zeq 26.pmd - to zenith bank

EDITORIAL TEAM

MARCEL OKEKEEditor

EUNICE SAMPSONDeputy Editor

ELAINE DELANEYAssociate Editor

CHARLES UJOMUIBRAHIM ABUBAKAR

SUNDAY ENEBELI-UZORAnalysts

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 acknowledgment/commendation letters from our teemingreaders across the globe.

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

POLICYContained here is the conclusion of themonetary, credit, foreign trade and exchangepolicy guidelines for the fiscal years 2010/2011.

GOLBAL WATCHThis is an indepth analysis of developmentsin the global economy during first quarter2011 and their implications for commodityprices and economic growth prospect.

ISSUES (I)This piece examines the post electioneconomy in Nigeria and highlights the newopportunities it presents to take Nigeria tonew heights of development.

ISSUES (II)The series on quality and internal control inbanks highlights some of the criticalcorporate governance issues in someNigerian banks and the clog they pose tothe wheel of industry progress.

ISSUES (III)The Nigerian aviation industry is closelyexamined in this piece, with emphasis onchallenges, prospects and the issues thatmust be addressed if set goals are to beachieved.

FOREIGN INSIGHTSThis is a review of the global marketdynamics in first quarter 2011, impact onmarket performance and the factors andsentiments driving investment decisions.

DISCOURSEThis piece examines the Nigerian electricpower sector and posits options that areavailable to policy makers and otherstakeholders in efforts to achieve stablepower supply by 2015.

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

2 Zenith Economic Quarterly April 2011

The complementarity of politics and economics(or their mutual exclusivity) has for long been ahoney-pot for scholastic debates, research andstudies. While some scholars postulate and indeed propagate the ascendancy of politics, oth-ers insist on the superiority and independenceof economics. For Frank Chodorov, a formerdirector of Henry George School of Social Sci-ence, New York, in his book ‘The Rise and Fallof Society’: “The intrusion of politics into thefield of economics is simply an evidence ofhuman ignorance or arrogance, and is as fatu-ous as an attempt to control the rise and fall oftides.”

This early Nineteenth Century position ofChodorov is however hardly valid any more,for the reality of various societies, especially de-veloping countries, largely underpin the deter-minant role of politics. However, it has alsobecome almost incontrovertible that the stateof the economy has universally become the keyyardstick for assessing the success or failure ofthe politicians (those who play politics) in alljurisdictions. Therefore, the ability to script aneconomic roadmap and effectively implementsame—and through that advance the state ofwellbeing (real development) of the citizenryremains a ubiquitous challenge of the politi-cians.

In our lead article, ‘Nigeria’s Post-electionEconomy: Yet Another Chance for Develop-ment’, the author, using an in-depth analysisof the economic history of Nigeria, erects a de-velopment compass for the Government thatemerged from the April 2011general electionsin the country. To him, “those who ran the af-fairs of government during the oil boom ofthe 1970s in Nigeria were not the same peoplein charge of the Gulf War windfall of the 1990sand the oil market bull of the 2000s. A differentset of people is now in charge of the affairs ofgovernment in the midst of yet a running oilwealth.” He therefore challenges this “new setof people” to, even if for the very first time,utilize the enormous resources at their disposal

to drive real economic development for Nige-ria.

At the heart of this new development drivebeing clamoured for is the erection of thecountry’s infrastructure—the substructure ofmeaningful development every where. Andwithout doubt, for Nigeria, the most criticalamong all infrastructure categories is electricpower, given the country’s antecedents. Our ar-ticle, ‘Reliable Power Supply: Way Forward forNigeria (2011—2015)’ therefore delves into thepoor state of power supply in the country overthe years. Tracing the very tortuous roads thathad been taken in the efforts to improve powersupply in the country, the author ends on a noteof hope. His masterful analysis of the past andcurrent power sector reforms gives a clear basisfor his very informed recommendations. Forinstance, for him, in pursuit of the power sec-tor reform goals, Nigeria needs to strengtheninternational cooperation and exchange, espe-cially with respect to tapping into opportunitiesin the West African Power Pool.

Beyond all this, we also have a focus on theglobal economy during the first quarter of thisyear, with an analysis of the numerous disas-ters and turmoil in parts of the world. Theimpact of all these on commodity prices andimplications for economic growth prospects arealso surveyed in-depth. With this is also a re-view of the global market dynamics during thequarter as well as the factors and sentimentsdriving investment decisions.

Our other regular sections are not left out;in deed, they contain the usual highly informa-tive, enlightening and educative stuff that is ourtrademark.

Just read, and enrich yourself !

This earlyNineteenthCentury posi-tion ofChodorov ishowever hardlyvalid any more,for the reality ofvarious societ-ies, especiallydevelopingcountries,largely under-pin the determi-nant role ofpolitics.


We are pleased to note that thisedition is of world standard charac-terized by its intellectual richnessand focus on such burning issuesas fiscal governance, youth and de-mocracy and road infrastructure. Itsreport on Nigerian and globaleconomy is exemplary.

Kindly accept our profound ap-preciation for this wonderful andnoble initiative of yours in theworld of business and journalism.Thank you.Yours faithfully,Abiodun OlamosuDeputy Secretary GeneralAssociation of Senior Staff ofBanks, Insurance and FinancialInstitutions Lagos

I am directed to acknowledge withthanks and appreciation the receiptof your letter dated 4th March, 2011,forwarding the January, 2011 editionof your magazine, which focuseson fiscal governance and treatise onoptions for the transformation ofthe Nigerian road infrastructure aswell as the youth and democracy.

The Mission finds the publicationessential and useful reference ma-terial to our diplomatic assignmentfor Nigeria.

Please accept the assurances of HisExcellency’s highest consideration.Basher I. Ma’ajifor: AmbassadorEmbassy of the Federal Republicof Nigeria, Saudi Arabia

I am directed to acknowledge withthanks the receipt of your January,2011 edition of the Zenith Eco-nomic Quarterly (ZEQ) by the Vice-Chancellor of this University. It ishoped that the journal will as usualbe useful to both staff and studentsof this University for informationand research purposes.

Once again thank you for makingthe University of Uyo one of therecipients of this unique Journal ofyour establishment.Yours faithfully,Winifred I. Ekpo (Mrs.)for: Vice-ChancellorOffice of the Vice-ChancellorUniversity of Uyo, Nigeria

I wish to acknowledge with thanksthe receipt of the above mentionedpublication (January 2011) for use

of our Departmental Library.It is hoped that in the future you

would continue to send similarpublications as you promised toenrich our library.

Thank you for your good ges-tures.Yours faithfully,Dr. Bello Sabo,Head, Department of BusinessAdministrationAhmadu Bello University, Zaria

I am directed to acknowledge thereceipt of the January 2011 editionof the Zenith Economic Quarterly(ZEQ). The information containedin the journal about Nigeria and theglobal economy is quite useful andeducative, particularly in the areasof strategic planning and policy.

Please accept the warm regards ofthe Honourable Minister.O. K. Abegunde (Mrs.)for: Honourable MinisterFederal Ministry of Informationand CommunicationsOffice of the Permanent Secretary

I am directed to acknowledge thereceipt of your January, 2011 edi-tion of Zenith Economic Quarterlypublication with a focus on fiscalgovernance in Nigeria.

Going by the focus of the publi-cation, I have no doubt that it wouldbe a useful reference material to usas an organization especially at thisstage of our practical Democraticgovernance.

While we appreciate your kindgesture, please accept the assurancesof our highest esteem.Felix Dabofor: Director Finance and AdminFederal Capital Development Au-thority Abuja

I am directed to acknowledge withthanks the receipt of a copy of theJanuary, 2011, edition of the abovemagazine.

No doubt, the journal will behandy as a reference point, givingthat it contains critical informationon Nigeria and global economy forstrategic policy decisions.Best regards.A. N. MadubikeHead of Chanceryfor: Ag. High CommissionerHigh Commission of the FederalRepublic of Nigeria, Pretoria

I am directed to acknowledge re-ceipt with thanks, of the ZenithEconomic Quarterly, January, 2011Edition which you sent to us undercover of your letter dated March04, 2011 and to inform that theEmbassy has found the publicationto be highly informative and educa-tive as usual.M. Yusuffor: Charge D’ Affaires, a.i.Embassy of the Federal Republicof Nigeria, Brazil

Your letter dated 4th March, 2011refers. I am directed to acknowledgethe receipt of a complimentarycopy of the Zenith Economic Quar-terly Publication of January, 2011edition.

I must thank you for your ges-ture, even as we are studying thepublication for possible future con-tribution. We continue to commendyou for your consistency and stead-fastness in maintaining the qualityof the magazine.

Please accept my esteemed regardand best wishes.Mrs. Angela K. O. Obo, MCSRfor: Auditor-GeneralGovernment of Cross Rive State

I am directed to acknowledge withthanks the receipt of the abovenamed Magazine forwarded throughyour letter of 4th March, 2011. Asalways, the magazine is enrichingand informative.

Please accept, the assurances ofthe Charge d’ Affaires’ warmest re-gards.(M. S. Ogundero (Mrs.)for: Charge d’ Affaires a.i.Embassy of the Federal Republicof Nigeria, Hungary

April 2011 Zenith Economic Quarterly 5

Periscope

espite the build-up to the April 2011general elections in Nige-ria which was expected to pose some threat to the health ofthe economy, the first quarter recorded continuing good out-put performance (from 2010), modest rise in external reserves,improvement in stock market indicators and moderation ininflation rate. Also, crude oil prices remained high, generallystable naira exchange rate prevailed, while the various planksof reforms in key sectors of the economy continued. Specifi-cally, provisional data from the National Bureau of Statistics(NBS) show that output growth measured in real Gross Do-mestic Product (GDP) terms was projected to grow by 7.43per cent in the first quarter 2011, compared with the 7.36 percent recorded in the corresponding period in 2010. Signifi-cantly, this GDP growth trend is being sustained by the non-oilsector—with major contributions from services, wholesale andretail trade as well as agriculture. The trend is consistently abovethe 7.0 per cent target GDP growth rate of the Federal Gov-ernment for 2011.

The ding-dong affair between the Federal Legislature andthe Executive over the 2011 Appropriation Act continued allthrough the period under review. Thus, although the NationalAssembly passed the Bill and raised the size of the Budget toN4.92 Trillion from a level of N4.42 Trillion proposed, nego-tiations between the two arms of Government for an amend-ment of the Act continued far beyond the first quarter 2011.Similarly, maneuverings and longstanding debates on the Pe-

* By Marcel Okeke


PERISCOPE Economy:Output Growth Remains Resilient

troleum Industry Bill (PIB),the Sovereign Wealth Fund(SWF), Freedom of Infor-mation (FoI), National Mini-mum Wage and other piecesof legislation raged allthrough the quarter. Theview of the InternationalMonetary Fund (IMF)through its revised ArticleIV consultation with Nigeriaalso impacted the economyduring the review period.While the Bretton Woods in-stitution endorsed thecountry’s growth forecast atseven per cent, it observedthat Nigeria was yet to takeadvantage of the subsistinghigh oil prices to return tofiscal surplus and build itsexternal reserves. In deed,the IMF report highlightedNigeria’s fiscal regime asbeing ‘pro-cyclical’ and lack-ing the discipline to adhereto an oil price-based rule.The Fund also called for amore flexible exchange rateregime in Nigeria—that is,one that will give more roomfor market forces to deter-mine the exchange rates.Overall, the IMF said “eco-nomic outlook remains posi-tive and risks are generallybalanced” for Nigeria.

Apparently in line withthis projection, inflation ratemoderated within the 11 to12 per cent band during thefirst four months this year.From 11.80 per cent as atend-December 2010, it roseto 12.10 per cent in January2011; dropped to 11.10 inFebruary and rose somewhatsharply to 12.80 in March.It however declined to be-low December 2010-level,standing at 11.60 per cent inApril 2011, according to theNBS figures. These levels arehowever viewed as yet high,given the single digit inflationrate target of the monetaryauthorities. The subsisting

trend is attributable to pub-lic sector high spending, in-creases in wages during theperiod, liquidity injectioninto the economy due to theoperations of the AssetManagement Corporationof Nigeria (AMCON) andthe anticipated removalof subsidy on petroleumproducts in the near fu-ture.

All these, in turn, standas reasons for the contin-ued tight monetary policystance of the CentralBank of Nigeria. In deed,the Monetary PolicyCommittee (MPC) of theapex bank at its March22, 2011 meeting “ex-pressed serious concernover the heightened riskof inflation followingfrom the proposed highexpenditure outlay of theFederal Government ascontained in the 2011Appropriation Bill recentlypassed by the NationalAssembly, especially in thewake of rising globalfood and energy prices.”The MPC further notedthat “the current fiscalstance is inconsistent withthe objective of maintain-ing stability in exchangerates, prices and interestrates,” insisting that “un-less this fiscal stand is re-versed the economywould have to bear a highcost in terms of pressureon foreign reserves, highinterest rates and/or higherlevel of inflation.”

Following from this con-cern, the CBN raised itsMonetary Policy Rate(MPR), the benchmark in-terest rate by 100 basispoints, from 6.50 per centin January to 7.50 per centin March—retaining thesymmetric corridor of +/-200 basis points. The apex

bank retained the Cash Re-serve Ratio (CRR) of 2.0per cent and liquidity ratioof 30.0 per cent. It also ex-tended its guarantee on in-terbank transactions andguarantee of foreign creditlines by three months from

June 30, 2011 to September30, 2011.

Also, in line with the fearsof the apex bank, the Nairaexchange rate recorded aconsistent but gradual de-cline all through the firstquarter. This trend was ac-centuated by the supply sideof money supply due to im-port bill pressure. As a re-sult of all these, the monthly

average exchange rate whichstood at N148.57/US$1 inDecember, 2010, droppedto N149.52/US$1 in Janu-ary, 2011. It declined toN149.92/US$1 in February2011 and depreciated fur-ther to N150.49/US$1 in

March 2011. On the otherhand however, the externalreserves recorded marginalaccretion during the quarterunder review: from US$32.4billion as at end-December2010, the reserves shot upto US$33.9 billion in Janu-ary 2011; came to US$33.3billion in February anddropped slightly further toclose the first quarter 2011

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at US$33.2 billion. Ironically,this trend in reserves is inspite of consistently high oilprices and improved crudeoil production during theperiod. Thus, the almoststatic level of the stock ofexternal reserves can be at-

tributable to the foreign ex-change management policyof the CBN, which tends todefend the value of theNaira. This policy stance isreflected in the increasedsupply/sale of forex at theWholesale Dutch Auctions

(WDAS) all through theperiod as the apex bankmade efforts to meetforex demand.

While the nation’sstock of external reserveswas depleting, the quan-tum of its domestic andexternal debt was ironicallyincreasing. Thus, duringthe first quarter 2011,Nigeria’s external debt rosefrom US$4.58 billion as atend-December 2010 toUS$5.23 billion in March,according to the DebtManagement Office(DMO) figures. In thesame vein, total domesticdebt increased, by about8.30 per cent, from its po-sition of N4.55 trillion asat year-end 2010 toN4.86 trillion at the endof March 2011. Accord-ing to the DMO, the jumpin domestic debt was as aresult of some increase inthe issuance of publicdebt instruments, includ-ing domestic bonds, trea-sury bills and treasury

bonds—with maturity datesranging from three to 20years. The DMO figuresshow that the FGN bondsaccounted for N3.06 trillionor 62.78 per cent of the to-tal domestic debt stock; Ni-gerian Treasury Bills ac-counted for N1.44 trillion or29.57 per cent, while Trea-sury Bonds made up the re-maining N372.90 billion or7.7 per cent.

