editorial team - zenith bank - in your best interest team marcel okeke editor eunice sampson deputy...

EDITORIAL TEAM

MARCEL OKEKEEditor

EUNICE SAMPSONDeputy Editor

ELAINE DELANEYAssociate Editor

CHARLES UJOMUIBRAHIM ABUBAKAR

SUNDAY ENEBELI-UZOROLUWASEUN OLAOYE

Analysts

JOHN LUCKY ETOHProduction Supervisor

SYLVESTER UKUTROTIMI AROWOBUSOYE

Layout/Design

EDITORIAL BOARD OF ADVISERS

UDOM EMMANUELGIDEON JARIKREPAT NWARACHE

OCHUKO OKITI

ZENITH ECONOMIC QUARTERLYis published four times a year

by Zenith Bank Plc.

Printed by PLANET PRESS LTD.Tel 234-1-7731899, 4701279, 08024624306,

E-mail:[email protected]

The views and opinionsexpressed in this journal

do not necessarily reflectthose of the Bank.

All correspondence to:The Editor,

Zenith Economic Quarterly,Research & EIG,Zenith Bank Plc

7th Floor, Zenith HeightsPlot 87, Ajose Adeogun Street,

Victoria Island, Lagos.Tel. Nos.: 2781046-49, 2781064-65

Fax: 2703192.E-mail:[email protected],

[email protected]: 0189-9732

FROM THE MAIL BOXThis contains some of the acknowledg-ments/commendation letters from ourteeming readers across the globe. Pg. 4

PERISCOPEThis is a panoramic analysis of majordevelopments in the economy during theperiod under review and the factorsunderpinning them. Pg. 5

POLICYThis contains the recently published mediumterm expenditure framework and fiscalstrategy paper of the Federal Governmentfor 2012 - 2015. Pg. 14

GOLBAL WATCHAn overview of the global economic growthprospects in 2012 and the factors thatcould hinder growth. Pg. 20

ISSUES (I)An analysis of Nigeria’s budget 2012 andthe issues that must be addressed if theeconomy is to achieve sustainabledevelopment. Pg. 27

ISSUES (II)A critique of Nigeria’s efforts at combatingmoney laundering and the challenges to beaddressed in this regard. Pg. 37

ISSUES (III)Examines the Nigerian rail transport systemwith emphasis on prospects and recentmilestones. Pg. 46

FOREIGN INSIGHTSAn indepth analysis of the global financialmarket, challenges and investment optionsin 2012. Pg. 56

DISCOURSEEvaluates the growing trend of multiplerebranding in the Nigerian corporateenvironment with emphasis on the businessenvironmental factors driving it. Pg. 66

FACTS & FIGURESThis contains economic, financial andbusiness indicators with annotations. Pg. 76

2 Zenith Economic Quarterly January 2012

T

memorial governments have been cheered or jeered based onthe visible improvement or deterioration in the standard ofliving of the citizenry. Yet there has been no fool-proof man-agement or leadership approach in run-ning the economy, whether planned orunplanned, to guarantee the desired im-provement.

This, for most countries includingNigeria, has posed the ever-present chal-lenge of what instruments to deploy inplanning and running the economy toachieve consistent improvement in thequality of life of the citizenry—that iseconomic development—as against theusually superficial economic growth.One critical instrument in Nigeria hasbeen the annual budget—a kind of an-nual plan. This is why our key article on“Nigeria’s Budget 2012: Options forAttaining Sustainable Development”takes a panoramic view of the plan docu-ment that was presented to the NationalAssembly by President GoodluckJonathan in December 2011.

The author recognises that as in thepreceding year, the watch word for thebudget is fiscal consolidation, indicat-ing government’s resolve to cause a change of direction in itsfinances—finance being the life-blood of the annual plan. High-lighted also are the likely risks and challenges of the budgetincluding monetary and fiscal policy disconnect, expenditureoverload, petroleum subsidy conundrum and the usual budgetimplementation drag. All said, the critical and transformationalrole of agriculture is acknowledged; and indeed, flaunted as oneof the trump-cards for attaining most the wholesome objec-tives of the budget.

In a related treatise, focus is directed at the “Railway System:Nigeria’s Neglected Critical Transport Infrastructure”, and thedamaging long neglect of that key haulage facility is deeplyanalysed, just as the renewed attention it is getting in recenttimes is appraised. Thus, the author sums up that it is expectedthat upon the completion of the ongoing resuscitation andmodernization of the rail system, it will become attractive forconcessioning and further investments which will in turn propel

the expansion of the rail system to meet growing demand acrossthe country.

Yet, our concern for the economy moves to the ‘GlobalWatch’ where we raise our apprehension under the rubric: “Glo-bal Economy in 2012: Another Recession Imminent?” Here,the author analyses the economic conditions in the Euro-zone,America, Asia, Latin America, among others, summing up that“even if the global economy manages to escape a full blown

crisis, the world would still grow farweaker than the post 2008-2009 reces-sion levels.” In a related discourse: “2012:Be on High Alert for the Much AwaitedReturn of Global Growth,” our man inLondon holds a similar opinion. Forhim, growth will most certainly not beuniform; some countries will not feel thebenefits of the much promised andmuch awaited global upswing this yearor even next.

In another treatise, we delve into oneof the deliberate efforts of the govern-ment to entrench the culture of due pro-cess, transparency and dignity of labourin the consciousness of the generality ofNigerians. Thus, the article “Due Pro-cess and Transparency: Money Launder-ing” dwells on the most misunderstoodand abused subject of money launder-ing and its ever-spreading tentacles. Theauthor traces the enabling laws, expos-ing the ramifications of the hydra-headedcrime, the local and international dimen-

sions, and its dominant presence in the financial and businessworld.

Other regular sections of the journal also treat a number ofcritical issues including the topic “Economy: Reforms, StabilityPrevails” which is a panoramic view of Nigeria’s economic sec-tors, policies and activities during the relevant period. We alsohave annotated diagrammatic presentation of all the economicindicators under the section ‘Facts & Figures’ as well as the 2012to 2015 expenditure framework and fiscal strategy paper as re-leased by the Federal Government.

This is indeed another rich package for you. It is unputdownable,I promise!

ndoubtedly, economy management has remainedthe most crucial yardstick for gauging the perfor-mance of politicians or governments in all juris-dictions, such that hardly do other indicatorsmatter, when the chips are down. From time im-U

From time immemo-

rial governments

have been cheered

or jeered based on

the visible improve-

ment or deterioration

in the standard of

living of the citizenry.


I am directed to acknowledge withthanks receipt of your publication,the Zenith Economic QuarterlyZEQ) Vol. & No. 4 October, 2011which focuses on the “SovereignWealth Fund as a DevelopmentImperative”. Zenith EconomicQuarterly (ZEQ) which holds aprominent place in NRC researchlibrary is now a must read Journalby Railway Directors. The Corpo-ration will therefore appreciatethat you retain the NRC on yoursubscription list. Please accept theassurances of the ManagingDirector’s highest regards.W. A. Yinkorefor: Managing Director (NRC)Office of the Managing Di-rectorNigeria Railway Corporation,Lagos

With appreciation, I acknowledgethe receipt of a copy of your Ze-nith Economic Quarterly (ZEQ),Vol. 7, No. 4 of October, 2011,which focuses on the SovereignWealth Fund and the CashlessEconomy, amongst other issues.Your journal is a veritable instru-ment and priceless resource guidefor economic policy and cooper-ate investment. I accept your re-gard and thank you for this valu-able material that I hope wouldprovide useful reference and in-formation to me and my team.Please, accept the assurance of mybest wishes.Chukwuma C. ChinyeCommissionerMinistry of Commerce andIndustryGovernment of Rivers State ofNigeria

I wish to acknowledge withthanks the receipt of the abovemagazine October 2011 editionforwarded to the Mission. Themagazine no doubt, provides criti-cal information on Nigeria and glo-bal economy for strategic policydecisions.Warm regards.A. N. MadubikeFor: High CommissionerHigh Commission of the Fed-eral Republic of Nigeria,Pretoria

I am directed to acknowledge withthanks, receipt if your letter ofthe above subject, dated 28th De-cember 2011 and to inform youthat the High Commissioner ap-preciates the role of the accom-panying magazine in the economicsector of our dear country.Warm regards.J. OlowodahunsiAdministrative Attaché 1For: High CommissionerNigeria High Commission,Kampala-Uganda

I am directed by the AttorneyGeneral & Commissioner for Jus-tice, Mr. Ade Ipaye to acknowl-edge the receipt of your letterdated December 28, 2011 withthe copy of the October,2011 Edition of the ZenithEconomic Quarterly Jour-nal.I am to express the AttorneyGeneral’s appreciation forthe journal and assure you ofhis highest regard.Iyabode OshodiFor: Attorney General &Commissioner for JusticeLagos State Government,Alausa

I write to acknowledge withthanks receipt of your letterdated 28 December 2011 for-warding a copy of the Octo-ber, 2011 edition of the Ze-nith Economic Quarterly (ZEQ).I found the publication quite in-formative and educative, and itwill, no doubt, assist the missionin its task of promoting Nigeria’sinterest in Singapore. I am there-fore grateful for your gesture.While wishing you continued goodhealth, please accept the assurancesof my highest regards.Danjuma Nanpon SheniActing High CommissionerNigeria High Commission,Singapore

His Excellency the President ofthe Senate, Distinguished SenatorDavid A. B. Mark, GCON Ac-knowledges with thanks your let-ter forwarding a copy of yourZenith Economic Quarterly Pub-lication.

Please accept the assurance of HisExcellency’s high regards and bestwishes.Sen. (Amb) Anthony G. ManzoFRCSChief of Staff to the Presidentof the Senate

We wish to acknowledge withgratitude receipt of a copy of theOctober 2011 edition of the Ze-nith Economic Quarterly (ZEQ)and to inform that the ZEQ hasproven to be a valuable source ofrelevant information on importanteconomic issues.The journal has been a useful ref-erence material because its inci-sive analysis has provided signifi-cant insight into regional and glo-

bal economic matters.Please accept the assurances of theHead of Mission’s highest regards.Yours sincerely,Beatrice AyokhaiAdmin. Attaché IIFor: AmbassadorEmbassy of Nigeria Conakry,Guinea

I am directed to acknowledge withthanks your letter dated 28th De-cember, 2011 forwarding a copyof the October, 2011 Edition ofthe above-named publication. Iwish to add that the receipt ofthe publication was timely as itwould serve as a veritable sourceof reference material in the

Mission’s engagements with theIrish Business Community. Kindlyaccept our most sincere apprecia-tion, please.Nkwocha E.N.First SecretaryFor: AmbassadorEmbassy of Nigeria, Ireland

Your Branch Manager at ZenithBank Plc, Awka recently gave methe October, 2011edition of your well written Ze-nith Economic Quarterly (ZEQ).Let me first register my apprecia-tion for the expertise exhibited inthe topics discussedin that edition of ZEQ.Researchers and Policy Makerswill no doubt find the journal a

good reference materialfor our developing

economy.In fact, you have made available,very sound, educative and topicalinformation for growing minds.Please, accept my compliments forthe nice work. Continue this goodwork and do remember toalways include me in your mailinglist.Kind regards!Charlie O. OkekeDPRSMinistry of EducationAwka, Anambra State

Januar 2012 Zenith Economic Quarterly 5

Periscope

*By Marcel Okeke

Tsome of the key features and drivers of thenational economy during the last quarter 2011.Other specific policy proposals during the pe-riod include the ‘cashless’ economy, petroleumsubsidy removal, ‘nationalization’ of some res-cued banks, adoption of the International Fi-nancial Reporting Standard (IFRS), and runup to the take off of the Sovereign WealthFund (SWF). Consistent increase in crude oilprices in the international market, just as inthe previous quarters, also prevailed in theperiod under review—thus providing somestimulus to the nation’s external reserves.

President Goodluck Jonathan presented theN4.749 trillion 2012 Appropriation Bill to the na-tional assembly (NASS) on December 13, 2011,following the earlier presentation and adoption ofthe (2012—2015) MTEF and the Fiscal StrategyPaper (FSP) by the NASS.

The MTEF and FSP comprise the macroeco-nomic framework which gives an analysis of keymacroeconomic trends of recent years and pro-vides insight on future policy direction. The FSPoutlines fiscal strategy, analyses expenditure andrevenue figures for the years under review; detailsthe assumptions underlying these projections; re-views the previous budget and gives an overviewof consolidated debt and possible fiscal risks. The2012 budget is premised on the assumption of $70per barrel of crude oil and production level of 2.48million barrels per day during the budget year. It isbroken down into a capital expenditure ofN1.32trillion (or 28 percent), recurrent expenditure

he plethora of ongoing re-forms in various sectors, pro-posals for a number of policyinitiatives including the 2012Federal budget as well as theMedium Term ExpenditureFramework (MTEF) were


PERISCOPE | Economy:Reforms, stability prevail

component ofN2.472trillion (or 52 per-cent); statutory transfers– N398 billion (or 8.3 per-cent) and debt servicing– N560 billion (or 11.7percent). These proposalswere however under leg-islative debates and evenexecutive revisions at thetime of this report.

Another major factorthat influenced theeconomy during the quar-ter under review was theupgrading of outlook onthe Federal Republic ofNigeria to ‘positive’ from‘stable’, by the global rat-ing agency—Standard &Poor’s. This revision, ac-cording to S & P, indi-cates that there is at leasta one-in-three likelihoodof an upgrade, ifNigeria’s reform initia-tives support economicgrowth, build strongerbuffers against currentdependence on petroleumrevenue and reduce pres-sure on the exchange rate.Similarly, according to theEconomist Intelligence Unit (EIU) Democracy Index data,despite the fact that 2011 was an exceptionally turbulent yearpolitically, democracy in Nigeria recorded an improvement—by 10.4 per cent—placing the country in the 119th position in2011, compared with the 123rd position it occupied in 2010.

Democracy Index which provides an assessment of thestate of democracy worldwide for 165 independent states andtwo territories, ranks each country on such factors as qualityof elections, civil liberties, democratic culture, among others.

From the EIU survey,Nigeria’s overall democ-racy index increased from3.47 in 2010 to 3.83 in2011 as a result of high in-crease from electoral pro-cess and pluralism index.

The impact of these in-fluences on the economyin the period under reviewwas a mixed outcome:double digit inflation, de-preciated national currency,improved gross domesticproduct, some accretion toexternal reserves, increasein national debt, etc. Spe-cifically, inf lation rateended the year 2011 at10.30 per cent, slightlydown from the 10.50 percent in November andOctober, as against the car-dinal goal of the CentralBank of Nigeria (CBN) toachieve a single digit infla-tion rate. Apparently, infla-tionary pressure was sus-tained by the structural de-ficiency of the Nigerianeconomy, huge import bill,high public sector fiscalprofile, among others. And

according to the apex bank, single digit inflation rate inthe country would lead to positive real return on fixedincome securities and encourage investment in theseinstruments and thus engender savings.

In the foreign exchange market, excessive demandfor foreign currencies remained unabated all through2011, causing the value of the Naira to slide againstthe US Dollar. For example, in October and rest ofthe year, the nation’s currency met severe head winds

The impact of these influences on the

economy in the period under review

was a mixed outcome: double digit

inflation, depreciated national cur-

rency, improved gross domestic prod-

uct, some accretion to external re-

serves, increase in national debt, etc.




with much pressure coming from im-porters, downstream oil companies aswell as speculators. Indeed, the nationalcurrency breached the CBN’s adoptedtrading band of N150 (+/-3 percent),sparking rumours of possible devalu-ation. In the face of this ugly trend,the CBN tinkered with a number ofmeasures to bring about some stabilityto the market, the overall effect re-mained a depreciated Naira. Some ofthese measures include increase in the

sale of foreign exchange, removal oflimit of dollars sold to Bureau DeChange (BDCs), target audit of theauthorized dealers to prevent specula-tive demand on dollars, lifting of re-striction on the holding period in gov-ernment securities by foreign investors,increase in MPR, and close to year-end, the reduction in net open limit ofbanks’ shareholders funds. Despitethese measures, the Naira depreciatedin all the three segments of the for-eign exchange market against the USDollar. Indeed, it ended 2011at

N156.7/$1 and 164/$1 at the officialand parallel markets respectively.

While the Naira experienced depre-ciation during the period under review,the nation’s Gross Domestic Product(GDP) moved in the opposite direc-tion. Available data from the NationalBureau of Statistics (NBS) show thatthe GDP grew by 7.40 per cent in thethird quarter 2011, and closed last quar-ter of the year at an estimated 8.68per cent. This growth was driven

mainly by activities recorded in Agri-culture, Wholesale & Retail Trade, Tele-communications, Manufacturing andFinance & Insurance sectors. Similarly,the nation’s stock of public debt expe-rienced significant accretion all through2011. Data from the Debt Manage-ment Office (DMO) show thatNigeria’s debt stock (addition of ex-ternal and domestic debt) as at Decem-ber 31, 2011 stood at N6.51 trillion,representing an increase of about24.38 per cent from the December2010 figure of N5.24 trillion. It was

N6.199 trillion as at September 30,2011.

A breakdown of the debt stock asat year-end 2011 show that externaldebt accounted for 13.64 per cent ofthe total debt, standing at N887.95 bil-lion, while the domestic componentaccounted for 86.36 per cent or N5.623trillion. Furthermore analysis of theyear-end 2011 debt stock show that itis about 17.50 per cent of Nigeria’sGDP , as against the applicable critical

This growth was driven

mainly by activities

recorded in Agriculture,

Wholesale & Retail

Trade, Telecommunica-

tions, Manufacturing

and Finance & Insur-

ance sectors.

http://www.bagco-ng.com/pages/weaving%205.jpg



limit of 40 per cent for countries inNigeria’s economic peer group. This stillunderpins Nigeria’s claim to wide fis-cal sustainability space. But while thenation’s public debt stock was inchingup, its external reserves were decliningor remained flat, standing at US $32.64 billion as at December 31, 2011, asagainst US$32.34 billion level at De-cember 31, 2010. The CBN has allthrough 2011 expressed concernsabout the persistent demand pressurein the foreign exchange market andemphasized the need for tighter fiscalcontrols around oil revenue. The apexbank noted that the solution to reservedepletion resided in the implementa-tion of appropriate reforms with re-gard to industrial and trade policiesaimed at reducing import-dependencynature of the Nigerian economy whichwill help to conserve some foreign ex-

change.Preparation towards the take-off

of the compulsory adoption of theInternational Financial Reporting Stan-dards (IFRS) by all publicly quotedcompanies in the country reached afeverish pitch during the last quarter2011. In line with the subsisting policy,effective January 01, 2012, public

companies operating in Nigeria are ex-pected to migrate from the NigerianGenerally Accepted Accounting Poli-cies (N-GAAP) to IFRS. This requiresthe preparation of 2011 accounts basedon IFRS. IFRS are principles-basedstandards, interpretations and theframework, adopted by the Interna-tional Accounting Standards Board(IASB). Towards the adoption of theIFRS in the country, the Nigerian Ac-counting Standards Board (NASB) hassince transformed to the FinancialReporting Council of Nigeria, sequelto a Bill that was signed into law on 20July 2011. With this development inNigeria “more meaningful and decisionenhancing information can now be ar-rived at from financial statements is-sued in Nigeria because accounting,actuarial, valuation and auditing stan-dards used in the preparation of these

http://www.globalhomesmagazine.com/wp-content/uploads/2011/08/World_Bank_buildingweb.jpg

Through its Commercial

Agriculture Development

Project (CADP), the World

Bank is also giving a push to

agriculture in the country by

reaching more states in the

six geopolitical zones with

its US$150 million facility.



statements shall be issued and regulatedby this Financial Reporting Council,”according to the Minister of Trade andInvestment, Olusegun Aganga.

The transformation agenda ofthe Federal Government contin-ued to gain expression in the ag-ricultural sector of the Nigerianeconomy during the period un-der review. Sequel to the roll outof the Agricultural Transforma-tion Action Plan (ATAP), the Fed-eral Government has also initiatedthe Growth Enhancement Sup-port (GES) under which farmers,agro-dealers, seed and fertilizercompanies will be supported tomake a success of their agric busi-ness. Also, efforts to establishStaple Crops Processing Zones,Clusters, Commodity MarketingCorporations jointly with the pri-vate sector have commenced.Through its Commercial Agricul-ture Development Project(CADP), the World Bank is alsogiving a push to agriculture in thecountry by reaching more statesin the six geopolitical zones withits US$150 million facility. In thisdrive, ten states are the benefi-ciaries under the CADP, includ-ing Kano, Kaduna, Lagos, CrossRiver, Enugu, among others.

In a similar vein, the CBNstrengthened its agric credit guar-antee scheme, under which it guar-anteed about N10.20 billion toover fifty-six thousand farmers in

the 36 states and the Federal CapitalTerritory (FCT) in 2011. A breakdownof this sum shows that the apex bank

guaranteed a total of N969.40 millionin the first quarter 2011, N1.38 billionin the second quarter, and N3.55 bil-lion in the third quarter. The guaran-tee shot up to N4.44 billion in the lastquarter 2011. The purpose of the Ag-ricultural Credit Guarantee Scheme(ACGS) is to provide guarantee in re-spect of banks’ loans to farmers foragricultural activities, with the primaryobjective of increasing the level ofbank credit to the sector. The loansnormally comprise advances, over-drafts and any other credit facilities.

Another creative funding supportfor the agric sector came during theperiod under review, when the Federalgovernment through the DMO issuedsovereign guarantees to banks, secur-ing up to 70 per cent of the loansgranted by banks to agro dealer. Thisinnovative funding is intended to getseeds and fertilizer (agric inputs) intothe hands of farmers directly and helpboost food production in the country.This totally obviates the challenge ofGovernment using its funds for directprocurement and distribution of theseinputs. About 12 banks are participat-ing in this new arrangement.

THE CAPITAL MARKETContrary to the predictions of mostanalysts about the behavior of the capi-tal market in 2011due to the spillovereffect of the steps taken by the CBNin 2010 to rescue some banks and in-crease investors’ confidence, the bear


PERISCOPE NIGERIA: EconomicTeam Takes Off, Sustains Stability

ruled the market. Indeed, such predic-tions turned out to be false at the closeof the year—with the All-Share Index(ASI) losing about 17 per cent of itsvalue to stand at 19, 526 points andthe Market Capitalization declining byabout 18 per cent, closing at N6.5 tril-lion. Rising unemployment, weakenedpurchasing power and poor investorconfidence, all combined to exert downward pressure on the stock marketduring the period under review.

