test to determine their applicability. In the US, financial engineers turned highly risky mortgages into (theoretically) low risk products and sell same to the naive public - the subprime lending debacles. Products such as credit default swaps that were meant to spread risks concentrated it in fewer places.



  At the heart of the uniqueness of the Islamic banking system is the prohibition of interest and its replacement with profit and loss sharing.  This single act allow flexibility at time of crisis and period of growth, as it act as shock absorber. In period of crisis, depositors and investors share lost/less profit, while at period of growth higher profit is shared. But, in the conventional system, interest rate does not adjust during period of crisis and growth, as it remains fixed in respective of performance of the venture. Islamic banks are restricted on moral ground on where to invest their money. For example, they cannot invest in gambling, highly risky ventures, speculative activities, prostitution, etc. Islamic banks are not allowed to put investors money in the kind of derivatives that accelerated the last global financial crisis.

  According to a 2010 study by two IMF staffs (Hasan and Dridi) Islamic banks performed better during the crisis when compared to their conventional counterpart.There are many other studies that found similar results using different methods (Wasiuzzaman and Gunasegavan, 2013; Shafique, et al, 2012; Abdullahi, 2011). Here in Nigeria, one of the root causes of our banking crisis was the highly risky and speculative investments of Nigerian banks, after Charles Soludo's banking consolidation that resulted in banks dolling out money to oil importers, as well as loans dedicated to buying unsecured equities on the floor of Nigerian stock exchange. By December 2010, all these loans turned out to be the non performing loans bought by the government funded Asset Management corporation of Nigeria. Today it is a history matter, as we know that the greed, corruption and reckless investment decisions of Nigerian banks managers were responsible for the crisis and its aftermath that is still with us today as i finish writing this article.


REF:

           Abdullahi, S. I. (2011). "Risk Management and Corporate Governance in Islamic Finance: A       
           Comparative Analysis". Available at SSRN: http://ssrn.com/abstract=2804312
           Hasan, M. and Dridi, J. (2010), "The Effects of the Global Crisis on Islamic and Conventional  
           Banks: A Comparative Study", IMF Working paper, WP/10/201

Wasiuzzaman, S., Gunasegavan, U. N. (2013) "Comparative study of the performance of Islamic and conventional banks: The case of Malaysia", Humanomics, Vol. 29 Iss: 1, pp.43 - 60
Shafique, A,  Faheem, M. A. and  Abdullah, I. (2012), " Impact of global financial crisis on the Islamic banking system", Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 1, No.9; April 2012

Friday, July 8, 2016

Recent Developments in Nigeria Advertising Bazaar


      The economic slow down in the Nigerian economy experienced in the last few years has negatively affected the nation advert industry. As the economy goes into recession so does the advertising market, which depend on the wider economy for it revenue. According to the just released annual report on Nigerian advertising industry in 2015 by Mediafacts, Nigeria recorded advertising spending of N97.9 Billion representing an increase of 5.2% over the previous year total of N93.1 billion, but still below N103.8 billion achieved in 2013. The authors of the report associated last year increased in advertising to the general election of 2015 where political advertising dominate.



      Online advertising  has continued to grow, albeit at a slow phase. One grow area in this particular sector is mobile advertising where Nigeria is leading in Africa with over 95 million mobile subscribers. Smart phone penetration has increased by 30% (Africa Infotech Consulting), Nigeria was ranked 17th in the global ranking of smart phone lovers (Tpulse). The recent resolving of MTN-NCC fine controversy will help bolster the market as MTN is a major player in the Nigerian advertising market. Now MTN will advertise vigorously in order to bring back lost market share taken by it rivals. Already it has appointed a Nigerian as Chief financial officer and hint at trading it shares on the floor of the Nigerian stock exchange. Other sources of growth for the Nigerian advertising market include retail sector and financial industry who traditionally have large advert budgets. 



      An important part of the print media advertising revenue (elite advertising) has declined due to the renew pressure by the current government on corruption and related matters. It is this or what you may call fear of Buhari, that force some elite to put a break on their advertising jamboree. According to the Mediafact 2015 report, television advertising still dominate with some 40% of the total media spending of the period, followed by print media with N23.7 billion (a declined of 4% compared to last year figure). It was the TV and radio advertising that witnessed increases during the period, a pointer to their dominance of the media industry in Nigeria. Hence, the increased in the number of TV and Radio stations across the country.



   The recent liberalization of the Nigerian foreign exchange market, deregulation of the pump price of petroleum, signing of 2016 budget, war on corruption, and increase in security across the country's trouble regions are bound to affect the industry positively. These and other changes in the way the nation's economy is being managed sent signals to foreign investors on the readiness of this government to undertake the needed reforms. The government focus on domestic production will provide media managers with new source of growth as producers in the domestic economy compete to promote their goods and services in the domestic market. Thus, barring unforeseen events, the advertising market is going to do better as we move to 2017.
N23.7 billion

Continue reading at: http://thebusinessdispatch.com/nigerias-ad-spend-increases-n97-9bn-2015/
N23.7 billion

Continue reading at: http://thebusinessdispatch.com/nigerias-ad-spend-increases-n97-9bn-2015/

Friday, June 24, 2016

How BREXIT will shape Nigerian financial Industry


     June 23rd 2016 will be remembered as the day UK vote to leave the EU bloc. The financial industry around the world was shocked by this single outcome. Banks share prices fall on the announcement of the final result of the referendum. London stock market was also affected. But, things will remain as it is for at least two years when UK will formally exit from the bloc.