On the other hand, theDMO attributed the increasein external debt within thefirst quarter 2011 mostly toactivities surrounding thecountry’s issuance of theUS$500 million Eurobond inthe first month of the year.A breakdown of the total ex-ternal debt of US$4.58 bil-lion as at year-end 2010shows that the 36 states andAbuja (FCT) owed US$2.0billion while the balance ofUS$2.5 billion was owed bythe Federal Government—mostly to multilateral credi-tors. The DMO records alsoshow that Lagos State withan external debt of aboutUS$400 million; Kadunawith a debt of US$157 mil-lion and Cross River withUS$111 million top the listof the indebted states inNigeria as at December 31,2010.

THE CAPITALMARKETDuring the first quarter2011, share prices and mar-ket capitalization recordedsignificant decline due toboth domestic and interna-tional developments. Al-though the quarter startedwith an impressive outlookin January which was char-acterized by positive volumeturnover and record newhighs by most blue-chipstocks, virtually all the indi-ces cascaded in the rest of

In deed, the IMF report highlighted

Nigeria’s fiscal regime as being ‘pro-

cyclical’ and lacking the discipline to

adhere to an oil price-based rule. The

Fund also called for a more flexible ex-

change rate regime in Nigeria—that is,

one that will give more room for market

forces to determine the exchange rates.



the period. Specifically,profit-taking, growing activ-ity towards treasury bills andbonds and attractive interestrate in the money marketfollowing the tight monetarymeasures by the CBN en-couraged continued sell-offin the market. The recapi-talization of market opera-tors as ordered by the Secu-rities and Exchange Com-mission (SEC) also partlysustained the bearish trendin the market. Many bro-kers/operators sold off toraise capital for their N70million minimum share capi-tal, which led to the suspen-sion of about 58 stockbroking companies by theregulator.

The speculative andbearish sentiment that pre-vailed in most of the quar-ter was also attributable tothe delay in bank earningsreport and the subsistingmonetary policy regime. Thebanking sector had been ex-pected to start year-2010reporting season early inMarch 2011—but this didnot happen. Concerns overthe impact of a one per centNigerian Accounting Stan-dards Board (NASB)-or-dered general provision onbanks’ risk assets and itslikely effect on net earningscaused the delay (in part) andgenerated some debate as to

the applicability of the ruleon 2010 financials. It took alot of time for the issue tobe resolved.

Flight-to-safety senti-ment by foreign investorsduring the period due topolitical uncertainties in thebuild-up to the general elec-tions in the country as wellas seemingly unsettled eco-nomic atmosphere also sus-tained sell activities in themarket. The upshot of allthese was that the marketcapitalization of the Nige-rian Stock Exchange (NSE)which rose from N7.91 tril-lion at year-end 2010 toN8.58 trillion at end-January2011, dropped to N8.32 tril-lion at end-February andended the quarter at yet alower level of N7.87 trillion.Thus, from its level above26,000 points in January, theAll-share Index (ASI) re-corded a loss of about 2.65per cent to stand at25,871.22 points at the closeof February; it furtherdipped by about 4.84 percent to close the first quar-ter at 24,752.21 points. Overall, the market this first quar-ter recorded a total volumeof 26.03 billion units valuedat N214.36 billion ex-changed in 399,753 dealscompared with 26.95billionunits valued atN191.82billion exchanged in

599,411 deals in quarter onein 2010.

Other features of thecapital market during thefirst quarter 2011 include thedelisting of about 12 com-panies due to non-compli-ance with regulatory require-ments; absence of new pub-lic issues or notable privateplacement; build-up to theassumption of office by thenew chief executive officerof the NSE in early April.On its part, the SEC issueda new Code of CorporateGovernance, which becameeffective April 1, 2011; thenew code is prepared tomake Nigerian companiesoperate in line with globalbest practices and standards.

BANKING ANDFINANCEMany policy initiatives in thebanking and finance sectorcame into effect during thefirst quarter 2011, includingtwo-times upward review of

the Monetary Policy Rate(MPR) by the CBN: first,from 6.25 per cent to 6.50per cent in January and fur-ther to 7.50 per cent inMarch. It also altered othermonetary policy indices suchas the Cash Reserve Ratio(CRR) and Liquidity Ratio.The apex bank in its driveto check speculative demand(for forex) and keep thenation’s currency stable alsoapproved four foreign ex-change instruments for fu-tures trading. These includeFX Options, Forwards (Out-right and Non-Deliverable),FX Swaps and Cross-Cur-rency Interest Rate Swaps. Inits guidelines for the ‘for-wards transactions’ with au-thorized dealers, the CBNprovided for twice auctionsa week, with tenors of one,two and three months. Theminimum allowable bid byauthorized dealers for eachtenor stands at US$500,000only while a maximumspread of 50 kobo is al-

THE NSE TRADED VOLUME: Q1, 2010/Q1, 2011

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lowed on the sale of ‘for-wards’ with less than threemonths’ tenor and 75 kobofor tenors above threemonths. The apex bank how-ever insists that forex pur-chased from its regularWholesale Dutch Auctions(WDAS) cannot be sold ‘for-wards’ to customers, as itmust be utilized within fivedays after settlement in linewith the WDAS rules.

For direct intervention ineconomic development dur-ing the first quarter, theCBN in concert with theBankers’ Committee pur-sued with vigour, fresh ini-tiatives with foci on agricul-tural and infrastructural de-velopment. Specifically, inaddition to the existing Agri-cultural Credit GuaranteeScheme (ACGS), the apexbank introduced the Nige-rian Incentive-based RiskSharing System for Agricul-tural Lending (NIRSAL).This innovative financingmechanism is intended to

ease access to bank financ-ing for agriculture, especiallythrough the adoption ofrisk-sharing approaches inagric business. Under thisarrangement, eight prioritycommodities have beenidentified with their financialvalue chain analysis con-cluded. The apex bank hasalso secured the collabora-tion of such internationalagencies as the United Na-tions Industrial Develop-ment Organization(UNIDO), the Alliance forGreen Revolution in Africa(AGRA), among others.

Under the other plank ofthe initiative, namely thePower and Transport infra-structure development, theCBN and the banks havecommenced capacity build-ing efforts to effectivelydrive the Public-PrivatePartnership in this regard.The Euromoney has alreadybeen contracted and com-menced training for about250 Nigerian bankers to be-

come more knowledgeablein funding structures,sources of funds, risks andcritical concerns in projectfinancing. They are also tolearn how credit crisis hasimpacted on sources of fi-nance and what alternativesources of funding are avail-able; and gain better under-standing of the core provi-sions in the commercial andfinancial contract frameworkto support successful financ-ing for power and transportinfrastructure.

Furthermore, legislativeinitiatives are also beingtaken. In deed, a Bill hasbeen forwarded to the Na-tional Assembly to constitutea ‘Grievances ArbitrationCommittee’ that will handlegrievances on issues creatingbottlenecks in infrastructuredevelopment. Also beingconsidered is the establish-ment of a Transport Infra-structure Fund with requisiteguarantees from both theFederal Government and

the CBN, among others.The CBN also continued

with its effort at enthroningmobile banking in the coun-try; it extended the pilotphase of the roll-out ofmobile money services bytwo months—after the ex-piration of its earlier dead-line on March 31, 2011. The16 entities to whom it hadissued temporary licenses (orApproval-in-Principle) weregiven up to end-March todemonstrate theircompetences, and be givenfull licenses. The temporarylicensees or consortiums arein two categories: bank-ledand non-bank firms. Thefollowing companies makeup the two groups: UBA/Afripay, First Bank of Ni-geria, GTBank,MobileMoney, StanbicIBTC and Ecobank. Othersare FFortis MFB, Pagatech,Paycom, Chams, E-Tranzact, Funds ElectronicTransfer (FET), Monitiz,Parkway, Corporeti Services,Eartholeum, and M-Kudi.The CBN had earlier issuedthe regulatory frameworkand guidelines for mobilebanking in Nigeria that willconform to internationalbest practices and standards.

A number of DepositMoney Banks (DMBs) dur-ing the quarter under reviewcontinued their recapitaliza-tion drive; many signedMoUs to go into some formof business combinations(mainly mergers and acqui-sitions). Afribank Plc andVine Capital Limited signeda Memorandum of Under-standing (MoU). Others thatalso signed include UnionBank Plc and African Capi-tal Alliance, IntercontinentalBank Plc and Access BankPlc, Bank PHB and HabibBank Pakistan, among oth-ers. However, almost all the

...the CBN inconcert with the

Bankers’ Commit-tee pursued with

vigour, freshinitiatives with focion agricultural and

infrastructuraldevelopment.



MoUs are affected by some litigationor the other, either by shareholder as-sociations, legacy managers or otherinterested parties. Even the plannedmerger between First Bank of NigeriaPlc and Oceanic Bank Plc had beenstalled as a result of the inability ofthe two banks to reach favourableagreements so far.

The common year-end policy forthe DMBs gained momentum duringthe quarter, with all the banks tidyingtheir 2010 accounts and annual reportsfor scrutiny and approval by the regu-latory authorities. Almost all the banksalso commenced the introduction ofthe International Financial ReportingStandard (IFRS) into their reportingframeworks. Also in line with the newlyintroduced banking model, most banksduring the period under review beganthe process of transforming into aholding company and/or liquidatingtheir investments in non-core bankingsubsidiaries.

OIL, GAS & POWERAs the turmoil in some of the MiddleEast and North African (MENA) states(especially Libya) lingers, oil prices con-tinue to hang comfortably above theUS$100 per barrel mark. In its March2011 Monthly Oil Market Report(MOMR), the Organization of Petro-leum Exporting Countries (OPEC)noted that events in the MENA re-gion and the associated risk premiumhave pushed oil prices to their highestlevel since September 2008. Specifi-cally, OPEC basket averaged close toUS$110 per barrel in March, upUS$9.55 per barrel from the previousmonth. The OPEC Reference Basket,moved above US$100 per barrel on21 February and continued its upwardtrend in March to average US$109.84per barrel, the highest monthly levelsince the US$112.41 per barrel at theonset of the financial crisis in 2008.

The increase of US$9.55 in Marchwas the sixth in a row and the largestsince the US$11.38 of June 2009. Withthis increase, the OPEC ReferenceBasket averaged US$101.27 per bar-rel in the first quarter, 2011—upUS$17.39 from the last quarter in 2010and US$25.78 from a year earlier. The

strong increase in the OPEC Refer-ence Basket over the previous threemonths, particularly in March, was at-tributed to the bullish sentiment in thefutures market as prices jumped amidworries about supply shortages follow-ing the persisting crisis in Libya andunrest in some countries in the MiddleEast and North Africa (MENA) re-gion.

This turn of events, for Nigeria,has implied improved foreign exchangeinflow; increased demand for the Ni-gerian crude and rise in production andexport volume. Oil prices have com-fortably remained above the 2011 Fed-eral Government benchmark ofUS$65 per barrel while production hasbeen consistently above two millionbarrels per day. These translate intosubstantial inflow into the Excess Crude

Account (or now approved SovereignWealth Fund, SWF). OPEC in itsMarch Monthly Oil Market Report,estimated Nigeria’s crude oil output at2.089 million barrels per day in Febru-ary, a slight drop from the 2.181 mil-lion barrels per day in January, and2.192 million barrels per day in De-cember 2010. However, this did nottranslate into abundance of petroleumproducts; in fact, prices of productslike diesel, kerosene and petrol (tosome extent) have been on the in-crease.

Fuel importation subsists while thelocal refineries have continued to op-erate far below capacity, and remainlargely in a state of disrepair. Yet, theestimated daily demand for petroleumproducts in Nigeria today is 30 millionlitres of petrol (PMS), 10 million litres

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of kerosene (DPK), 18 million litresof diesel (AGO), and 780 metric tons(1.4 million litres) of cooking gas(LPG), and the estimated amount ofcrude oil required daily for domesticrefining, that would satisfy the demandfor petroleum products in Nigeria ad-equately, should be about 530,000 bar-rels per day (bbl/d). This is some85,000 bbl/d more than the combinedrefining capacities of all the state-owned refineries located in Warri, PortHarcourt, and Kaduna. The four re-fineries have combined installed capac-ity of 445,000 barrels per day, but havenever reached full production at anypoint in time. Nigeria spent aboutN1.15 trillion to import an estimated8.1 million metric tons (MT) of petro-leum products in 2010 alone and hasspent about N388.11billion to import

country as the undisputed regional hubfor gas-based industries.” This plan, ac-cording to the President would also leadto the building of a world-scale petro-chemical plant, two fertilizer plants, fivefertilizer blending plants, a methanolplant and a liquefied petroleum gas(LPG) distribution plant. In fact, un-der the plan, Nigeria Agip Oil Com-pany (NAOC) and Oando Nigeria Plcare to jointly build a US$3 billion Cen-tral Gas Processing Facility (CPF) inObiaruku, Delta State, and billed forcompletion in 2012.

In the power sector, the sale of thesuccessor-companies created out ofthe unbundling of the Power HoldingCompany of Nigeria (PHCN) domi-nated the sector during the period un-der review. The Bureau of Public En-terprises (BPE) which continued theconduct of its bidding process for thesale of eighteen power firms, receivedan overwhelming expression of inter-est in the scheme. About 332 entitiesshowed interest by the close of the ex-tended deadline on March 4, 2011. Thecore-investor sales will cover the elevenelectricity distribution companies aswell as the privatization of four ther-mal and two hydro power stations.According the BPE, 157 applicationswere received from prospective inves-tors interested in acquiring the distri-bution companies, while 174 applica-tions came from those interested inacquiring the power stations.

The Nigerian Electricity RegulatoryCommission (NERC) on its part wasengrossed with the development of anew electricity tariff structure thatwould be good incentive to attract andretain investors in the sector as well asmake for affordability for consumers.In this regard, NERC has been con-sulting with relevant government agen-cies –the BPE, PHCN, Ministry ofPower as well as other stakeholders todetermine the level of tariffs thatwould attract the desired investmentsinto the sector. Meanwhile, most ofthe entities granted licenses as Inde-pendent Power Producers (IPPs) areyet to commence serious work, sev-eral years after getting the licenses. Infact, while many are yet to secure sitesfor the power projects, a few others

petrol in the first quarter of this year.However, information from the

Nigerian National Petroleum Corpo-ration (NNPC) shows that plans areunderway for an additional 750,000bpd to be added to the existing refin-ing capacity of 445,000 bpd. In fact,China State Construction EngineeringCorporation Ltd intends to build threenew refineries in Kogi, Bayelsa, andLagos states. Already, the Memoran-dum of Understanding, MoU, has beensigned and the Chinese have inspectedthe proposed sites, as a sign of theircommitment to the project. The dealis said to be worth $23 billion. Alsowhile unveiling his ‘gas revolutionagenda’ in March, President GoodluckJonathan announced plan to “ensuregreater availability of gas for powergeneration and also reposition the



have only been able to carry out Envi-ronmental Impact Assessment (EIA)on the sites.

TELECOMMUNICATIONA key development within the telecomssector within the period under reviewwas the commencement of SIM cardregistration by the Nigerian Commu-nications Commission (NCC). In thisregard the telecoms regulatory agencysigned a contract agreement with sevenICT firms to drive the registration pro-cess in different parts of the country.These partnering firms whose activi-ties will be coordinated by KPMG, aninternational professional services com-pany, are: SW Global, Private NetworksNigeria (PNN), Chams, JointKomputer Kompany (JKK),DataGroupit, EAGLE/CBC and E-

Kenneth/SageMetrics. On its part, theNCC will be responsible for gatheringand validating the subscriber informa-tion while the National Identity Man-agement Commission (NIMC) will bethe repository of Nigeria’s mobilephone subscriber database.

