Slow March

Ngozi Okonjo-Iweala

The Nigerian economy is making a slow but steady progress with prospect of doing better in the new year
By Shedrack Ifurueze
Nigeria is making progress with the ongoing economic reforms which and experts have said that are already delivering strong economic fundamentals especially with the federal government’s inauguration of the Okonjo-Iweala led economic team.
The Source findings revealed that real GDP growth rose from 7.0 per cent in 2009 to an estimated 8.1 per cent in 2010. The robust growth in the aftermath of the global financial and economic crisis underscored the resilience of the Nigerian economy. The prudence of its economic policies vis-à-vis medium-term prospects are also bright, with real GDP growth projected to remain strong and stable at 6.9 per cent and 6.7 per cent in 2012.
But despite these positive developments, the economy remains confronted by many serious challenges, such as structural imbalance and lack of diversification with the economy excessively dependent on oil thus preventing the domestic economy from flourishing. Issues of high youth unemployment, poor infrastructure facilities and widespread insecurity are the key challenges the government must look into.
Experts have stressed that deepening the reform process is clearly necessary even as medium-to long-term prospects hinge on Nigeria’s addressing key reforms successfully in order to advance infrastructure development and broaden the economic base. This can be done through enhanced private-sector participation while containing political, civil and ethnic unrest, especially in the Niger Delta region remains a challenge for the political stability.
For the regulators of the economy, the Securities and Exchange Commission (SEC) remains the main regulatory institution of the Nigerian capital market. It is supervised by the Federal Ministry of Finance. Unlike the Nigeria Stock Exchange (NSC) which is privately owned and self-regulating, the SEC maintains surveillance over it (NSE) with the mandate of ensuring orderly and equitable dealings in securities and protecting the market against insider trading abuses.
SEC originates from the ad-hoc, non-statutory capital issues committee established in 1962 as an arm of the Central Bank of Nigeria (CBN). The committee became the SEC in 1973 and then the SEC was chartered with SEC, Decree Number 71 of 1979. The commission is now chartered by the Investment and Securities Act No. 45 of 1999. A second tier securities market was also established in 1985 and the market grew as the government followed a programme of privatisation of public sector enterprises.
The Central Bank of Nigeria (CBN) in recent months has taken some policy decision s aimed at tightening liquidity and achieving price stability. Recently the monetary policy rate (MPR0, a rate at which banks borrow from the CBN was raised by 275 basis points (bps) to 12 per cent at extraordinary monetary policy committee meeting. The increase was sixth in a series by the apex bank this year.
The Cash Reserve Ratio (CRR) proportion of banks’ deposit liabilities with the CBN was doubled from four per cent. Also, reserve averaging method for computing CRR was suspended in favour of daily maintenance even as banks’ net open positions was reduced to one per cent of shareholders’ funds from five per cent.
According to Head, Market Risk, Greenwich Trust Limited, Babatunde Obaniyi, “raising the MPR, the CBN may be able to curb inflation. He said there was high demand pressure on the naira which can only be controlled by mopping liquidity in the system. Obaniyi said that payment of the minimum wage would add to excess liquidity in the system, adding that the best option is the raise the MPR.
Nigeria Deposit Insurance Corporation (NDIC), last year gained prominence in its saving of some banks which capital base were eroded because of poor corporate governance and insider abuses. Instead of outright liquidation which can take a long time, heading to huge cost of recovering debt and unclaimed insured deposits, it changed to methods like purchase and assumption used to resolve banks that could not make the consolidation exercise in 2006, hence the Bridge Bank option which was recently used to resolve the three rescued banks that could not meet the September 30, 2011 deadline for recapitalisation.
This change in tactics according to Umaru Ibrahim, managing director and chief executive of NDIC “was to keep worried depositors off the streets.” The corporations commitment to these bloodless methods was echoed in the recommendations of B.D Umar, director, Special Institutions (SIID) department, of NDIC.