[vc_row type=”vc_default” full_width=”stretch_row_content_no_spaces” css=”.vc_custom_1500547593342{padding-right: 100px !important;}” el_class=”noPaddinRow”][vc_column width=”1/6″ el_class=”noPaddingLeft” offset=”vc_hidden-md vc_hidden-sm vc_hidden-xs”][vc_raw_html]JTNDZGl2JTIwY2xhc3MlM0QlMjJtYWluLXN0cmlwJTIyJTNFJTBBJTNDZGl2JTIwY2xhc3MlM0QlMjJibHVlLXN0cmlwMCUyMiUzRSUzQyUyRmRpdiUzRSUwQSUzQ2RpdiUyMGNsYXNzJTNEJTIyYmx1ZS1zdHJpcDElMjIlM0UlM0MlMkZkaXYlM0UlMEElM0NkaXYlMjBjbGFzcyUzRCUyMmJsdWUtc3RyaXAyJTIyJTNFJTNDJTJGZGl2JTNFJTBBJTNDJTJGZGl2JTNF[/vc_raw_html][/vc_column][vc_column width=”5/6″ el_class=”justifyText” css=”.vc_custom_1530541596404{padding-right: 310px !important;}” offset=”vc_hidden-md vc_hidden-sm vc_hidden-xs”][vc_empty_space height=”50px”][vc_row_inner el_id=”newsletters”][vc_column_inner width=”1/6″][/vc_column_inner][vc_column_inner width=”2/3″][vc_custom_heading text=”The Global Financial Crisis: Implication for Nigeria” font_container=”tag:h1|font_size:22|text_align:justify|color:%236699cc|line_height:1.8″ use_theme_fonts=”yes”][/vc_column_inner][vc_column_inner width=”1/6″][/vc_column_inner][/vc_row_inner][vc_empty_space height=”25px”][vc_column_text]The current global financial crisis, unprecedented in the history of the modern world, has been described as Wall Street’s biggest crisis since the Great Depression in October 1929. From the Wall Street financial headquarters in the United States, across to Europe, Japan and China, the global financial system around which modern free market economy and capitalism is built is crashing like a pack of cards.
The financial crisis, which had been brewing for a while, started to show its effects in October 2008. Around the world stock markets began to crash as billions of mortgage-related investments went bad. Mighty investment banks which once ruled the financial world such as Lehman Brothers and Merrill Lynch have either crumbled or reinvented themselves as humdrum commercial banks. In related circumstances, governments in the wealthiest of nations have had to come up with rescue packages to bail out their financial systems. Towards the end of October, the Bank of England reported that the world’s financial firms had lost £1.8 trillion ($2.8 trillion) as a result of the continuing credit crisis. Japan, the world’s second-largest economy, has officially slipped into recession.
Nigeria: Impacts and Measures taken
Despite the wide spread belief that Nigeria would not be initially affected by the crisis, it is important to emphasize that the global economy is inter-related. Thus, what affects the global economy would eventually affect our nation. It is only a matter of time!
The impact of the present financial crisis would be felt in Nigeria in the following areas:
International Trade
Nigeria’s economy is crude oil export oriented. Our major trading partners in America, Europe and Asia have been the hardest hit by the crisis. If the economy of these countries continue to face a crunch, the risk of reduced commodity export for Nigeria is increased. This would in turn greatly impact on the revenue from oil with the falling oil prices. Reduction in government revenue would ultimately affect the provision of goods and basic amenities in the budget of the coming year. For the first time in Nigeria’s history, the 2009 budget presented to the National Assembly was in deficit!
Foreign Investment and Foreign aid
Certain states of Nigeria are presently relying on funds from off shore financiers to fund mega projects such as road construction and power generation. With this crisis, it is probable that the completion of some of these projects could be prolonged.
Similarly, Nigeria relies on several foreign grants and funding from developed countries to complement public spending on education, health care delivery, transportation, amongst others. The crisis may cause a squeeze on grants to Nigeria as some of the Countries we rely on for funding are the worst hit by the crisis. Similarly grants from donor agencies such as the IMF, World bank and USAID could also be affected as they in turn rely heavily on the contributions of the G7 states, which would reduce as the credit crunch persists.