In a related development, the NCChas also commenced the selection ofa mobile number portability (MNP)operator in the country. This is to en-able mobile phone users retain theirunique numbers when changing fromone mobile network operator to an-other. This initiative is expected toserve as one of the mechanisms todrive competition and stimulate im-provement in quality of service andexpand coverage in the Nigeriantelecoms market.

Meanwhile the total number of

active subscribers in Nigeria’s telecomsmarket has passed the 90 million mark,according to statistics from the NCC.As at end-February 2011, total num-ber of active lines was 90,583,306 linesout of the 122,589,647 connected linesin the country. Market segmentationof the active lines showed that theGlobal System for Mobile Communi-cations (GSM) still dominates the mar-ket with 83,453,999 lines, accountingfor 92 per cent. Code Division Mul-tiple Access (CDMA) has 6,111,669active lines representing seven per cent;while the fixed wireless lines stood at1,014,691, accounting for only one percent of the market share.(* Marcel Okeke is the Editor, Ze-nith Economic Quarterly)

In a related develop-ment, the NCC has

also commenced theselection of a mobile

number portability(MNP) operator in the

country. This is toenable mobile phone

users retain theirunique numbers when

changing from onemobile network

operator to another.


Polic

y

c. Microfinance Banks (MFBs)In a bid to ensure that the nascent microfinance banksachieve the policy objectives for which they were estab-lished and avoid the pitfalls which characterized the com-munity banking era, the CBN will intensify its surveillanceon the banks. The Bank shall also ensure the full imple-mentation of a Microfinance Certification Programme inNigeria with the objective of enhancing knowledge, im-pacting microfinance skills/competencies and methodol-ogy for service delivery among operators in the sub-sectoron a sustainable basis. In the 2010/2011 period, the Bankshall continue to license new microfinance banks and thecapital requirements of N20million and N1 billion for unitand state microfinance banks shall be maintained.

d. Development Finance Institutions (DFIs)The CBN shall in 2010 and 2011 continue to monitor theoperations of DFIs and intensify efforts aimed at re-capi-talizing the institutions, institutionalizing strong corporate

governance and a risk management system to enable theinstitutions effectively deliver on their core mandates. TheUniform Prudential and Assessment Standards prescribedfor DFIs in Africa, under the aegis of the Association ofAfrican Development Finance Institutions (AADFI) forbenchmarking the DFIs will continue.

e. Bureaux De Change (BDCs)The two categories of BDCs (A and B) currently existingwill remain until further notice. They will continue to ren-der monthly returns on their Assets and Liabilities, as wellas daily returns on utilization of foreign exchange to theCBN through the e-FASS.

Continued from last Edition


POLICY | MONETARY, CREDIT, FOREIGNTRADE & EXCHANGE POLICY GUIDELINES FOR FISCAL YEARS 2010/2011

xiv. Compliance with Statutory Regulations/Rendition of ReturnsAll OFIs are required to strictly comply with the pruden-tial requirements (Appendix I) specified in the existing guide-lines/circulars, directives and provisions of BOFIA 2004while appropriate sanctions shall be imposed on any erringOFI.

xv. Penalties for DefaultThe CBN shall in 2010/2011 continue to enforce all thestipulated penalties for non-compliance with regulatoryguidelines as well as the provisions of the CBN Act, 2007and Banks and Other Financial Institutions Act, 2004 asamended. Any financial institution which fails to complywith the existing and revised guidelines as well as otherdirectives that may be issued by the CBN shall be sanc-tioned accordingly.

xvi. Policy on Transparency in FinancialTransactionsIn line with the recommendations of the Basle Committeeon Banking Regulations and Supervisory Practices, all fi-nancial institutions are required to continue to observe thefollowing standards to promote transparency in financialtransactions:

a) Customer IdentificationBanks and other financial institutions are enjoined to in-tensify efforts to determine the true identities of all cus-tomers requiring their services. In particular, financial in-stitutions should not, as a matter of policy, conduct busi-ness transactions with customers who fail to provide evi-dence of their identity. The principle of “Know Your Cus-tomer (KYC)” as specified in the CBN AML/CFT Manual,2009 should be strictly adhered to.

b) Compliance with the LawBanks and other financial institutions shall observe highethical standards as well as comply with the laws and regu-lations governing their operations. In particular, banks shallensure full compliance with the Guidance Note, AML/CFT Manual 2009 and other relevant circulars on moneylaundering surveillance, issued by the Bank, in order toensure the enforcement of the provisions of the MoneyLaundering Act, Cap M18, laws of the Federation of Ni-geria, 2004.

c) Co-operation with Law Enforcement AuthoritiesBanks and other financial institutions are required to co-operate fully with the law enforcement authorities withinthe limits of the rules governing confidentiality. In particu-lar, where financial institutions are aware of facts whichlead to a reasonable presumption that the funds lodged inan account or transactions being entered into, derive fromcriminal activity or intention, they should observe the stipu-lated procedures for disclosure of the suspicious transac-tions in reporting to the law enforcement authorities. Any

contravention of the above-stated guidelines by any finan-cial institution shall attract penalties as stipulated in theBanks and Other Financial Institutions Act, 2004, or theMoney Laundering Act, 2004 as appropriate.

xvii. Risk-Based SupervisionThe Bank recently migrated from the compliance basedsupervisory approach to risk-based supervision (RBS) ap-proach in the supervision of institutions under its purview.The approach is designed to enable supervisors to focusattention on the risks that threaten the achievement ofsupervisory objectives and accordingly devise appropriaterisk mitigation programs. In addition to addressing emerg-ing challenges facing our banks, RBS would assist inNigeria’s drive to fully comply with the Basel Core Prin-ciples on Supervision and also prepare an enabling envi-ronment for the eventual implementation of the Basel IICapital Accord. In the 2010/2011 period the Bank shallcontinue with Risk based supervision.

xviii. Consolidated/ Cross Border SupervisionIn recent years Nigerian banks have established off shorebranches and subsidiaries, in an attempt to increaseshareholder’s wealth. This has exposed them substantiallyto cross border risks. Furthermore, the expansion of Ni-gerian banks into different sectors coupled with the recentturmoil in the world financial system has necessitated con-solidated supervision of banks. In a nutshell, consolidatedsupervision is a comprehensive approach to banking su-pervision which seeks to evaluate the strength of an entiregroup, taking into account all the risks which may affect abank, regardless of whether these risks are carried in thebooks of the bank or related entities. In view of the above,the Bank shall continue with consolidated, cross-bordersupervision in 2010/2011.

xix. Macro-prudential Regulation and StressTestingThe current global banking crisis has underscored the im-portance of complementing the current micro-prudentialapproach to regulation and supervision with the macro-prudential perspective. The latter, which assesses thestrength and weaknesses of the financial system in termsof its overall soundness, will help regulators have a holisticview of the banking system. A key component of themacro-prudential analysis is stress testing which gauges thepotential impact of adverse shocks on banks if macroconditions are weak. As an important risk managementtool, stress testing helps to identify adverse unexpectedoutcomes related to a variety of risks and provides anindication of how such risks might be handled by facilitat-ing the development of risk mitigating or contingency plansacross a range of stress conditions. Accordingly, the Bankshall ensure the use of macro-prudential regulation andstress testing in assessing the health of banks in 2010/2011.



xx. Strengthening Risk Management and CorporateGovernance in Nigerian BanksEffective risk management and corporate governance playa key role in the maintenance of strong financial institu-tions and by extension sound financial systems. Against thisbackground, the CBN issued guidelines for the develop-ment of risk management framework for individual banksin July 2007. Having regard to the dynamic nature of risks,the guidelines shall be constantly reviewed and updated inline with global best practice and the recommendation ofthe Basel II Capital Accord. The Guidelines were designedto enable banks develop their respective strategy for man-aging each risk element as part of the overall strategy forevolving efficient risk management systems. Likewise, theCBN issued a new Code of Corporate Governance in April2006 to assist banks in installing corporate governance struc-tures that meet international best practices. The guidelineson risk management and code of corporate governanceshall remain in force in 2010/2011.

xxi. Additional Disclosures by BanksBanks are required to publish disclosure statements so asto strengthen the incentives for banks to maintain soundbanking practices and assist depositors and other investorsto make well informed decisions on where to invest theirmoney. The current disclosures are inadequate to addressthe contemporary challenges of a complex and dynamicbanking industry. Thus, in order to enhance transparencyin the Nigerian banking system and in light of contempo-rary experiences in the global and Nigerian financial sys-tems, the following additional disclosures shall form partof banks’ regulatory and financial reporting:• Risk Management• Capital Structure/Adequacy• Executive Compensation• Regulatory Sanctions and Penalties• Disclosure of related companies/persons engaged as ser-vice providers/suppliers to a bank• Disclosure on Insider Related Credits• Disclosure on Board of Directors’ Performance• Disclosure on concentration of assets, liabilities and off-balance sheet engagements by sector, geography, and prod-uct• Disclosure on Loan Quality• Disclosure on lending/borrowing to/from subsidiariesand associates• Disclosure on credit collaterals• Disclosure on Fraud and Forgeries• Disclosure on Banks’ Contingency Planning Framework• Disclosure on Loans and Advances/funding or creditlines from institutions outside Nigeria• Balance Sheet and Profit and Loss Account of Banks’Subsidiaries/Affiliates.

A circular detailing the content of each heading and thefrequency of publication/disclosure will be issued soon.

xxii Contingency Planning Framework for BankingSystemic Distress and CrisesIn order to ensure public confidence in the banking sys-tem, the Bank shall develop a set of policies, actions andprocesses necessary for the prevention, management andcontainment of banking systemic distress and crises. Aguideline to aid banks in developing their contingency plans,establish thresholds for supervisory intervention incorpo-rating appropriate action plans and defines the composi-tions and functions of a crisis management unit would beissued soon.

SECTION FOUR

4.0 FOREIGN TRADE & EXCHANGE POLICYMEASURES4.1 New Policy Measures for 2010/20114.1.1 Foreign Exchange Market(i) Retirement benefits of foreign nationals who contrib-uted to the pension scheme are eligible for remittance sub-ject to the following documentation requirements: - Dulycompleted Form ‘A’ - Resident Permit and/or expatriatequota - Retirement Savings Account statement - NationalPension Commission’s (Pencom) approval

(ii) Premium remittances on oil and gas and special riskswhich are handled by foreign broker/insurer can now beundertaken in the foreign exchange market. The documen-tation requirements are: - Duly completed Form ‘A’ - De-mand Note/Debit Note from foreign broker/insurer -Letter of attestation from the National Insurance Com-mission (NAICOM)

(iii) Authorised Dealers are allowed to sell autonomous fundsto Bureaux de Change operators subject to compliancewith the Anti-Money Laundering Act 2004 and disclosureof the sources of such funds to the CBN. In addition,daily returns shall be rendered to the CBN by both theAuthorised Dealers and the BDC.

(iv) Authorised Dealers that engage in importation of for-eign exchange (cash) will henceforth render monthly re-turns of such transactions to the CBN.

(v) For disposal of export proceeds, the instruction of theaccount holder shall be sufficient for own use of the funds.However, where the fund is to be transferred to third par-ties, the purpose for transfer should be provided by theaccount holder.

(vi) Travelers entering and/or leaving Nigeria are requiredto declare any amount above N20,000.00 (twenty thou-sand naira only) in their possession at the time of arrivalor departure from the country.


(vii) In accordance with the provisions of Public Procure-ment Act 2007 and subject to the provision of a perfor-mance bond and or bank guarantee by the suppliers’ bankoverseas, down payments in respect of imports into Nige-ria shall not exceed 15 per cent of the free on board (fob)value of the transaction.

4.1.2 Form ‘M’ Procedure(ix) Shipping documents predating Form ‘M’ and Letterof Credit (LC) approval date is liable to sanction in linewith the provisions of BOFIA, as well as other appropri-ate sanctions by the CBN.

4.2 Existing Policy Measures Amended/Retained in2010/20114.2.1 Foreign Exchange Market(i) In order to ensure stability of the exchange rate andconfidence in the market, the Foreign Exchange Market(FEM) shall operate freely, subject to the provisions ofrelevant laws and guidelines.

(ii) Authorised Dealers shall continue to deal freely in au-tonomous funds in their own right subject to compliancewith advised Net Open Position (NOP) limits. Banks are,however, not allowed to purchase funds, including inter-bank, on behalf of a customer without a valid underlyingtransaction and supporting documentation.

(iii) The direct foreign exchange cash sales by BDCs shallcontinue with the maximum limit of US$5000.00 per ap-proved transaction.

(iv) Holders of all categories of domiciliary accounts shallcontinue to have unfettered access to their funds.

(v) To ensure transparency and accountability in foreignexchange dealings, pooling of funds purchased from CBNwith those acquired from other sources is allowed pro-vided their sources are duly segregated and reported. Con-sequently, banks shall continue to render appropriate re-turns on sources of funds and utilization to the CBN.

(vi) Payment in foreign exchange for products and ser-vices provided in Nigeria by Nigerians either as an indi-vidual or a company shall not be allowed in the foreignexchange market. However, where the payer accepts topay in foreign exchange, the funds shall be from his ordi-nary domiciliary account and/or offshore sources.

(vii) All oil and oil services companies shall continue to selltheir foreign exchange brought into the country to meettheir local expenses to any bank of their choice includingthe CBN. Monthly returns via e-FASS by both the oil com-panies and the banks on such sales and purchases shall berendered to the CBN, using the approved format.

(viii) All applications for foreign exchange (valid or not-

valid), shall continue to be approved by banks subject tostipulated documentation requirements before remittanceof funds.

(ix) Payment of interest in respect of bills for collectionshall continue to be on the tenor of the bill but not exceed-ing 180 days at a maximum of 1 per cent above the primelending rate prevailing in the country of the beneficiarybased on London Interbank Offered Rate (LIBOR).

(x) Transactions executed at private sector initiative shallcontinue to have no government guarantee or obligations.

(xi) Business Travel Allowance (BTA) and Personal TravelAllowance (PTA) shall be subject to the maximum ofUS$5,000.00 and US$4,000.00 per quarter respectively.

(xii) WDAS funds shall neither be tradable in the inter-bank foreign exchange market nor sold to BDCs.

(xiii) Only hotels registered as Authorised Buyers shall re-ceive from foreign visitors payment of hotel bills in for-eign currency. However, payment of such bills in foreigncurrency shall be optional and at the discretion of the for-eign visitor making the payment.

4.2.2 Form ‘M’ Procedure(i) Post-landing charges shall continue to be treated as anintegral part of the total cost of projects and that of theForm ‘M’. No direct or separate remittances on Form ‘A’in respect of such charges shall be allowed.

(ii) The initial validity period of an approved Form ‘M’ forgeneral merchandise shall be 180 days. The validity periodof the approved Form ‘M’ and the related Letter of Creditmay be extended for another 90 days by the AuthorizedDealer. For capital goods the initial validity of an approvedForm ‘M’ shall be 365 days and the validity of the formM and related Letter of Credit may be extended by an-other 180 days by the Authorised Dealer. However, anysubsequent request for revalidation of form ‘M’ shall beforwarded to the Director, Trade and Exchange Depart-ment, CBN for consideration.

4.2.3 Destination Inspection of Imports(i) All goods consigned for imports to Nigeria (except thoseexempted) shall be subject to Destination Inspection Scheme(DIS).

(ii) All imports to the country, whether or not exemptedfrom DIS shall require the completion of Form ‘M’.

4.2.4 Import Duty Payment Procedures(i) Import duty payable on items registered under Form‘M’ transactions, whether or not valid for foreign exchange,shall be calculated on the basis of CBN prevailing rate onthe day the Form ‘M’ was approved.