From the external front came the‘contagion’ of the lingering global eco-nomic meltdown, which reflected onthe market in form of foreign inves-tors almost cashing out of the scene,even as their local counterparts soughtrefuge in short and medium-term gov-ernment securities. Specifically, theEuro-zone sovereign debt crisis whichled to underweighting of frontier andemerging markets resulted to with-drawal of foreign investments. Also,persistent interest rate hike by the CBN(with MPR raised from 6.25 per centin January to 12 per cent in October2011) to curb inflation and pressureon the Naira robbed off negatively onthe capital market.

Over all, the capital market datashow that in 2011, 28 Bonds issued in

the market totalled N79b billion naira;those of States (Delta, Ekiti, Niger andBenue) and Corporate Bonds collec-tively amounted to N84 billion. Also,there were 16 new Issues; six rights is-sues; nine private placements and onepreference share issue, totalling N142billion. Foreign portfolio investmentinto the market amounted toN478billion naira during the year.

Significantly, the banking sub-sec-tor closed the year with less numberof quoted/listed banks as a result ofsuccessful mergers and acquisitionsthat took place in the sector within thelast quarter of the year. A number of

the acquired banks were de-listedfrom the daily official list (DOL)of the Nigerian Stock Exchange(NSE); thus, the market closedwith 15 strong and healthy banksas against 21 banks that startedthe year.

BANKING ANDFINANCEThe Central Bank of Nigeria(CBN) pursued with vigour, its re-forms in the banking sector allthrough 2011—leading to a waveof mergers and acquisitions (M& A), recapitalization and nation-alization. On the M & A train,Access Bank took up Interconti-nental Bank; EcobankTransnational Incorporated Plc(ETI) acquired 100 per cent ofthe outstanding share capital ofOceanic Bank, just as First CityMonument Bank (FCMB) took

over Finbank and Equitorial TrustBank merged with Sterling Bank. Onthe other hand, Union Bank embarkedon a rights issue of five new sharesfor every nine shares held. This waspart of its re-capitalization effortswhere a core investor—a consortiumof private equity firms headed by Af-rican Capital Alliance—took majorstake in the bank. The CBN had ear-lier nationalized and revoked the li-censes of three other banks for failingto recapitalize ahead the stipulateddeadline. The assets of these bankswere transferred to three newly cre-ated, nationalized banks: KeystoneBank, Enterprise Bank and MainstreetBank.

The apex bank also tenaciously tooksteps towards implementing its “cash-less” economy policy—havingemphasised for so long that the Nige-rian economy was too heavily cash-ori-ented in the transactions of goods andservices. According to the CBN, hugevolumes of cash transactions imposeenormous costs to the banking systemand consequently, the customer, interms of cash management, frequentprinting of currency notes, currencysorting and cash movements. It opinedthat these cash-fuelled transactions in

The apex bank alsotenaciously took stepstowards implementingits “cashless”economy policy—having emphasised forso long that the Nige-rian economy was tooheavily cash-orientedin the transactions ofgoods and services.



the economy informed the preferenceby the banks to lend to the capitalmarket and oil and gas industry ratherthan the real sector and small & me-dium scale enterprises (SMEs). Fur-thermore, the apex bank insists thatthe spiralling cash management cost,most of which is passed to the cus-tomers in the form of bank chargesand lending rates, is as a result of the

porate respectively will attract a charge.The pilot phase of the “cashless” policyhas commenced in Lagos, and willgradually cover Port Harcourt, Kano,Aba and the Federal Capital Territory(FCT), among others.

TELECOMMUNICATIONSThe GSM segment of the telecomsindustry continues to dominate theperformance of the sector by all indi-ces. The Nigerian CommunicationsCommission (NCC) data for year 2011show that the segment recorded a to-tal subscriber-base of 90, 566, 238 outof the 95,886,714 industry-wide.MTN Nigeria, with 41,641,089 sub-scribers, representing 46 per cent ofthe segment, maintained its leadingposition. Globacom with 19,886,014lines accounting for 22 per cent rankssecond. Airtel controls 20 per cent ofthe GSM segment with 18,028,385subscribers, while Etisalat had10,752,230 subscribers, representing 12per cent of the segment. M-tel’s258,520 subscribers represent zero percent in that market segment.

A further breakdown of NCC fig-ures show that on a quarterly basis,Etisalat witnessed the most impressivegrowth rate of 13.02 per cent betweenthe third and fourth quarter. Airtel alsogrew impressively at 8.06 per cent whileMTN and Globacom grew marginallyat 1.30 and 0.16 per cent respectively.Etisalat’s market also witnessed themost gain as it grew to 12 per centfrom the 10 per cent in the precedingquarter. Again the only gainer in mar-ket share on a quarter-to-quarter basiswas Etisalat which moved from nineper cent as at end of first quarter 2011to 10 per cent as at the end of thesecond quarter. Airtel’s market sharealso increased to 20 per cent from 19in the preceding quarter. On the otherhand, MTN’s market share declinedfrom 48 per cent in the third quarterto close the year at 46 per cent whileGlobacom also closed the year at 22per cent, down one per cent from 23per cent as at end of third quarter.

In the CDMA segment of themarket, which had 4,601,070 subscrib-ers as at end 2011, Visafone improvedits dominance with 2,604,038 subscrib-

cash dominant economy.Thus, all through the last quarter

2011, both the deposit money banks(DMBs) and the CBN were in a frenzyworking out the logistics for the take-off of the new retail cash policy whichcommenced January 1, 2012. Thepolicy stipulates that over the countercash transaction above N150,000 andN1,000,000 for individuals and cor-


PERISCOPE NIGERIA: EconomicTeam Takes Off, Sustains Stability

ers representing 57 per cent of themarket share. Starcomms ranks nextwith 980,109 subscribers accountingfor 21 per cent. Multilinks-Telkom with701,304 subscribers controls 15 percent of the segment, while Reltel con-trols seven per cent of the segmentwith 315,619 subscribers. The onlygainer in market share from the sec-ond quarter 2011 in the CDMA seg-ment is Visafone which moved from47 per cent as at the end of secondquarter 2011 to 57 per cent (a growthof 11 per cent) as at end of the year.Conversely, the market share ofMultilinks-Telkom slipped from 17 percent to seven per cent in the same pe-riod.

The industry regulator, NCC, hascompleted the Subscriber IdentificationModule (SIM) cards registration, andalso taken steps towards achieving num-ber portability and Quality of Service(QoS) improvement in the industry. Inthis regard, it has appointed a consor-tium of three companies: Intercon-nect/Saab Grintek/Telecodia, as thepreferred implementers of the num-ber portability service in the country.

POWER ANDELECTRICITYAs part of the ongoing transformationin the power sector, the Federal gov-ernment during the period under re-view formally issued operational li-censes to 20 new power generationcompanies, a distribution firm and theNigerian Bulk Electricity Trading Com-pany Plc (NBETC). The distributioncompanies have also executed a ‘vest-ing contract’ with the Bulk Taker(NBETC)—a process which providesthe arrangement to ensure that avail-able power is shared equitably amongthe distributing companies. Ahead ofthis, the Bureau for Public Enterprises(BPE) in tune with the revised timelinefor the privatization of the successorcompanies created from the PowerHolding Company of Nigeria (PHCN),released the industry agreements whichare the draft Power Purchase Agree-ment (PPA) and the draft Vesting Con-tract.

About 135 pre-qualified firms forbidding for the successor companies

to the PHCN also commenced physi-cal due diligence on 17 power firmsthat have been put up for sale by theFederal government. Some of theprequalified companies includeDangote Industries Limited, OandoPlc, Essar Consortium, HoneywellEnergy Resources International Lim-ited, Kenya Electricity GeneratingCompany, Odu’a Distribution Com-pany Limited and Rockson Engineer-ing, among others.

In a related development, the Fed-eral government has set up a commit-tee headed by the Governor of CrossRiver, Lyel Imoke, to look into powerdistribution across the country. Mem-bers of the committee include fourother state governors, minister ofpower, national planning, Chief Eco-nomic Adviser to the President as wellas the Director General of Bureau forPublic Procurement.

In line with the privatizationprogramme, the PHCN has also beenwound up, with workers at its head-quarters redeployed to its successorcompanies. Effort has also commencedat privatizing existing thermal plants ofthe PHCN, just as the hydro plants areslated for concessioning. The Federalgovernment has, on the other hand,signed a Memorandum of Understand-ing (MoU) with Global Biofuels Lim-ited, for the construction of 15 inte-grated bio-fuel plants in Nigeria. TheN424 billion project will generate about450 megawatts of electricity and willcreate about 120,000 jobs on comple-tion.(* Marcel Okeke is the Editor, Ze-nith Economic Quarterly)

In a related devel-

opment, the

Federal govern-

ment has set up a

committee

headed by the

Governor of

Cross River, Lyel

Imoke, to look

into power distri-

bution across the

country.


Polic

y

1. IntroductionThe Medium Term ExpenditureFramework (MTEF) & Fiscal Strat-egy Paper (FSP) are statutory docu-ments which articulateGovernment’s revenue and spend-ing plan as well as its fiscal policyobjectives over the period. Section11 of the Fiscal Responsibility Act(FRA) 2007 requires the Ministerof Finance to prepare the MTEF& FSP and lay it before the Fed-eral Executive Council and the Na-tional Assembly for consideration.

The MTEF & FSP is composedof the macroeconomic frameworkwhich gives an analysis of key mac-roeconomic trends of recent yearsand provides insight on futurepolicy direction. The FSP outlinesfiscal strategy, analyses expenditureand revenue figures for the yearsunder review, details the assump-tions underlying these projections,reviews the previous budget andgives an overview of consolidateddebt and possible fiscal risks.

2. Macroeconomic Framework2.1 Global Economic OverviewRecovery from the global recessionhas slowed down significantly asdownside risks are on the increaseon the back of the debt crisis inthe Euro area and concerns aboutthe trajectory of US recovery giventhe recent downgrade by Standard andPoor’s (S&P). Poor GDP growth fig-ures from Organisation for EconomicCooperation and Development(OECD) countries over the last fewquarters and high unemployment fig-

ures have further increased fears of adouble-dip recession.

Global growth remains unbalancedas many advanced economies, espe-cially in the Euro area periphery, con-tinue to struggle with high levels of

sovereign debt. Japan’sgrowth prospects havebeen weakened consider-ably by the recent nuclearcrisis and effects of the tsu-nami and earthquake cul-minating in the recentdowngrade of Japan’scredit rating. Emerging mar-kets are leading the recov-ery, in particular, China andIndia, although overheatingconcerns persist.

Although it is expectedthat emerging and develop-ing countries such as Nige-ria would continue to leadthe recovery in the mediumterm, rising food and com-modity prices as well asother inflationary pressuresmust be managed forgrowth to proceed.

2.2 Overview of Nige-rian Economic Perfor-manceAlthough the Nigerianeconomy has recoveredconsiderably from theworst effects of the globaleconomic crisis, global eco-nomic activities, particu-larly the outlook for inter-national oil prices, remain

a source of concern. The main trans-mission mechanisms of the crisis tothe economy were the internationalprice of oil, foreign capital inflowsthrough remittances, portfolio invest-ment and FDI. The oil price has been

January 2012 Zenith Economic Quarterly 15

POLICY | 2012-2015 Medium Term ExpenditureFramework & Fiscal Strategy Paper

above $100 per barrel since February2011; however weak economic growthprospects pose considerable downsiderisks to the global demand for oil.

Reforms in the banking sector,such as the creation of AMCON toclear up non-performing loans on bankbalance sheets and NSE reforms tointroduce tighter regulations in themarket, are also aiding recovery inthese areas but there is a long way togo. To mitigate the possibility of a re-duction in oil revenue receipts, Gov-ernment will continue to implement thepolicy of fiscal consolidation com-menced in the 2011 fiscal year. Increas-ing inflationary pressures and theirimpact on macroeconomic stabilitythrough adverse interest and exchangerate movements necessitates this.Greater coordination between mon-etary and fiscal authorities will seek tomitigate these concerns. The goal willbe low inflation, interest rates consis-tent with strong and sustained eco-nomic growth, a stable exchange ratereflective of real market conditions anda build up in external reserves in thepresence of high oil prices.

3. Review of the 2010 Budgets –Amended and SupplementaryBudgetsThe 2010 Budgets were stimulus bud-gets intended to mitigate the negativeconsequences of the global economiccrisis. The 2010 Appropriation Bill wasbased on aggregate expenditure ofN4.637 trillion; however to address therealities of revenue constraints, the Na-tional Assembly passed an AmendmentBudget of N4.427 trillion in May 2010.The approved Amendment Budget wasbased on an oil benchmark price ofUS$60 per barrel, oil production of2.25 million barrels per day and anexchange rate of N150/US$.

A first Supplementary Budget ofN644.75 billion was appropriated tomake provision for some unanticipatedexpenditure items such as the wage in-creases awarded to civil servants, uni-versity lecturers, and medical person-nel amongst others as well as the PHCNarrears of monetisation. A secondSupplementary Budget of N87.72 bil-

lion was approved for INEC in prepa-ration for the 2011 Elections.

3.1 2010 Budget Performance:Revenue OutturnsInternational oil prices averaged US$81per barrel in 2010 while data fromNNPC indicated average oil produc-tion of 2.462 mbpd for the year. Thisresulted in gross oil revenue of N5.396trillion, 10% higher than the budgetedrevenue of N4.902 trillion while FGNRetained Revenue which was projectedat N3.18 trillion; fell short by N221.15billion (or 6.95%) as of the end ofDecember, 2010 as only N2.959 tril-lion was realised.

FGN’s share ofoil revenue wasN1.267 trillion againstthe budgeted N1.456trillion, representing ashortfall of N188.6billion (or 12.96%).Its aggregate share ofVAT, CIT and Cus-toms Duties fell shortof the N530.1 billiontarget by 1.70% withN521.05 billionrealised as at the endof December, 2010.Breakdown of non-oil revenue perfor-mance indicates thatthe main driver wasCIT, with collectionsbeing 12.63% abovethe budgeted figure;whereas customs collections fell shortby 22.74%.

3.2 2010 Budget Performance: Ex-penditure OutturnsAggregate expenditure approved in the2010 Budgets (Amendment, Supple-mentary I and II) amounted to N5.16trillion, of which N1.765 trillion wasallocated to capital expenditure andN2.669 trillion to recurrent spending.

Of the N1.765 trillion budgetedfor capital expenditure, only N956.11billion was released and cash-backed,as it was clear ab initio that the capitalvote approved by NASS was far inexcess of available resources. Of theamount cash-backed, MDAs utilised

N935.61 billion after the fiscal yearwas extended to March 31st, 2011. Atthe end of the period under consider-ation, N935.61 billion had been utilised,resulting in average capital utilisationof 97.86%. This was an improvementover the 70.42% performance as at31st December, 2010.

Inability to fully fund the capitalbudget raises the issue of the skew-ness of the budget towards recurrentspending and the squeeze it places onfunds for capital spending. Approvedsalary increases of 53.7% for core civilservants and medical personnelamongst others raised the wage bill sub-stantially. The payroll bill, representing

34% of aggregate expenditure, in-creased by 61% from N857.04 billionin 2009 to N1.381 trillion in 2010 andto N1.506 trillion in 2011.

To ensure greater efficiency inGovernment spending, Governmenthas approved the engagement of capi-tal programme and project portfoliomanagers, with the objective to workwith pilot MDAs to improve the qual-ity and efficiency of their capital projectimplementation. Government is alsocompiling a database of ongoingprojects for MDAs that will focus at-tention on completing and exiting thelarge portfolio of uncompleted capitalprojects. Moreover, it would help tominimise the incidence of duplication



of projects within andacross MDAs, aban-doned projects, andavoid spreading re-sources too thinly acrossmultiple initiatives.

4. Review of the 2011Amended BudgetThe 2011 Budget, withaggregate expenditure ofN4.226 tr (subsequentlyincreased to N4.388tr)was presented to NASSby Mr. President in De-cember 2010. This wasa budget of fiscal con-solidation as the totallevel of spending implieda deficit of 3.62 percentof GDP, a significant re-duction from the 6.06 percent ofGDP in 2010.

NASS passed a budget of N4.972tr in March 2011, which was deemedtoo large and the resultant deficit of4.23 percent of GDP. On this basis,the Executive and the Legislature col-laborated to reduce the level of spend-ing while still accommodating criticalexpenditure. Discussions on reducingthe level of spending were prolongedby the 2011 Elections and were notfinalised until May 2011. The outcomeof the negotiations between the Ex-ecutive and NASS was an AmendedBudget with Aggregate Expenditure ofN4.485 tr which comprises StatutoryTransfers of N417.82 bn (this nowincludes the total allocations to NASSand INEC as per S.81 of 1999 Con-stitution, as amended), Debt Serviceof N495.1bn, Personnel Costs ofN1.503 tr, Overheads of N288.05 tr,Capital Expenditure of N1.148 tr, Pen-sions of N154.75 bn, MYTO of N37bn and other Service-Wide Vote itemsof N439.16 bn.

Implementation of the 2011 Bud-get is still ongoing. Reports from theOAGF indicate that FGN revenue fellbelow target by N231bn as of August2011, mainly due to shortfalls in non-oil revenue as oil revenue receipts wereon target. Expenditure releases arelargely on track.

5. Assumptions Underlying Projec-tions of Oil and Non-Oil Revenue5.1 Oil Production & Market Priceof OilProjected oil production for 2011 is2.3 mbpd. Data from NNPC indicatesthat average production recorded inthe first quarter of 2011 was 2.43mbpd, or 5.65% over the budgetbenchmark oil production. On this basisand after consultations with NNPC,average oil production is estimated at2.480 mbpd, 2.550 mbpd, 2.575 mbpdand 2.600 mbpd in 2012, 2013, 2014and 2015 respectively.

5.2 Benchmark Price of Oil In con-tinuation of the adoption of an oil-price based fiscal rule, oil benchmarkprices significantly below the currentmarket prices will be adopted for the2012-2015 period. Revenue in excessof the benchmark price will continueto be set aside in the Sovereign WealthFund (SWF) The SWF, whichformalises the ECA, was designed toguarantee savings for future genera-tions, to promote the development ofcritical infrastructure thus promotinggrowth and diversifying the economyand to protect the budget against nega-tive oil price shocks. Based on a com-bination of a 5-year and 10-year mov-ing average, an oil benchmark price ofUS$75 per barrel has been adopted for2012-2015 as baseline scenario. Less

optimistic scenarios ofUS$65 and US$70 perbarrel have also been pre-pared in recognition ofpotential volatilities in theinternational oil market.

5.3 Non-Oil RevenueBaseline AssumptionsEstimates of non-oil rev-enue are the result ofchanges in the relevantcomponents of GDP. Theunderlying tax bases are asfollows:

• for CIT the underly-ing base is the portion ofnominal GDP liable forCIT;

• for VAT the under-lying base is the share of

consumption liable for VAT;• for Customs Duty the underlying

base is Import CIF.It is important to note that our pro-

jections also take into account the im-pact of ongoing reforms and includeefficiency factors accounting for op-erational improvements in the varioustax administration agencies. Projectedgross revenue figures for CIT, VATand Customs duties for 2012 are pre-sented below:

6. Fiscal Strategy for 2012-2015 6.1The Fiscal Strategy & EconomicObjectives of Government Over the2012-2015 period, Government willfocus a large portion of its spendingon key sectors which include Security,Infrastructure (including Power), Agri-culture, Manufacturing, Housing andConstruction, Entertainment, Educa-tion, Health and ICT. By investingfunds in these sectors, Governmentintends to support job-creating oppor-tunities which will in turn foster greaterand diversified economic growth.

Government will also continue itsstrategy of fiscal consolidation bywhich expenditure, particularly on re-current spending, will be reined in anddirected to its most productive andgrowth-enhancing use while efforts willbe intensified to increase revenue. Thisstrategy is guided by Government’slong-term development objectives as



provided by the Vision 20:2020 frame-work, the need to maintain macroeco-nomic stability and the effect of con-temporary global events on the activi-ties of the public and private sectors.The highlights of Government’s fiscalstrategy include:

6.1.1 Fiscal Consolidation:The reduced size of the 2011 AmendedAppropriation Act relative to the 2010Budgets signals Government’s intent toscale down its spending from the highsreached in recent times, largely due tothe fiscal stimulus extended during thepeak of the global economic crisis andthe recent increase in the wage bill. Thisscaled back spending will also createspace for greater private sector par-ticipation in financial markets. The needfor fiscal consolidation is made moreapparent by the recent sovereign down-grade of Nigeria from a stable out-look to negative by Fitch Ratings.

Although aggregate expenditure isexpected to increase from N4.8tr in2012 to N5.18tr in 2015, concertedefforts are being made to make sav-ings from overheads as allocations willbe frozen till 2015. Capital spendingwill increase marginally from N1.32trin 2012 to N1.64tr in 2015 as Gov-ernment intends to leverage on PPP-type arrangements to supplement capi-tal allocations from the Budget.

A major component of the policyof fiscal consolidation is Government’sintent to phase out thefuel subsidy beginningfrom the 2012 fiscalyear. This will free upabout N1.2tr in savings,part of which can bedeployed into providingsafety nets for poor seg-ments of the society toameliorate the effectsof the subsidy removal.The accrual to the SWFas a result of the with-drawal of the fuel sub-sidy will also augmentfunds for critical infra-structure through theinfrastructure windowof the SWF.

The fiscal deficit is

expected to follow a declining and sus-tainable path from 2.69% of GDP in2012. This is within the threshold indi-cated by the FRA, 2007 and more im-portantly implies that the deficit willbe financeable as domestic borrowingwill also follow a declining path overthe period. The macroeconomic ben-efits expected to accrue from a reduc-tion in the fiscal deficit include a re-duction in the crowding out of privateinvestors and a positive impact on in-terest rates.

6.1.2 Rebalancing the distributionof Government spendingIn recent times, the outlay on recur-rent spending has outstripped thegrowth of spending on capital projects.This increase can be attributed largelyto the rising wage bill, an outcome ofthe increase awarded to civil servants,medical personnel, ASUU staff etc.The 2012-2015 period will focus oncorrecting this structural imbalance inour expenditure profile thus ensuringthat more funds are allocated to criti-cal infrastructure projects. The reportof the Expenditure Review Commit-tee, which concluded its work in April2011, will provide a starting point forthis key initiative. PPP funding for in-frastructure projects will also be pur-sued aggressively. The share of recur-rent spending in aggregate expenditureis set to decline from 74.4% in 2011to 72.5% in 2012 while capital expen-

diture as a share of aggregate spend-ing is set to increase from 25.6% in2011 to 27.5% in 2012.