Banking Sector
Although the Nigerian banking industry enjoys a low exposure to world financial markets, many banks with off-shore credit lines have begun to experience a reduction or outright cancellation of credit lines as many of the foreign banks are suffering from the crisis already. This has resulted in the weakening of the bank credit portfolios. A good number of Nigerian banks are involved in Joint Venture financing with foreign banks for mega projects in the Oil, Aviation and Communication sectors. These projects would be threatened by the crisis.
Foreign Reserves
The Country’s Foreign Reserve is denominated principally in dollars. The value of the dollar is therefore a key factor to Nigeria’s well being. For example, a weaker dollar may cause a shrink in our external Reserves. Nigerians have also raised concerns about the safety of our Foreign Reserves, kept in offshore banks. Some banks managing these Reserves are already being affected by the crisis, such as Credit Suisse and ABN Amro. However, the Central Bank Governor has given assurances on the safety of the Reserves.
Stock Prices
Prices in stocks the world over have crashed in the past few weeks. The Nigerian stock market is not immune as share prices have fallen heavily over the past 5 months. Though share prices seem to be stabilising gradually, it has been predicted that the global cash crunch is likely to further amplify the price slump on the Nigerian Stock Market.
Measures Taken
In the wake of the global financial crisis, the Central Bank of Nigeria (CBN) has taken some of the following measures to forestall the spill over of the crisis into the Nigerian economy.
Liquidity:- In order to lubricate the system, CBN has taken proactive steps to infuse more liquidity into the financial market. In September 2008, CBN reduced the Monetary Policy Rate from 10.25% to 9.27%, cut down the liquidity ratio from 40 per cent to 30 per cent, and then released another N1.2 trillion into the economy by reducing the cash reserve requirement from 4 percent to 2 percent. These measures are aimed at strengthening the country’s financial system against the brewing financial crisis.
Foreign Reserve:- The fundamentals of the Nigerian economy are strong. This is evidenced by the fact that as of October 1 2008, the quantum of Nigeria’s foreign reserve stood at about $63billion, while the foreign direct investments (FDI) remained strong at $8.5 billion. These statistics prove that Nigeria’s vulnerability to the credit induced crisis through currency depreciation is reduced.
Banking System:- The Banking Consolidation exercise undertaken in the banking sector in 2006, has proved to be a buffer against this crisis. As it has resulted in stronger Nigerian banks which are better able to withstand the financial crisis. In addition, a few months ago CBN suspended the common accounting year-end policy for banks and also rescheduled existing bank facilities granted for the purpose of buying shares into longer term tenure thereby reducing the vulnerability of the Nigerian banks to a credit induced crisis.
Fiscal Measures:- The Federal Government has also put in place mechanisms aimed at insulating the economy from the crisis.
i. Under the 2009 Budget, the bench mark for crude oil was drastically reduced from an earlier proposed $62.5 to $45 price per barrel. This was done to reflect the global economic realities.
ii. The Monetary Policy Committee (MPC) has also directed that CBN could henceforth buy and sell securities through the two-way quotes to further stabilise the Nigerian foreign exchange market.
iii. Currently, the Federal Government’s economic team in an interaction with the senate has proposed another round of recapitalisation to make the banking sector even stronger.
iv. Encouragement of inter-bank lending within the financial sector.
World Bank Intervention
The World Bank Group has extended its helping hand in this crisis by increasing lending for crisis-hit developing countries (likely to nearly triple from US$13.5 billion last year to more than US$35 billion this year), as well as accelerated grants and virtually interest-free long-term loans to the world’s 78 poorest countries, 39 of which are in Africa.
Besides extending help to cash-strapped governments, the Group is also boosting its support to the private sector through four initiatives by the International Finance Corporation (IFC), and providing much-needed liquidity in developing country banking markets through the Multilateral Investment Guarantee Agency (MIGA).