(ii) Payments of import duty and other charges shall bemade through the processing bank provided that it is adesignated bank. However, where the processing bank isnot a designated one, the duty should be paid in anotherdesignated bank of the importer’s choice and the process-ing bank advised accordingly.

4.2.5 Export and Trade Promotion(i) Repatriation of export proceeds (oil and non-oil) andother inflows shall be held in Domiciliary Accounts. Hold-ers of such domiciliary accounts shall continue to haveunfettered access to their funds subject to existing guide-lines.

(ii) Payments for exports from Nigeria shall continue to beby means of Letters of Credit or any other approved in-ternational mode of payment.

In addition, such exports shall be executed on free-on-board(fob) or cost and freight (c&f) basis, depending on thecontract between the Nigerian exporter and the overseasbuyer.

4.2.6 Invisible Trade Transactions(i) Remittances for licences (Trademarks, Patents, Know-how, etc.) or Other Industrial Property Rights shall rangebetween 0.5 to 5.0 per cent of net sales value or profitbefore tax where net sales is not available. Trademarks feeshall not be allowed in respect of any agreement where thetrademarks owner has over 75 per cent of the equity inthe local company. Companies with several product linesshould separate the net sales of each product line in theiraudited accounts so as to pay royalty for specific product(s)covered by the industrial property rights and not on theentire/total sales of the company.

(ii) Technical Services fees shall no longer be tied to netsales. Services such as training, installation and maintenance,etc., shall henceforth be settled on per diem rate or man-hour, man-day or man-month basis while fees for Research& Development and improvement shall attract up to 1 percent of net sales.

(iii) Management Services fees shall range from 2.0 to 5.0per cent of the company’s profit before tax. Managementfees in respect of products where no profit is anticipatedduring the early years shall range from 1 to 2.0 per cent ofnet sales during the first three to five years only.

(iv) Annual Technical Support (ATS) fees payable to In-formation Technology (IT) licensor shall be between 15.0per cent and 23.0 per cent of the license fee (the localcomponent of which must be paid in Naira) and shall notlast for more than 3 years. In addition, indigenous localvendors must be involved in all ATS for Software Agree-ments and the local vendors’ fee shall not be less than 40.0per cent of the ATS fees.

(v) In case of Hotel Services, a basic fee or lump sum notexceeding 3.0 per cent of the net sales plus incentive feesnot exceeding 8.0 per cent of Gross Operating Profit(GOP) shall be applicable. Other payments which are in-ternationally acceptable within the applicable hotel chainsmay be allowed.

(vi) Remittable consultancy fees shall be a maximum of5.0 per cent of project cost and limited to projects of veryhigh technology content for which indigenous expertise isnot available. Service Agreement for high technology jointventures shall continue to include a schedule for trainingof Nigerian personnel for eventual take-over. In addition,Nigerian professionals shall be involved in the project imple-mentation from inception.

4.2.7 Miscellaneous Policy Measures(i) The declaration on Forms TM & TE of foreign cur-rency imports and exports, respectively, of US$5,000.00(five thousand US dollars) and above or its equivalent isrequired for statistical purpose only.

(ii) Appropriate sanctions shall continue to be imposed onAuthorised Dealers who remit funds on the basis of forgeddocuments, engage in fraudulent transactions, fail to trans-fer customs revenue to the CBN in accordance with thelaid down procedures, etc. The banks should, therefore,exhibit professionalism and transparency in handling trans-actions.

(iii) Appropriate sanctions shall also be imposed on bankcustomers who breach any of the foreign exchange opera-tional guidelines.

(iv) All Authorised Dealers are required to refer issues inrespect of the policy which they are in doubt, to the Direc-tor, Trade & Exchange Department of the Central Bankof Nigeria for clarification.



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irst quarter 2011 has come and gone, leav-ing indelible marks on the sand of global his-tory. The natural disasters in Japan andunrests in North Africa and Middle East aretwo developments within the quarter that theworld will not forget in a hurry. For nationaleconomies and other stakeholders in the glo-bal crude oil market, these events becomeeven more unforgettable as they have influ-enced crude oil price movements more thanany other development since the recent re-cession. Little would the world have imag-ined that the act of a simple vegetable sellerin a small Tunisian town would not only sethim but the entire Arab region ablaze. But itdid, and the global economy is now grapplingfor a way out.

The quarter saw nature wreaking colos-sal havoc on human lives and infrastructure.In the first week of January, almost 100 per-sons were declared dead or missing follow-ing a devastating flood in Queensland, Aus-tralia, a development that cost the economyan estimated A$30 billion reduction in GDP.Then the Christchurch earthquake measur-ing 6.3 magnitude that struck in New Zealandon February 21 killing nearly 200 persons.January 11 and 12 saw heavy floods and

mudslides near Rio de Janeiro in Brazil kill-ing over 600 persons and washing awayhomes, businesses and public infrastructureworth billions of dollars, in what has beendescribed as the worst flood in the county’shistory.

On March 11, a caustic 9.0 magnitudeearthquake and a 33-foot tsunami hit Ja-pan almost simultaneously followed by se-ries of aftershocks. This was the worst natu-ral mishap in Japan’s history and measuredby experts as among the five most cata-strophic in modern times, with an estimated18,000 lives lost; about 3,000 injured andover 17,000 people still missing as at the

* By Eunice Sampson

January 11 and 12 sawheavy floods andmudslides near Rio deJaneiro in Brazil killingover 600 persons andwashing away homes,businesses and publicinfrastructure worthbillions of dollars, inwhat has beendescribed as theworst flood in thecounty’s history.


end of first quarter. Roads, railways,bridges, dams, schools and other criti-cal infrastructure were destroyed, whilea major accident occurred in threenuclear plants. The World Bank calcu-lates the damage to the Japaneseeconomy and infrastructure at between$122 billion and $235 billion. Japaneseauthorities put the estimate at over$300 billion. For the massive economicsize of Japan and its status in the glo-bal economy, the March 2011 earth-quake and tsunami in that country isperhaps the most costly natural disas-ter in human history.

Thanks to the growing sophistica-tion in modern day seismic technologyand years of consciousness about thecountry’s geological vulnerabilities, theJapanese authorities may have spentthe better part of the last decade pre-paring for a possible earthquake andtsunami. But the same cannot be saidabout the turmoil in the Arab regionwhich took the world completely bysurprise. Perhaps there have been sev-eral analyses in the past comparing thesocio-political and economic structure

in the Arab world to a ticking time-bomb. But not many had expected suchlevel of explosion so soon, nor the rela-tively very mundane manner it wasdetonated.

Arab World Crises: theGenesisDespite his university degree,Mohamed Bouazizi resorted to sellingfruits and vegetables after all effortsto secure a more befitting employmentfailed. On December 17, 2010, localTunisian authorities seized his wares, avegetable cart, on claims that it wasunlicensed. After trying in vain to re-trieve his confiscated cart, in protestthe frustrated 26 year old universitygraduate set himself ablaze outside thepolice provincial headquarters. OnJanuary 4 Bouazizi died of complica-tions from his burns.

Mohamed Bouazizi was the breadwinner in a family of eight. He lost hisfather at the age of three and wassaddled with the responsibility of ca-tering for his widow mum and sevensiblings. The initial hopes that a uni-versity education will afford him agood job and a better life was dashedafter searching in vain for employment.He was compelled to settle for cartpushing, a menial job he was to giveup his life for.

According to reports from Reuters,Bouazizi’s grieving mother, Mannoubiahad one prayer for the ‘killers’ of herson: “I ask God that Ben Ali’s people,and the Trabelsi family, who were rul-ing Tunisia, go completely.” True to herprayers, on January 14, exactly 10 daysafter her son died, Ben Ali and his rul-ing family fled Tunisia to take refugein Saudi Arabia following an unprec-edented uprising as angry demonstra-tors demanding justice for the bloodof Bouazizi and protesting the circum-stances that led to his death hit thestreets of Sidi Bouzid. By January 14,the protesters had gained the upperhand as they succeeded in bringing toan abrupt end the 23-year reign ofPresident Zine al-Abidine Ben Ali.

Before his tragic end, BouaziziMohamed was a resident of SidiBouzid, a small, struggling town in thesuburb of Tunisia 250 km (155 miles)

southwest of Tunis. Sidi Bouzid was atypical small, remote town in a low-income economy characterized bymassive infrastructure decay and highrate of poverty and unemployment.But this town was to gain global promi-nence following Bouazizi’s self-immo-lation. It in fact became the startingpoint of a socio-economic, political andconstitutional revolution, first by ex-tending to other cities in Tunisia and,by the end of the quarter, spreadingto several countries in the Arab world.

In neighboring Egypt, Algeria andMauritania, several nationals, frustratedwith the leadership and living condi-tion resorted to the Bouazizi-style ofprotest by setting themselves ablaze,heightening the growing profile ofBouazizi as the hero of change in theregion. The triumph of the voices ofthe Tunisian people inspired similarprotests in other Arab countries, includ-ing Egypt, Morocco, Syria, Yemen andLibya.

After Ben Ali, Egypt’s HosniMubarak was next to go. Egyptian dem-onstrators took to the streets on Janu-ary 25, protesting against the high costsof food, official corruption,authoritarianism and unemployment;and calling for an end to PresidentMubarak’s 30-year rule. For over twoweeks, Egyptians besieged the Cairo’scentral Tahrir Square daily, defying in-timidations and arrests and voicing theirfrustration with Mubarak’s strong gripon power. On February 11, Mubarakyielded to mounting pressure at homeand abroad to step down as Egyptianpresident.

In near by Morocco, the “move-ment for dignity” on February 20, ral-lied protesters, demanding that KingMohammed VI review the country’sconstitution, give up some of his pow-ers and increase food price subsidy. Butthe protests in Morocco were mostlypeaceful and short-lived, perhaps be-cause some of these demands receivedimmediate government attention; orperhaps because despite being under350 year-old monarchical rule (theAlawite dynasty), Morocco remainsone of the most progressive nations inthe Arab world with a relatively robusteconomy, an elected parliament and a

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GLOBAL WATCH | Global Economyin 2011: the oil price factor

monarchy that is open toreforms and tolerates peri-odic public protests.

Since the night of Feb-ruary 16 when disgruntledLibyans filed out against thereign of Muammar AlGaddafi of Libya, the pro-tests have been anything butpeaceful. At the end of thequarter, the struggle be-tween protesters and pro-government forces had de-generated into a civil warwith hundreds of civiliancasualties. This hasprompted a UN resolutionfor the intervention of al-lied forces to effect a no-flyzone in efforts to protect ci-vilians.

First quarter 2011 endedwith no end in sight for theviolence as PresidentGaddafi clung to his 41-yearrule in Libya and with a vowto repress every act of re-bellion against his regime.Colonel Gaddafi has been inpower since a coup d’état hestaged in 1969.

While the clock is tick-ing away for the Libyanleader, the revolution has

Source: “This is Money” Market Data (http://investing.thisismoney.co.uk)

Dramatic Crude oil Price Movement: First Quarter 2011

since spread to Syria. TheSyrian protests which begunin earnest on March 15, havealso become bloody withPresident Bashar Al-Assad,like his Libyan counterpartrefusing to yield to calls fromhis people to quit power.After the bloody clash ofMarch 25 that resulted inseveral loss of lives, the firstquarter ended in a stalemate.In other Arab countries, in-cluding Jordan, Bahrain andYemen, there have beensporadic anti-governmentprotests which sometimesturn violent. As the curtainsclosed on the first quarterthere were growing fearsaround the world that thecrises could spread to crudeoil powerhouses in the

Proven Reserve of Middle East & African countries (as % of world’s total)

Source: BP

Middle East, including Iranand Saudi Arabia.

Impact on OilPrices?The uprising in the MiddleEast and North Africa hasresulted in a sharp rise in oilprices as apprehensions grow

about stability in the globaloil market. On January 31,for example, following theupheaval in Egypt, the priceof Brent crude oil on theLondon-based ICE FuturesExchange passed the $100per barrel mark for the firsttime since the financial melt-down of September 2008.

The Syrianprotests which

begun in earneston March 15, have alsobecome bloody withPresident Bashar Al-Assad, like his Libyancounterpart refusing

to yield to callsfrom his peopleto quit power.



Major market concerns were the possibility of the Egyp-tian revolution spreading to other oil-exporting Arab coun-tries and a possible obstruction to the passage of oil-bear-ing tankers through Egypt’s Suez Canal. The Canal remainsa strategic link between millions of barrels of crude oil perday and the global market.

Assurances from market analysts that United States’huge oil stockpiles and Saudi authorities’ massive sparecapacity will check possible supply disruptions did little todouse market tension. Oil prices remained at elevated lev-els all through the quarter, worsening further after the up-rising spread to Libya.

On the last day of the quarter, Thursday March 31,crude oil prices rose to a 30-month high as the battle forrebel-held areas intensified in East-ern Libya. Light crude for April de-livery gained $2.45 (or 2.35%) toclose at $106.72 per barrel. Brentcrude for May delivery also gained$2.23 (or 1.94%) to close at$117.36.

So far, the revolution in NorthAfrica has had the most significantinfluence on oil price movement in2011. Despite being a net importerof crude oil, Egypt’s control of theSuez Canal and the strategic posi-tion it occupies in the oil- rich Arabworld, caused massive price volatil-ity during the civil rebellion there.As for Libya, its position as Africa’sthird-largest oil producer with about1.6 million barrels of crude a day,coupled with its status as the country with the largest provenoil reserves in Africa, make the current civil war in thatcountry a factor in oil price movements. This is furthercompounded by the fact that Libya exports most of its oilto the developed economies of Europe, including Italy, Ger-many, Spain and France.

With proven reserves of 754 million barrels and 127million barrels between them, the Middle East and Africacontrol a total of 66% of global crude oil reserve (at 56.6and 9.6%, respectively), according to recent reportspublished by the British Petroleum, BP. In a worlddominated by an insatiable craving for oil, the tworegions hold the future of the global energy marketin their hands. And should the current uprising spreadto the major oil exporting countries in the region,there’s no saying what the outlook for the globalcrude oil price and supply might be in the short tomedium term.

Impact on Food Prices?No thanks to the ongoing crises in North Africaand the Middle East, crude oil prices increased by10.3% in the month of March alone and by 21% inthe first quarter of 2011.

World Bank’s ‘Global Food Security Update’ publishedthis April reveals that sharp increases in energy price affectthe price of food in three main ways:

•They encourage greater use of food products in theproduction of biofuels;

•They feed into the cost of food production throughhigher fertilizer prices, the cost of irrigation, and other farminputs;

•They increase the costs of crop transportation to mar-kets

According to the report, a 10% increase in crude oilprice is associated with a 2.7% increase in the World BankFood Price Index which is now back to its 2008 peak ow-ing mostly to current oil price upswing. Multilateral organi-zations have raised alarm over the worsening global pov-

erty level as the extreme poor spendhigher percentage of their meagerincome on food (up to 70% in someinstances). Since June 2010, theWorld Bank estimates that an addi-tional 44 million people fell below the$1.25 poverty line as a result of higherfood prices, part of which is due tohigher energy prices.

World Bank reports also show thatglobal maize price (an importantfood staple in Middle East and Af-rica) are 17% higher in the first quar-ter of 2011 compared to the lastquarter of 2010, due to increasingdemand for industrial uses and dwin-dling stocks. Several countries in Sub-Saharan Africa are presently faced

with double-digit increase in maize prices. Year-on-year, thereport identifies key staples that remain significantly higherthan their price level in 2010 to include maize (74%), wheat(69%), soybeans (36%) and sugar (21%). So, while highfood price was one of the key factors that triggered therecent uprisings in the first instance, the impact of the cri-ses has itself led to a further hike in the prices of food andother commodities. Several countries in the crisis-riddenregion, including Iran, Syria and Egypt and also countries

Source: World Bank’s Food Price Watch; April 2011



in Sub Saharan Africa now strugglewith double-digit food price inflation.