6.1.3 Diversification of theeconomyThe diversification of the Nigerianeconomy has been a critical objectiveof Government for some time as ourover-reliance on oil revenue proceedshas hampered the growth of the non-oil segment of the economy. Govern-ment has recorded much success andgoodwill in the creation of the ECAand now its successor, the SWF, appli-cation of the oil-price-based fiscal ruleand adherence to the provisions ofFRA, 2007; however, in the medium-term, it will be essential to consolidateon this success through targeted inter-ventions to boost the non-oil economy.

During the 2012-2015 period, oilrevenue is expected to increase mar-ginally from N2.37tr in 2012 toN2.47tr in 2015 as the benchmarkprice of US$75 will be maintainedthroughout the period and oil produc-tion is projected to rise from 2.48mbpdto 2.6mbpd. The drive for increasedreceipts from non-oil revenue will beintensified and this is expected throughbetter management and intensificationof IGR, CIT and Customs collections.

6.1.4 Four-Year Capital BudgetPlanningGovernment is adopting a four year

capital budget plan com-mencing in the 2012 fiscalyear. The focus is thecompletion and exit fromthe portfolio of ongoingcapital projects and pro-grams which are being re-prioritized in line with thedevelopmental objectivesof the First NationalImplementation Plan (1stNIP) of the Nigeria Vision20:2020.

Capital budget alloca-tion will reflect Govern-ment priorities and therewill need to be serioustrade-offs in order to en-sure flagship projects in keysectors of the economy are



adequately funded.Fiscal tables for the 2012-2015

period are provided in the Annex.

7. Analysis and Statement on Con-solidated Debt and Contingent Li-abilitiesRecent events worldwide, particularlyin the United States and Euro-zonearea, have highlighted the importanceof sustainable debt in maintaining eco-nomic stability. During the first fewyears of the global economic crisis,many developed countries had limitedfiscal space to accommodate additionalspending by Government and had toresort to the debt markets to raise fundsto keep their economies running.Emerging and developing countrieshave fared much better in this regardgiven that many, including Nigeria, hadembarked on successful macroeco-nomic reforms prior to the start ofthe crisis. Nigeria was able to enjoy fis-cal space owing to the successful ParisClub debt relief arrangement and onthe back of ongoing macroeconomicreform. The reforms have resulted inlower inflation levels, higher GDPgrowth and lower debt levels; however,in recent times, the rising domestic debtprofile has become a source of con-cern.

7.1 Debt ServiceDebt service payments are made toservice our obligations to foreign anddomestic creditors. Although the do-mestic debt stock had been on the risein recent years, with our current policyof fiscal consolidation and its positiveimpact on the size of the fiscal impactand thus domestic borrowing, a reduc-tion in the domestic debt stock is ex-pected.

7.2 Debt SustainabilityNigeria conducts a Debt SustainabilityAnalysis on a yearly basis in conjunc-tion with the World Bank and IMF. TheDSA utilises macroeconomic data toassess a country’s debt sustainability inrelation to current debt burden thresh-olds and projects its future ability toservice its debt.

The results from the DSA indicatethat Nigeria is well within the debt

sustainability threshold for all the yearscovered up to 2030 and is still at a lowlevel of debt distress. According toDMO, the current Net Present Value(NPV) of Debt to GDP ratio is about18 percent (domestic debt to GDPratio of 16.4 percent) while the rec-ommended threshold for countriessimilar to Nigeria is 40 percent.

7.3 Nature & Fiscal Implication ofContingent LiabilitiesContingent liabilities are potential obli-gations which crystallise at the occur-rence of a future event. These liabili-ties could arise where guarantees ofdebt, made by the Federal Governmentwith regard to contract agreements forcapital projects entered into by MDAs,crystallise into actual obligations. Withour current move towards PPPs indriving capital projects, the possibilitythat these liabilities are realised is quitereal; hence, the need for careful andrigorous analysis of potential projectsfor the PPP scheme.

8. Fiscal Risk8.1 Global Economic TrendsThe global economy has witnessed anumber of upheavals since 2010 thathave posed a challenge to global GDPgrowth and recovery from the globaleconomic crisis. The unfolding Eurozone debt crisis particularly is having ahuge impact on global financial mar-kets. The crisis is sending shockwavesthrough the markets as commodityand stock prices are exhibiting greatervolatility on concerns about the riskof default by the affected countries.The bailouts of Greece, Ireland andPortugal introduced greater stability inthe markets but current developmentsindicate that uncertainty persists. Therecent debt ceiling negotiations in theUnited States and downgrade of theUS economy to AA+ from AAA havealso contributed to market tensions.Japan’s recovery from the recentnuclear, tsunami and earthquake disas-ters has also led to a downgrade of itscredit ratings. As a result, uncertaintyon global economic recovery in themedium-term is highly uncertain.

8.2 Global Oil TrendsGlobal oil demand projections for 2011have been lowered due to the slow-down in global economic growth. Thedemand outlook for 2012, althoughinitially more positive due to post-con-struction efforts in Japan and demandfrom emerging countries like China andIndia, has also been revised downwards.The downside risk from persistentlyhigh oil prices has become more pro-nounced in recent times; however,China, India and the United States willcontinue to remain major drivers ofoil demand growth.

The unfolding events in the MENAregion, particularly the ongoing conflictin Libya, will have an impact on oilsupply as well as the future trajectoryof international oil prices. The supplyoutlook for 2011 is cautious consider-ing the uprising in the MENA regionis still unfolding.

8.3 Risks to Oil Production & PriceOil production in Nigeria has improvedconsiderably as the Niger Delta Am-nesty Initiative has resulted in peaceand stability in the region. Accordingto data from the NNPC, actual pro-duction figures in 2010 were higherthan projected; however, caution willbe exercised in making projections for2012.

International oil prices have beenrelatively high since late 2009 althoughgreater volatilities have been exhibitedin recent times due to global eventssuch as the uprisings in the MENAregion, the earthquake, tsunami andnuclear crisis in Japan and the Euro-zone debt crisis. In line with our ef-forts at fiscal discipline we will con-tinue to abide by the oil-price basedfiscal rule by setting a prudent budgetbenchmark price for the 2012-2015period. Recent world events and theuncertainty concerning current eventslinked to oil price movements also sug-gest that caution should be applied insetting the benchmark price.

8.4 Risks to Non-Oil RevenueIn 2010, the non-oil economy was thelargest contributor to GDP growth withagriculture, wholesale and retail tradein the forefront, in line with the pat-



tern in recent years. Aswe accelerate the diver-sification of theeconomy, we expectnon-oil revenue to con-tribute a greater shareof budget revenue com-pared to the currentcontribution of about30%. The performanceof non-oil revenue in2010 was below expec-tations as Customs andVAT collections werebelow target althoughCorporate Tax per-formed above target forthe 2010 fiscal year.

With the accelerationof recent reform ef-forts by Governmentand the implementationof initiatives to boostkey non-oil sectors, thisperformance should im-prove. Government isactively engaging withrevenue generation andcollection agencies toimprove collections. Inaddition, moves are be-ing made to harmonisethe establishing acts ofMDAs to ensure consis-tency with provisions ofthe 1999 Constitution (as amended) andFRA, 2007, thereby increasing receipts.

9. ConclusionThe 2012-2015 FSP and MTEF havebeen prepared against a backdrop ofheightened global economic uncer-tainty. The debt crisis in the Euro Area,its possible contagion effects, the down-grade of the US economy by S&P andthe possible downgrade of major EUeconomies is having a dampening ef-fect on financial markets and potentialfor global economic recovery in themedium-term.

The downside risks to economicgrowth have been taken into consider-ation in the preparation of the MTEF& FSP. The priority sectors identifiedby Government will receive the bulkof capital allocations over the period.Government intends to continue to

implement a fiscal consolidation policyespecially in view of the structure ofexpenditure which has increasinglytilted towards recurrent expenditure inrecent times. To correct this bias, Gov-ernment is implementing a 4-year capi-tal project plan commencing in 2012,which will ensure that we exit from thecurrent portfolio of ongoing projects.In addition, measures to rationalise re-current expenditure as identified by theExpenditure Review Committee will befully implemented.

On the revenue side, the strategyof adopting an oil price-based fiscalrule and the accrual of windfall oil sav-ings will continue. A baseline Bench-mark oil price of US$75 per barrel isproposed for the 2012-2015 periodwhile oil production of 2.480mbpd,2.500mbpd, 2.575mbpd and 2.600

mbpd will be adopted for the 2012,2013, 2014 and 2015 fiscal years re-spectively. To increase non-oil revenuereceipts, efforts to improve collectionswill be stepped up, taking off from therecently concluded audits of revenue-generating and collecting agencies. Gov-ernment will also advance current workto improve IGR remittances by rec-onciling establishing acts of parastatalsand agencies with the provisions of theFRA, 2007.

The policies outlined in the 2012-2015 MTEF & FSP are in line withthe 1st National Implementation Planand Vision 20: 2020. These will con-tinue to serve as the guiding vision ofGovernment’s fiscal strategy over themedium term towards the actualisationof the Transformation Agenda of theAdministration.


I$12 trillion, second only to the UnitedStates, casts shadows on the global eco-nomic outlook for 2012.

But the scope of the problem goesfar beyond the euro-zone. Other ma-jor economies in the European Union,including the United Kingdom, havecontinued to struggle since the 2008-2009 global recession. For the leadingemerging economies including Brazil,

Russia, India and China, the euro-zonecrisis has slowed export earnings andforeign investments while markets haveremained volatile in reaction to uncer-tainties in much of Western Europe.This is a major setback for an eco-nomic bloc that would otherwise havedriven global growth at a time like this.

Observers opine that should the2012 recession happen, a major chal-

solvent; not the gigantic, ‘too-big-to-fail’corporate institutions that clusterround Wall Street. And when sover-eigns go broke, who bails them out?

For sure, the euro-zone is boundfor a recession in 2012. Reasons in-clude the worsening debt crisis thereand the threat of a contagion, withmajor economies in the zone, includ-ing Italy, Spain, France, and God knowswhere next, highly vulnerable. Themassive size of the euro-zone eco-nomic bloc with nominal GDP of over

In 2008-2009 it was theUnited States; today, it is theeuro-zone that is pushing theglobal economy into anotherbrink of recession. This time,it is sovereigns that are in-

Glo

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By EUNICE SAMPSON


lenge for most economies would betheir huge debt overhang and fiscaldeficits following the 2008-2009 reces-sion. This would make it difficult forthe impending recession to be foughtwith the same level of fiscal aggres-sion as was deployed during the lastglobal economic slump.

A recent World Bank report ob-served that the coordinated global re-sponse to the 2008-2009 economicdownturn, especially in the form ofstimulus helped to lower interest rate,increase public spending, cut taxes andease liquidity. These outcomes reducedthe longevity and impact of the crisis.But with economies already strugglingwith massive deficits, sovereign debtand over bloated balance sheets, a re-

peat of these measures might not bepossible this time around.

Global GrowthStatistics in 2011For virtually all the major economies,available data shows a drop in growthduring several quarters in 2011, an in-dication that year-end results may havedeclined for several of these econo-mies. Preliminary data released in themiddle of January reveals that theUnited States managed a real GDPgrowth of 1.7% year-on-year in 2011,compared to a robust 2010 growth of3.0%. After a 1.6% growth in firstquarter 2011, which subsequent dataproved to be its best quarterly ad-

vancement last year, the United King-dom maintained a below 1% growthfor the last three quarters of 2011.Year end 2011 position is thereforeexpected at, at best, 1.0%.

The Euro-zone experienced 1.4%advancement in 3rd quarter 2011, witha poorer performance expected in thelast quarter of the year. Estonia (8.5%),Slovakia (3.0%), Finland (2.7%), Aus-tria (2.6%) and Germany (2.5%) werethe high flyers; with Greece (-5%),Portugal (-1.7%), Slovenia (-0.1%), Ire-land (-0.1%) and Italy (0.2%) being theworst performers, in that order. Someof these sluggards could end up inoutright recession by first quarter 2012.

Year end data shows that theeconomy of Germany enjoyed a ro-

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GLOBAL WATCH | Global Economyin 2012: Another Recession Imminent?

export, slowing demands for raw andfinished products and capital flows,very few attained the heights recordedin 2010. And 2012 looks even glim-mer unless the spreading crisis in theEuro-zone is halted soon enough.

World Bank/IMF OutlookFor 2012The World Bank in its half-yearly Glo-bal Economic Prospects report pub-lished on January 18 noted that theworld has “entered a very difficultphase characterized by significantdownside risks and fragility” and warnedpolicy makers around the world to ‘pre-pare for the worst’. The growing glo-bal economic weakness is evident in

growth all through the year. Beijing’sDecember 2011 economic data revealsa significant fall in export and the big-gest decline in Foreign Direct Invest-ment since the 2008-2009 recession.There are fears that china which con-tributed over a third of global eco-nomic growth in 2011 may experiencea slowdown this year. The same is truefor India and Brazil, (see graphs).

Other major developing economiesin Asia, Latin America and Africa ex-perienced some encouraging growth in2011. But constrained by dampening

bust 3% growth in 2011, with employ-ment levels improving rather than de-clining and measuring far above theEuro area’s current average. AlthoughBerlin slashed its 2012 growth fore-cast to a worrisome 0.7% in January,citing the euro-zone debt crisis and theexpected negative impact on exports,the country remains the only majoreconomy in the region that seemspoised to escape a recession in 2012.

For the traditional high flyers – theBRIC economies – with the exceptionof Russia which experienced growthswings between first quarter 2010 andfourth quarter 2011 – all other econo-mies in the bloc suffered persistentquarterly drop in growth within thesame period, a trend that is expectedto continue into the first half of 2012.China for example after a massive11.9% growth in first quarter 2010,slumped to 8.9% in fourth quarter2011, following a persistent drop in

Other major develop-ing economies in Asia,Latin America andAfrica experiencedsome encouraginggrowth in 2011.

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slower trade and capital flows to de-veloping economies, lower commod-ity prices and the threat of a meltdownin global financial markets. Money sup-ply is on a decline, keeping interest rateshigh in most countries of the world,all of which have been carried over tothe New Year. The Bank thereforelowered its global growth forecast for2012 from 3.4% to 2.5%.

The World Bank also cut its 2012growth forecasts for several individualcountries from its earlier estimates witha warning that the world is on the brinkof another recession that could be asbad as the 2008-2009 experience.

According to the report, growth indeveloped economies will shrink to amere 1.4%, which is barely half of anearlier estimate of 2.7%. The euro-zone economies will end the year on anegative territory of -0.3%, rather thanan earlier predicted growth of 1.8%.Without the euro-zone, the rest of thedeveloped world will grow at a pro-jected 2.1%. The United States, with aprojected growth of 2.2%, down froman earlier World Bank forecast of 2.9%will remain one of the fastest growingdeveloped economies in 2012.

Emerging and developing econo-mies will drive global growth this yeareven though they are currently notwithout their own challenges. The re-cent World Bank forecast puts pro-jected growth for these economies in2012 at 5.4%, lower than the 6.2%projected last June. China, the leaderof the pack will see a slower growthof about 8.4% this year, far below its9.2% advancement in 2011 and 10.3%in 2010.

The threat factors observed in thereport include the escalating debt cri-sis in Europe, crash in commodityprices, dampened global consumptionand demand and a possible hard land-ing in some critical developing econo-mies.

While much of the impact wouldbe felt in the high income economies,the developing world would feel thepinch, especially in the areas of trade,commodity prices, remittances, liquid-ity and capital flows which could af-fect output in these economies. Thechallenge, according to The World Bank

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remains how to avoid acontagion which if it hap-pens, will spare noeconomy.

Even if the globaleconomy manages to es-cape a full blown crisis,the world would still growfar weaker than the post2008-2009 recession lev-els. The World Bankprojects a 2.5% growth in2012, down from an esti-mated growth of 2.7% in2011 and 4.1% in 2010.

In its World Eco-nomic Outlook publishedon January 24, 2012, theInternational MonetaryFund, IMF, expressed thesame worries about thefate of the global





economy this year, urgingworld leaders to focus ongrowth more than severe aus-terity measures.

The Fund also lowered itsglobal growth forecast for thisyear to 3.25%, down from itsSeptember 2011 forecast of4%. It predicts that the euroarea will shrink 0.5% this year,down from an earlier predic-tion of 1.1% growth.

The IMF expects theUnited States to grow 1.8% atthe end of the year, unchangedfrom its earlier projection. TheUS has witnessed relative im-provement in its major eco-nomic indicators, includingemployment generation andconsumer confidence andspending.

The IMF also cut China’sgrowth outlook this year to8.25%, from 9.0% forecast lastSeptember. After growing9.2% in 2011, its first singledigit growth in several yearsand yet the world’s best per-formance among major econo-mies, China will remain the keyglobal growth factor again thisyear.

Can the globaleconomy avoid arecession in 2012?Most of the major economiesthat determine the pace of glo-bal economic growth seem to bestruggling with one economicchallenge or the other. Despitethe recent improved recoveriesin the United States, for example,especially during the last twoquarters of 2011 which saw adrop in unemployment levels, risein consumer confidence andspending and an improved ad-vancement in GDP, the world’sleading economy is still far fromachieving its traditional growthpace. Euro-zone and its neigh-bors, including the United King-dom could experience near stag-nation or outright negative growth

this year with no quick fix in sightfor the highly indebted Europeancountries.

There is no doubt about it; theworld is again faced with threatsof another bad recession. But de-spite these scary prospects, it is notimpossible for the global economyto avoid a recession in 2012.

To start with, the United States,a country that contributes a thirdof the total global GDP just mightconsolidate on the gains of the lasttwo quarters to further strengthenits growth outlook this year. Thisreasoning is supported by the factthat 2012 is a Presidential electionyear with the incumbent PresidentBarack Obama and his Demo-cratic Party eager to impress vot-ers with policies that could stimu-late growth and the people’swellbeing.

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Source: The Economic Times; IMF



As leaders of the euro-zone, theepicenter of the whole recession threatcontinue their struggle for a way outof the debt mess, and as other worldleaders lend their support, a workablesolution to the debacle could still befound. Especially now that the Greekshave at last agreed to a new round ofeconomic measures that would qualifythem for a second IMF/EU bailoutplan, there just might be a light at theend of the tunnel, sooner than ex-pected.

Also, China despite the relativeslowdown in growth in 2011 could pullsome economic surprises that couldbring it back to double digit growth.Though both the IMF and the WorldBank have posited lower growth ex-pectations for China this year, it wouldnot be the first time that the Chineseeconomy advances far beyond econo-mists’ expectations. Brazil, India, Rus-sia and other major developing econo-

mies could well shake off the dust ofthe previous year and improve theiroutput performance in 2012.

Food for Thought?At this point, global leaders are facedwith the challenge of efficiently man-aging policies and resources to stimu-late growth. Decision makers in ad-vanced and emerging economies alikemust somehow balance their deficitstatus with a need for a relatively ex-pansionary spending to help maintaina growth track. The IMF has reiter-ated that fiscal tightening policies,which are a spontaneous reaction ofpolicy makers during periods of fiscaldeficits such as this, would not helpthe situation. The global economy re-quires a boost and only some level ofdeliberate stimulation would ensuresustained growth throughout the year.

The IMF also warns that steps by

global leaders to cut debts and budgetdeficits should be phased rather thanshort term, to ensure that growth pros-pects are not subdued.

At this point, the Breton Woodsinstitutions should also be up to thetask, especially in policy support andfiscal bailout for more economies thatmight require them. ‘A stitch in time’,going forward, would help save theworld from other instances of theGreek ‘wahala’. The cooperation of allstakeholders including global and re-gional leaders, multilaterals, etc wouldbe required; and joint, collective actionswould be necessary if the world is toescape this impending slump. As IMF’sChristine Lagarde puts it, “It is notabout saving any one country or anyone region,” but about “saving theworld from a downward economic spi-ral.”

In sum, if a quicker than expectedsolution is found to the seemingly wors-ening debt crisis in the euro-zone; theBRIC economies manage to find theirgrowth rhythm near double digit; glo-bal leaders team up against this immi-nent menace; nations adopt monetaryand fiscal discipline; global demand andconsumption manage to recover sig-nificantly; and perhaps, very impor-tantly, if the US economy continues tosustain the recent pickup in retail sales,mortgage, employment levels, etc, theworld could still avoid the much pre-dicted recession in 2012.

Bye and large, though a significantadvancement might be out of thequestion, the global economy still standsthe chance of dodging two successivequarterly decline in growth, which tech-nically translates into a recession, andinstead get away with some slowedgrowth this year.

After the dark days that were over-come barely two years ago, the last thingthe global economy needs right now isanother round of recession. While thecurrent glaring risk factors cannot bewished away, yet the ‘sentence’ of arecession this year is still very muchsubject to an ‘appeal’.

(*Eunice Sampson is theDeputy Editor, Zenith EconomicQuarterly)


* By Mike Uzor

he 2012 budget has been constructed in re-flection of concerns for a deteriorating exter-nal sector and the challenges facing the nationin the domestic economic front. The nation’seconomy lies highly vulnerable to the manyimponderables in the international oil market;oil being the commodity on which the Nige-rian economy largely.

The 2012 budget therefore represents aneffort by government to navigate the economythrough a narrow path of tight revenue andsticky expenditure profile. Achieving the speci-fied budget targets will require great ingenuityon the path of government and to a large ex-tent an element of luck that the global eco-nomic conditions eventually turn out muchbetter than feared.

As in the preceding year, the watch wordfor the budget is fiscal consolidation, indicat-ing government’s resolve to cause a change ofdirection in its finances. Apparently the

favourable revenue environment in 2011 did notpermit much progress in terms of fiscal restraint,which it had pursued. The high prospects for rev-enue disappointments in the current year havemade fiscal retrenchment quite compelling.

Cost cutting hitchesDespite compelling economic circumstances, re-ducing cost in government operations isn’t goingto be that easy. Government’s decisions and ac-tions are usually subject to a lot of compromisesthat must be made to attain a social balance. Thisis why technocrats have to take it easy with gov-ernment.

Those whose jobs begin and end with lendingand recovering money can hardly excel in politicaladministration. Neither can political leadershipstand without sufficiently diluting advice and rec-ommendations based on pure economic numbers.The attempt at full deregulation of downstreamoil sector is a clear demonstration that government

Issues (

I)


ISSUES (I) | Nigeria’s Budget 2012: Optionsfor Attaining Sustainable Development

cannot attain the fiscal targets beingrequired by technocrats without a greatdeal of political and social disharmony.