Conclusion
While the world faces the uncertainty of the days ahead, we think that Nigeria’s policy makers eclectic approach may be bearing positive fruit. Merrill Lynch in a recent report, ranked Nigeria as one of the least vulnerable economies in the world to the current global recession. We shall see![/vc_column_text][/vc_column][/vc_row][vc_row type=”vc_default” full_width=”stretch_row_content_no_spaces” css=”.vc_custom_1500547593342{padding-right: 100px !important;}” el_class=”noPaddinRow”][vc_column el_class=”noPaddingLeft” offset=”vc_hidden-lg vc_hidden-xs”][vc_raw_html]JTNDZGl2JTIwY2xhc3MlM0QlMjJ0YWItbWFpbi1zdHJpcCUyMiUzRSUwQSUzQ2RpdiUyMGNsYXNzJTNEJTIydGFiLWJsdWUtc3RyaXAwJTIyJTNFJTNDJTJGZGl2JTNFJTBBJTNDZGl2JTIwY2xhc3MlM0QlMjJ0YWItYmx1ZS1zdHJpcDElMjIlM0UlM0MlMkZkaXYlM0UlMEElM0NkaXYlMjBjbGFzcyUzRCUyMnRhYi1ibHVlLXN0cmlwMiUyMiUzRSUzQyUyRmRpdiUzRSUwQSUzQyUyRmRpdiUzRQ==[/vc_raw_html][vc_empty_space height=”25px”][vc_row_inner][vc_column_inner width=”1/6″][/vc_column_inner][vc_column_inner width=”2/3″][vc_custom_heading text=”The Global Financial Crisis: Implication for Nigeria” font_container=”tag:h1|font_size:22|text_align:justify|color:%236699cc|line_height:1.8″ use_theme_fonts=”yes”][vc_column_text]The current global financial crisis, unprecedented in the history of the modern world, has been described as Wall Street’s biggest crisis since the Great Depression in October 1929. From the Wall Street financial headquarters in the United States, across to Europe, Japan and China, the global financial system around which modern free market economy and capitalism is built is crashing like a pack of cards.
The financial crisis, which had been brewing for a while, started to show its effects in October 2008. Around the world stock markets began to crash as billions of mortgage-related investments went bad. Mighty investment banks which once ruled the financial world such as Lehman Brothers and Merrill Lynch have either crumbled or reinvented themselves as humdrum commercial banks. In related circumstances, governments in the wealthiest of nations have had to come up with rescue packages to bail out their financial systems. Towards the end of October, the Bank of England reported that the world’s financial firms had lost £1.8 trillion ($2.8 trillion) as a result of the continuing credit crisis. Japan, the world’s second-largest economy, has officially slipped into recession.
Nigeria: Impacts and Measures taken
Despite the wide spread belief that Nigeria would not be initially affected by the crisis, it is important to emphasize that the global economy is inter-related. Thus, what affects the global economy would eventually affect our nation. It is only a matter of time!
The impact of the present financial crisis would be felt in Nigeria in the following areas:
International Trade
Nigeria’s economy is crude oil export oriented. Our major trading partners in America, Europe and Asia have been the hardest hit by the crisis. If the economy of these countries continue to face a crunch, the risk of reduced commodity export for Nigeria is increased. This would in turn greatly impact on the revenue from oil with the falling oil prices. Reduction in government revenue would ultimately affect the provision of goods and basic amenities in the budget of the coming year. For the first time in Nigeria’s history, the 2009 budget presented to the National Assembly was in deficit!
Foreign Investment and Foreign aid
Certain states of Nigeria are presently relying on funds from off shore financiers to fund mega projects such as road construction and power generation. With this crisis, it is probable that the completion of some of these projects could be prolonged.
Similarly, Nigeria relies on several foreign grants and funding from developed countries to complement public spending on education, health care delivery, transportation, amongst others. The crisis may cause a squeeze on grants to Nigeria as some of the Countries we rely on for funding are the worst hit by the crisis. Similarly grants from donor agencies such as the IMF, World bank and USAID could also be affected as they in turn rely heavily on the contributions of the G7 states, which would reduce as the credit crunch persists.
Banking Sector
Although the Nigerian banking industry enjoys a low exposure to world financial markets, many banks with off-shore credit lines have begun to experience a reduction or outright cancellation of credit lines as many of the foreign banks are suffering from the crisis already. This has resulted in the weakening of the bank credit portfolios. A good number of Nigerian banks are involved in Joint Venture financing with foreign banks for mega projects in the Oil, Aviation and Communication sectors. These projects would be threatened by the crisis.