At the outset of the tragic eventsin Japan on March 11, reports showthat fears of lower import demand haddriven down the futures’ prices ofcorn, soybeans and wheat. But pricesof these food commodities have sincerebounded as market fundamentalscould not sustain the sentiments thatbrought about their drop.

An increasingly disturbing aspect ofthe brewing food and energy price cri-ses is the growing use of food com-modities for bio-fuel productions inboth developed and emerging econo-mies. In its “Food Price Watch” ofApril 2011, the World Bank quotingdata released by the U.S. Departmentof Agriculture (USDA) reports that theuse of corn for biofuels in the US hasincreased from 31% of total corn out-put in 2008/2009 to a projected 40%in the 2010/2011 season. The effortto circumvent the rising price of crudeoil is increasing the diversion of foodfor bio-fuel purposes, further shorten-ing supplies and increasing prices. Ifthe trend persists, the world could beheading back to the crisis period it isonly just emerging from.

Oil price and growthprospects?Experts generally agree that first quar-ter developments could have massiveimpact on global growth outlook for2011. For the regions directly affectedby the recent uprisings, downside risksin growth prospects remain. Also, forJapan which suffered twin natural di-sasters during the quarter, prospect foreconomic expansion for 2011 looksvery dim.

The crises-ridden Arab states, es-pecially the net-importers of crude oil,will likely experience a sharp slowdownin 2011. However, growth in the en-tire Middle East and North Africa re-gion is still achievable, driven by theoil-exporting economies as they lever-age on record high price of crude oilto achieve strong economic advance-ment.

The Business Monitor Internationalforecasts a 4.1% growth for the re-gion in 2011, same as in 2010. Simi-

larly, the IMF has revised its economicgrowth projection for the Middle Eastand North Africa region to 4.1% thisyear, down from a forecast of 4.6%made in January.

Growth in Saudi Arabia – theregion’s largest economy is expected toremain strong for several reasons. Ithas so far been insulated from thesocio-political turmoil going on in theregion; while it also remains a majorbeneficiary in the current high priceof crude oil which is helping to boosteconomic spending and activities. TheIMF recently revised up Saudi’s 2011growth forecast sharply, from an ear-lier 4.5% to 7.5%. For the oil-import-ing Arab economies, the IMF in a newRegional Economic Outlook reportforesees possible fiscal deficits, dete-rioration in investors’ confidence andcapital flight, all resulting from the cur-rent uprising.

The Fund sees Egypt as one of theregion’s economies that would be worsthit by the crisis, especially due to itsvulnerabilities as a net- importer, andalso because of the sharp slowdownexpected from tourism, the country’seconomic mainstay. Egypt’s growthprospect has been lowered from the2010 level of 5.1% to just 0.1% thisyear. In the long term, however, thepositive changes expected from ongo-ing political, economic, social and con-stitutional reforms could mark the be-

ginning of a more rapid economic ex-pansion and competitiveness in the re-gion.

For Sub Saharan Africa, the IMFin its April 2011 Regional EconomicOutlook foresees macroeconomicchallenges for the region arising fromcurrent ‘rapid movements in keyprices’. Though the region is expectedto improve on its 2010 growth perfor-mance this year, from about 4.9% to arobust 5.5% in 2011 and 6.0% in 2012,the report observes that the rising priceof commodities would lead to a sig-nificant imbalance in growth, fromcountry to country. The big losers willbe the net oil importing economieswhile the big winners will be the oil ex-porting economies (Nigeria, Angola,Gabon, etc) which incidentally will bethe propeller of the improved growthprojection for Sub Saharan Africa.

For the developed economies ofEurope and America, growth outlookmay dim slightly despite the recent re-covery from the financial crisis. Theexpected positive impact of the USpayroll tax cut policy on the economyin 2011 notwithstanding, a recent re-port on the economy published byMorgan Stanley (Global EconomicForum) has downgraded the country’sgrowth forecast, from an earlier 3.6%to 3.3%. A major growth factor ob-served in the report is the direction ofthe global energy market this year. As

Source: BMI



it is, gasoline price which started offthe year at $3/gallon now stands atabout $4/gallon. According to the re-port, each $1/gallon change in gaso-line price subtracts about $120 billionfrom discretionary spending power, acritical growth indicator for the USeconomy. The economic gains from thepayroll tax reduction have thereforebeen offset by the recent upward trendin US gasoline price, an offshoot ofthe hike in oil price in the global mar-ket.

Apart from few instances includ-ing Greece, Ireland, Spain and perhapsa handful of others, most economiesin the European Union have since re-bounded following the financial melt-down of 2008. But the upswing in en-ergy prices is taking its toll on regionaleconomic outlook. In the UK, the Bankof England has downgraded its earliergrowth forecast for the country citing‘a great deal of uncertainty” arisingfrom price volatility in the global com-modities market. From an earlier pro-jection of 2.0% growth, a new estimateput the country’s growth this year at1.7%; and 2.2% in 2012, down froman earlier forecast of almost 3%. Thereport published by The Guardian(UK), also expressed concerns aboutthe inflationary pressure emanatingfrom higher commodity and importprices, and the increase in the standardrate of VAT; developments that willlikely push the country’s inflation levelfar above the set target of 2%, to about

5% in the coming months.Germany, Europe’s biggest

economy has so far showed resiliencedespite the rising energy costs. Thecountry at the end of the first quarterreviewed upward its growth projec-tions, from an earlier 2.3% to 2.6% in2011 buoyed by a rise in consumer con-fidence and spending, households’ dis-posable income and industrial outputand demand. Expected steady growthin Germany will help European re-gional economic outlook this year.

In neighboring France, the growthprospect does not look so bright, asconsumer spending plunged by 0.7%in March in response to growing un-employment and energy costs. Infla-tion has also been revised upward froman earlier 1.5% estimate for the yearto 1.8%. Crude oil price hike and therising costs of raw materials are thefactors driving France’s inflation. How-ever, if the estimate by the OECD isanything to go by, the French economycould still manage a near comfortable2.0% growth this year, after 1.5% ad-vancement in 2010.

On the global front, the BMI re-cently revised slightly downward itsearlier growth forecast, from 3.6% to3.5%; while the 2012 projection alsoslipped slightly to 3.7% from 3.8%,citing ‘risks from rising oil prices, un-rest in the Middle East and North Af-rica and reverberations from the glo-bal supply chain emanating fromJapan’s earthquake and tsunami’.

These factors, compounded fur-ther by the rising global inflation andthe expected monetary policy tighten-ing in several economies are obviousthreats to global growth prospects in2011 and could cut short some of theprogress made by a number of coun-tries in the path to economic recovery.

Disaster in Japan: theEconomic Aftershocks?The earthquake and tsunami in Japanis expected to have negative impact onthe country’s industrial output, exports,consumer confidence and spending, andfurther dampen growth prospects inan economy that has been strugglingto shake off over a decade of nearstagnant growth. But it is not only theJapanese economy that will be hurt bythe recent developments. Developingand low-income economies that ben-efit from Japan’s substantial economicaid will also feel some of the pains.Japan is one of the world’s largest do-nor countries with an average of nearly$10 billion in aids and humanitariandonations every year. But the economicsetback arising from the natural disas-ters would no doubt affect its ability tosupport other countries. Also, thecountry’s foreign direct investmentscould plummet significantly in the shortto medium term as it tries to rally fundsfor the massive reconstruction and re-building that lie ahead.

In the short to medium term, thedisaster in Japan could have negativeimpact on global manufacturing out-put, given the country’s position as oneof the biggest manufacturer of hightech products and a net exporter ofglobally recognized brands, especiallyauto and industrial machines and equip-ment.

What is now apparent though isthat despite its position as the world’ssecond largest economy and third big-gest crude oil consumer after the UnitedStates and China, the natural disastersin Japan cannot sustain any major dropin the price of crude oil. Initially, it wasthought that a plunge in the country’sdemand for oil in line with expectedsignificant slow down in economic ac-tivities would help curtail ballooning oilprice.

The economic gainsfrom the payroll taxreduction have there-fore been offset by therecent upward trend inUS gasoline price, anoffshoot of the hike inoil price in the globalmarket.

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However, initial news of the quakeand tsunami did result in significantdrop in oil prices. Reuters reports thatBrent crude futures for April deliveryfell $1.39 to $114.04 a barrel at 12:51p.m. EST (1751 GMT), having earlierfallen as low as $112.25 when news ofthe disasters broke. Also, US crudefutures for April delivery fell $1.71 to$100.99 a barrel, having fallen earlierto $99.01. Altogether, oil price shedabout $6 per barrel immediately fol-lowing the disasters in Japan. But priceshave since rebounded. To start with,Japan’s consumption and demand as apercentage of the global total (less than2.0%) is not sufficient to sustain adownward impact on the prices of oil.The growing intensity of the Libyan

uprising has also not helped matters.Also, earlier concerns about a pos-

sible massive drop in Japan’s oil de-mand; (especially after six of its refin-eries were shut down following the di-sasters) now seem over blown. Accord-ing to Reuters, the six refineries thatwere shut down have a total capacityof 1.40 million barrels per day (bpd).Besides, Japan’s total oil refining ca-pacity for its 29 refining facilities isabout 5 million barrels per day, a de-mand gap that may not be able to swaymarket sentiments for too long. Thecurrent state of disrepair in a number

of Japan’s nuclear plants could actu-ally result in increased demand for oilas alternative to the country’s troublednuclear energy. Power outages follow-ing the disaster had thrown millions offamilies and businesses into darkness.Besides, for Japan and other nuclear-aspiring economies of the world, thefailures in nuclear energy technologythat have been exposed by the recentearthquake and tsunami just mightjumpstart a new race for crude oil as asafer alternative to nuclear energy; arace that could actually keep oil priceselevated longer than the world antici-pates.

Weeks of struggle to curtail thenuclear accident in the Fukushimaplants and prevent the radiation leak-

ages from degenerating into a majornuclear disaster kept observers all overthe world on the edge of their seatsup till the end of the quarter; a devel-opment that could mark the beginningof a new phobia for nuclear technol-ogy.

Moreover, Japan, just recoveringfrom a deep recession before the earth-quake and tsunami would want to riseup to the challenge with expeditedthough very expensive efforts to re-build the economy as quickly as pos-sible. With a near zero percent growthprojection for first quarter 2011, Japa-

nese authorities will be desperate for aquick fix where possible and thereforeincrease investments in order to en-hance output. Increased investmentsin reconstruction would in fact resultin massive spending on and demandfor crude oil.

So the possibility of any significantdrop in crude oil demand in disaster-ridden Japan balancing out the supplygaps resulting from the crisis in oil ex-porting North Africa and Middle Eastmay never happen.

But while the earthquake and tsu-nami in Japan may not have had anysustainable impact on the global priceof crude oil; it will be one of the fac-tors that would reduce global growthprospect this year. The second largesteconomy in the world will, no thanksto the first quarter natural disasters,experience a possible negative growthin 2011, a big minus for the globalgrowth outlook.

One could wrap this up by sayingthat the two highly unanticipated de-velopments in the first quarter (thenatural disasters in Japan and the up-rising in the Arab world) have sent eco-nomic analysts and policymakers backto the drawing board on the directionof the global economy in 2011, andpossibly beyond. As crude oil and foodprices near record high levels, govern-ments around the world are nervousabout the possible way forward con-sidering the outcome of similar trendsin the recent past. Several countriesonly just out of the recent recessionare apprehensive about a possible re-lapse. Even China and India, with theirdecade-long boisterous growth recordsare not immune.

No doubt, stakeholders around theworld have a lot to ponder: Is theworld heading back to the dark woodsit entered into after crude oil price hit$150 per barrel in 2008? Is the cur-rent global economic recovery sustain-able with oil price levels this high?Policymakers around the world arelikely to spend the last three quartersof the year answering these questions.(* Eunice Sampson is the DeputyEditor, Zenith Economic Quar-terly)

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* By Mike A. Uzor

Issues (

I)

n the next four years to 2015, thefederal government is likely to re-port about N22 trillion in aggre-gate expenditure. State and localgovernments may spend anotherN26.5 trillion on the aggregate. Areasonable projection indicates to-tal federally collectible revenue inthe region of N45.8 trillion overthe same period. The opportunityto reflect the running oil wealth ineconomic development is still opento the nation.

If the present spending struc-ture is maintained, about 70% of the aggre-gate expenditure of the three tiers of govern-ment will constitute recurrent expenditure. An-other 20% of the spending is likely to get lostin the process of project implementation andonly about 10% may be actually engaged in neweconomic capacity building. The choice to fol-low the past wasteful spending is equally opento the nation.

The revenue capacity of government is as-sessed to remain strong and to improve in theyears ahead. In five years to 2009, Nigeriaearned a total of N25,644.1 billion in federallycollectible revenue. This is about twice the to-tal revenue earned in the preceding five yearsof 2000 to 2004. This indicates that despitethe crash in 2008, the oil market bull is yetrunning.

At the beginning of the oil market rally in


1999, oil price hovered at about $16per barrel. In 2003 when the oil pricebenchmark of $20 per barrel was usedin planning the budget, oil price hov-ered at about $28 per barrel. Despitethe financial crisis-induced oil pricecollapse in 2008, oil prices averaged$101.2 per barrel in that year against$75 per barrel in 2007, according tothe Central Bank. Over the past threeyears, average crude oil prices standat more than four times the $16 perbarrel at which oil price traded at thebeginning of 1999.

While the oil sector suffered pro-duction setbacks in the previous yearsdue to community hostility in the NigerDelta, the patchy peace now securedin the area gives the present govern-ment the combined advantages of ris-

ing crude oil output and prices.This has not happened any timein the preceding 12 years. Theincreased oil output and sales areestimated to add not less than$1.0 billion annually to exportearnings.

The implication of this is thatif Nigeria had opportunities foreconomic development beforebut wasted it; it has even a betteropportunity presently than anytime in its history. If the wealththat came during the oil boomof the 1970s and the windfall ofthe 1990s were wasted, the na-tion has right in its hands nowmuch bigger oil wealth than it hasever earned before.

In dollar terms, all the oil rev-enue earned since the 1970s tothe end of the 8-year straightrally to 2008 may be exceededin just four years to 2015. Con-sequently, if money is the princi-pal factor in economic develop-ment, there will be no excuse forNigeria to miss yet another op-portunity for development.

During the 8-year oil marketrally to 2008, oil exporting na-tions behaved differently. Russiautilised oil wealth to create do-mestic economic prosperity.Countries like Iran and Venezu-ela reflected the prosperity innewly aggressive foreign policies,pressing for increased power andinfluence in the corridors of glo-bal power.

Nigeria reshaped consump-tion around the influx of hugeoil wealth to the detriment ofeconomic capacity building. Fis-cal deficits were sustained as rev-enues grew and much of thefunds went into recurrent hand

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ISSUES (I) | Nigeria’s Post-Election Economy:Yet Another Chance for Development

to mouth spending. The recurrent ex-penditure of N449.7 billion that ser-viced federal government machineryin 1999 represents just 21.6% of the2010 recurrent budget. If this patternis maintained over the next four years,the new opportunity for developmentwill again be lost.

Economic development challengesfacing the nation have increased in thepost financial crisis environment. Inview of the broken operating capacityof the private sector, government nowhas a big task in its hands to jerk upaggregate expenditure, get industrialengines streaming once again and re-turn men to duty posts.