The high cost structure of govern-ment emerged gradually over the years

and cannot easily be reversed suddenly.What the 2012 budget has done, whichis what an annual budget can do, is tomerely scratch the structural problemon the surface. Hence, despitegovernment’s disposition towards fis-cal consolidation, budget numbers aren’tsaying much about fiscal restraint.

Aggregate expenditure of the fed-eral government is projected at N4,749billion for fiscal year 2012. This repre-sents a moderate increase of 6.0% -

which is lower than the anticipated in-flation rate of 9.5% for the year. Gov-ernment revenue is projected to growslightly ahead of expenditure at 9.0%to N3,644 billion. The budget will

therefore run on a fiscal deficit but theamount of the deficit is provided todrop by 20.1% to N1,110 billion in2012.

Non-debt recurrent expenditure,the main trouble spot in governmentfinances, is provided to decline mar-ginally at 0.4% to N2,472 billion in2012. The figure represents a declineof 2.4% as a proportion of aggregateexpenditure from 74.4% in 2011 to72% in 2012. Savings to be generated

by this move will be channeled into thecapital spending budget, which has beenraised from 26% of total budget in2011 to 28% in 2012. Budget num-bers generally indicate an effort to shift

from non-productive to productivespending though a significant shift isn’tto be expected in the year.

Muddy waters to crossWith as much as 72% of the expendi-ture still consisting of recurrent items,it can be expected that the problem oftranslating economic growth into sus-tainable development will remain withus in 2012. The President’s view, asexpressed in the high points of his bud-

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get promises however does not agreewith this expectation.

This budget, he said, will translatethe development plans of governmentinto concrete actions. Speaking further

he promised that the budget will de-liver the dividends of democracy tothe people and will turn the nation’spossibilities into reality. Well, since it isa fact that the President is now gov-erning and no longer campaigning, thesebold promises seem to engender moreconfidence than the budget numbers.

But how is the President going towade through the muddy waters tomake his promises come true? He hasa limited room to maneuver in the area

of revenue and is confronted with anexpenditure structure that may hindereconomic capacity building. Further-more, his budget numbers assumedzero subsidy payments on petroleum

products in 2012. Now he has to re-work revenue estimates to cut off agood part of the federal government’sN470 billion share of the estimatedoil subsidy savings in 2012.

Government needs to take steps toavoid the prospect for a major finan-cial embarrassment this year. The factthat government purse is getting leanis not peculiar to Nigeria; it is a globalproblem. The difference however willbe how far each government will be

able to cut back its expenditure to re-flect the current revenue realities.

Readmitting petroleumsubsidyIf the figure of N1.3 trillion estimatedsavings from petroleum subsidy isbrought back into the 2012 budget,then the fiscal crisis being feared asimminent, has already happened. If aprovision of that sum had been madein the 2012 budget, the N3,644 billionfederal government revenue projectionwould have been less by about N470billion estimated federal government’sshare of the subsidy.

Recurrent expenditure will thenconstitute 77.9% of total revenue,leaving only N702 billion of the fed-eral government’s projected revenue.This is insufficient to cover the N560billion provision for debt servicing andthe N398 billion statutory transfers.This means a large part of the statu-tory transfers will have to be borrowedand fiscal deficit will increase fromN1.11 trillion to a new peak of N1.72trillion.

With the 50% increase in pumpprice of fuel, a significant part of theN1.3 trillion naira fuel subsidy will stillhave to be added back to the 2012budget. Consequently, the amount ofdistributable federally collectible rev-enue will drop by whatever amount ofsubsidy that is retained in the system.

The effect on the federal govern-ment budget will be to raise total bor-rowing from 23.2% to 36.2% of ag-gregate expenditure. Without the inclu-sion of petroleum subsidy in the 2012budget, government is still going toborrow N1.11 trillion to fund the bud-get. This means revenue from allsources, inclusive of subsidy removal,is already captured in the federally col-lectible revenue of N9,406 billion fromwhich the federal government’s shareis calculated.

An impression has been created asif the savings from fuel subsidy re-moval will accrue outside the revenuealready disclosed in the 2012 budget.If there is money that is going to beearned from anywhere in 2012 out-side of the budget, then the budget

If the figure ofN1.3 trillionestimated sav-ings from petro-leum subsidy isbrought back intothe 2012 budget,then the fiscalcrisis beingfeared as immi-nent, has alreadyhappened. If aprovision of thatsum had beenmade in the 2012budget, theN3,644 billionfederal govern-ment revenueprojection wouldhave been lessby about N470billion estimatedfederalgovernment’sshare of thesubsidy.


document sent to the National Assem-bly is incorrect and nobody other thanthe National Assembly can legally ap-propriate it. There is no other fundgoing to be available to build infrastruc-tures this year other than the N1.3 tril-lion capital expenditure provided forin the budget – N1.11 trillion of whichis to be borrowed.

High expectation, weakcapacityThere are high expectations from the2012 budget because it is thePresident’s first full year budget to de-liver his electoral promises to thepeople. There is more interest in theoutcomes of government plans andpolicies than the ‘what’ and the ‘how’of their accomplishments. Yet the bud-get has to be structured to reflect therealities of the global economy. Thatseems to leave both the people and thegovernment at the crossroads.

From the view point of Nigerians,the President came into governmentas a messiah that would lead the peopleto the promised land after many yearsof past disappointments. But amid thefrustrations of the moment will the

disappointments of the past be vexedupon his government. I personally feelfor the President that he has come intoleadership at a time of high expecta-tions from government. The muchexpectation reflects little or no morecapacity for the people to bear furthereconomic hardship.

While the people cannot wait to seegovernment policies and actions im-prove their living conditions, govern-ment is presently struggling to comeup with structures to lift the nation outof poverty. Despite the President’sgood intensions, the economy still doesnot have the strong capacity to trans-late the high hopes and promises intopractical results.

Beginning from the years offormer President Olusegun Obasanjoin 1999, the administrative structureof government has been reshapedaround the influx of huge oil revenue.In 1999, when oil price hovered around$16 per barrel, Nigeria incurred a fis-cal deficit of N285.1 billion. In thatyear, capital spending vote represented52.5% of total federal governmentexpenditure.

In 2010, when average crude oilproduction rose from 1.82 mbd in

2009 to 2.13 mbd, the price ofNigeria’s reference crude rose by22.6% to $80.81 and export volumegrew by an average of 30.7% in theyear, fiscal deficits grew to an all timehigh of N1,105.4 billion. Capital spend-ing vote dropped to 35.9% of totalexpenditure. While the 2011 budgetwas termed one of fiscal consolida-tion, it contained even a higher fiscaldeficit provision of N1.39 trillion andcapital vote dropped further to 23.8%.

The structure of government thatthe President has inherited is exactlythe problem and there are no pretencesthat he isn’t going to change this struc-ture over night. Despite compellingeconomic rationality to do so, theneeded radical pruning of the govern-ment machinery is a political decision.The truth is that the President cannotsingle handedly pull down the unsus-tainable administrative structure inplace.

If the President is to do exactlywhat the Central Bank is demanding,not less than one-half of governmentworkforce will be sent home and agood part of the arms and extensionsof government will have to be ampu-tated. Many government agencies have

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been established by various enablinglaws that must be repealed before theexecutive can act.

So, the 2012 budget is in realityarticulated to meander through theproblem of an over bloated govern-ment. This is indeed the problem thatis preventing government from trans-lating economic growth into sustainabledevelopment.

Expenditure overloadRising concerns over government debtmake it the more imperative for gov-ernment to slim down. Salary cuts of25% have happened but governmentcontinues to limp along with an exces-sive expenditure overload. The Presi-dent assures that “we are conscious ofthe need to control the cost of gover-nance” yet his pruning saw seems tobe blunt for now.

The Central Bank expects that im-minent revenue shocks will compelgovernment to face the reality of shad-ing weight in 2012 but so far the bud-get isn’t structured to make that hap-pen. The proposed 2.4% scraping ofnon-debt recurrent expenditure isn’texpected to bring about the hoped fis-

cal retrenchment in 2012. Again, gov-ernment is well known for excessivebursting of budget numbers, particu-larly on spending targets and borrow-ing ceilings.

The President has rightly identifiedsome viable avenues for cutting recur-rent expenditure, which are reducingwaste, inefficiency, corruption and du-plication in government. If the av-enues are thoroughly screened in 2012,the level of recurrent spending can beexpected to drop by much more thanhe has proposed in the budget.

In the light of the gloomy pictureof the global economy for the currentyear, government revenue projectionappears rather too optimistic. Consid-ering the cyclicality of crude oil pricein the international market, this yearlooks more like a down time. The $70per barrel oil price benchmark for the2012 budget may end up being overoptimism.

If the high volatility in the interna-tional oil market that made crude oilprice swing from $147 to $38 per bar-rel in 2008 is fully appreciated, thenthe margin of less than $30 below thecurrent price is too close for comfort.Fiscal retrenchment happening in theadvanced countries and the downside

risk arising from Euro zone credit cri-sis will appear to have more seriousimplications for crude oil price thanthe 2012 budget seems to recognise.

Budget risks andchallengesThis underscores the extent to whichthe 2012 budget rests on the good luckthat the global economy and the crudeoil market turn out much better thanfeared. That also highlights the under-lying risk to which the budget is ex-posed. In the event of revenue disap-pointments the capital budget is likelyto be sacrificed while every attentionwill focus on the day to day runningof the affairs of government. Thedominant size of recurrent expendi-ture leaves no cushion in the budget tokeep the capital spending on course inthe event of revenue shortfall.

Another element of risk in the bud-get is that it is yet going to run on alarge fiscal deficit that has been thefeature of government finances forseveral years now. Proposed fiscal defi-cit remains high at N1.11 trillion, whichstill has a good chance of being ex-ceeded. The excess crude oil accountmay not be as fat as it was in 2011,

The dominant

size of recurrent

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which is an indication that governmentis likely to come under pressure toburst its fiscal targets. New borrowingat the significantly increased interestrates will compound the fiscal prob-lems of government.

A major concern is that fiscal defi-cits have been rising as governmentrevenue grows. As in most of the pastyears since the oil market rally beganin 1999, government revenue is mak-ing new peaks, providing a rare oppor-tunity to accumulate large budget sur-pluses. That is clearly not the target ofthe government in 2012. What thePresident is promising are manageabledeficits and sustainable debt-GDP ra-tio of no more than 30%.

A major challenge facing the 2012budget is that the fiscal consolidationplan of the 2011 budget was notrealised. The unrealised plan of actionfor 2011 has not provided the muchneeded concrete platform upon whichto consolidate in 2012. As part ofgovernment’s strategy to cut recurrentexpenditure in 2011, the President setup an expenditure review committeeand promised to implement its reportto the letter.

It is evident in the 2012 budget thatthe task of cutting expenditure in 2011was not accomplished. In his 2012budget address the President said “inthis respect, I have received the pre-liminary Report of the task force whichI set up for this purpose and we shallimplement relevant recommendations”.

It will appear more effective if thecommittee had been given a definitetarget as to the proportion of govern-ment expenditure that must be cut. Tomake its job of cutting expendituredoable, the committee needs to beempowered to recommend measuresto restructure the entire governmentmachinery to attain a lean structure ofadministration. As long as governmentwears the present administrative struc-ture, the expenditure review commit-tee isn’t likely to make any major head-way.

Perhaps the assignment needs to betransferred to the economic manage-ment team that appears to have a su-perior mandate. If the President is tosucceed in transforming the economy

as promised, he first needs to trans-form the structure of governance. Theadministrative structure needed tooptimise government expenditure andpermit new economic capacity build-ing is yet to be accomplished.

Balancing monetary andfiscal policiesBecause fiscal consolidation didn’t hap-pen in 2011, monetary policy had tobe excessively used to compensate forthe missed fiscal targets. If fiscal re-straint fails to happen in 2012, it canbe expected that the excessive relianceon monetary policy will happen all overagain. This will hurt business activityfurther in the private sector. First, thesingle digit inflation rate proposed willbe unattainable without fiscal restraint.And the Central Bank, which is keento keep interest rates above inflationrate, isn’t likely going to compromiseits stance on maintaining positive realinterest rates.

In 2011, businesses generallyworked for banks in terms of how

much they paid as interest charges rela-tive to what may be left as profit forshareholders. At the current level ofinterest rates, survival of many com-panies will be difficult in 2012. Theprospects for a further hike in interestrates are better not imagined for theproductive sectors, which underscoresthe critical need to achieve fiscal re-straint in the current year.

The move towards fiscal retrench-ment is important to end the sole de-pendence on monetary policy for eco-nomic adjustment. Less inflationaryspending by government will enable theCentral Bank navigate monetary policytowards stimulating investment anddomestic output rather than fightinginflation.

If the objective is realised, it is ex-pected to create stability in the finan-cial markets in 2012. Interest rates mayfluctuate less violently, as liquidity mopups will no longer need to be frequent.This will expectedly usher in a morestable investment climate and permita balance to be attained in both equityand debt markets.

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Interest rate worriesThe local debt market will be the government’s main desti-nation for borrowing to finance the fiscal deficit of N1.1trillion in 2012. Interest rates are expected to remain highwith a greater chance of rising than falling. This is in antici-pation that inflation rate may remain in double digits, asrecurrent spending still accounts for up to 72% of aggre-gate expenditure. The proposed decline in the recurrentbudget isn’t likely to be sufficient to attain the single digitinflation rate target in 2012. The Central Bank is also ex-pected to use an interest rate hurdle to discourage govern-ment recourse to excessive borrowing in the event of rev-enue disappointments.

If luck runs on the side of government, increases incrude oil production, price per barrel and exchange ratebenchmarks for the 2012 budget plus savings from thereduced petroleum subsidy, will reduce government’s bor-rowing needs in the year. At N560 billion for 2012, debtservicing obligation of government is 15.4% of total rev-enue projection. Government has indicated its intension tokeep its debts at sustainable level.

Domestic debts aren’t excessive at the current ratio of16.4% of GDP and government has set a maximum debt-GDP limit of 30%. There is therefore sufficient room forgovernment to increase its borrowing without putting thecredit markets at risk. It can be expected normally that themarkets will gradually raise the range of bid rates for newdebt instruments in the course of the year.

Interest rates need to come down in order to stimulate

business activity and save theeconomy from rising corpo-rate bankruptcies. If govern-ment is going to keep itspromise of creating jobs, itspolicies need to reinforcerather than counter them-selves as they affect the pri-vate sector. If new jobs haveto come from the privatesector in 2012, fiscal andmonetary policies must becoordinated to bring downthe cost of business opera-tions and inject new life intomany ailing businesses.

Up shoot ineconomicequilibriumThe implication of the in-crease in pump price of fuelis that economic activity willbe conducted at a higherlevel of equilibrium in 2012.Economic units will struggleto attain the new equilibriumbut only those that can passon to consumers of their

goods and services thehigher cost will be able to doso. Yet even those that cantransfer the cost throughhigher prices will also haveto pay higher prices forproducts and raw materials.

All economic units un-able to transfer the highercost stand the risk of a sharpdrop in income in 2012. Theimplication of this is thatmany economic units willmost likely become unviablewith the fall in real incomesand the upward shift in theeconomic equilibrium.

Highly vulnerable are theunemployed, the under em-ployed and all those whoseincomes fail to grow by themargin of increase in theprice level. This group willfall into yet a deeper levelof poverty in the course ofthe year and should be thefocus of palliative measuresof government. In view ofthe already high level ofpoverty in the land, the pros-

A majorconcern is thatfiscal deficitshave beenrising asgovernmentrevenue grows.As in most ofthe past yearssince the oilmarket rallybegan in 1999,governmentrevenue ismaking newpeaks, provid-ing a rareopportunity toaccumulatelarge budgetsurpluses.



pect for deepening poverty is quitefrightful and needs immediate re-sponses to address the situation.

Transforming agricultureCentral to government’s transforma-tion strategy is a fresh initiative on ag-riculture. The President speaks of to-tal transformation of agriculture, mov-ing it from traditional farming to mod-ern business, offering new opportuni-ties to both small- and large-scale en-terprises. The objectives are highly de-sirable – to ensure food security, boostthe non-oil export basket and roll outnew jobs.

The initiative on agriculture is quitefascinating because this is in line withour canvassed ‘u-turn to agriculturecontained in the study of “The postelection economy: yet another chancefor development” published in ZenithEconomic Quarterly of April 2011. Ag-riculture is the main economic activityin which Nigeria holds a comparativeadvantage. This is where the nationshould be and the President does wellto beam the light on the sector that

needs a new action plan with a greatsense of urgency.

Supportive fiscal policies are pro-posed and interest rate subsidy is alsocoming to suppliers of seeds and fer-tilizers. However the key strategy thatwill truly modernise traditional farm-ing is yet to be unfolded. Agricultureneeds grand capacity building that willopen up new opportunities in variousareas in the sector. Abundant availabil-ity of arable land and the large per-centage of the population engaged inagriculture provide a great opportunityto impact on the lives of the largestnumber of Nigerians through the ini-tiative on agriculture.

As a modern business, agriculturehas the advantages of cheap labour,very low import content and thereforehigh profit margin. Only bankingcomes anywhere close to agriculturein terms of profit margin, which isagain explained by low import contentof products.

With continuing dependence oncrude technology the food output-topopulation ratio is bound to continue

to decline. The nation is thereforeheaded for a major food crisis, whichwarrants a major government interven-tion in the agricultural sector. A foodstatus report in 2008 ranked Nigeria20th on the global hunger index and65% of the population are labeled foodinsecure.

It is important for government toappreciate that transforming agricul-ture is a long-term project and a num-ber of supportive policies will have tobe put in place to sustain progress. Itneeds to be appreciated as well thatthe challenges that confront the sectortranscends beyond tariffs, machineryand equipment importation andsubsidised bank credit.

A workable initiative on agricultureneeds to be developed based on thefacts about Nigeria’s agricultural prac-tices. About 70% of the populationwork as subsistence farmers, account-ing for up to 80% of annual output.Crops cultivation represents about 85%of their activity; farm yields are lowand storage facilities are inadequate.Farm technology is crude; research so-



environments of the farming commu-nity demand that new technology beadapted to suit the local conditions.

A country like China cannot waitto roll out such locally adapted ma-chines for Nigerian farmers. Where thetechnology isn’t adapted to the localfarmers, they will rut away right in theircases, as has been the experience withprevious initiatives.

Any such government interventionneeds an integrated approach to en-sure that seeds are not in short supplywhen farmers are empowered to culti-vate more lands and that increasedoutput is not lost due to poor storagefacilities. Market intervention will alsobe ensured to prevent wide fluctuationsin product prices while the capacity toproduce for export is gradually built.

It is noteworthy that a major partof the current problems facing agri-culture is the poor implementation ofexisting incentives. If existing incentivesare not well implemented, it is doubt-ful how far new incentives can go.

A clear definition of milestones tobe attained in the agricultural transfor-mation initiative of government isneeded. Is government targeting to in-crease the number of hectares culti-vated or to improve the yields per hect-are of presently cultivated land and bywhat amounts? Who are the targets ofthe new policies – the 70% small holderfarmers that produce 80% of totalagricultural output or the 30% thataccount for the balance? This is im-portant because how many jobs will becreated depends on who gets the sup-port.

The agricultural sector provides thenation a golden opportunity for gov-ernment to realise its job creationpromises, check the rising dependenceon food imports and restore the ca-pacity for non-oil exports. An unfailingstrategy to attract the youth to agricul-ture is to put new technology and in-frastructures in the farms.(* Mike Uzor is the MD/CEO,Datatrust Consulting Limited)

Source: DMO

lutions are unavailable, access to fi-nance is severely restricted and im-proved seeds are scarcely available.More than 72% of the 98.3 millionha of land is suitable for cultivationbut only about one-half of that is pres-ently being farmed.

It is apparent that the plan forsubsidised bank loans and importationof conventional agricultural machin-ery and equipment isn’t targeted at the70% of the population engaged insmall holder farming. Yet in this grouplies the greatest potential for massivejob creation in the country. Transfor-mation of traditional farming isn’t go-ing to happen by the masses of indi-vidual farmers becoming big timefarmers but by designing policies thatenable them to enlarge their coasts.

Government needs to put to theuse of small holder farmers simplehand driven machines of the size oflawn mower enabling them to clear, tilland weed mechanically. The land ten-ure system here and the socio-cultural

The initiative on

agriculture is quite

fascinating because

this is in line with our

canvassed ‘u-turn to

agriculture contained

in the study of “The

post election

economy: yet another

chance for develop-

ment” published in

Zenith Economic

Quarterly of April 2011

Nigeria’s External Debt as at June 2011


Issues (

II)

In the last edition of this serial, we dwelton the general principles of due pro-cess in corporate governance, not onlyin relation to financial institutions bythe regulatory authorities but also forevery organization that is desirous ofmaking sustainable progress in the cur-rent dispensation. In this edition, weshall explore one of the deliberate ef-forts of the government to entrenchthe culture of due process, transpar-ency and dignity of labour in the con-sciousness of the generality of Nigeri-ans. As will be observed shortly, thereis a strong nexus between this legisla-tion and the operation of financial in-stitutions.

The basic philosophy of moneylaundering has been captured in thewords of Somerset Maugham whowrote that: “ The measure of a person’sreal character is what he would do ifhe knew he would never be found out”

LOW LEVEL OFAWARENESSMoney Laundering is not only a muchabused term, it is also much misun-derstood, perhaps because of the pre-dictable, chronic and consistent in-volvement of the high and mighty inthe society. Although the general pub-lic is yet to come to terms with theactual provisions of the law in that re-spect, the fact remains that most of usare either present or potential culprits,whether we are apprehended or not. Itis the persistent controversy and en-demic temptations inherent in the pub-lic sector that gives the impression thatmoney laundering offences are the ex-clusive preserve of political officeholders in our land.

Sadly, it is this low level of aware-ness within the populace that encour-ages the alleged selective implementa-tion of an otherwise laudable instru-

* By Chuks Nwaze


have set the tone for a more incisiveconsideration of illegal sources ofwealth which constitute the majorthrust of the criminal activity calledmoney laundering.