Foreign Reserves
The Country’s Foreign Reserve is denominated principally in dollars. The value of the dollar is therefore a key factor to Nigeria’s well being. For example, a weaker dollar may cause a shrink in our external Reserves. Nigerians have also raised concerns about the safety of our Foreign Reserves, kept in offshore banks. Some banks managing these Reserves are already being affected by the crisis, such as Credit Suisse and ABN Amro. However, the Central Bank Governor has given assurances on the safety of the Reserves.
Stock Prices
Prices in stocks the world over have crashed in the past few weeks. The Nigerian stock market is not immune as share prices have fallen heavily over the past 5 months. Though share prices seem to be stabilising gradually, it has been predicted that the global cash crunch is likely to further amplify the price slump on the Nigerian Stock Market.
Measures Taken
In the wake of the global financial crisis, the Central Bank of Nigeria (CBN) has taken some of the following measures to forestall the spill over of the crisis into the Nigerian economy.
Liquidity:- In order to lubricate the system, CBN has taken proactive steps to infuse more liquidity into the financial market. In September 2008, CBN reduced the Monetary Policy Rate from 10.25% to 9.27%, cut down the liquidity ratio from 40 per cent to 30 per cent, and then released another N1.2 trillion into the economy by reducing the cash reserve requirement from 4 percent to 2 percent. These measures are aimed at strengthening the country’s financial system against the brewing financial crisis.
Foreign Reserve:- The fundamentals of the Nigerian economy are strong. This is evidenced by the fact that as of October 1 2008, the quantum of Nigeria’s foreign reserve stood at about $63billion, while the foreign direct investments (FDI) remained strong at $8.5 billion. These statistics prove that Nigeria’s vulnerability to the credit induced crisis through currency depreciation is reduced.
Banking System:- The Banking Consolidation exercise undertaken in the banking sector in 2006, has proved to be a buffer against this crisis. As it has resulted in stronger Nigerian banks which are better able to withstand the financial crisis. In addition, a few months ago CBN suspended the common accounting year-end policy for banks and also rescheduled existing bank facilities granted for the purpose of buying shares into longer term tenure thereby reducing the vulnerability of the Nigerian banks to a credit induced crisis.
Fiscal Measures:- The Federal Government has also put in place mechanisms aimed at insulating the economy from the crisis.
i. Under the 2009 Budget, the bench mark for crude oil was drastically reduced from an earlier proposed $62.5 to $45 price per barrel. This was done to reflect the global economic realities.
ii. The Monetary Policy Committee (MPC) has also directed that CBN could henceforth buy and sell securities through the two-way quotes to further stabilise the Nigerian foreign exchange market.
iii. Currently, the Federal Government’s economic team in an interaction with the senate has proposed another round of recapitalisation to make the banking sector even stronger.
iv. Encouragement of inter-bank lending within the financial sector.
World Bank Intervention
The World Bank Group has extended its helping hand in this crisis by increasing lending for crisis-hit developing countries (likely to nearly triple from US$13.5 billion last year to more than US$35 billion this year), as well as accelerated grants and virtually interest-free long-term loans to the world’s 78 poorest countries, 39 of which are in Africa.
Besides extending help to cash-strapped governments, the Group is also boosting its support to the private sector through four initiatives by the International Finance Corporation (IFC), and providing much-needed liquidity in developing country banking markets through the Multilateral Investment Guarantee Agency (MIGA).