This is precisely the situation thatgovernments and central banks aroundthe world tried to avoid by casting vastsafety nets around their financial mar-kets during the global crisis. The inter-ventions worked to defend the operat-ing capacity of the private sector. InNigeria, modest fiscal stimulus did notlead to the much needed credit flow tothe private sector.

Instead, an aggressive debt recov-ery exercise by banks happened hereat the same time that most countrieswere implementing counter cyclicalcredit policy measures. The big lessonof the global financial crisis is that gov-ernment now faces greater challengesfor rebuilding the economy than thefiscal stimulus needed to have keptaggregate expenditure from falling.

Learning from the pastThe strength to move an economic orpolitical system forward is built not bythe quantum of electoral promises thatturn out to be mere declarations ofintents and wishes but by studying theerrors and mistakes of the past andmaking changes that avoid their rep-etition. In this way, progressive societ-ies and institutions build systems andprocesses that minimise caprices ofthose in power and preserve the inter-est and objectives of the wider societythrough the thick and thin of gover-nance.

Many countries and institutionsaround the world have conducted nu-merous studies on the causes of therecent global economic meltdown and

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are presently developing economic andfinancial policy vaccines that wouldprovide the necessary system immu-nity next time such crisis happens inthe world. Such crisis provides a goodopportunity for regulators to learnsomething about how their systemswork and where to make amends. TheFinancial Services Authority of the

United Kingdom overhauled its ownstaffing and systems after an internalreport discovered supervisory lapsesin respect of a troubled bank - North-ern Rock.

Such studies provide a useful guidein fixing operating and regulatory lapsesand building in proactive policies.Hence innovative regulatory responses


are institutionalised such thatwhile presidents and centralbank governors come andgo, the system does not feelthe change.

Ben Bernanke, chairmanof the United States’ FederalReserve System [Fed] wasguided by his acclaimed re-search works on Great De-pression, the role of creditmarkets in the business cycleand the transmission ofmonetary policy to providethe central technique fornavigating the globaleconomy out of an unusualcrisis. Governments and cen-tral banks around the worldmoved decisively in the di-

rection of Fed’s decision tocut interest rates in early2008 and pump billions ofdollars to unfreeze creditmarkets.

As it is in monetary gov-ernance, so it is in politicalleadership. Leaders maketheir inputs in improving thesystem and structures ofdelivering service to thepeople. That is why Ameri-can political leadership doeschange from Republicans toDemocrats and vice versaand yet there is no policysomersault.

All that the people needis to elect a pragmatic presi-dent able to take the rightdecisions. The system deliv-

ers value down and acrossthe lines. The difference isthat they built systems andprocesses that promote thecommon good of thepeople. Nigeria seems tohave borrowed the image ofthe American presidentialsystem of administration butnot its spirit.

Why the systemand process matterWherever there are reliablesystems and processes, it isdifficult for the leadership todivert the resources of thenation without igniting thesecurity alarm system.Where there are no effective

systems and processes, it willbe impossible for a saint notto steal state funds and forthe best intended president,governor or head of a regu-latory body to implement aflawless development plan.

An electoral promise todevelop the economy is atbest a genuine intension ofa man at Enugu desiring tobe in Kaduna. Despite be-ing well intended, if he hasno vehicle to convey him, hisheart desire is of no conse-quence. Is there an eco-nomic development vehicle– the system and process foreconomic development inNigeria? The answer is no!Leaders just come and goand get things done the waythey deem fit. Their succes-sors spend more timecriticising them than improv-ing on what has been accom-plished eventually.

People cry for change,by which they mean tochange the people in leader-ship while indeed what isneeded is to build a systemand process that work. Poli-ticians focus on what they willaccomplish when elected intooffice while indeed what isneeded is the how to accom-plish even the simplest prom-ise – the vehicle throughwhich even the least talentedleader can operate like anauto pilot and deliver qual-ity services to the nation.

If people are changedwithout building in the sys-tem for performance, it isonly a matter of time beforecalls for another change willbe heard. The more wechange the people, the morewe create instability and dis-continuity because our sys-tem is built around person-alities. Policies thereforechange as people arechanged. The ideas of theruling class easily become

Nigeria reshapedconsumptionaround the influx ofhuge oil wealth tothe detriment ofeconomic capacitybuilding. Fiscaldeficits weresustained as rev-enues grew andmuch of the fundswent into recurrenthand to mouthspending. Therecurrent expendi-ture of N449.7billion that servicedfederal governmentmachinery in 1999represents just21.6% of the 2010recurrent budget. Ifthis pattern ismaintained overthe next four years,the new opportunityfor developmentwill again be lost.




policies for the nation.

Missing factor indevelopmentNigeria has the money and the ablepeople required to achieve economicdevelopment. It has people desirous toaccomplish great things for the soci-ety. What it lacks is the vehicle – thesystems and processes that effectivelyutilise the men and the materials toachieve desired development objective.This is indeed a major handicap –something that takes years to build, testand perfect.

If a nation doesn’t have money itcan borrow. If it doesn’t have the rightpeople, it can hire expatriates; but if ithas no system, it can’t accomplishmuch. As long as the system remainsdeficient, it will continue to waste themoney and the human materials. Hireexperts with proven competencearound the world, it will frustrate them.No matter how much has been wastedbefore, even more will be wasted infuture.

Nigeria’s development problemisn’t quite a peoples’ problem becausewhile leadership has been changingsince the 1960s, the challenges haveremained and even exacerbated. Thosewho ran the affairs of government dur-ing the oil boom of the 1970s werenot the same people in charge of theGulf War windfall of the 1990s andthe oil market bull of the 2000s. A dif-ferent set of people are now in chargeof the affairs of government in themidst of yet a running oil wealth.

A World Bank study in 1994 con-firmed that Nigeria lacks the vehicleto transmit growth into development.The study showed that GDP per capitaand per capita consumption declinedwhile GDP and export volume grewin the 1983-1993 decade. The samepattern of growing GDP and exportsagainst disappointing per capita indi-ces is reported for the 1994-2003 de-cade and is again expected for thefourth decade running. According tothe bank, Sub-Saharan Africa [exclud-ing South Africa] is the one region in

the world where the number of thepoor is expected to rise rapidly not justin absolute terms but also as a per-centage of the population.

Nigerians are not seen to be innatelycorrupt, rather the system it runstempts people to steal. Great leadersin the world are neither saints nor su-per humans; they only met a fair sys-tem of governance and improved it alittle.

Way back in 1998, Pat Utomi con-sidered what could make good budgetintensions a reality and found that“…the reality is that the public servicecapacity for implementation of policyis probably at its lowest ebb since1960”. Francis Okafor focused on thehuman element in policy implementa-tion and contended that most economicpolicies are rendered ineffective in theprocess of implementation. MansurSodangi took a look at national eco-nomic planning in 1992 and saw thatthe implementation problem crystalisesin distortions at micro and macro lev-els. J.O. Irukwu referred to this prob-lem as delinquency in the civil serviceinimical to productivity and progress.

If you borrow when you don’t havea system that delivers value, the loanswill be fully drawn down while theprojects will not be implemented. An-thony Ani, former finance minister,hinted the nation in 1997 of 18 such

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War windfall of the

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midst of yet a running

oil wealth.

Food market.Stellenbosch,South Africa.


projects in respect of which total ex-ternal loans of $836 million were fullydrawn down but never executed. AyoOgunlade, former minister of nationalplanning concurs that the system isdeficient in terms of coordination andmonitoring of plans/projects.

Building the systemThe starting point of sustainable eco-nomic development in Nigeria is tobuild the system and process throughwhich men and materials are put towork and all, not a fraction of the re-sources, get to intended destinations.A critical starting point of building thesystem is conducting a series of stud-ies of past failures to understand theloopholes and the mistakes that haveso far hindered the economic progressof the nation.

The intension isn’t going to be thesame as that of a typical probe - whichhunts for culprits. Studies are meantto identify policy lapses, inadequacy ofin-built responses, human errors andomissions that hinder the realisation ofset objectives. They provide a reliableguide to effecting corrective changesthat reinforce system efficiency.

While culprits may be identified andpunished in the process, the key objec-tive is to rid the system of the kinkshindering the realisation of national eco-nomic objectives. Where the intension

is to deal with culprits, the real im-provement needed in the system is of-ten ignored. That permits the opera-tors to devise new ways of subvertingthe system and getting away with it.Consequently, the losses to the systemwill be bigger the next time.

The place of state andlocal governments indevelopmentWhatever system or process that cap-tures revenue in the accounts of stateand local governments needs to be im-proved, strengthened and made trans-parent. Those two arms of govern-ment were created in order to takeeconomic development closer to thepeople. So much resources have been

put to their use for so many years andyet there is not much to show by wayof the intended grassroots develop-ment.

If a state governor can take hugeamount of resources out of state fundsand yet there are no changes made inthe system of funds allocation and ac-countability so far, we give the impres-sion that these tiers of government arenot important in realising economic de-velopment objectives. One or two in-stances of this are sufficient to bringabout an overhaul of the state gov-ernment system of administration thatleaves the fate of a whole state at themercy of its governor. Such a highlevel of concentration of economicand financial power on one individual,who is not accountable, is in itself amajor barrier to economic develop-ment.

The fact that huge funds can bewithdrawn from state government ac-counts and converted into private usemeans there is in reality no reasonablesystem of accountability in place. Noreasonable development can be ex-pected under such a situation.

If the targeted grassroots develop-ment through state and local govern-ment isn’t being realised, the adminis-trative structure calls for a change. Thechange process needs to be sustaineduntil an acceptable system that deliv-ers the objectives is established. Wherethe objectives are not being attainedand a faulty system is left intact, wecannot reasonably expect a differentresult.

Charles C. Soludo, former gover-nor of the Central Bank, studied thepoverty status of the nation in 2007and found that poverty status is highlycorrelated with the level of interven-tion by state and local governments toempower the people. The incidence ofpoverty was higher in states with lowlevels of intervention.

There have been complaints andpetitions by some local governmentchairmen on lack of transparency inreleasing statutory allocations. This war-rants a review of the revenue alloca-tion process to local governments toreflect greater efficiency and transpar-ency. Where no action is taken in the

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face of a faulty administrative system,it is clear that local governments havebeen created but not sufficiently em-powered to fulfill their developmentalrole.

The local government system needsto be restructured to build in the ca-pacity to receive their statutory alloca-tions without interference and the pro-cess to put same to productive use.Until this is done, the grassroots devel-opment objectives for creating thethird-tier of government will remainunattainable.

Rebuilding systemcapacityWhat must government do to achieveeconomic development for the nationover the next four years? The answeris simple. Create an efficient systemand process of input-output in the pub-lic service – which is the missing legof the public service delivery tripod.The fulfillment of every single prom-ise made by government to Nigeriansdepends on this basic accomplishment.Of all the desirable changes in the na-tion, it is the most important becauseif the process is faulty, what can aleader with a golden heart do?

What steps should government taketo rebuild system capacity? It shouldfocus less on fighting corruption butdeclare a total war on poverty thatbegets the corruption. Two major poli-cies of government had spread pov-erty to the point of Nigeria beingcounted among the poorest nations inthe world. The first is exchange ratedevaluation in an import consumingnation. From just N3.18 to the dollarat which the naira exchange rate closedin 1986, the value of the currency hasfallen far below anyone’s imagination.

Contrary to the promise, the de-valuation did not lead to the develop-ment of cheaper domestic products asalternatives to high cost imports. Thatcould not have happened in the firstplace because local productive activityagain depends heavily on importedmaterials and equipment, which rosein prices as the value of the naira kepton falling.

Consequently, prices of basic needs

soared with the sustained naira depre-ciation and real incomes crashed in theface of galloping inflation. Basic sur-vival instincts compelled even the‘saints’ to begin to cut corners to makeboth ends meet. Little by little, occa-sional disappearances of small cash bal-ances in the tills dovetailed into a ter-rible black hole into which billions ofdollars of the nation’s wealth have dis-appeared.

While the problem of poverty wasclearly identified and the need to ad-dress it duly recognised, policies andprogrammes designed to deal with itwere equally frustrated by the sameproblem of poverty-borne corruptionthat they were meant to address. Yet,while there was no headway in reduc-ing poverty, government policies thatreinforced it were sustained.

The second major policy that madecreeping poverty to get up and run wasthe sustained increase in the prices ofpetroleum products in a system thatdepended virtually on road transpor-tation for movement of people andgoods. The net effect of the hike inpump prices is that transportation costbecame the biggest component in thepricing of all products locally producedor imported. For instance, the cost ofsand delivered to a construction sitefrom our seashore constitutes more oftransportation than any other input.

Poverty is considered a more dan-gerous phenomenon than corruptionbecause it attacks human dignity, per-verts integrity and changes the valuesystem. Hence the pursuit of thingsof honour, integrity and collectivegood gives way for unimaginable self-ish acts. If you lift a man from pov-erty, you raise his value system onceagain. Until you do this, you cannotsuccessfully use him to accomplishnoble objectives for society. In sum,while government seems to be sayingit is ready to drive economic develop-ment in Nigeria, the system and pro-cess to accomplish this aren’t ready.

This is the same reason why prom-ises to fix the nation’s electricity prob-lem could not be fulfilled for about 12years now in spite of the huge fundssunk in various power projects. For thesame reason, government cannot hope

to win the battle against corruption,which has also been on over the past12 years. The very security system forfighting corruption is subject to a lotof compromises.

A system that creates poverty can-not be cured of corruption. In an in-terview published in the Sunday Timesof August 16, 1987, Eme Awa, thenchairman of the National ElectoralCommission, told the nation that “they[politicians] employed all sorts of de-vices to corrupt the system…” He saidpolitician were able to do this because“...many electors were not self-reliantand so they accepted the bribes or al-lowed themselves to be bribed.”

As it is in the electoral system, so itis in the MDAs. When a good operat-ing system is created, it takes people tomaintain and enforce its checks andbalances. The most efficient adminis-

ChristopherMurray, JensStoltenberg, BillGates, GordonBrown, OlusegunObasanjo, FareedZakaria, GiulioTremonti, at theWorld EconomicForum AnnualMeeting in Davos,2006


trative system in the world will breakdown any time the people to enforce itare impoverished. A new strategy isneeded to achieve value for moneyspending at all levels of government.This is needed to channel funds intothe nation’s large growth reserves, 50%of fallow agricultural land, abundantnatural reserves and youthful popula-tion.

In the post election period, thePresident will try to put money in thesystem in order to fulfill electoral prom-ises. Let it not be a surprise if at theend of the four-year mandate he com-plains of a system that has frustratedthe effort. Former President OlusegunObasanjo experienced the same frus-tration when he said that Nigeria’sproblem is like an overflowing nativegown [sokoto]; adjust the left hand side,the right hand side will scatter.

Obasanjo tried to deal with the sys-tem problem by introducing due pro-cess. This resulted in a surge in recur-rent expenditure where due process didnot apply and a disappointing slow downin capital spending. At the end whatdue process tried to save was more thanlost in unspent capital votes that werenever accounted for. Any effort thatdoes not begin by rebuilding the ser-vice capacity of the public sector isn’tgoing to get far in achieving economicsuccess.

How to make the peopleself-reliantWhere do we go from here? Simplytarget the basic human necessities andmake them affordable to the generalpublic. Put in place a network of mod-ern rail transportation system acrossthe nation and the cost of food prod-ucts and housing will drop by up toone-half. If it becomes possible to livein Benin and work in Port Harcourtor live in Ondo and work in Lagos,the proportion of household incomesspent on rent would drop significantly.Rents will crash in the presently con-gested cities, as people spread out intocheaper houses in newly linked up ar-eas.