ILLEGAL SOURCES OFWEALTHAccording to the Money LaunderingAct 1995 as severally amended, illegalsources of wealth include but not lim-ited to the following:

- Drug trafficking- Human trafficking- Robbery- Smuggling- Fraud- Corruption- Tax evasion etc.

proceeds from their illegal origin”- ATF.• “A process by which assets ob-

tained or generated through criminalactivities are moved or concealed toobscure their link with the crime” –IMF.

• “A process by which criminals at-tempt to hide or disguise the true ori-gin and ownership of their ill-gottenwealth”.

• “The criminal practice of filter-ing ill-gotten gains or ‘dirty money’through series of transactions so thatthe funds are ‘cleansed’ to look likeproceeds from legal activities.”

• “Knowingly assisting a criminal infacilitating the foregoing.”

The above definitions, which arecomprehensive in concept and scope,

The Nigerian Money Launder-ing Prohibition Act (MLPA) isour local obligation as im-posed by the global Anti-Money Laundering (AML)legal framework that prohibitsthe laundering of the pro-ceeds of crime or illegalityanyway in the world.

ment employed, even in other parts ofthe world, to address the cankerwormof corruption as well as financial andeconomic crimes, especially in the pub-lic sector. As the real issues at stakeare often emasculated in complex le-gal, technical or linguistic parlance, Ishall endeavour to break them downto the simplest terms, leaving only in-terested readers to refer to the law it-self and grapple with the challenge in-herent in the lexicon. The glossary atthe end explains the major terms usedwhile the accompanying comments alsohelp to amplify the issues at stake.

DEFFINITIONMoney Laundering can be defined inany of the following ways:

• “A process of disguising criminal


ISSUES (II) | Due Process &Transparency: Money Laundering


Comment:There is no doubt, whatsoever, that thebasket of illegal sources of wealthbeing targeted by the money launder-ing legislation constitutes a formidableclog in the wheel of implementation.This is so because a considerable ma-jority of wealthy or influential Nigeri-ans, are already automatic candidatesfor prosecution.

ULTIMATE OBJECTIVE: TOCONCEAL ‘DIRTY MONEY’The ultimate objective of money laun-dering offenders is to avoid prosecu-tion, conviction or confiscation of theill-gotten wealth.

FI’s or DNFI’s) through deposits, pur-chasing items of value such as motorvehicles etc.

STAGE 2: Layering; This secondstage refers to the process of separat-ing illicit proceeds from their sourceby creating complex layers of finan-cial transactions disguised to make itdifficult to trace the origin of illicitfunds. In other words, at this stage,criminals attempt to further obscurethe trace of criminally- generatedfunds. An example includes fund trans-fers, buying and selling of investibleproducts, etc.

STAGE 3: Integration; At this fi-nal stage, the ill-gotten wealth aremoved into the main stream of theeconomy through legitimate economicactivities such as investment, purchas-ing of shares etc. That is, the illegalproceeds have been successfully re-in-tegrated back into the economy andmixed-up with legitimate earnings.

Comment:The journey from placement throughlayering to integration looks arduousto the uninitiated. However, this is be-ing accomplished almost effortlessly ona daily basis by experienced operators,especially fraudsters and drug barons,who already have their network ofaccomplices and tentacles everywhere,including some compromising employ-ees of financial institutions.

OVERVIEW OF THEMONEY LAUNDERINGPROHIBITION ACT (MLPA):The Nigerian Money Laundering Pro-hibition Act (MLPA) is our local obli-gation as imposed by the global Anti-Money Laundering (AML) legal frame-work that prohibits the laundering ofthe proceeds of crime or illegality any-way in the world. In order to keep pacewith the rest of the world, our ownMLPA has undergone several amend-ments from inception until 2011 whichis the most current amendment. The2011 amendment increased the thresh-old for disclosure as well as acceptanceof cash for transactions by non-finan-cial institutions.

Comment:The money laundering initiative is also spe-cially designed to isolate inappropriately ac-quired wealth and prevent it from being re-cycled into the economy. In other words, “dirtymoney” should not be allowed to mix with“clean money”. Surely, this is a potent de-terrence against criminal acquisition of wealthif it is faithfully implemented as there is ob-viously no motivation in amassing wealthwhich you can neither use nor hide.

STAGES OF MONEY LAUN-DERINGA complete money laundering opera-tion can be analyzed in three stages:

STAGE 1: Placement; This in-volves the initial injection of illicit fundsinto the Financial Institutions or Des-ignated Non-Financial Institutions (i.e.



MANDATORYDISCLOSURES:FINANCIAL INSTITUTIONSThe most visible provision of the actis the one conspicuously placed at thecounter in every banking hall to theeffect that any transaction in excess of:

- N5million in the case of an in-dividual (previously N1million)and

- N10million in the case of a bodycorporate (previouslyN5million) shallbe disclosed to the Nigerian FinancialIntelligence Unit, NFIU for onwardtransmission to the appropriate gov-ernment office (i.e. National Drug LawEnforcement Agency, NDLEA, theEconomic And Financial Crimes Com-mission, EFCC or the security services).

However, according to The Punchof Monday, July 4,2011, a senior officialof the Nigerian Financial IntelligenceUnit, complained that all the banksoperating in Nigeria had failed to sub-mit the list of illegal transactions (i.eSuspicious Transactions Reports, STR)in contravention of this provision.

“.....We have our own analysts who

go through the reports the banks sendto us and we have detected that thereare illegal transactions going on in thebanks . But the banks have not re-ported them. All the 24 banks havedefaulted and we have prepared sanc-tions for that and it is going to the Cen-tral Bank of Nigeria, CBN.....”

CommentWe need to point out that these allega-tions against banks are not new. Man-agement of these institutions shouldendeavour to fish out these elementswho are tarnishing the image of theindustry.

OTHERPROVISIONS:FINANCIALINSTITUTIONS ANDOTHERS:There are other fundamental provi-sions which are not so visible. Theseare mostly in relation to the Desig-nated Non-Financial Institutions ,DNFI’s, since money launderers haveshifted their focus from the organizedfinancial institutions to the informalsector in view of the weak link in thelatter.

Limitations To Make Or AcceptCash Payments:No person shall, except through a fi-nancial institution, make or accept cashpayment of a sum exceeding:

- N5million in the case of an in-dividual (previously N500,000.00) or

- N10million in the case of a bodycorporate (previouslyN2million)

Duty To Report InternationalTransfer Of Funds:A transfer to or from a foreign coun-try of funds of a sum exceeding US$10,000 by any person or body corpo-rate shall be reported to the CentralBank of Nigeria, CBN.

Identification of Customers:Financial institutions, casinos and otherbusinesses whose operations are mostlydone on cash basis are mandatorilyrequired to verify the identity of theircustomers. In other words, “Know YourCustomer” (KYC).

Records Preservation:Financial institutions (FI’s) or desig-nated non-financial institutions(DNFI’s) are required to maintainrecords of all transactions abovethreshold (i.e. five million Naira forindividuals, ten million Naira for firms)

Financial institu-tions, casinos andother businesseswhose operationsare mostly done oncash basis are man-datorily required toverify the identity oftheir customers. Inother words, “Know

Your Customer”(KYC).




for a period of at least five years afterseverance of relations.

Rendition Of Reports On Suspi-cious Transactions:Organisations with cash intensive op-erations are required to file returns onsuspicious transactions within sevendays stating;- Name of reporting entity- Details of transaction and customers- Reason for suspicion.

Internal Control & Compliance:Organisations are also required to ap-point designated money launderingcompliance officers as well as estab-lish internal audit unit to monitorcompliance.

Raising Awareness:Deliberate effort should be made byorganisations to arouse money launder-ing consciousness within its rank andfile through training.

Registration with Special ControlUnit:The Federal Ministry of Commerceand Industry Industry (now Ministryof Trade and Investment) through itsspecial control unit on money launder-ing, coordinates the anti-money laun-

dering efforts within the designatednon-financial institutions in collabora-tion with the EFCC. Theseorganisations are also encouraged toregister with this unit for regulatorypurposes.

WHERE DO MONEY LAUN-DERING ACTIVITIESOCCUR?These include the following businesses;some are financial institutions whileothers are not:- Banks- Bureau de change- Securities firms/ insurance compa-nies- Accounting firms- Legal profession- Cash intensive businesses

MONEY LAUNDERING: REDFLAGS:What circumstances should put you onalert? Look out for the following inrespect of clients, customers or asso-ciates;

• Unwillingness to provide completeinformation about self or business.

• Preference for cash instead ofusing the bank.

• Customer always receiving in-voices from associates, subsidiaries or

affiliates located in countries with repu-tation for terrorism or money launder-ing.

• Acquisition of assets which arenot consistent with the ordinary busi-ness practise in that specific industry.

• Payments to subsidiaries that arenot within the normal course of busi-ness.

• Customers that are always payingunusual consultancy fees to un-relatedoffshore locations.

• Customers or clients that changebook keepers or accountants regularlywithout justification.

• Customer that refuses to revealthe identity of a third party on whosebehalf he is acting (i.e. his principal).

RISKS OF NON-COMPLIANCENotwithstanding the organic challengesof implementation, some of which weshall consider shortly, every organiza-tion (i.e. financial or designated non-financial) is enjoined to employ its bestefforts to ensure compliance as muchas is practicable. Non-compliance risksinclude the following:

Operational Risk: This exposesthe institution to direct and indirectlosses that could jeopardise its contin-ued existence.

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ISSUES (II) Due Process &Transparency: Money Laundering

Legal Risks: Court cases could beinstituted against the organisation whichcould also threaten its corporate sur-vival

Reputational Risks: Bad imagecould weaken the confidence of cus-tomers, investors and other stakehold-ers which can spell doom for the en-tity.

MANDATE INSTITUTIONSThe overall mandate for the enforce-ment of the Money Laundering Pro-hibition Act (MPLA) is vested in theEFCC while its subsidiary, the Nige-rian Financial Intelligence Unit (NFIU)coordinates the anti-money launderingefforts as the Nigerian arm of the glo-bal Financial Intelligence Unit (FIU).However, the Federal Ministry ofCommerce and Industry (now Minis-try of Trade and Investment) throughits Special Control Unit coordinatesthat of the DNFI in collaboration withthe EFCC/NFIU.

IMPLEMENTATION CHAL-LENGES OF AML. 2O04 ASAMMENDEDScope:To date, application of the law has toa large extent been limited to the fi-nancial sector, specifically the bankingindustry. This has resulted in a low levelof compliance by other designated re-porting entities such as non-bank fi-nancial institutions (e.g. bureau dechange operators) as well as operatorsof designated non-financial institutions(i.e. precious metal/jewellery shops,restaurants, hotels, casinos, cybercafés,car dealers, professionals etc.) who alsotransact high volume businesses in cash.

Non-Rendition of Reports:Professionals such as lawyers, accoun-tants, auditors, financial advisers, no-taries, trustees, consultants, real estatebrokers and other fiduciaries who of-ten act as intermediaries cannot be re-lied upon to comply with the law onbehalf of their principal as that wouldaffect not only their own interest butalso the agenda of their principals.

Cultural/Domestic Factors:Our national anti-money launderinglegislation was crafted along the linesof international best practices whichare largely driven by the experiencesof the developed, automated econo-mies, some of which are not yet appli-cable to our shores. Even the issue ofknow your customer/customer duediligence through means of identifica-tion, residential addresses and utilitybills is still problematic, especially inrural areas.

Process Automation:There is no doubt, whatsoever, thatautomation of essential processes suchas suspicious transactions is pretty ex-pensive, not only from the point ofview of software acquisition but alsothe employment or training of staffin the relevant skills.

Civil Society Cooperation:The vexed issue of money launderinghas a great impact on our development

as a nation. Bribery, corruption andother financial crimes are conducted,in the main, outside the financial anddesignated non-financial institutionsand “off the books”. Hence, a largedose of public cooperation is funda-mental and this is not easy to come by.

Immunity And ConstitutionalLoop- Holes:It is alleged that politicians and servingpublic officers brazenly cart awayphysical cash, virtually on a daily basis,from public vaults for personal enrich-ment for the simple reason that theyevade justice under the constitutionalimmunity clause they are so privilegedto enjoy. These unsavory attitudes andmisconduct, planned and executed withimpunity are not only a direct affronton law enforcement but also frustrateour collective will to combat financialcrimes, especially money launderingoffences.

Legal And Institutional Weak-nesses:The Evidence Act which is still in op-eration constitutes an impediment con-cerning the admissibility of electronic

Our national anti-moneylaundering legislationwas crafted along thelines of internationalbest practices whichare largely driven by theexperiences of thedeveloped, automatedeconomies, some ofwhich are not yet appli-cable to our shores.Even the issue of knowyour customer/customerdue diligence throughmeans of identification,residential addressesand utility bills is stillproblematic, especiallyin rural areas.



GLOSSARY OF MONEYLAUNDERING TERMINOLOGIES

AML – Anti – Money Laundering; Measuresput in place to counter money launder-ing offencesCDD – Customer Due Diligence; verify theidentity of your customerCFT – Countering Financing of Terrorism;Measures put in place to counter the financ-ing of terrorist activities worldwideCTR – Currency Transaction ReportDNFI – Designated Nnon-Financial Institu-tions; Cash-intensive businesses outside thefinancial system which have been broughtwithin the purview of money launderinglegislation. Their regulatory responsibility isvested on Federal Ministry of Commerce &Industry (FMC&I) such as dealers in jewellery,cars, casinos, hotels, supermarkets , preciousmetals & stones, estate agents, pool bettingand lottery, Non-GovernmentalOrganizations (N.G.Os).EFCC – Economic & Financial Crimes Com-missionFATF – Financial Action Task Force; Inter-governmental body created in 1989 to gen-erate political will to combat money launderingand terrorist financingFIU – Financial Intelligence Unit; The globalwatchdog on financial crimesIMF – International Monetary FundKYC – Know Your CustomerMLPA – Money Laundering Prohibition Act;This has gone through several amendments.The most current one is the MLPA 2011NCCTS – Non-Cooperative Countries &TerritoriesNFIU – Nigerian Financial Intelligence UnitSCUML – Special Control Unit on MoneyLaundering; coordinates the regulatoryresponsibilities of DNFIs within the FederalMinistry of CommerceSTR – Suspicious Transaction Reports. To besubmitted to the relevant agency in respect oftransactions over which the reporting entitydoes not feel comfortable

evidence. In this age of high speed information technol-ogy and communication, most financial crimes, includingmoney laundering, take place in cyber-space through themovement of data across the world. If lacunas exist inthe law impeding the admissibility of evidence of suchmovements, successful prosecution becomes an uphill task.The slow pace of court proceedings, also frustrates pros-ecution of money laundering and other criminals.

Money Laundering & Multi-Lateral Cooperation:The globalisation of financial systems has also posed somechallenges to the implementation of the money launder-ing regime. Most financial and economic criminals, espe-cially those involved in public sector corruption, exportthe proceeds of their crimes to nations which turn a “blindeye” to the source of the funds (i.e. safe heavens). This ha-bitual movement of funds presents difficulties on severalfronts. Apart from increasing the cost of tracing, investi-gation, and recovery, some countries place complex pro-cedural and bureaucratic bottlenecks on the investigationof funds lodged in their domestic financial institutions.Surely, solving these problems require a great deal of multi-lateral cooperation and understanding.(* Chuks Nwaze is the Manging Consultant/CEO,Control & Surveillance Associates Ltd)

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*By Sunday Enebeli-Uzor

Issues (

III)

system with a view to providing an al-ternative cost-effective, affordable,energy saving and environmentallyfriendly mode of transport especiallyfor raw materials, containers, and bulkpetroleum products across the coun-try. The most recent plan embodied inthe Subsidy Reinvestment and Empow-erment Programme (SURE-P) ambi-tiously seeks to rebuild/remodel3,877km of railway across the coun-try. Although there has been past gov-ernment initiatives to revive rail trans-portation in the country, the govern-ment appears to have hit the groundrunning in the implementation of itsrecent rail modernization strategy forthe transportation sector. For instance,rehabilitation work on the Eastern cor-ridor Port-Harcourt to Maiduguri rail

track has commenced in earnest witha completion period of 10 months set.Similarly, restoration work on the West-ern corridor Lagos to Kano rail trackhas reached advanced stage and is dueto be completed in the first quarter of2012.

Even more encouraging is the factthat passenger commuter services onsome of the nation’s rail tracks havecommenced. For example, the 98kmrailway track from Lagos to Abeokutaand the Lagos-Ibadan-Ilorin railwaytrack have commenced commuter ser-vices. Also, the Nigerian Railway Cor-poration (NRC) recently took deliveryof twenty pressurised tank wagons(each with a loading capacity of 40tonnes; axle load of 16.5 tonnes; tareweight of 22 tonnes; and a total vol-ume of 45 cubic metres, which isequivalent to a capacity of about 45,000 litres) for petroleum products’transportation through the nation’s rail-

way network; plans have been con-cluded to acquire fifty additional tanks.The NRC is also procuring some Die-sel Multiple Units (DMUs), which aremodern passenger trains with advan-tages of low maintenance cost, fuelefficiency, and durability to add to theexisting fleet. The commencement ofpassenger services on these hithertomoribund rail tracks and rehabilitationof others across the country could nothave come at a better time than nowwhen the government is seeking todevelop a holistic approach to buildinga modern transportation system in thecountry.

Whereas Nigeria with a populationof over 160 million has a rail networkof 3,505km, South Africa with about50 million people has 20,192km railnetwork. In South Africa, rail is themost important element of thecountry’s transport infrastructure as itconnects all the major cities. South

n recent times, there has beenrenewed effort to resuscitateand modernise the nation’smoribund rail transportation


Africa’s railway system is unarguablythe most developed in the continentwith an extensive network – the 14thlongest in the world. The country’s railinfrastructure, which connects the portswith the rest of South Africa, repre-sents about 80 percent of thecontinent’s total rail network. Egypthas approximately 5,083km of rail-roads servicing a population of about82 million.

Global statistics indicate that rail-ways are the most cost-effective modeof transportation, especially for mov-ing bulk cargo for long distances overland. All over the world, rail transpor-tation has evolved to become the pre-ferred mode of transportation as high-ways become more congested. In Ni-geria however, transportation is almostunimodal as 90 percent of domesticfreight and passengers are transportedby road. Passenger movement figuresfrom airports in Nigeria indicate thatonly 8 percent of the population travelby air. Rail therefore accounts for justtwo percent of national transport. Thisscenario is in contrast with what ob-tains in other climes where rail accountsfor the majority of inter-urban passen-ger transportation. For instance, in theUnited States, 40 percent of freighttransportation is by railway. In Japan,32 percent of freight transportation isby rail, while in Russia, rail accountsfor 81 percent of passenger traffic and40 percent of freight traffic.

Efficient Transport andEconomic Growth – TheNexusThe availability of efficient transportservices is crucial as transport servicesare essential for economic develop-ment. Efficient modes of transporta-tion enable economic activity by con-necting people, businesses and re-sources. Economic analyses are repletewith evidences of correlation betweenthe quality of a country’s transport in-frastructure and its growth potential.One of the links between transport andeconomic activity is the relative effi-ciency of moving goods to market, and

Global statis-Global statis-Global statis-Global statis-Global statis-

tics indicatetics indicatetics indicatetics indicatetics indicate

that railwaysthat railwaysthat railwaysthat railwaysthat railways

are the mostare the mostare the mostare the mostare the most

cost-effectivecost-effectivecost-effectivecost-effectivecost-effective

mode of trans-mode of trans-mode of trans-mode of trans-mode of trans-

porporporporportatatatatation,tion,tion,tion,tion, es- es- es- es- es-

pecially forpecially forpecially forpecially forpecially for

momomomomoving bving bving bving bving bulkulkulkulkulk

cargo for longcargo for longcargo for longcargo for longcargo for long

distances odistances odistances odistances odistances ovvvvvererererer

land.land.land.land.land.

Source: Research & EIG


ISSUES (III) | Rail System: Nigeria’s Neglected Critical Transport Infrastructure

the ability to access a wider pool ofskilled labour and suppliers. Investingin projects that enable passengers andfreight to switch between differentmodes has been shown to provide goodeconomic returns.

Rail transportation has become amajor catalyst in sustainable economicdevelopment. No other form ofground transportation can move thesheer volume of goods and productslike the rail does. A single cargo train isestimated to haul goods that 62 truckson the average are required to convey.The larger carriage volume of the trainallows the simultaneous transportationof a large volume of cargo within ashort timeframe and allows tight deliv-ery schedules to be met. Rail fuels eco-nomic growth safely, efficiently, and ina more environmentally friendly andresponsible way. It is one of the mostcost-effective modes to move freightfor companies thereby reducing sup-ply chain costs. Rail is a reliable andconsistent mode of transportation astrains operate according to a regular

fixed time schedule known well in ad-vance. This allows for shipment goalsto be met in a precise and consistentmanner.

Rail transport is also a safer meansof transportation relative to road astransportation by train reduces expo-sure to different road hazards. Traintravel affords much convenience andcomfort that are not available on othermundane means of transportation. Forinstance, while cell phones cannot beused on airplanes, train travellers havethe privilege of communicating on cellphones during the course of their jour-ney. Trains also have comfortable seatswith more leg room than is availableon airplanes and cars. One of the ad-vantages of train travel is the oppor-tunity of relishing scenic spots along-side the train routes. It offers the am-bience of nature devoid of the encum-brances associated with road transport.Investment in rail has also been identi-fied as an economic stimulus. For in-stance, the United States Departmentof Commerce estimates that every $1

invested in rail systems (track, locomo-tives, bridges, etc.) returns $3 to theeconomy, a 200 percent return on in-vestment. Investment in rail infrastruc-ture also has a ripple effect on job cre-ation in the economy.

Source: China Highway Study Group


Railway Development inNigeriaRailway system of transportation wasintroduced in Nigeria in 1898 follow-ing the construction of the first railline from Lagos to Ibadan by the colo-nial administration. Thus, rail has beenin existence in the country for 114years, making the Nigerian rail systemrank amongst the first generation ofworld railways. Nigerian Railway wastransformed from Government De-partment of Railways to the NigerianRailway Corporation (NRC) in 1955through an act of parliament which,apart from changing the name of therailway industry, equally conferred onit absolute monopoly as the only insti-tution recognised by law to carry outrailway services in the country. Theover one hundred years of its exist-ence notwithstanding, its developmentand growth has been abysmally slow.Whereas railways across the world haveadvanced both technologically and op-erationally, its development in Nigerialeaves much to be desired. While theaverage speed of trains is put at 150km/hr, Nigeria’s currently operationaltrains move at a speed between 30-40km/hr. The inability of the railwaysystem to develop has been variouslyattributed to the monopoly of theNRC, which means that the businessof rail transportation is strictly govern-ment-owned, managed and operated.