Conclusion
While the world faces the uncertainty of the days ahead, we think that Nigeria’s policy makers eclectic approach may be bearing positive fruit. Merrill Lynch in a recent report, ranked Nigeria as one of the least vulnerable economies in the world to the current global recession. We shall see![/vc_column_text][/vc_column_inner][vc_column_inner width=”1/6″][/vc_column_inner][/vc_row_inner][/vc_column][/vc_row][vc_row type=”vc_default” full_width=”stretch_row_content_no_spaces” css=”.vc_custom_1500547593342{padding-right: 100px !important;}” el_class=”noPaddinRow”][vc_column el_class=”noPaddingLeft” offset=”vc_hidden-lg vc_hidden-md vc_hidden-sm” css=”.vc_custom_1530541699934{padding-right: 75px !important;padding-left: 60px !important;}”][vc_raw_html]JTNDZGl2JTIwY2xhc3MlM0QlMjJtb2ItbWFpbi1zdHJpcCUyMiUzRSUwQSUzQ2RpdiUyMGNsYXNzJTNEJTIybW9iLWJsdWUtc3RyaXAwJTIyJTNFJTNDJTJGZGl2JTNFJTBBJTNDZGl2JTIwY2xhc3MlM0QlMjJtb2ItYmx1ZS1zdHJpcDElMjIlM0UlM0MlMkZkaXYlM0UlMEElM0NkaXYlMjBjbGFzcyUzRCUyMm1vYi1ibHVlLXN0cmlwMiUyMiUzRSUzQyUyRmRpdiUzRSUwQSUzQyUyRmRpdiUzRQ==[/vc_raw_html][vc_empty_space height=”25px”][vc_row_inner][vc_column_inner width=”1/6″][/vc_column_inner][vc_column_inner width=”2/3″][vc_custom_heading text=”The Global Financial Crisis: Implication for Nigeria” font_container=”tag:h1|font_size:22|text_align:justify|color:%236699cc|line_height:1.8″ use_theme_fonts=”yes”][vc_column_text]The current global financial crisis, unprecedented in the history of the modern world, has been described as Wall Street’s biggest crisis since the Great Depression in October 1929. From the Wall Street financial headquarters in the United States, across to Europe, Japan and China, the global financial system around which modern free market economy and capitalism is built is crashing like a pack of cards.
The financial crisis, which had been brewing for a while, started to show its effects in October 2008. Around the world stock markets began to crash as billions of mortgage-related investments went bad. Mighty investment banks which once ruled the financial world such as Lehman Brothers and Merrill Lynch have either crumbled or reinvented themselves as humdrum commercial banks. In related circumstances, governments in the wealthiest of nations have had to come up with rescue packages to bail out their financial systems. Towards the end of October, the Bank of England reported that the world’s financial firms had lost £1.8 trillion ($2.8 trillion) as a result of the continuing credit crisis. Japan, the world’s second-largest economy, has officially slipped into recession.
Nigeria: Impacts and Measures taken
Despite the wide spread belief that Nigeria would not be initially affected by the crisis, it is important to emphasize that the global economy is inter-related. Thus, what affects the global economy would eventually affect our nation. It is only a matter of time!
The impact of the present financial crisis would be felt in Nigeria in the following areas:
International Trade
Nigeria’s economy is crude oil export oriented. Our major trading partners in America, Europe and Asia have been the hardest hit by the crisis. If the economy of these countries continue to face a crunch, the risk of reduced commodity export for Nigeria is increased. This would in turn greatly impact on the revenue from oil with the falling oil prices. Reduction in government revenue would ultimately affect the provision of goods and basic amenities in the budget of the coming year. For the first time in Nigeria’s history, the 2009 budget presented to the National Assembly was in deficit!
Foreign Investment and Foreign aid
Certain states of Nigeria are presently relying on funds from off shore financiers to fund mega projects such as road construction and power generation. With this crisis, it is probable that the completion of some of these projects could be prolonged.
Similarly, Nigeria relies on several foreign grants and funding from developed countries to complement public spending on education, health care delivery, transportation, amongst others. The crisis may cause a squeeze on grants to Nigeria as some of the Countries we rely on for funding are the worst hit by the crisis. Similarly grants from donor agencies such as the IMF, World bank and USAID could also be affected as they in turn rely heavily on the contributions of the G7 states, which would reduce as the credit crunch persists.
Banking Sector
Although the Nigerian banking industry enjoys a low exposure to world financial markets, many banks with off-shore credit lines have begun to experience a reduction or outright cancellation of credit lines as many of the foreign banks are suffering from the crisis already. This has resulted in the weakening of the bank credit portfolios. A good number of Nigerian banks are involved in Joint Venture financing with foreign banks for mega projects in the Oil, Aviation and Communication sectors. These projects would be threatened by the crisis.