The next are health, clothing andeducation, which should be availableto all without a struggle. Such measuresto enhance the relative value of dis-

posable income are more meaningfulthan wage increases. New policies areneeded to support the above measuresaimed at enhancing real value of dis-posable incomes through cost cutting.Caution is needed to avoid policies thatcould neutralise the desired effects ofsuch policies.

Two areas to watch are further ex-change rate depreciation and deregu-lation of petroleum products prices.The high level of import dependenceof the nation does not qualify it forthe level of exchange rate flexibility andopen borders in use. In order toachieve economic development, thereis a price to pay by both Nigerians andthe international community in termsof restricting imported consumergoods to permit the building of do-mestic capacity to produce cheaper al-ternatives.

The infrastructure developmentstrategy needs to focus on establishingkey competitive advantages that enablelocal producers feed the market withsignificantly cheaper alternatives toimported consumer goods. This com-petitive advantage needs to be built,maintained and improved on a con-tinuing basis before exchange rate de-preciation could become a positive toolfor macro economic management.

The same applies to deregulationof petroleum products prices. Themain transportation system that movespeople and goods needs to be firstshielded from the direct impact of thepolicy for it to impact positively on theeconomy. In sum, for inflation-pronemeasures such as exchange rate devalu-ation and raising of pump prices to beeffectively applied, the creation ofcheaper alternatives is a prerequisite.

Need for integrateddevelopment strategyGovernment needs to conduct exten-sive studies and secure expert recom-mendations before embarking uponmajor policies and programmes. If thenation needs new universities and air-ports, the studies will indicate so whilealso specifying other aspects on an in-tegrated development strategy thatshould complement the policy optionrecommended.

http://upload.wikimedia.org/wikipedia/commons/5/53

Obasanjo tried to deal withthe system problem byintroducing due process.This resulted in a surge inrecurrent expenditurewhere due process did notapply and a disappointingslow down in capitalspending.




The nation needs to return to thesystematic process of policymaking.Before and well after independencemajor policy decisions were precededby committees of inquiry, special re-ports and consultations of experts. Thispermits economic operators to seemajor changes coming and graduallyadjust. In the present times major poli-cies are cooked overnight and servedhot at down, jolting operators andshocking the system. Pat Utomi blameshigh regulatory risk for inadequate pri-vate sector responses to governmentpolicies.

The introduction of special silvercurrency in West Africa during the co-lonial administration was preceded byat least two major commissions of in-quiry over a period of 12 years. Thesewere the Barbour Committee of 1899and the Emmot Committee in 1911.The enactment of the 1952 BankingOrdinance followed the recommenda-tion of G.D. Paton, an official of theBank of England, who was appointedthree years earlier in 1948 to investi-gate the causes of bank failures andrecommend policy control and opera-tional guidelines for preventing furtherdeterioration of the banking condition.

The establishment of the CentralBank of Nigeria was preceded by notless than seven different studies andexpert consultations, including exten-sive debate in the House of Represen-tatives. The decision to set up the LagosStock Exchange in 1961 followed thereport of R.H. Barback Committee in1959 on “the ways and means of fos-tering a share market in Nigeria”.

Alarmed by the upsurge of priceinflation in the post civil war economy,the military government then set upan anti-inflation Task Force to recom-mend measures to contain the upwardpressure on the price level. Most ofthe measures recommended wereadopted and by the end of 1979 therate of inflation had been lowered toabout one-half of the 1975 peak.

The anti-inflation study made a criti-cal revelation that has since been ig-nored in the effort to contain inflation.It found that declining farm produc-tion in the face of rising populationwas the main factor in the upward pres-

sure on basic food prices. In the ab-sence of an appropriate policy re-sponse, an initial effort to supplementdomestic supply with food imports hasgiven way for a virtual total dependenceon imported foods.

The upward review and paymentof huge arrears to public servants[Udoji’s Award] in 1973 followed therecommendations of the Wages andSalaries Review Commission appointedin 1970. Even the then military gov-ernment subjected the recommenda-tions for the salary awards to the ex-pert advice by the governor of theCentral Bank and the minister of fi-nance. The banking and financial sec-tor policy that government issued in1977 followed a comprehensive reviewof the financial system by the OkigboFinancial System Review Committeeof 1976.

Since the 1980s the process ofmacro economic policy formulationhas been politicised and policymakingseems to have become by the rule ofthe thumb. The reports of even thefew investigative committees set up canneither be found nor implemented.

Before the implementation of thebanking consolidation policy issued in

2004, the Senate Committee on Bank-ing, Insurance and Financial Institutionsinvited the Chartered Institute ofBankers of Nigeria [CIBN] to makean input on the proposed banking re-form. Rejecting the proposal, the CIBNrecommended among others that“whenever major policy changes arebeing contemplated, enough consulta-tions and dialogue should be held tocross-fertilize ideas to enrich the policyand build mutual confidence, coopera-tion and support. Announcement ef-fects of every policy directed towardsthe industry should be weighed beforeannouncements are made, otherwise,the banking public may react in a man-ner that may seriously jeopardise theindustry and the economy.”

The eventual outcome clearly indi-cates that this input had no influenceon the policy implemented. The Ameri-can congress in 1913 considered theoptions for a central monetary systemagainst overriding objective of the nar-row interest of those who may governit and the caprice of government offi-cials that will appoint them. It settledfor a unique system of private owner-ship of its central monetary authority.It rejected the central banking system

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for what is termed “the Congressionalfear of concentration of power” andadopted the Federal Reserve System.The system is not a single central bankbut a conglomeration of largely autono-mous, regional central banks.

A u-turn to agricultureThe nation needs to make a u-turn toreturn to agriculture with a great senseof urgency over the next four years.Being the 8th most populous nation inthe world and 39th on the world birthrate table, concerns for food securityshould rank high on government pri-ority list. Agriculture needs a majorcapacity building no less than has beenexperienced in the financial sector oflate. This is easier agreed than imple-mented and the implementation re-quired isn’t a matter of throwingmoney after isolated gargantuanprojects.

A look at current statistics in thesector will provide a guide to introduc-ing policies and programmes that willempower the largest number of thepopulation. About 70% of Nigerianswork in the agricultural sector mostlyas subsistence farmers. They accountsfor up to 80% of annual output and

crops cultivation represents about 85%of their activity.

Farm yields are low in comparisonto Latin America and Asia and storagefacilities are inadequate. Farm technol-ogy is crude; there is paucity of re-search solutions, lack of access to fi-nance and low availability of improvedseeds. More than 72% of the 98.3million ha of land is suitable for culti-vation but only about one-half of thatis presently being farmed.

The population engaged in agricul-ture is such a critical number that anygovernment effort designed to em-power the people should revolvearound it. Because this group accountsfor the bulk of agricultural production,efforts to raise output in the sectorshould be focused on it. Perhaps thebiggest handicap of the subsistentfarmers is dependence on the simplehoe and cutlass, implements that therest of the world has since left behind.

Government needs to put to theiruse simple hand driven machines ofthe size of lawn mower enabling themto clear, till and weed mechanically. Theland tenure system here and the socio-cultural environments of the farmingcommunity demand that new technol-ogy be adapted to suit the local condi-tions. 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 their

cases, as has been the experience here.Any such government intervention

needs 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.

The agricultural sector provides thenation a golden opportunity to reducethe high level of unemployment, checkthe rising dependence on food importsand restore the capacity for non-oilexports. An unfailing strategy to attractthe youth to agriculture is to put newtechnology and infrastructures in thefarms.(* Mike Uzor is the MD/CEO,Datatrust Consulting Limited)

References• CBN, Annual Reports and Accounts, Vari-

ous Issues• CIBN, Consolidating the Nigerian Banking

Industry: the Banking Industry’s Position• Datatrust, Nigerian Banking & Economy

2009, Datatrust Publishing, Lagos, March 2009• Datatrust, Nigerian Banking & Economy

2010,• Datatrust Publishing, Lagos, August 2010• EIA, Country Analysis – Nigeria, July 2010• Equinox Asset Management Ltd, the Nige-

rian Country & Business Risk Monitor, July-December 2000

• Federal Government of Nigeria, 1979/80BudgetFITC, the Nigerian Banking & Finance In-dustry in Transition: Shaping the Future,Papers and Proceedings of the Bank Direc-tors Seminar, 1992

• Irukwu J.O., Nigeria: the Case for a BetterSociety, Enugu, Fourth Dimension Publish-ing Co. Ltd, 1989

• NCEMA, Policy Analysis Series, Volume 4,No.1, 1998

• Okigbo P.N.C., Nigeria’s Financial SystemStructure and Growth, UK, Longman GroupLtd, 1981

• Orji Herbert O., Regional Banking and Eco-nomic Development in Nigeria, Enugu,Fourth Dimensions Publishing Co. Ltd, 1987

• Oxford Business Group, the Report Nige-ria 2010Soludo Chukwuma C., Macroeconomic,Monetary and Financial Sector Develop-ments, January 2007

• World Bank, Global Economic Prospectsand the Developing Countries, 1994


Issues (

II)

* By Chuks Nwaze

aving demonstrated the practical challenges that confront bankers and their customers ona daily basis in the last three editions, we are now set to identify new sets of challenges thatconstitute clogs in the wheel of smooth operation of our financial system which, hitherto,have not received the desired attention.

But before we do that, we need to recap where we are coming from as this is the onlyway to develop the impetus for where we are going. It is necessary to do this because manyof the issues we have been trying to address since consolidation are still with us, eventhough some of the key players have been forced to step aside courtesy of CBN interven-tion of 2009 and thereafter.

DISPLACEMENT OF BANK OWNERSIt is still these issues that necessitated the CBN intervention that we are going to discuss inthis particular edition. About 50% of the consolidated banks have dropped their founda-tion Chief Executives and promoters on the heels of CBN intervention and the attendant

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policy framework on tenure manage-ment.

Hopefully, never again shall we passthrough this route; we did because wehad no choice. What were the seedsof discord that forced us to passthrough this route? Essentially, theseare the corporate governance issues.Please read on.

We are going to dwell on the spe-cific issues that arise as a result of boththe declared and undeclared agenda ofthe bank owners. In other words, weare going to look at the enabling envi-ronment from the perspective of thestyle adopted by the bank owners torun their banks as well as how theiractions or in-actions have contributedtowards the escalation of fraud.

As usual, it is only fair and properfor us to emphasize the fact that thescenario we are about to present is notapplicable to all the banks in Nigeria.In fact, the vast majority of banksthat displayed the characteristics we areabout to present are no longer stand-ing as corporate entities within the in-dustry, having been either consolidatedwith others or liquidated.

The following are the organizationalfactors that provide the enabling envi-ronment for fraud to germinate andflourish in our banking system in theimmediate past dispensation:

OPERATIONAL FEATURESThere is an obvious link between theoperational modalities of some banksand the tendency to commit fraud es-pecially on the part of staff. Let usponder over the following specific fea-tures of many banks in Nigeria, espe-cially in the previous dispensation:

They hire and fire and are not un-der any obligation to explain to any-body their reasons for firing. Hence,although getting to be employed is verydifficult, courtesy of stringent criteriain respect of qualifications, age bracket,and experience, being asked to go isthe easiest thing under the sun.

• There is no effective board ofdirectors; hence, the prime mover com-bines the functions of chairman, chiefexecutive officer, chief operating of-ficer and even chief security officer.Inevitably, therefore, daily operationsare driven by the whims and capricesof this man who may not be a trainedbanker. In fact, his only qualificationfor being in that position might just bethe size of his purse, coupled with highlevel contacts within the corridors ofpower.

• Promotions and career progressare not governed by any laid downcriteria. If you are not directly or indi-rectly related to the ‘big man’ or hiswife you are automatically disqualifiedfrom holding certain positions no mat-ter how good you may be. Your sub-ordinate can become your boss over-night with no apologies.

• There are no benefits, whetheron disengagement, resignation or re-tirement; no pension and no gratuity.Hence, although the remunerations areoften good while it lasts, the level ofanxiety and insecurity is very high.

With the above scenario, the extentof systemic assault on the psyche andpersonality of workers in some ofthese banks is better imagined. It is forthis reason that they are increasinglybeing tempted to vent their grievanceson the corporate organization whichguarantees neither their present norfuture security. They do this by com-mitting fraud, if the opportunity ex-ists, often without considering the pos-sibility of being caught.

Another dimension to the issue is

the fact that many fraudsters are actu-ally young and energetic ex-staff ofthe same category of banks who wereprematurely disengaged or terminated.

RECRUITMENT ‘POLICY’It is flattering to call the mode of em-ploying people in many of the banks‘policy’ as no such thing actually exists.On paper, the impression is given thatfor new intakes at entry point, onlygraduates of not more than 25 yearsof age with first class or second class(upper division) are eligible to be in-vited for an aptitude test after whichthe successful ones will be invited forinterview.

In practice however, since there isno formal advertisement for recruit-ment, these criteria are not subjectedto any compliance check, hence themost important qualification becomeshow closely linked you are to powerfulpeople either within or outside the bankin question. This criterion manifestsitself more at the interview stage wherethe final outcome could be anythingbut transparent.

Another intriguing aspect has to dowith the recruitment of junior stafffor cash counting where only holdersof National Diploma (ND) are re-quired. But with the full knowledge ofthese banks, most of the candidatesactually possess Higher National Di-ploma (HND) but they are made tosign an undertaking that whateverhigher qualifications they possess wouldnever be disclosed. In other words,higher skills are recruited at a lowercost. Of course, these desperate indi-viduals soon become frustrated andwilling tools for ‘other’ agenda.

The recruitment of experiencedbankers, especially into the marketingfunction, is no less controversial as thefundamental determinant is usually“how much deposit can you mobilizewithin three months?” (very kind oneswill give you six months) or simply “whodo you know and how much can hegive us”? In a situation where crediblereferences, track record and integrityare pushed to the back seat, all man-ner of characters and masquerades getemployed on the strength of falsepromises which they do not intend to


ISSUES (II) | Quality & Internal Control in Banks:Corporate Governance Issues

fulfill abinitio. Those of them that actually have the contacts in high

places use them as a bait to move from one bank to an-other without developing capacity to address even the mostbasic issues such as applications for loans. Hence, severalloans go bad for improper appraisal.

INADEQUATE TRAININGIf the manner of recruitment in many of the banks iscontroversial, then the issue of training or lack of it, ispatently scandalous. Although you hear of the hundredsof millions of Naira spent on training by some of thesebanks, the question is: Who verified these figures and whatmanner of training was received? We can even extend thequestion further: What category of staff received the train-ing? If a general manager or executive director who hascontacts in high places threatens to leave the bank and heis sent to go and cool off in Wharton or Harvard BusinessSchool to dissuade him, is this the kind of training beingreferred to?

The truth of the matter is that due to the persistentpressure on the treasury position of these banks and theexigency of survival, young school leavers are employedand immediately sent to the field to do battle without equip-ping them with the relevant tools by way of training. Inparticular, young girls are engaged (note that outward ap-pearance is very important in the selection process) andsent to go and source for deposits with unattainable tar-gets, when they do not understand what happens inside thebanking hall, neither do they understand the needs of thecustomers they are going to meet and interact with.

Occasionally, they are dispatched to the training schoolfor one or two days where lectures are dictated and hand-outs given (which are never referred to after that). Thesetime-offs would have been appreciated by these helplessyoungsters, but with the deposit targets always starring themin the face, they do not look forward to it. In the circum-stances, it is doubtful if any meaningful impact is madewhether on their performance or confidence level by thesepurely academic training.