In a bid to develop the rail systemof transportation, successive govern-ments over the years developed vari-ous intervention programmes for therailway. These programmes notwith-standing, the country’s rail system is stillgrossly inadequate and the state ofexisting trains remain poor and anti-quated. Most rail tracks have not onlybecome moribund, they also requireenormous resources to resuscitatethem.

The federal government identifiedefficient transport as a necessary pre-condition for achieving its Vision20:20:20. In its vision to propel theeconomy to rank among the top twentyeconomies in the world by the year2020, government recognises the placeof an efficient rail transport infrastruc-ture. To this end, government con-ceived the 25years strategic plan forrailway development in the country,seeking to involve the private sectorin rail infrastructure provision andmanagement.

The Nigerian RailwayNetworkThe country inherited a rail networkfrom the colonial era. The nation’s rail-way network was designed in a North–South fashion essentially to facilitatethe flow of goods, such as groundnut,cocoa and cotton, from the inlands tothe coast for shipment to Europe. Atindependence, the railway system wasefficient and vibrant. Although thesingle-track narrow-gauge network randiagonally across the country, it wasable to haul agricultural products fromthe north to seaports in Lagos and PortHarcourt. The era of groundnut pyra-mids in the north, palm oil producefrom the east and cocoa from the westcoincided with rail development in thecountry. Following the discovery ofcrude oil in commercial quantity andthe subsequent transition to a petro-dollar propelled economy, agriculturalcommodities seized to be the mainstayof the economy. Consequently, thenation’s rail tracks were somewhat aban-doned as there was no need to trans-port crude oil through the railway sys-

Source: Research & EIG, The World Fact Book

Rail System : Nigeria’s Neglected Critical Transport Infrastructure | ISSUES (III)


ISSUES (III) | Rail System : Nigeria’s NeglectedCritical Transport Infrastructure

tem since crude oil was produced inthe coastal areas and was easily pumpedinto vessels for shipment.

The existing rail network in thecountry consists of 3,505km of nar-row gauge tracks and 276km of stan-dard gauge tracks which connectsAjaokuta (where the country’s steel millis located) to Warri (a major oil huband transit point for goods through itsport). The narrow gauge tracks covertwo major rail lines: one connects Lagosand Nguru in the Yobe State (Westerncorridor); the other (Eastern corridor)connects Port Harcourt and Maiduguriin Borno State. The single-narrow-gauge railway line was for many yearsthe only mode of freight movementbetween the North and South. Succes-sive years of neglect have stalled theexpansion of the existing railway net-work as it has not significantly changedfrom the legacy bequeathed by thecolonial administration. No city in thecountry currently has an operationalintra-city rail system. However, twomajor intra-city rail systems are cur-rently being developed, these are theLagos light rail and the Abuja light railprojects.

The Lagos Light RailLagos is unarguably the most populousconurbation in Nigeria and is also oneof the most populous cities in Africa,and estimated to be the 7th fastestgrowing city in the world with averageannual growth rate of 4.44 percent.According to the National PopulationCommission (NPC), Lagos had9,013,534 inhabitants as at 2006 andgoing by UN estimates, the city willachieve mega city status by 2020. Thecity is Nigeria’s most prosperous, andmuch of the economic activity areconcentrated in the state, being thenation’s commercial hub and gatewayto the national economy – accountingfor over 60 percent of total invest-ment in the country. Lagos harbors 60percent of the nation’s total industrialinvestments and foreign trade while alsoattracting 65 percent of commercialactivities. It is home to the headquar-ters of local and foreign financial in-stitutions and accounts for over 48percent of bank deposits, and about

70 percent of total loans. Industrial ca-pacity utilisation in the city is about 47percent while it consumes over 45 per-cent of national electricity and 50 per-cent of petroleum products.

These alluring attributes of Lagosnotwithstanding, the city has serioustraffic congestion problem. Althoughtraffic congestion is a phenomenoncommon to major cities of the world,driving through Lagos roads especiallyduring peak periods is not only timeconsuming, but also energy exhaust-ing. The several hours lost daily to ex-cruciating traffic on the roads trans-late to enormous economic loss to thecountry. It has been variously arguedand established that the road trafficmenace in the city is due to lack ofalternative modes of transportationespecially rail. Despite efforts by suc-cessive administrations in Lagos to up-grade the road infrastructure since the1970s, the traffic problem has re-mained unabated and even worsening.For instance, it was assumed that theconstruction of Carter Bridge would

ameliorate the then ever increasing traf-fic congestion from Lagos Mainlandto Lagos Island. Same was the argu-ment for the construction of EkoBridge, the Third Mainland Bridge, andso many other major roads in the city.

While these bridges and roads areall desirable, conventional wisdomholds that expanding road transport in-frastructure cannot effectively curbtraffic congestion. Redesigning citiesand developing/expanding alternativemodes of transportation offer the bestlong-term solution to traffic conges-tion. The first attempt to construct ametro rail line in Lagos was truncatedby yet inexplicable political undercur-rents in the early 1980s. However, theLagos State Government has com-menced the development of an exten-sive urban rail system for Lagosthrough a public private partnershipstructure. The Lagos Metropolitan AreaTransport Authority (LAMATA) hasproposed seven lines in the rail net-work: Red, Blue, Green, Yellow, Purple,Brown and Orange. The urban rail


ISSUES (III) | Rail System : Nigeria’sNeglected Critical Transport Infrastructure

project has commenced with the simul-taneous construction of the Red andBlue Lines at an estimated cost of$1.4billion.

The 30km long Red Line rail sys-tem is being developed on the city’sNorth–South axis through some of themost densely populated areas in Lagosbeginning on the island to Agbadothrough a total of thirteen stations. Ac-cording to LAMATA, the Blue Linewill run 27km from Okokomaiko toMarina, also one of the most denselytravelled corridors in the city. The BlueLine is being developed in conjunctionwith the Badagry Expressway projectand will run on an exclusive 15 metreright of way in the middle of the ex-pressway. Upon completion, the hori-zon of Lagos is bound to change, andthe impact of the rail on the city’s trans-port system is expected to be revolu-tionary. The light rail will no doubt sig-nificantly reduce congestion on thecity’s roads and improve mobility withthe attendant positive impacts on eco-nomic activities.

Abuja Light RailAnother novel rail development projectin the country is the on-going Abujalight rail expected to be completed in2013. Upon commencement of pas-senger service, respite is expected tocome to inhabitants of Abuja and en-virons who presently commute to thefederal capital city by road under se-vere stress. The influx of people to thefederal capital has made it one of thefastest growing capital cities in theworld and this has stretched the roadnetwork despite continuous expan-sions. Long queues in bus stops havebecome a regular scene in the city. Thetraffic congestion has become night-marish especially for those living onthe outskirts of the Federal Capital Ter-ritory (FCT) where it is estimated thatabout 70 percent of the city’s workerslive. The ambience and tranquility as-sociated with the city when the seat ofgovernment was moved there in 1991is now lost as traffic congestion hasbecome an everyday problem.

The federal capital city authoritiesin their response to the traffic conges-tion problem plan to introduce a lightrail to ameliorate the situation. Al-though construction of the Abuja lightrail was conceptualised in 2007, theproject experienced funding difficultieswhich impeded the 2008 start date.Work on the light rail project has how-ever commenced in earnest, in effortsto achève the 2013 completion dead-line. The 280 kilometres Abuja lightrail network is expected to link the fed-eral capital territory with satellite townssuch as Nyanya, Kubwa, Mararabaand Lugbe. The light rail is expectedto ease the city’s traffic logjam and im-prove mobility.

Going Forward: FromMonopolyto LiberalisationGovernment’s hitherto complete mo-nopoly in the ownership and manage-ment of transport infrastructure is be-ginning to change. Following the suc-cessful concessioning of the MurtalaMuhammed Airport 2 (MMA2), therehas been an increasing move towards

more private sector involvement in themanagement and operation of othertransport infrastructure in the countryincluding railway. In the draft nationaltransport policy, the federal govern-ment seeks to remove all impedimentsto private sector participation in thedevelopment, provision, maintenance,operation and upgrading of transportinfrastructure and services in the coun-try. Such initiatives include public pri-vate partnerships, and build-operate-transfer (BOT) arrangements.Government’s policy thrust is to de-velop an adequate, safe, environmen-tally sound, efficient and affordable in-tegrated transport system within theframework of a progressive and com-petitive market economy.

The draft national transport policyand the 25 Year Strategic Vision forthe Nigerian Railway System stipulatesgovernment’s goal for the rail systemand seeks to transform it to an effi-cient, flexible and competitive one. Theplan involves the concessioning of theexisting railway facilities and servicesand the outright sale of non-core as-sets of the Nigerian Railway Corpora-tion. The objective of theconcessioning is to transform the rail-way system from a non-performingand debt-ridden transport mode to adynamic and more functional transpor-tation system in the country. Govern-ment also seeks to encourage the useof rail to reduce road traffic conges-tion problems and other negative ex-ternalities associated with road trans-portation. It is expected that upon thecompletion of the on-going resuscita-tion and modernisation of the rail sys-tem, it will become attractive forconcessioning and further investmentswhich will in turn propel the expansionof the rail system to meet growing de-mand.(* Sunday Enebeli-Uzor is an Ana-lyst, Zenith Economic Quarterly)


Fore

ign In

sig

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* By Neil Hitchens

s we look forward to the prospects forthe coming year, it is with a heightenedsense of anticipation that I feel that2012 will turn out to be markedly bet-ter than either 2011 or 2010 were. TheNew Year will certainly resolve someof the more pressing problems thathave beset the global economy overthe past few quarters and one way oranother by the end of 2012 we willsee the final and much anticipated re-turn of overall global growth.

However it must be understoodfrom the outset that growth will mostcertainly not be universally uniform andthat some countries will not feel thebenefits of the much promised andmuch awaited global upswing this yearor even next, such is the deep reces-sion that a few areas are likely to re-main mired in for a long time to come.While, overall, global economic indi-cators are still painting a fairly gloomyeconomic outlook for the coming year,there are some signs from the US that,

as we had tentatively hoped, the Ameri-can economy is still showing somerather hopeful signs of life.

Recent readings of various PMI(Purchasing Managers Index) levels inthe US, Europe and the UK have showdiffering recent paths but the latestreadings released at the end of Janu-ary have positively surprised all round.

The PMI, as an indicator of bothcurrent sentiment and of the likelyfuture path of an economy, is closelywatched, setting the tone for the monthor months ahead (the numbers are re-leased at the start of every month) andalso impact subsequent economic re-leases.

The magic number for the PMI is50: A reading of 50 or higher indicatesexpansion and below 50, contraction.As such, it is considered a good indica-tor of future/near term GDP growth.

As can be seen from our chart, themost recent readings show that forEurope (January reading of 49.0) and

A


FOREIGN INSIGHT | 2012 - Be on High Alert for the Much Awaited Return of Global Growth

the UK (49.6), there is still the near term pos-sibility of a brief return to recession. How-ever the latest scores for both these areas aresuddenly significantly higher than a few monthsago. The October readings of 47.0 for Eu-rope and 47.6 for the UK were the recent lowpoints. There is significant hope that after therecent Western European economic turmoilthat, just maybe, the overall economic picturehas turned a corner.

In the US the overall picture is becomingconsistently more encouraging. After a recent‘near miss’ bounce off the low of 50.6 in Au-gust subsequent readings have been increas-ing ever since which are the likely prelude to agradual expansion of the American economyin the coming months. The most recent read-ing of 54.7 has been extremely positively re-ceived.

Other recent economic releases do, it must be admit-ted, show a greater possibility that the US did hit the eco-nomic bottom during the summer of 2011 and the timemay finally have come to realise that it may actually bereasserting itself as the economic engine of growth for2012. The economic releases for January have consistentlyshown an overall much more positive picture in the USthan had been forecast even 3 months previously.

Examples of the undershoot of recent forecasts canbe best illustrated by the following latest releases;

Event Survey ActualConstruction spending +0.5% +1.2%U of Michigan Confidence 71.5 74.0Durable Goods Orders +2.0% +3.0%Durables ex-transportation +0.9% +2.1%Personal Income +0.4% +0.5%

Unemployment figures are also starting to show whatcould be the first signs of a gradual decline with the totalunemployment rate falling from 9.1% in August 2011 to8.7% in November, 8.5% in December and 8.3% in Janu-ary 2012.

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Almost to add the icing to the cakewe also note with some relish that fore-casts for US GDP have already beenquickly revised upwards in a little overthree months. Where previously theaverage forecast for 2011 was+1.70%, for 2012 +2.05% and 2013+2.45% a mere one quarter later thesefigures are now +1.90%, +2.30% and+2.75%.

Europe - not out of thewoods.....just yet.In conjunction with the improving USeconomic picture, we also had the raresight of fast and concerted CentralBank moves at the end of Novemberto try and avert a liquidity crisis. Whilesuch a move cheered equity markets italso highlighted the depth of interna-tional concern about possible economicturmoil in Europe.

In a co-ordinated move the Fed-eral Reserve slashed the rates it chargesthe European Central Bank for short-term US Dollar loans from 1.1% to0.6%. China had slightly jumped thegun with a decisive shift towards eas-ing its own monetary policy and evenBrazil cut its own benchmark Selic(Sistema Especial de Liquidação e Cus-todia) interest rate by 0.5% from 11.5%to 11.0%, with a further 0.5% cut onJanuary 17th 2012.

However while the provision of li-quidity is welcome, the reality is that itis no substitute for the necessary ac-tions that Europe has to take in thecoming months. It is interesting but alsoworrying that the language around the

Euro has changed dramatically duringNovember. While earlier the tone wasone of ‘possible’ explosion of the Euro,towards the end of the year this hadchanged to ‘probable’

The emerging consensus view isthat the proposed move towards aGermano-Franco fiscal union are mostwelcome, but should have been put in

place at the creation of the Euro. It isevident that this is the time for theEuropean Central Bank to start to as-sert itself as the lender of last resort,to be the ultimate financial powerhouseand be able to power the Euro out ofwhat could still be a ‘death spiral’; cer-tainly the very sensible idea to scrapindividual sovereign bond issuance and

In a co-ordinated move the Federal Re-serve slashed the rates it charges theEuropean Central Bank for short-term

US Dollar loans from 1.1% to 0.6%.

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Washington: U.S.Federal Reserve

2012 - Be on High Alert for the Much Awaited Return of Global Growth | FOREIGN INSIGHT


FOREIGN INSIGHTS | 2012 - Be on High Alert for the Much Awaited Return of Global Growth

to issue pure ‘Euro [wide]-Bonds’ is longoverdue.

The Germans are digging theirheels in on this one - Chancellor Merkelhas to, somehow, exorcise from thecollective German memory theWeimar hyper-inflationary disaster of1919-1923.

Yes, there may be some slightuptick in inflation in the short-term,but the idea that, somehow, we couldsee inflation explode to the millions ofpercent per year is frankly ludicrous.Even were the Euro to shrink slightlyto a hard core of France, Germanyand the Benelux countries the longerterm benefits from such a move wouldoutweigh the current rolling series ofineffective ‘meetings about meetings’that has been the hallmark of this cri-sis.

One way or another, this has to befinally and definitively ended. If theFrench can calm down the Germansand hold their hand on this one, whilethe entire Euro experiment might notbe saved, certainly the exogenous shockof a full blown currency implosion canbe averted now with some imaginativebut not outrageous thinking.

Whether this is possible is anothermatter. While the latest of the seem-ingly interminable Euro Summits onDecember 9th went some way to re-solving this issue, we fear that goinginto 2012 we could be facing exactlythe same problems as we ended 2011.

Investors thoughshould be aware that whenthe problem is finally re-solved, that serious moneyis there to be made on theupside in banks andfinancials - and it has beensome time since we men-tioned this as even the re-motest of possibilities.Those banks that are the‘last ones standing’ will beable to reap the immensebenefits of whicheverform the Euro ultimatelytakes.

At a recent conferencein Europe we discussed theEuropean landscape in the

If the French cancalm down theGermans andhold their handon this one,while the entireEuro experimentmight not besaved, certainlythe exogenousshock of a fullblown currencyimplosion canbe averted nowwith someimaginative butnot outrageousthinking.

aftermath of what would be,at the time it occurs, an ex-tremely volatile environ-ment. It was felt that bankscould, finally, be seriouslylooked at again as investmentopportunities. To have atheoretical discussions aboutpossible gains, in the right en-vironment, of 200/300/400/500%+ or more, wasrefreshing.

Stocks mentioned in-cluded Lloyds Bank [EPICCode, LLOY], SociétéGénerale [GLE],Commerzbank [CBK] orBanco Popolare [BP].

Recent price moves in allof these stocks leads one tobelieve that some serioussifting of the survivalchances of certain banks hasalready begun. Lloyds Bankhas moved from a low in No-vember of 21.84 to 33.44 -a rise of 53% in little over 2months. Société Géneralehas moved from a low of15.00 to 23.59, +57.27%,Commerzbank, 1.178 to1.921, +63.07% and BancoPopolare 0.809 to 1.388,+71.57%!

However do not get car-ried away - most of thesebanks are 80%, 90% or even95% off their pre-crashhighs of 2007. For Lloyds,



for instance, to return its2007 peak would involvea price move of +810%.This simply isn’t going tohappen any time soon.

Greece - what adifference a yearmakesWhen we first highlightedthe growing problemswith the Greek economy,little did we think that thebond or equity marketscould implode quite sofast and quite as dramati-cally as they subsequentlyhave.

Despite months ofprotracted negitations with the under-lying bond holders, and regular visitsby the Greek Govenment to the Eu-ropean Financial Stability Facility(EFSC), Europe’s bailout fund, Greekyields have quite simply exploded be-yond belief.

The resulting financial and eco-nomic turmoil has sent regularshockwaves through the global finan-cial system, but there does come apoint beyond which the talking has tostop.

Like a bad marriage the longer thetalking continues, the longer nothing isactually done, the greater the likelihoodof a period of mutual separation whileboth parties consider the option of afull blown divorce.

We have a well defined and wellsignposted “pinch point” coming upvery shortly - the refinancing of theHellenic Republic 4.3% bond whichmatures on 20th March 2012. The is-sue is a ‘jumbo’ issue with some €14.4billion due to mature.

You may well idly ask how themarket both qualifies and quantifies thechances of anything concrete happen-ing, the chances of a full redemptionand the possibility of a successful refi-nancing.

The answer can be found by look-ing at the current yield to maturity.

A useful benchmark for compara-tive purposes is the German 5%‘Bund’ which matures shortly after theGreek paper, on 4th July 2012.

As we write the Ger-man bond yield is pricedwith a bid/offer spread of0.02%/0/07%.

The Greek 4.3% bidoffer spread is 1,246%/1,320%.

This is not a typographi-cal error.

The yield really is wellover one thousand percent.

In other words there isessentially no confidence inthe ultimate ability of theGreek Government to re-pay anything but a smallproportion of this bond atmaturity.

Anyone who still holdsthis particular bond should

now realise that the money they sotrustingly subscribed only two years agohas effectively been devalued by 60%.

A similar situation also exists withthe Greek equity market.

The Greek market may well haverallied 18% in January but it is still -87.47% off its all time peak.

What we are witnessing is capitaldestruction on an almost unprec-edented scale with only the remotestchance of Greek equities being ableto regain the old highs either in thisdecade or the next.

The statistics are soberingIf an individual had invested theirmoney in the basic Athens Index on20th September 1999 - the all timepeak of 6,355.04 - for them to get a

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basic, inflation excluded, return of theirmoney with the end of January levelof 796.02, would require a return of698.35%.

At a 5% annual return this will take43 years - in other words the peakwould only be regained in the year2055.

10% a year will take 25 years -2037.

Even 15% a year will take 17 yearsor till 2029.

This is without taking into accountany inflationary erosion which even ata very modest 2% a year would addmany years to the sums.

As we have always stated - to buyand hold eternally and without think-ing of the longer term consequences,never, ever works.

Equity Markets haveshaken off near termnegativityWhen the S&P recently downgraded 9Eurozone governments includingFrance (which lost its coveted AAArating), Italy, Spain and Portugal - themarket shrugged.

The axe fell again shortly after asS&P stripped the European FinancialStability Facility (EFSC), Europe’s bail-out fund, of its AAA rating. The mar-ket barely noticed.

Compare the reaction to what hap-pened just five months previously whenthe S&P downgraded the US from

AAA to AA+. The Dow fell from aclosing point on August 3rd of 11,893to an intra-day nadir of 10,605 onAugust 9th, a loss of 1,288 points or -10.83%. The S&P fell by a similarmargin, moving from 1,260 to 1,101,a drop of -12.62%.

In Europe last July and August,when the market first realised that itwas probably possible France was go-ing to lose its AAA rating, the FrenchCAC Index slid from a high point inJuly of 3,866 to eventually bottom outat a few weeks later at 2,693 - an eye-watering loss of -1,173 points or -30.34%.

Reaction to the most recent down-grades shows dramatically differentmarket behaviour. Since the Europeancredit rating reductions were officiallyannounced on January 13th this yearmost indices have risen includingthose of most of the countries nega-tively affected.

By January 31st France had risen -from a mid-month low of 3,151 to ashigh as 3,368 (+6.89%) before someend of month profit taking mutedoverall profits; Austria, also reducedby one notch from AAA to AA+, aslightly smaller but still important mar-ket, had a second half of January trad-ing range of +15.89%. Spain still man-aged a trading range rise of nearly +5%and Italy +11%.

Portugal though bucked the trendfalling -5.5%, but as it is now theunwelcomed centre of attention for

the Euro eruption proponents, the eq-uity market in the form of the Portu-gal PSI 20 index is one of the firstfinancial entities in the firing line.

In the US both the S&P and theDow Indices also managed a +4.4%trading range gain in the same 9 daymid-month period.

Reaction to recent earnings an-nouncements has differed from recenttrends. Despite a mixed picture, mar-kets, which previously in the face ofeven mild earnings disappointmentwould have led to analyst reductionsfor 2012 and negative sentiment over-all, have had a quietly surprising andpositive January with results that havebeen completely at odds with theheavily negative sentiment displayedas we were going into the 4th Quarterof 2011. Of the 91 global indicestracked by Bloomberg, January sawrises for 75, (82% of the pool) andfalls for 16 (18% of the sample).