Foreign Reserves
The Country’s Foreign Reserve is denominated principally in dollars. The value of the dollar is therefore a key factor to Nigeria’s well being. For example, a weaker dollar may cause a shrink in our external Reserves. Nigerians have also raised concerns about the safety of our Foreign Reserves, kept in offshore banks. Some banks managing these Reserves are already being affected by the crisis, such as Credit Suisse and ABN Amro. However, the Central Bank Governor has given assurances on the safety of the Reserves.
Stock Prices
Prices in stocks the world over have crashed in the past few weeks. The Nigerian stock market is not immune as share prices have fallen heavily over the past 5 months. Though share prices seem to be stabilising gradually, it has been predicted that the global cash crunch is likely to further amplify the price slump on the Nigerian Stock Market.
Measures Taken
In the wake of the global financial crisis, the Central Bank of Nigeria (CBN) has taken some of the following measures to forestall the spill over of the crisis into the Nigerian economy.
Liquidity:- In order to lubricate the system, CBN has taken proactive steps to infuse more liquidity into the financial market. In September 2008, CBN reduced the Monetary Policy Rate from 10.25% to 9.27%, cut down the liquidity ratio from 40 per cent to 30 per cent, and then released another N1.2 trillion into the economy by reducing the cash reserve requirement from 4 percent to 2 percent. These measures are aimed at strengthening the country’s financial system against the brewing financial crisis.
Foreign Reserve:- The fundamentals of the Nigerian economy are strong. This is evidenced by the fact that as of October 1 2008, the quantum of Nigeria’s foreign reserve stood at about $63billion, while the foreign direct investments (FDI) remained strong at $8.5 billion. These statistics prove that Nigeria’s vulnerability to the credit induced crisis through currency depreciation is reduced.
Banking System:- The Banking Consolidation exercise undertaken in the banking sector in 2006, has proved to be a buffer against this crisis. As it has resulted in stronger Nigerian banks which are better able to withstand the financial crisis. In addition, a few months ago CBN suspended the common accounting year-end policy for banks and also rescheduled existing bank facilities granted for the purpose of buying shares into longer term tenure thereby reducing the vulnerability of the Nigerian banks to a credit induced crisis.
Fiscal Measures:- The Federal Government has also put in place mechanisms aimed at insulating the economy from the crisis.
i. Under the 2009 Budget, the bench mark for crude oil was drastically reduced from an earlier proposed $62.5 to $45 price per barrel. This was done to reflect the global economic realities.
ii. The Monetary Policy Committee (MPC) has also directed that CBN could henceforth buy and sell securities through the two-way quotes to further stabilise the Nigerian foreign exchange market.
iii. Currently, the Federal Government’s economic team in an interaction with the senate has proposed another round of recapitalisation to make the banking sector even stronger.
iv. Encouragement of inter-bank lending within the financial sector.
World Bank Intervention
The World Bank Group has extended its helping hand in this crisis by increasing lending for crisis-hit developing countries (likely to nearly triple from US$13.5 billion last year to more than US$35 billion this year), as well as accelerated grants and virtually interest-free long-term loans to the world’s 78 poorest countries, 39 of which are in Africa.
Besides extending help to cash-strapped governments, the Group is also boosting its support to the private sector through four initiatives by the International Finance Corporation (IFC), and providing much-needed liquidity in developing country banking markets through the Multilateral Investment Guarantee Agency (MIGA).
Conclusion
While the world faces the uncertainty of the days ahead, we think that Nigeria’s policy makers eclectic approach may be bearing positive fruit. Merrill Lynch in a recent report, ranked Nigeria as one of the least vulnerable economies in the world to the current global recession. We shall see![/vc_column_text][/vc_column_inner][vc_column_inner width=”1/6″][/vc_column_inner][/vc_row_inner][/vc_column][/vc_row][vc_row type=”vc_default” full_width=”stretch_row” el_class=”footerWidget”][vc_column width=”1/4″][/vc_column][vc_column width=”2/4″][vc_row_inner][vc_column_inner width=”3/4″][/vc_column_inner][vc_column_inner width=”1/4″][/vc_column_inner][/vc_row_inner][/vc_column][vc_column width=”1/4″][/vc_column][/vc_row]