     The Nigerian economic sector that will be most affected is the banking sector where Nigerian banks are highly correlated with some London based international banks who are bound to move some of their businesses over to other EU member nations. Some Nigerians banks have set up offices in the UK just because of it strategic importance in the EU, now that is about to go they will reconsidered their position. Nigerian Central bank financial dealings with London base banks will also be affected, be it in form of foreign exchanges dealings or its foreign reserve savings there. At this very difficult moment for Nigerian banks, Brexit will add to their difficult situation. Thus, clever banks will began immediate move to address the outcome of the vote. Nigerian companies that are planing to sell their shares on London stock exchange are also going to consider their next action in view of current realities on the ground.



     Investment by Nigerians in the UK will also be affected as the world fear for recession in the UK economy. Thus, expect desperate moves to diversify investments out of the UK. Many Nigerian real estate investors will also find London less attractive and make move to sell their holdings.But, Nigerian investors holding Gold will smile to the banks as the price of gold has increased around the world. The same applied to Nigerian banks holding gold reserves. Then come Nigerian elites looking for safe heaven for their ill gotten wealth, Britain out of EU will be perfectly OK with that, as it will help cover the losses from exiting the EU. What a fantastic Britain!

Tuesday, June 21, 2016

Are Nigerian Banks Efficient?


    It was Charles Soludo, the architect of Banking sector consolidation, who championed the creation of mega banks in the Nigerian Banking landscape. The idea behind consolidation is to create 'too big to fail' banks with larger capital to support economic development. But, what we later have are banks that are too complicated and lack efficiency. Instead of using their capital to support development they ended up supporting share buy back and speculative investment of oil marketers. Instead of banks to relied less on public funds, due to their bigger capital base, they turn to monsters that depend on easier to get public money without paying equal return to the government treasury. By the time Soludo left CBN, Nigerian banks have return to the business as usual state they were before the consolidation with the exception that they are now very big in size with huge loads of non performing loan, the result of the bank wasted credit creation process and thieving CEOs.



     AMCON itself absorbed some N5.7 trillion of toxic assets in the aftermath of the banking crisis of 2009. A recent report on the banking sector show that five banks lose some N54 billion from their 2014/15 financial year. There was sharp increase in the non performing loans in the banking industry as CBN report showed an increased of 78.8% in the year 2015, a staggering figure ofN649.63bn. Between April 2015 to April 2016 the banking industry recorded a decline of  N154bn in its total assets, while gross credit to both public and private sectors declined by 0.3 percent. Of recent there were sharp increases in CBN loans to the banking industry which indicate that Nigerian banks are relying more on CBN to meet their day to day obligations and that banks are unwilling to lend to each other. 

 

The total toxic assets that were absorbed by AMCON at this time was N5.7trillion.

Read more at: http://www.vanguardngr.com/2015/12/banking-industry-environment-2014-2016-challenges/
The total toxic assets that were absorbed by AMCON at this time was N5.7trillion.

Read more at: http://www.vanguardngr.com/2015/12/banking-industry-environment-2014-2016-challenges/
         The level of innovation in the Nigerian banking industry is low compare to what obtain elsewhere, even for the little innovation we are seeing it is done by few banks who are in the forefront; and we can see the result of it in term of operational efficiency of these banks. For detail essay on innovation and efficiency in the banking industry see my article available at (see reference below). Due to weak revenue many of Nigerian banks have witnessed declining profit during the first quarter of 2016, hence the desperate moves by banks to cut cost through retrenchment of their workforce.The major blow to the Nigerian banks is government Treasury Single Account (TSA) policy which has deprive banks of the main source of their cheap funds and send them in other directions looking for funds. According to estimates, the TSA mopped in an excess of N1 trillion from the banking system back to the Central Bank of Nigeria.The decline in the price of crude oil in the international market also hit the banks hard, as they have issued loans to major oil marketers in the sector and the fact that lower oil price lead to cash crunch in the economy.




      With the introduction of the flexible foreign exchange policy, foreign investors are expected to return to the Nigerian market which will positively affect the performance of the banking industry. Already banking stocks have witnessed increases on the first days of the introduction of the flexible exchange rate, performing better than the NSE all shares index.Nigerian banks according IMF chief are in better shape than during the last global financial crisis. There are huge opportunities in other sectors of the economy that banks are neglecting to invest in such as agriculture, and infrastructures which are the focus of the current administration economic transformation agenda. Nigerian economy is hugely under bank which means that there is huge opportunity for grow in the industry. The Bank Verification Number (BVN) system has revolutionized the banking business in Nigeria, it has cut bureaucracy and reduce corruption as well as open the retail sector. It will indeed help the grow of consumer credit in the banking industry.Finally, the answer to the title of this article about the efficiency level of Nigerian banks, is simple: they are not efficient considering the opportunities available they fail to utilize and the wastage in the system.
Lagarde
Lagardeare in better shape than




 Reference:



WALKING ON A STRING: Bank management in a world upside down, in
 "CONTINUITY AND CHANGE–BALANCING INNOVATION AND TIME TESTED PRACTICES",   also available on this blog, 9th May, 2011