Special Report:Global Financial Crisis
By Gladys Nyong, Li Huailin
LAOGS, March 5 (Xinhua) -- The global financial crisis is now anon-issue to the Central Bank of Nigeria governor Charles Chukwuma Soludo even he insisted that the impact of the looming crisis was very little to Nigeria's economy.
For him, the country's financial system had shock absorbers to cushion the external shocks.
The CBN governor prided the country's capital adequacy which is put at 22 percent against 10 percent capital adequacy ratio of foreign banks. As recession set in, presenting itself in low sales, business closures, foreign investment down turns, low stock prices in the nation's economy, he set in monetary policy that would allow more money to circulate and banks would access funds anytime they have the need.
Soludo had highlighted that other central banks had pumped in over 3.3 trillion U.S. dollars into various economies. The CBN governor had reduced liquidity ratio of banks from 40 percent in August 2008 to 30 percent.
This freed about 1.7 trillion naria (11.4 billion U.S. dollars)for banks' use in increasing their liquidity. Bank's aggregate capital base hit 9 trillion naira (30.4 billion dollars) toward the end of that year but that measure could not stop the deepening recession that had set in.
The fall in the price of crude oil which hovers above 30 dollars per barrel and above represent over 70 percent fall from its high peak price by July last year.
A review of the effects of the global financial crisis in various sectors will give a clearer picture of the challenges the country is facing.
Stock Market:
The Nigerian stock market had experienced boom in 2006 and 2007 with investors profiting from their investment in the market.
Bank shares and other penny stocks had gained value far above their initial offer price. Banks even sold initial public offers and offer for subscription of shares on credit to investors and recouping their debts on the monthly salaries of workers. But the global financial crisis saw shares tumbling down by over 50 percent loss.
Zenith banks' shares, for instance, that was 34 naira (0.23 dollar) by 2007, was now 15 (0.1 dollar) naira as on March 2. The recession has caused foreign investors to sell their shares and transfer the funds to resuscitate their own ailing economies. Share capitalization that over 10 trillion naira (67.1 billion dollars) is down to 5.323 trillion naira (35.7 billion dollars).
The CEO of financial Derivatives Bismark Rewane had predicted that Nigerian banks may be susceptible to the global financial crisis if oil prices continued to dwindle.
A business trader laments on how he invested about 5 million naira (33,550 dollars) in the stock market and the stock value have gone down to barely 250,000 naira (1,677 dollars).
Most investors have similar woes but some stock market experts think that now that share prices are low, this is the time to buy stocks when the market is bearish.
Investment and Employment:
Apart from foreign direct investment which has dwindled, local investment and production are suffering. In February, Paterson Zochonis and Unilever, major toiletries manufacturers of Joy toilet soap and close-up tooth paste, announced their intention to pack up business operations in Nigeria.
The company's staff strength is over 5,000. Dunlop Nigeria plc, Manufacturers of tyres also closed shop this year due to losses in billions of naira in operations.
Organizations are abundantly shedding staff, especially in the financial sector, to effectively utilize shareholders' funds.
On Feb. 26, Nigeria's minister of labor and productivity Adetokumbo Kayode said that about 40 million Nigerians, mostly between the age of 18 and 25, are jobless.
According to the minister, the World Bank presented the figure to the Nigerian federal government.
Project Financing
The federal government over the years spends two thirds of its revenue on recurrent expenditure (salaries of government officials and agencies). This leaves about a third to project development and infrastructure.
The government had bench marked the price of crude oil at a reference price of 65 dollars per barrel and had to review it to 45 dollars per barrel for 2009 fiscal year.
With the price of crude oil going down to about 35 dollars per barrel it leaves the government project financing at a limbo. The federal government has a deficit financing of 1.9 trillion naira (12.7 billion dollars) for 2009, built into its budget.
Former Minister for Finance Shamsudeen Usman said Nigeria needs between 40 billion and 60 billion dollars to fund major infrastructure.
It expects to get this through a 500 million dollar Sovereign Bond issue and Public Private Partnership (PPP) to develop major road infrastructure.
So it is very hard for the Nigerian government to spare funds for major infrastructural projects.
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