Source: MSCI Barra / Bloomberg


FOREIGN INSIGHT | 2012 - Be on High Alert for the Much Awaited Return of Global Growth

It should be noted and remem-bered that it is usually the smaller capi-talised indices, which by their very na-ture have higher volatility than themore established and larger capitalisedones, which are normally the best and/or worst performers. Those who some-how had the luck to make allocationsat year end to Cyprus saw a +31.49%return (when measured in US$) for themonth, closely followed by Egypt,+28.33%, Budapest, +19.94%, and theIndian Sensex, +19.37% - India beingone of our picks for 2012.

The lowest returns came from Zam-bia, -6.90%, Mongolia, -5.97%, SriLanka,-5.02% and Jamaica, -3.83% -however given the extremely smallmarket capitalisation of all these mar-kets, exposure here would only befound in the most esoteric or sectorrestricted portfolios.

But, as always, “one swallow doesnot a summer make” - such extremes

of performance must always be putinto context; the Cypriot rise was aftera fall in 2011 of -72%, giving a totalreturn from 31st December 2010 toJanuary 31st 2012 of -63% -underwhelming. Egypt for the same 13months is a similar, -45.11% but theBudapest return for the period of -11.4% and India, -16.17%, shows thegreater maturity of both markets.Oddly enough the worst performerswere after some good returns in 2011and here it is obvious that such spe-cialist allocations were only temporaryand were going to be exited when amore positive trend was seen in devel-oped markets. Zambia in 2011 had risen+26% and Jamaica, +17%.

What is being missed or even plainignored, as we mentioned earlier, is theUS equity markets. All of the majorUS indices have that ‘feel’ of lookingto rally and are no longer overreactingto bad news.

US equities have been held downby outside pressures, a toxic combina-tion of the [Southern] European debtcrisis, worries over the US economicrecovery and a crisis of overall confi-dence. The view of the US recoveryas a tepid one is now changing. Con-sumers are returning, the job marketis firming up and the realisation isslowly growing that for the US therewill be no double-dip recession.Growth may be anaemic but there issteady consistent growth.

There is also a massive build up ofprivate equity cash - firms such asApollo and KKR are sitting on almostone Trillion dollars of unspent capital -$204 billion of which are in funds thatare legally required to invest within thenext 12 months. This money will notgo into bonds but equities. There is alsothe small matter of the US election.Every year since 1948 markets havegained in election year. In the 14 elec-

Manhattan, New York


Source: Bloomberg


tions since 1928 that involve a sittingPresident the S&P has gained an aver-age of +14.6%. Admittedly this timearound things are slightly different -they usually are, though, but as I writethis the Dow is very close to breakingthe old pre-financial crisis 2008 highof 13,058, the next level to take outafter this is the all time high on Tues-day 9th October 2007 of 14,164.53.This is now far from an impossible tar-get - one I think could be breachedthis year. It is after all only 12.12%from the end January level and 15.94%from the year end levels. It will not gofrom here to there in a straight andcontinuous line.

The US does remain acautious “Buy”In Europe while we do not believe thatthere are quite as many surprises tocome this year, Europe and more per-tinently the Euro will frustrate and an-noy. While there continues to be ‘talksabout talks’ on solving the debt crisisnothing will change. Time though isrunning out for one participant and thiscould be a game changer - it is now 82days until the first round of the FrenchPresidential election. Unless MonsieurSarkozy manages a Houdini like escapefrom his current polling position - pos-sible but currently unlikely, it looksmore than possible that the Socialistswill win. Quite how Angela Merkel willtake this remains to be seen. Markets

here will remain volatile and highlyprone to short term corrections -France especially. While not as stronga conviction buy as the US, Europeremains of interest so long as you arenot tempted to start dabbling in theequity markets of the Southern halfof Europe.

Commodities - 2011 profitsunlikely to be reversed inthe short termShort of a complete resolution to thetwin Euro and European worries anda complete cessation of global quanti-tative easing, gold still remains afavourite for investors going into 2012.The Q4 peak seen on 8th Novemberof $1,800.50 an ounce was exactly atthe top of the trading channel we hadpreviously identified.

The yellow metal ended January at$1,730.98, at almost exactly the mid-point of our trading range, after aninitial move away from Gold duringthe latter half of December 2011 asequities began their recent rally (wheregold held as a reserve was liquidatedto fund stock purchases).

Analysts continue to talk up Gold.Some hope Gold will surge to morethan $2,500 per ounce by the end ofthe year and break even more recordsin 2013. We did discuss internally thepossibility that the trend had brokendown after the August ’11 U.S. creditdowngrade. But the trend re-emerged

quickly and shows signs of soon revis-iting $1,800, the recent high and ourtrigger for a slight position reduction.It is here that there could be someprofit taking before retesting the oldhighs of $1,900 some time in Q2/Q32012. The current crossing of the 25and 50 day moving averages reaffirmsthe short term positive trend. Whileprobably not the time to initiate newpositions, certainly the near term trendis likely to be volatile. Any weaknessthough should be used as a point to re-evaluate strategy and initiate new trad-ing positions.

The bull market here is far fromover.Oil has, as we had hoped, continuedits recovery from the October 2011lows. West Texas has consolidated itsmove back to a more ‘comfortable’level of around $100 a barrel and thegap between it and Brent has movedto a more normalised 10% or so. TheNorthern European winter, though, hasbeen slightly late in coming - earlier pic-tures of snow free Alpine ski-resortshave since been replaced by footageof extra deep snowfalls and it is highlylikely that winter will now make up forits lateness by being intensively cold fora longer than predicted period.

Oil though has been given an extrafillip with Iran announcing the “possi-bility” of its closing the Straits ofHormuz in response to mooted sanc-tions being imposed by the West on itscrude exports and financial services.

While Iran would probably only beable to block the waterway for twoweeks or so, given the limited possibleusage of missiles, mines or fast attackboats, it would not take much for in-surers to stop coverage which would,de-facto, halt all tanker traffic. This inturn could see oil prices spike sharplybut briefly, maybe to $200+.

The fact that the UAE has decidedto delay until mid-2012 the launch ofits new pipeline, specifically built tobypass the Straits and linking its oilfieldto the port of Fujairah, may increasethe likelihood of Iran acting unilater-ally.

The knock-on effect of this, asshipping is re-routed from the PersianGulf, would have a huge impact on


the economy of the Middle East andcause a systematic restructuring of theflow of goods around the world. Atthe moment investors remain positiveabout the Gulf countries because theyare seen as a good business case forthe long-term development of the re-gion as a global hub.

While the oil price remains stub-bornly in the middle of the near termtrend we would caution that now isperhaps not quite the time to open newpositions - but events may well over-take us. A spike in oil is likely to beaccompanied by spikes in other ‘crisis

resistant’, portable commodities - gold,platinum, palladium and diamonds.

Russia - the ignoredenigmaOne final conundrum to add to thisheady commodity mix is a potentialproblem that many commentatorshave so far missed - Russia.

Ahead of this year’s Presidentialelections we should certainly expectsome near term equity market convul-sions. As a major oil producer (a factthat is sometimes conveniently forgot-

ten), if Russia sees some serious socialand/or economic unrest, theshockwaves would ripple through boththe oil industry and negatively impactglobal equity markets.

If Putin wins the Presidency with-out promising concrete reforms, or ifhis victory (currently probable) istainted by a far more obvious riggingof the ballot than has been suggested/ hinted at recently, then gold will bethe obvious shorter-term refuge - andthe price could well be driven sharplyand decisively above $2,000 .

While Russia is unlikely to implodethere could be some major socialchanges similar to those seen in theMiddle East.

Welcome to 2012!(*Neil Hitchens, is a Senior Rela-tionship Manager, Head of Invest-ment Management, Zenith Bank(UK))

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* Olutayo Otubanjo, PhD

fluence customer retainershipin the telecommunications in-dustry, gives useful insight intothe nature of the concept ofmultiple corporate rebranding.Following a comprehensive re-view of Tevi’s work however,

it became clear that the con-cept of ‘multiple cor poraterebranding’ is not only a tele-communications phenom-enon but also a bank market-ing issue, given the spate ofmultiple corporate rebrandingexercises that have takenplace in this industry in re-cent times. Consequently, apoint of concern, in thisstudy, is how multiple corpo-rate rebranding is constructed

Recent work (Tevi,2011), which ex-amined how mul-tiple corporatebrand reconstruc-tions over time in-

Following a compre-

hensive review of

Tevi’s work however,

it became clear that

the concept of

‘multiple corporate

rebranding’ is not

only a telecommuni-

cations phenomenon

but also a bank

marketing issue,

given the spate of

multiple corporate

rebranding exer-

cises that has taken

place in this industry

in recent times.


in the Nigerian banking in-dustry. Located in the sameline of inquiry is how a vari-ety of environmental factorstriggered these activities.

Similarly, an attempt ismade to suggest a definitionfor this newly emerging con-cept.

Importantly, these areas,which form the areas of fo-cus in this study, are presentedin four paragraphs. The firstparagraph makes a case forthe dearth of academic litera-ture on multiple corporaterebranding, stressing how-ever, Tevi’s (2011) novelwork on this new concept.The next paragraph presents

three types of multiplecorporate rebranding

exercises thatoccurred

in the banking industry, withinsights into the peculiaritiesof the factors that triggeredthem.

The paper continues inthe third paragraph with adiscourse on the meaning ofmultiple corporaterebranding. The paper endswith a summary and conclu-sion of the issues discussed.

Dearth of studies onmultiple changes incorporate brand: areview of literatureThe review of corporate mar-keting literature, especiallythose found in western aca-demic journals (i.e. Journal ofMarketing, European Journal ofMarketing, Journal of Market-ing Management, Journal ofBrand Management, Corpo-rate Communication: An In-ternational Journal, Journal ofProduct and Brand Management,

Irish Marketing Review etc)indicates that there is adearth of literature on theconcept of multiple cor-porate rebranding. Works(see Olins, 1995; Bakerand Balmer, 1997;Balmer and Dinnie,1999; Kaikati, 2003;Muzellec et al., 2004;Muzellec, 2006) that ap-proach this subject as cor-porate rebranding as op-

posed to multiple cor-porate rebranding,

conceive it asa one stop

exercise.

These works failed to recog-nize never ending spate ofthe turbulence in the businessenvironment and how thiscan force corporate brandsto rebrand ongoingly overtime. The following sub para-graphs strengthens this argu-ment by making a review ofworks on the subject, stress-ing however, the dearth ofliterature on the concept ofmultiple corporate rebrandingin academic literature.

Olins (1995) argued thatthe spate of mergers andtakeovers led to therebranding or the reconstruc-tion of the corporate iden-tity of many firms acrossEurope and the United States.

Olins (1995) conceivedthe rebranding or reconstruc-tion of corporate identity fol-lowing a merger or acquisi-tion exercise as an exercisethat must be done bearing inmind the disparities in the in-ternal identities of the merg-ing firms as a platform fordeveloping a single corporatebrand with a singularbehaviour. Olins’s (1995)rebranding approach, thoughinfluential and insightful, paidless attention to the never-ending changes in the envi-ronment which could triggerthe rebranding of a firm’scorporate identity over andover again. Olins (1995) con-ceived corporate rebrandingas a one stop exercise, notlikely to occur in future.

Baker and Balmer’s(1997) work on rebranding orcorporate visual identitychange underscored how anew corporate visual identity

was developed to create bet-ter identification and recog-nition for a major British uni-versity. The paper suggeststhat assessing a visual iden-tity can be useful in identify-ing organizational weaknesses;but argues that a weak visualidentity may be a symptomrather than the solution tocorporate malaise. The paperrecommended that a new vi-sual identity, although power-ful, should be part of an ef-fectively coordinatedrebranding campaign. Bakerand Balmer’s (1997) work isuseful in that it draws atten-tion to the pitfalls that uni-versities must avoid if an ef-fective rebranding strategy isto be achieved. Put anotherway, the paper gives insightinto the processes ofrebranding a university andsuggests how best to pursuea rebranding exercise at a uni-versity. What could be doneto strengthen Baker andBalmer’s (1997) work is torecognize that the businessenvironment is often gov-erned by ongoing turbulentchanges. Arguably, thesechanges are equally accom-panied by never-endingchanges in the personalitiesof corporate brands.

Balmer and Dinnie(1999) highlighted the impor-tance of the reconstructionof corporate identity withina merger and acquisition ex-ercise and argued that thefailure of many of such ex-ercises is due to the poor at-tention that is paid to the re-construction of the corpo-rate identity. Although,Balmer and Dinnie’s (1999)work provides useful insight


Throughout their work Muzellec etal. (2003) disregarded the never endingissues that could change corporatebrands ongoingly. Similar works led byMuzellec (see Muzellec, et al, 2004;Muzellec, 2006; Muzellec and Lambkin,2006) disregarded this all importantsubject.

Daly and Moloney (2005) creditedthe notion of rebranding as a continuumexercise that begins from revitalising acurrent brand, to a full name changeinvolving alterations in brand values andpromises. In spite of this however, thiswork takes corporate rebranding as aone stop exercise. The paper failed tosituate corporate rebranding within thecontext of ongoing changes that oftenhave profound never-ending impact onthe personality of corporate brands.

Working from the premise of lim-ited attention to the management ofcorporate brand names in the face ofmerger and acquisition process, Jaju etal. (2006) considered the reactions ofconsumers to a typology of alternative

brand redeployment strategies. Theyargued that corporate brand equity isoften decreased following a merger andacquisition exercise and that consum-ers react differently to a variety of

into some of the factors that contrib-ute to the failure of mergers and ac-quisition exercises, the paper neverthe-less paid little or no attention to theongoing changes in a firm’s corporateidentity – occasioned mostly by thenever-ending changes in the turbulentbusiness environment.

Kaikati (2003) examined the rein-carnation of Accenture by tracing thecompany’s heritage and highlighting howit pioneered the splitting of consultingfrom accounting activities. The paperalso draws attention to the three pillarsof Accenture’s transformation –grounded on the development ofrebranding, restructuring and reposi-tioning campaigns. Kaikati (2003) how-ever neglected the effect of the never-ending spate of changes in the envi-ronment, which are equally capable ofleading, in future, to multiple changesin Accenture’s corporate brand.

Muzellec et al. (2003) provides auseful exploratory insight into corpo-rate rebranding defining it and analysingits main drivers. According to Muzellecet al. (2003), corporate rebranding re-fers to “the renaming of a whole cor-porate entity, often signifying a majorstrategic change or repositioning”. Theyargued that some important factors in-fluence or drive corporate rebrandingexercises, namely – change in owner-ship structure, mergers and acquisition,spin-offs and demergers, conversionfrom private to public ownership,change in competitive position, outdatedimage, erosion of market position, andreputational problems.

The terminology ‘firstgeneration bank’ is a generalname or catchall term that iscommonly used by bankingoperators and their stake-holders alike to describe orin some cases characterisethe first set of financialinstitutions that commencedbanking and financialservices ....

Discourse: The Ascendancy of Multiple CorporateRebranding in Nigeria’s Banking Industry



brand redeployment strategies. Jaju etal. (2006) called for the need to evalu-ate the corporate branding element ofmergers and acquisition exercises aspart of the conscious process of man-aging corporate brands. Whilst thesetypologies and their influences on con-sumer reactions increased scholarlyunderstanding of corporate rebrandingas it relates to merger and acquisition,it nevertheless disregarded the ongo-ing changes in the business environ-ment, which are quite capable ofchanging, rather endlessly, the visualand non visual personalities of corpo-rate brands.

Lomax and Mador (2006) providean analytical framework of the com-plex process of rebranding through aqualitative study of seven UK-basedorganisations. The study offers a ma-

trix-based typology that can help to mapchanges in brand name against changesin brand values – thus highlighting howthis can be used to identify the brand-ing choices being made.

Lomax and Mador’s (2006) workthough insightful in bridging the knowl-edge gap on the complex process ofrebranding, however paid no attentionto turbulent changes, which may leada corporate brand to the pursuit of arange of rebranding exercises overtime.

Gotsi and Andriopoulos’s (2007)work on corporate rebranding identi-fied four issues (1- disconnecting withthe core; 2-stakeholder myopia; 3-em-phasis on labels, not meanings; 4-onecompany, one voice: the challenge of multipleidentities) as factors that explain whyrebranding exercises sometime fail.Unfortunately, this paper gives nocredit to the ongoing changes in theenvironment and how these can trig-ger endless changes in corporatebrands.

Merrilees and Miller (2008) drewsix principles of corporate rebrandingthrough a case analysis of a Canadianleather goods retailer that pursued acorporate rebranding strategy. Theprinciples point to the need for firmsthat aim to pursue rebranding exerciseto maintain core values, cultivate thebrand, link the existing brand with therevised brand, target new segments, getstakeholder “buy-in”, achieve alignmentof brand elements and create an un-derstanding of the importance of pro-motion in awareness building. WhilstMerrilees and Miller’s (2008) workgives a useful, informative, highly edu-cative and knowledge advancing insightinto rebranding to life, it neverthelessfailed to recognize market turbulence,which may trigger never-endingchanges in corporate rebranding exer-cises or activities. Unlike other authors,Tevi (2011) came very close to thesubject of discourse by examining howthe multiple corporate rebranding ac-tivities of Airtel, the second largest mo-bile telecommunications operator inNigeria, influences customerretainership. Although Tevi’s work givesa detailed analysis of this subject asoccurred in the telecommunications in-

Standard CharteredBank China inGuangzhou Tianhe

However, in 1965,Standard Bank,now StandardChartered Bank,acquired the con-trolling shares ofBWA, which as ofthen had well oversixty branchesthroughout Nigeria.

http://upload.wikimedia.org/wikipedia/commons/4/42/Standard_Chartered_Bank_China_in_Guangzhou_Tianhe.JPG


dustry, the work is neverthe-less limited to an understand-ing of customer reactions andattitudes towards thesechanges. More importantly,the study could not say howor why the concept of mul-tiple corporate rebranding isalso occurring in the Nigerianbanking industry.

Summary of review of lit-erature: it is obvious fromthe review that truly a lot ofeffort has been devoted tothe concept of rebranding.However, what appears to bemissing in literature is the rec-ognition that the pursuit of acorporate rebranding is nevera singular exercise. The busi-ness environment is governedby never ending turbulentactivities that force corporatebrands to respond at all times.Thus, in the course of re-sponding to these turbulentevents, corporate brands areforced to reconsider theiridentities ongoingly. Further-more, the review of literaturesuggests that Tevi’s (2011)

work stands out because itgives insight into how multiplecorporate rebranding comesto live in the telecommuni-cations industry. This studytakes Tevi’s (2011) work astep further by addressing itfrom a banking industry per-spective.

Three types ofmultiple corporaterebranding in theNigerian bankingindustryMultiple corporaterebranding has occurred inthe Nigerian banking indus-try mainly at three levels. Atthe first level are multiplecorporate rebranding exer-cises conducted by first gen-eration banks established byforeign interests during thecolonial era, which lasted be-tween 1859 and 1960. Theseare composed of the BritishBank for West Africa, nowFirst Bank Plc; the ColonialBank, now Union Bank Plc;

Agbonmagbe Bank Limited,now Wema Bank Plc; and theBritish and French Bank,now UBA (United Bank forAfrica) Plc. The second levelis dominated by multiplerebranding exercises orches-trated by second generationbanks created just around theperiod of independence.These are dominated byBanque Internationale PourL’Afrique Occidental(BIAO), now MainstreetBank Plc and several defunctbanks. At the third level aremultiple corporate rebrandingexercises conducted by thirdgeneration banks. These arecomposed of banks such asHabib Bank and PlatinumBanks Plc, which later fusedinto Bank PHB, now calledKeystone Bank Plc. The thirdlevel of multiple corporaterebranding also include de-funct financial institutionssuch as ACB InternationalBank Plc; Citizens Interna-tional Bank Plc, FountainTrust Bank Plc, Guardian

Express Bank Plc,

Omega Bank Plc, and TransInternational Bank Plc, all ofwhich were fused into one –and known today as Enter-prise Bank Plc. The multiplerebranding exercises con-structed by the three domi-nant types of banks in Nige-ria are discussed below:

Multiple rebranding ac-tivities of first generationbanks and the factors thattrigger them: The terminol-ogy ‘first generation bank’ isa general name or catchallterm that is commonly usedby banking operators andtheir stakeholders alike to de-scribe or in some casescharacterise the first set offinancial institutions thatcommenced banking and fi-nancial services business inNigeria, during the period ofBritish imperial colonisationof the country.

Four major banking insti-tutions are known to domi-nate this group of banks.These are First Bank Plc,Union Bank Plc, UBA




(United Bank for Africa) Plc, NationalBank Plc, now fused into Wema BankPlc and Wema Bank Plc. However,only the multiple rebranding activitiesof First Bank Plc will be discussed inthis paragraph, for the purpose of pub-lication in this journal. A more robustnarrative, which describes all the mul-tiple rebranding activities of the fourbanks, will be published later in a jour-nal. First Bank Plc, previously BritishBank for West Africa (BBWA), is thefirst of the first generation banks toset foot on the Nigerian banking andfinancial services terrain. BBWA as itwas then called was incorporated onMarch 31, 1894, with head office inthe city of Liverpool by Sir AlfredJones, a successful shipping magnateof Welsh origin, who equally served asits chairman (Chisholm, 1911). BBWAstarted business in the Lagos office ofElder Dempster & Company with apaid up capital of 12,000 pounds ster-ling (First Bank Plc, 2011), in the af-termath of a consolidation exercisethat lead to the acquisition of AfricanBanking Corporation, which had ear-lier been established in 1892 (Fry,1976).

In 1957, BBWA rebranded, becom-ing Bank of West Africa (BWA). Bythe mid 1950s however, the businessreputation of BBWA experienced adownturn as it was accused by notablebusinessmen and leading nationalistpoliticians like Dr. Nnamdi Azikiwe ofcolluding with Dominion, Colonial andOverseas (DCO), now Union Bank Plc,to fix interest rates on loans at levelsthat are far beyond the reach of ordi-nary Nigerian businessmen (Austin andUche, 2007). In addition, BBWA also

began to experience some level of com-petition from indigenous banking in-stitutions led by National Bank of Ni-geria Limited, a financial institution,which had earlier been established bypowerful local political protectionistsand dissident businessmen in 1933. Es-sentially, increased competition, espe-cially the rise in the number of indig-enous banks, which rose from twenty-three to forty-seven between 1952 and1957 (Austin and Uche, 2007), to-gether with its poor business reputa-tion appear to have, among otherthings, forced BBWA to review its cor-porate brand, reconstructing it as Bankof West Africa (BWA). However, in1965, Standard Bank, now StandardChartered Bank, acquired the control-ling shares of BWA, which as of thenhad well over sixty branches through-out Nigeria. Consequently, given thechange in its ownership structure, BWArebranded itself as Standard Bank of

Nigeria Limited in 1969. In consonancewith the dictates of the indigenisationdecree of 1977, which empowered theFederal Government of Nigeria to ac-quire controlling shares in all foreignowned banks (Uche and Ehikwe,2001), limiting foreign participation inbanking to forty percent equity, con-trolling shares of Standard Bank Lim-ited was acquired and as such it had torebrand in 1979, changing its name toFirst Bank Nigeria Limited. Similarly,following the passage of the Compa-nies and Allied Matters decree of 1990,and the bank’s compliance to the dic-tates of this decree, First Bank Lim-ited rebranded once again to First BankPlc, to reflect its membership of theNigeria Stock Exchange. Following thecommencement of a total re-engineer-ing exercise in the early 1990s(Otubanjo and Melewar, 2008), FirstBank Plc embarked upon a processthat led towards the transformation ofits personality, with the introduction ofa new corporate identity on Tuesday,April 27, 2004; grounded on the pil-lars of its brand essence, which isthemed “dependably dynamic”. Put to-gether, First Bank Plc has between thetime of its incorporation and now, ex-perienced a movement from BBWAto BWA to Standard Bank to FirstBank Limited to First Bank Plc andfinally towards a brand strategy themed“dependably dynamic”. In all, FirstBank Plc has gone through a total ofsix rebranding exercises. Arguably, therebranding of First Bank Plc six timesover a century cannot be termed asrebranding. It has to be addressed prop-erly as multiple rebranding to denotethe numerous nature of these exercises.

Multiple corporaterebranding has occurredin the Nigerian bankingindustry mainly at threelevels. At the first levelare multiple corporaterebranding exercisesconducted by first gen-eration banks estab-lished by foreign inter-ests during the colonialera, which lasted be-tween 1859 and 1960.


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Multiple rebranding activities ofsecond generation banks and thefactors that trigger them: the termi-nology ‘second generation bank’ is anidea that is used to characterise the iden-tity of the second set of banks that en-tered the industry between the end ofthe British imperialist rule in 1960 andtowards 1980. During this period,twenty six banking institutions com-

posed of twenty commercial banks andsix merchant banks entered the bank-ing industry.

Banque Internationale PourL’Afrique Occidental (BIAO), nowcalled Mainstreet Bank Plc, dominatedthe second generation set of banks inNigeria, given its large asset base, whichplaced and secured it in the 1960s,1970s, 1980s and 1990s as the fourthlargest bank (Brownbridge, 1996) after

the trio of Union Bank Plc, First BankPlc and UBA Plc. In view of the com-panies’ decree of 1968, which requiredall foreign owned banks to incorporatein Nigeria, BIAO was incorporated asa limited liability company under thename International Bank for West Af-rica (IBWA), the English version ofBIAO (Afribank, 2006).

IBWA remained as the name of thebank until the late 1980s. In 1989,

Discourse: An Appraisal of Mortgage AsA Security for Bank Lending in Nigeria



riod started to get ready to become aquoted member of the Nigerian StockExchange. These factors put togethermight have encouraged the bank torebrand and change its name toAfribank Nigeria Limited on January1, 1990. On its entry into the NigerianStock Exchange in 1992, it was re-named Afribank Nigeria Plc. Owing toits failure to meet the set standards ofthe Central Bank of Nigeria (CBN),Nigeria’s apex regulatory bank, Afribankwas acquired in September 2011 by theAsset Management Corporation of Ni-geria (AMCON) and renamed asMainstreet Bank Plc (Thisday, 2011).Similar to previous paragraphs,Mainstreet Bank’s multiple rebrandingactivities alone were discussed in thisjournal. Limited space is often devotedto such journals. A more robust analy-sis, which describes all the multiplerebranding activities of banks in thiscategory, will be discussed in a book tobe published later.

Multiple rebranding activities ofthird generation banks and the fac-tors that trigger them: following thederegulation of the banking industry in1986, many privately owned local bank-

ing institutions were floated. The growthof these banks was rapid, so much sothat by 1992 there were at least twenty-six privately owned – newly establishedcommercial banks and fifty-one pri-vately owned – newly established mer-chant banks in operation (Brownbridge,1996). Today, these banks, defunct orexisting, make up what is generallycalled third generation banks. However,by January 1, 2006, many of thesebanks had gone into extinction, becomedefunct or fused into new, old or exist-ing banks through a forced consolida-tion exercise that pruned the banksdown to nineteen. By September 2011,new generation banks were furtherpruned to fourteen following anotherround of consolidation.

Of the fourteen new generationbanks currently in operation, EnterpriseBank Plc and Keystone Bank Plc ap-pear to have gone through morerebranding exercises than others.

Starting with Spring Bank Plc, thisbank emerged in 2006 through a forcedmerger exercise of six financial institu-tions: ACB International Bank Plc, Citi-zens International Bank Plc, FountainTrust Bank Plc, Guardian ExpressBank Plc, Omega Bank Plc, and TransInternational Bank Plc. Recently, SpringBank Plc rebranded the third time tobecome Enterprise Bank Plc. Prior tothis, it rebranded as Spring Bank Plcfollowing a forced consolidation exer-cise that brought the aforementionedbanks together. Prior to the formationof Spring Bank Plc, each of the com-ponent banks had at one time or theother engaged in a variety of rebrandingactivities. For instance, the defunctFountain Trust Merchant Bank took ad-vantage of the universal banking codepopularly enjoyed by commercial banksto reapply to the CBN for commercialbanking license. Immediately the licencewas granted, Fountain Trust MerchantBank rebranded and became FountainTrust Bank Plc. Details of howneverending changes in the business en-vironment forced other banks in thiscategory to pursue multiple corporaterebranding activities will appear in abook to be published later.

BIAO went into liquidation – selling offits equity in IBWA. Similarly, in its drivetowards free market economy, the Fed-eral Government of Nigeria gave upten percent of its equity holding in thebank to staff (Afribank, 2006). Run-ning on the heels of market economy,the Federal Government went a stepfurther conveying its intention to divestits stocks fully at all banks includingIBWA. As such, IBWA during this pe-

Today, these banks,defunct or existing,make up what is gener-ally called third genera-tion banks. However, byJanuary 1, 2006, many ofthese banks had goneinto extinction, becomedefunct or fused intonew, old or existingbanks through a forcedconsolidation exercisethat pruned the banksdown to nineteen.



Multiple corporaterebranding: triggers andthe ongoing character ofrebrandingAn important issue that dominate thenarrative analysis of how the conceptof multiple corporate rebrandingemerged in the Nigerian banking in-dustry resides in the never-ending en-vironmental changes that trigger therebranding of business organizationsover and over again. Indeed, eventssuch as the introduction of new legis-lation, change in government policy,change in ownership structure, poorimage arising from scandals are identi-

fied from the narrative as importantfactors that drive businesses towardsthe reconstruction of corporate brandsongoingly. It is noteworthy to state atthis point that the ongoing nature ofthe reconstruction of corporate brandsand the factors that trigger these per-sonality changes provide clear and un-ambiguous insight into how this con-cept might be defined.

The meaning of multiplecorporate rebrandingThe narrative analysis of numerouscorporate identity change exercises ar-ticulated in the previous paragraph pro-vides some useful insights into the na-ture of multiple corporate rebranding

and the peculiarities of the factors thattrigger them. In spite of the pursuitof this phenomenon in real life, nostatement has been advanced in litera-ture to define it. What is apparent inliterature is Tevi’s (2011) work, whichexamined the relationship between mul-tiple corporate rebranding and cus-tomer retainership. There is no boldstatement in Tevi’s work underscoringwhat this newly emerging conceptmeans. Given the absence of academicliterature in this regard, the author inthe following sub-paragraphs makes anattempt to theorize the meaning ofmultiple rebranding by doing two things.First is to give recognition to environ-mental changes and how these drivebusinesses ongoingly towards multiple


Discourse: An Appraisal of Mortgage AsA Security for Bank Lending in Nigeria

corporate rebranding exercises. Secondis to review works on the meaning ofrebranding (see for instance Muzellecet al., 2003; Muzellec, et al., 2004;Muzellec, 2006; Muzellec andLambkin, 2006) – to gain insight intothe issues that characterize this con-cept originally.

Defining the notion ofmultiple corporaterebrandingIn an exploratory study of the con-cept, Muzellec et al. (2003) defined cor-porate rebranding as “the renaming ofa whole corporate entity, often signify-ing a major strategic change or reposi-tioning”. Corroborating the ‘change’ or‘repositioning’ aspect of this viewpoint,Merrilees and Miller (2008, p.538) pro-posed that corporate rebranding is “thedisjunction or change between an ini-tially formulated corporate brand anda new formulation. The change inbrand vision can be referred to asbrand revision” Muzellec et al (2006,p.32) observe that corporate rebrandingis the practice of building anew a namerepresentative of a differentiated po-sition in the mind frame of stakehold-ers and a distinctive identity from com-petitors.” Stuart and Muzellec (2004,

p.473) argue that corporate rebrandingconnotes the notion of branding donethe second time and that it is a repre-sentation of a brand that has been re-born. They avowed that a reborn canonly take place when the name of thebrand changes.

One thing that appears missing inthese definitions is the ceaseless, never-ending or ongoing turbulence that of-ten dominate the business environ-ment. Evidence from the narrativeanalysis presented in the previous para-graphs indicates two things. First is thatchange occur ongoingly in the businessenvironment. Second is that businessorganizations respond to these changesnot just once, but as many times as theongoing changes in the environmentdemands. Given this insight and theideas generated from the literature onthe meaning of corporate rebranding,the author submits that multiple cor-porate branding is: a phenomenon reflec-tive of the ongoing changes in the visual andnon visual representations of the personalityof businesses in relation to ongoing changesin the business environment.

Recent events at IntercontinentalBank strengthen the proposed defini-tion of multiple corporate rebranding.The first major change inIntercontinental’s corporate brand (see

figure 1) occurred in 2005. The changecame in the wake of CBN’s recapital-ization drive, which forced the bankto acquire its subsidiaries (i.e. EquityBank, Global Bank and GatewayBank) to meet the new recapitalisationpolicy. The fusion of the subsidiariesinto Intercontinental Bank Plc triggeredthe construction of a new corporateidentity that represents the fusion.

The second major change in thebank’s corporate identity came in Sep-tember 2011, following the acquisitionof the bank by Access Bank Plc. Thechange in ownership structure led In-tercontinental Bank towards the adop-tion of an endorsed branding strategy,which presents Access Bank asIntercontinental’s parent brand (see Fig-ure 4). It must be noted at this pointthat Intercontinental may be putthrough another round of rebrandingonce again to reflect its parent identity.This is likely to happen once AccessBank acquisition of IntercontinentalBank is fully completed in the fourthquarter of 2012 (IntercontinentalBank, 2011).

Discussion andconclusionThis paper examines the notion of ‘mul-tiple corporate rebranding’ through a nar-rative analysis of how this conceptemerged in the Nigerian banking in-dustry. Thus, the multiple rebrandingactivities of defunct banks that failedto consolidate or fuse into any ofNigeria’s mega banks are disregarded.Importantly, the study examines the pe-culiarities of the factors that lead banksto seek and pursue multiple corporaterebranding. Additionally, it suggests aworking definition that could furtherenhance an understanding of the con-cept. These objectives were accom-plished first by making a case for thedearth of literature on the subjectthrough a review of corporaterebranding and corporate identitychange literature. Second, an analysisof how multiple corporate rebrandingoccurred in some dominant banks wasdiscussed. More importantly the fac-tors that led to this new concept werediscussed.

Two important findings emergedhttp://static.panoramio.com/photos/original/508983.jpg


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from this study. First, the paper identi-fies three dominant types of multiplecorporate rebranding witnessed in theNigerian banking industry between1984 and now. The fist type is multiplecorporate rebranding of first generation banks,which describes the multiple corporaterebranding activities of the first set offinancial institutions that commencedbanking and financial services businessin Nigeria during Britain’s imperialistrule. Second type is multiple rebrandingof second generation banks.

This term used in defining themultiple corporate rebranding activi-ties of second set of banks that en-tered the industry between the end ofthe British imperialist rule in 1960 andtowards 1980. The third type is mul-tiple rebranding of third generation banks.This represents the multiple corporaterebranding activities of local and for-eign privately owned banks that were

established in the aftermath of thederegulation of the Nigerian bankingindustry in 1986.

Second, in order to further under-stand the meaning of the concept ofmultiple corporate rebranding, this pa-

per suggests a definition, which givesrecognition to the ongoing changes inthe turbulent business environment andhow these changes impact greatly onthe ongoing reconstruction of a cor-porate brand. The paper submits thatmultiple corporate rebranding is a phe-nomenon reflective of the ongoingchanges in the visual and non visualrepresentations of the personality ofbusinesses in relation to ongoingchanges in the business environment.

The narrative analysis of

numerous corporate

identity change exercises

articulated in the previous

paragraph provides some

useful insights into the

nature of multiple corpo-

rate rebranding and the

peculiarities of the factors

that trigger them.

Existing works (Olins, 1995; Bakerand Balmer, 1997; Balmer and Dinnie,1999; Kaikati, 2003; Muzellec et al.,2004; Muzellec, 2006; Gotsi andAndriopoulos, 2007) on this subjectaddressed it as a singular exercise inthe life of a corporate brand. This studymakes a departure from this by pre-senting multiple corporate rebrandingas a phenomenon that is likely to oc-cur ongoingly for as long as the busi-ness environment remains turbulent.The study is limited to the examina-tion of multiple corporate rebrandingactivities of defunct banking institu-tions that were unable to consolidateor fuse into existing banks. Neverthe-less, this opens a gap that creates op-portunities for further academic re-search in the near future.(*Olutayo Otubanjo, is a SeniorLecturer (Marketing) Lagos Busi-ness School Pan-African Univer-sity)


MACROECONOMIC ENVIRONMENTIn several parameters, the Nigerian economy maintained its growth momentum in the fourth quarter2011. Some of the indicators grew remarkably while others faltered. Inflation figure, for instance,remained steady, inches from the authority’s single digit target. Gross Domestic Product (GDP) ex-panded at a faster pace than in the preceding quarter. The foreign exchange reserves witnessed someimprovements, mainly driven by higher prices of crude oil. However, the nation’s currency, the naira,lost grounds against other major currencies. The Monetary Policy Rate (MPR) was raised more thanexpected in efforts to curb rising inflation. In the capital market, stock prices remained firmly in thebearish camp. Crude oil prices in the international markets wobbled at several points, but ended theperiod on a positive note for oil exporting economies.

GROSS DOMESTIC PRODUCT (GDP)Gross Domestic Product (GDP)in the fourth quarter was esti-mated at 8.68 percent, a markedimprovement when comparedwith the preceding quarter. RealGDP growth continued to bedriven by the non-oil sector ofthe economy. Despite some hic-cups caused by natural elementsin the far North and severeflooding in some coastal states,favourable weather conditions inthe North Central region ensureda bumper harvest. Agriculturecontinued its dominance as a ma-jor contributor to GDP. For theoil sector, the fruits of the Amnesty Deal with the Niger Delta militants continued to push crude oilproduction in the right direction, with output jumping 5 percent between October and November. Theoutlook for 2012 remains favourable with real GDP forecast remaining robust at 7.6 percent.

INFLATIONThe Year-on-Year inflation rate heldsteady in the fourth quarter 2011,inches off the CBN’s privately watchedsingle digit target. The headline infla-tion rate ended the quarter at 10.3percent in December. Inflationarypressures had resurfaced in earlierOctober, led by soaring prices of somefood items like yam, cooking oil, meat,fruit, vegetables and beverages. How-ever, the sharp increase in the pricesof some imported food items was

moderated in November by greater availability of some locally produced staples, especially during theharvest season. Inflationary pressure eased slightly in December due to holiday travels and a slowdownin energy demand during the period. Core inflation also dropped slightly in December. Despite theslowdown, higher prices of transport fares, kerosene, diesel, electricity, hotel and restaurant chargesresurfaced in December due to the festive period. Inflationary risk remains a threat in the monthsahead due to the partial deregulation of Premium Motor Spirit (PMS) pump price; new tariff regimeson certain food imports and the anticipated fiscal injection from the proposed 2012 budget.

Source: National Bureau of Statistics

Source: National Bureau of Statistics


EXTERNALRESERVESThe nation’s external reserves re-bounded in the fourth quarter2011 despite a nervy start to theperiod. External reserves re-corded impressive gains earlierin October, clawing back about$4.5billion to $34.5billion despitenose-diving to a 5 year low amidcontinuous withdrawals. Thebuildup was due to stronger con-trol on foreign exchange prac-tices, pickup in crude oil receipts

and reduction in arbitraging opportunities in the oil marketing sector. Unable to plug all the loopholes,the upsurge was however short-lived as the external reserves plunged back to $32.9billion as at endDecember 2011, capable of financing about 6 months of imports. The authorities attributed thedrainage to higher demand for foreign exchange as a result of import dependency and activities ofspeculators. In the short to medium term, the authorities project improvements in the stock ofexternal reserves as result of higher crude oil prices and output, and a reduction in foreign exchangedemand occasioned by the recent partial deregulation of the downstream oil sector.

Source: Central Bank of Nigeria

INTEREST RATEIn a proactive move that sur-prised analysts, the CBNmaintained its hawkish stanceand raised its key interest rateduring the fourth quarter. TheMonetary Policy Rate (MPR)was lifted by a whopping 275basis points to 12 percent inresponse to what the apexbank referred to as ‘unusualdevelopments in the globaland domestic economy’. Itwas the sixth consecutive hikein 2011, in efforts to holdback inflation.

The average interbank ratewitnessed significant rateswings during the quarter. Forinstance, rates on the call and7 Days tenors rose as high as18.62 percent and 18.77 per-cent in November, from11.45 percent and 11.75 per-cent in October. Rates how-ever eased in December as themarket was awash with a mix-ture of liquidity trickling down from the N615billion Statutory Revenue Allocation and about $1.5bil-lion shared among the three tiers of governments.

Source: Financial Markets Dealers Association of Nigeria (FMDA)



In terms of cost of borrow-ing, the average Prime Lend-ing Rate (PLR) inched upslightly due to increase in theCash Reserve Ratio (CRR)from 4.0 percent to 8.0 percent in October 11, 2011.Generally, rates remained at el-evated levels, hovering around18 percent, reflecting the riskpremium at which banks areprepared to lend.

Returns on the average deposit rate went up slightly across most investment horizons, with volatilityhigher on the 90 Days and 180 Days tenors.


EXCHANGE RATEThe nation’s cur-

rency, the Naira, de-

preciated to fresh

record lows in the

fourth quarter 2011,

losing grounds

against major world

currencies. It suf-

fered big losses, fin-

ishing the period

weaker at about

N156/US$. The

naira witnessed vola-

tile movements

against the US dollar, hitting all time low in the interbank market. Earlier in October, the nation’s

currency met severe head winds with some pressure coming from importers; downstream oil companies

as well as speculators. It breached its trading band of N150 (+/-3 percent), sparking rumors of possible

devaluation. In its twice weekly auction, the CBN offered about $5.6billion and sold $5.7 against the

$8billion demanded during the period, resulting in unmet demand on several occasions. To ease the

pressure, the CBN tightened the currency market by transferring transactions such as dividend remit-

tances, proceeds of investments and capital as well as sale of international air tickets to the interbank

market. To trim down speculations, the CBN reduced the Net Open Position Limit from 5 to 1 percent

(later reversed to 3 percent) and shifted its trading range from N145-N155 to N150-N160. To that

effect, the premium between the official and interbank rate narrowed to 1.8 percent as at end Decem-

ber 2011, compared to 3.2 percent in September. In the months ahead, the naira is projected to firm up

in the short to medium term due to higher crude oil price in the international market and reduced

demand from importers of refined petroleum products.

Source: Central Bank of Nigeria


CAPITAL MARKET

The capital market wrapped

up the fourth quarter roughly

where it began, unable to find

any momentum despite rela-

tive improvement in market

transactions. It was a dull end

to the year as the All-Share

Index (ASI) and market capi-

talization finished flattish at

20,730.63 and N6.53trillion,

respectively, from 20,373.00

and N6.49trillion in the pre-

ceding quarter. After some

solid gains in October, the

market succumbed to exces-

sive selling pressures in No-

vember as investors unwind

their positions to meet their

cash need during the festive

period. There was a general feeling of caution as investors were content to just ‘sit and wait’. The

market drew breath as the shares of three of rescued banks were delisted from the daily official list of

the NSE in October as a result of ongoing mergers, reorganization and restructuring in the banking

industry. On the positive side, the NSE listed the first Exchange Traded Fund (ETF) in the Nigerian

capital market. Confidence was further boosted as a number of quoted companies such as Guinness

Nigeria; Nestle; and Okomu Oil paid impressive dividends of N10; N1.50 and N1.00, respectively.

Market fundamentals remained strong as the NSE admitted N8.01billion Dana Group bond; Delta

State Government N50billion bond and Niger State N9billion bond on its daily official list. In the

international capital market, Nigeria’s Eurobond yields continued to be positively impacted by re-

newed concern about Sovereign Debt in the Euro Zone.

Source: Nigerian Stock Exchange

Source: Nigerian Stock Exchange


OIL & GASCrude oil prices remained stubbornly firm in the fourth quarter 2011 despite weakening global

economic outlook. Oil prices gained about 7 percent during the period since dipping to $103 a

barrel in early October. It was an up and down year for oil prices, peaking near $114 a barrel in May

and tumbling 31 percent in October, back to where they were a year ago. Nigeria’s brand of crude

oil, bonny light, rebounded sharply by about $14, its second strongest quarterly performance in

2011. It traded within a band of $103-$117 per barrel. Industry analysts attribute the change in

direction to soaring demand heading into the winter season, ongoing supply disruptions in Syria and

Sudan, continued North Sea production problems and mounting concerns over the proposed EU

embargo on Iranian crude oil imports. In their November 29th 2011 meeting in Vienna, Austria, the

IEA, IEF and OPEC brainstormed to find a common ground on oil market drivers (fundamentals

or speculation) with a joint report expected to be available to Ministers ahead of their next meeting

in Kuwait in March 2012. Crude oil prices are projected to remain bullish in 2012, hovering around

$115 a barrel.

Source: OPEC, Bloomberg, Energy Information Administration

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