As is the case in the well established and properly man-aged banks, the normal practice is that a new employee ispassed through a structured table –to-table training underthe strict supervision of existing staff for a period of oneyear (minimum of nine months) in a big branch. Duringthis period, he acquires necessary knowledge and confi-dence in all aspects of banking but without being assignedany specific responsibility until he is certified ready.

This is the kind of initial training that enables the newemployee to interact with customers without being suscep-tible to unintended or unauthorized machinations. Even ifthe emergency bank owners are aware of this, there is notime for it as immediate results are required at minimumcost.

LACK OF STANDARDIZATIONOn some occasions, this category of banks in question alsodo not have the time or the patience to articulate a properand enduring Manual to guide their operations, not onlyfor reference purposes in respect of existing staff but alsoas a training material for new entrants. Even when oneexists, it is constantly being adjusted or amended to accom-modate newly developed survival strategies.

The implication of this is the excessive use of discre-tion, even by junior officers who have not been adequatelyprepared to appreciate the wider implications of their ac-tions. Some of the discretions when wrongly applied mayresult into fraud if capitalized upon by unscrupulous cus-tomers who might just be waiting in the wings for the op-portunity. Staff members themselves may also decide tocash in on the situation and enrich themselves at the ex-pense of the bank.

Who verified

these figures and

what manner of

training wasreceived?


ISSUES (II) | Quality & Internal Control in Banks:Corporate Governance Issues

IMPROPER SEGREGATION ANDALLOCATION OF DUTIESInadequate segregation and allocation of duties is a directfall out of the paucity of staff in most of the banks. Forinstance, if one person is made to perform the functionsof three persons, there can be no room for segregation orallocation of duties which in itself defeats the cardinal prin-ciple of internal control. In such circumstances, fraud isonly a matter of “when” not “if ”.

OUTRAGEOUS REMUNERATIONIn their desperate bid to attract reluctant staff from otherbanks, some of these banks offer mouth-watering and pa-tently outrageous remuneration packages to employees whoare willing to jump ship. Perhaps, until recently, it may notbe generally obvious that this is a double-edged sword, moreof a Greek gift. Which way to go: high remuneration forhigh risk job or lower remuneration for a stable career.Unfortunately, several young and ambitious professionalshave burnt their fingers by choosing the former.

Sadly, however, it is a direct consequence of the artifi-cial life-style that goes with jumbo remunerations (whichmust be maintained at all cost) that some banks turnedbreeding grounds for fraudulently-minded staff and thistendency continues even after they leave the bank.

This apparent bastardization of the noble career ofbanking gives young school leavers the unfortunate im-pression that it is not how long that one works in a bankthat matters but how prosperous; in other words, they wouldrather work for a short period, hit big money and exit than‘crawl’ for long. However, in their bid to “make it” fast,they do not distinguish between legitimate earnings and sharppractices which amount to fraud.

Experience has also shown that even the preference

for short tenure and massive wealth is often a mirage asthe proceeds of high earnings and sharp practices are notalways invested wisely. The bulk of it is frittered awaythrough the maintenance of flamboyant and exorbitantlifestyles while a good chunk is lost to conmen, hangers-on,419 and other operatives who are fully aware of the gull-ibility of the salary-based millionaires who wear designersuits and silk ties inside the air-conditioned confines of thebanking halls.

Now, the bubble has burst and many of the survivingbanks have been forced to cut down on overheads, espe-cially remuneration.

PERPETUAL SERVITUDEIt is apparent that certain habits, policies or practices ofmany bank owners and their management are designed tokeep the generality of bankers under perpetual servitudeand in the process extract loyalty and unwavering commit-ment while the job lasts or for as long as their services arerequired.

This manifests in various ways but common examplesinclude the following:

• While short-tenured facilities such as consumer loan,furniture loan, personal loan, compassionate loan, car loan,etc. are all available for the asking, mortgage loan (a long-tenured development facility) is almost a taboo.

• For the senior members of staff, they are providedwith chauffer-driven official cars, maintained at the bank’sexpense. In many instances however, the car becomes yourown after five years provided you are still in the employ-ment of the bank. If you decide to resign before then, youare debited with an amount which you may not be able topay, which means you will drop the car. Meanwhile, thiscategory of staff are not entitled to vehicle loans whichmeans that they may not have good personal cars.

• If a loan goes bad, instead of pursuing the customerfor repayment, the outstanding amount is converted to ashort-term loan account for the branch manager and oth-ers involved in the relationship not withstanding that thefacility may have been approved in head office; collusionwith the customer is immediately assumed. The loan re-payment is deducted from their salaries at source.

• You are expected to dress very well at all times, in thespecial colours prescribed which must align with the corpo-rate culture and core values of the bank. Of course, this isvery expensive, especially with the element of competitioninvolved. Although there is often no time for lunch, it standsto reason that these people can only eat in choice places.

• In order not to disturb the expensive banking hoursduring the week days, most other activities such as courses,workshops, seminars, meetings, symposia etc. are carriedto week-ends. In other words, there is virtually nothing elsethat you can do for yourself apart from bank work. Evensocial activities are a luxury and this explains the fact thatthe largest concentration of spinsters are found in the bank-ing halls of this category of banks.


ISSUES (II) | Quality & Internal Controlin Banks: Corporate Governance Issues

CASUALIZATION OFSTAFFAnother explosive and vexatious prac-tice of many of the banks is thecasualization of a certain category ofstaff, usually those on the lower rungssuch as cleaners, drivers, office assis-tants, secretaries and cash counters (i.e.bulk tellers).

Although the issue at stake centersaround cost, it is not generally evidentthat what is being gained in one pocketis lost through the other. This categoryof people who have no future withinthe bank will stop at nothing to get backat the organization that has condemnedthem to perpetual servitude, penuryand psychological torture.

It is clear enough that the vastmajority of frauds in these banks thathave to do with insider information andoperational details are traceable to thiscategory of temporary or expendableworkers. The Nigerian Labour Con-gress has been engaged in a bitter warwith some of the banks on this issueof casualization.

SKEWED REWARDSYSTEMThe reward system in some of thebanks which is heavily skewed infavour of the front office personnel(i.e. marketing group) compared to theback office staff (i.e. operations andcontrol group) is also a veritable sourceof acrimony and bad blood. The sing-song which does not hold water, is thatthe marketers in the bank who bringthe money are synonymous with thestrikers in a football team who scorethe goals, hence they deserve higherreward, faster career progress andhigher profit sharing. This argument isonly a measure of the instability withinthe sector. Of course, you will not hearthings like these in the strong and well-managed banks with laid-down criteriafor performance measurement andwhere every staff is appraised in rela-tion to his specific job function.

Unfortunately, the people in theoperations unit who are discriminatedagainst are those who hold customermandates, process and authorize alltransactions and are in custody of cash

and other control and security instru-ments. Hence, no fraud can succeedwithout their knowledge, cooperationor connivance. You can imagine thelevel of risk these banks are exposedto on a daily basis, many of which areactualized.

RENDITION OFINCORRECT RETURNSIt is an open secret that the returnssubmitted to the regulatory authoritiesby these category of banks are smartly‘doctored’, carefully dressed and pre-sented to meet the requirements at anypoint in time. Although there is nevera written instruction to this effect, thetruth is that this practice is a survivalstrategy discreetly engineered, ap-proved or authorized by managementsince the actual situation on ground isnever palatable.

An interesting issue which will notbe explored now is whether or not theregulatory authorities are aware of thispractice, as well as the rhetoric ques-tion of what kind of professionals areused or allow themselves to be usedfor such unedifying conducts.

For now, what concerns us is thefact that the generality of staff in thosebanks are fully aware that the owner-ship is surviving through fraud anddeception; hence they too can developtheir own survival strategies using theopportunities inherent in their job func-tions.

‘WINDOW-DRESSING’ OFACCOUNTSIf the practice highlighted above isexcusable on the ground that the ‘re-turns’ have limited circulation as theyare forwarded only to the regulatoryagencies, the deceptive habit of declar-ing and publishing non-existent figuresin respect of earnings, profits, depos-its, loans and advances to the wholeworld through the print and electronicmedia called “window-dressing” issurely a frightening, dangerous and un-acceptable dimension to the policy ofgrowth and liberalization of the bank-ing sector.

As these accounts are usually au-dited and approved by the CBN priorto publication, we shall also examine ata later stage, how these functions are

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ISSUES (II) | Quality & Internal Controlin Banks: Corporate Governance Issues

performed and whether or not thingscould have been done differently in ourown peculiar environment.

Again, we have to examine themotivation for this fraud which is ob-viously the ‘mother’ of all the survivalstrategies adopted by bank owners tohoodwink the general public and post-pone the day of reckoning. The simplereason is that banking business is basedon confidence and positive perceptionby the general public. Hence, irrespec-tive of your internal failures, problemsor difficulties as a bank, you can re-main alive if you maintain a good publicimage. This also explains the undueemphasis on both internal and exter-nal aesthetics.

But it is the human beings that areworking in these banks who are beingused to achieve this grand cover-up andthey are aware of the truth within; theyare also aware that falsehood does notlast forever, they see the banks thatare being liquidated when the truth isfinally out. They soon start gettingideas of how to settle themselves whilethe music is on. Of course, the way togo is to search for avenues to commitfraud.

BANK OWNERS ANDTHEIR LIFESTYLESWithout prejudice to the conservativeand virtually spartan lifestyles of a fewsuccessful entrepreneurs in the bank-ing system, it is also true that the vastmajority of bank-owners have stirredup considerable outrage, discontent,controversy and even public oppro-brium through their sheer opulence andhighly ostentatious lifestyles whichcould be anything but examples to thegenerality of staff who are toiling toproduce results for them under diffi-cult circumstances.

Examples of this includethe following:Acquisition of expensive fleet of ex-otic cars and SUVs which are not usu-ally included in the fixed asset recordsof the bank, just as the mode of pur-chase would beat the most sophisti-cated audit trial. It would be revealingto beam a searchlight on how thesestate of the art ‘machines’ are pur-chased as well as the source of funds.

Several bank-owners and chief ex-ecutives do not use cheque books formost internal transactions conductedin their personal capacity such as cashwithdrawals, lodgments, transfers etc.I recall the personal secretary to theCEO of a bank who complained pri-vately that for the four years sheworked with her boss, she never casheda single cheque for him, even thoughthe ‘bigman’ made huge expenses incash, including regular gifts to her. Theirresistible question is how does theCEO obtain large volumes of cashwithout drawing cheques on his legiti-mate emoluments from the bank?

In some instances, the buildingshousing some branches were pur-chased by the bank in the name of theexecutive chairman/CEO to whomrent is also being paid by the bank. Thesame goes for his personal residencewhich was bought with the bank’smoney while the bank incurs rentalexpenses in its books and remits sameover to him.

Some bank-owners move about ina long convoy of cars and SUVs es-

corted by a retinue of body guards,security agents and personal assistantsall of which are paid for by the bank.At parties, they ‘spray’ either with dol-lars or the highest denomination ofnaira, notwithstanding the fact that thebank itself may be in difficulty.

How does the Chief Executive ofa bank own a private jet with which hecruises around the world? With whichmoney? Those who were wonderingwhy the CBN should intervene in theaffairs of private banks were obviouslynot looking in the right direction. Is itnot private individuals that commitarmed robbery against innocent citi-zens? Why is the government con-cerned?

OTHER PRACTICESThere are several other offences thatare masterminded, encouraged or su-pervised by some bank-owners to en-sure the survival of their banks butwhich are obviously against the letterand spirit of the government’s macro-economic policies. These include butnot limited to the following:

Round-tripping: This refers tothe practice of buying foreign exchangeat official rate and selling it at ‘black-market’ rate, thus making a windfallprofit that has nothing to do with thenormal functions of financial interme-diation for which the banking licensewas issued.

Contravention of sectoral allo-cation of credit: Many banks do notcomply with the ratio of their risk as-sets that should be devoted to specificsectors of the economy as enunciatedby the policies on sectoral credit.

Contravention of interest andlending rates: Because of the sheersize of overheads inherent in theiroperations especially in the area of staffemoluments, rent, vehicles, etc. manyof the banks have to cut corners tosurvive which include charging theborrowers more even as they do notpay enough on deposits which they needto remain in operation.(* Chuks Nwaze is the MD/CEO,Control & Surveillance AssociatesLtd.)

The simple reason is thatbanking business is based onconfidence and positive percep-tion by the general public.Hence, irrespective of yourinternal failures, problems ordifficulties as a bank, you canremain alive if you maintain agood public image.


Issues (

III)

he unabating scarcity of aviation fuel and debt overhang plaguing airlines has become aserious drag on the Nigerian aviation industry. These amongst several other challenges posethreats to the health of the industry as airlines now limit flight schedules or out rightly canceland/or delay flights to be able to cope with operational demands. The pathetic scenario hasculminated in a somewhat predatory price regime for aviation services thereby earning thecountry the unenviable status of having one of the highest airfare rates in the world.

This is further exacerbated by low and declining passenger traffic into the various air-ports in the country as seven airports recorded negative growth in passenger traffic for theperiod January to December 2009, according to available industry statistics. The scenario iseven gloomier as eleven airports recorded negative growth in aircraft movement for thesame period according to statistics from the Federal Airports Authority of Nigeria (FAAN).Some airlines are presently on ‘life support’ from government in a bid to avert the collapseof the aviation industry.

The excruciating operational environment has led to the demise of several airlines de-spite the enormous potential of the Nigerian aviation industry. At some point, the story ofthe industry was synonymous with air mishap and airline failures. While there has beensignificant improvement on the former, the same cannot be said about the latter. The coun-try has thus somewhat become a graveyard for airlines as the aviation industry history isreplete with instances of many operators that could not celebrate their 10th anniversary.Except for the defunct Nigeria Airways and a negligible few, the industry is yet to celebratean airline that operated continuously for two decades. The unsightly carcasses of groundedaircraft of failed airlines now occupy precious space in the nation’s airports. This ugly sce-nario has pitched the FAAN against the owners of these unserviceable aircraft with theformer threatening to get rid of the planes.

* Sunday Enebeli-Uzor


ISSUES (III) | The Nigerian Aviation Industry: Can the Elephant fly?

Competition and Pricing in the aviationindustryThe Nigerian aviation industry like most liberalised indus-tries has evolved to be competitive and attractive to inves-tors due to its enormous potential. New airlines are open-ing shops in Nigeria inspite of operational constraints andthe lull in the global aviation industry especially after the9/11 terror attack in the U.S. The policy in the aviationindustry as it relates to domestic airlines is based on freeenterprise and airlines are at liberty to operate any routesthey consider viable in the country. Foreign airlines whichoperate in the country are however limited to the airportof entry specified in the relevant air traffic licence and arenot allowed to operate domestic routes. Airfare rates arenot regulated and as such airlines charge fares as they deemappropriate for their services. However, to prevent preda-tory pricing, the Nigerian Civil Aviation Authority (NCAA)under the general power to regulate, conducts economicaudits on airlines offering low prices for air services asappear inadequate to cover their costs and may imposerelevant sanctions or issue directives where such audit dis-closes predatory pricing. How well the NCCA has fared inthis regulatory responsibility leaves much to be desired asthe travelling public pay exorbitant airfares all the time.

Competition among airlines in the industry has not beeneffective in achieving fair pricing for aviation services. Inthe real sense therefore, there is little or no competition inthe aviation industry. Nigeria currently has about six func-tional airlines operating regular scheduled domestic flights

to cater for a population ofover 150 million. The countryhas become reputed to haveone of the highest airfare ratesin the world. High and preda-tory airfares are features ofboth domestic and internationalcarriers. For the internationalcarriers, the excessive chargesdo not comply with interna-tional airfare pricing standard.Airline operators howeverblame the prevalent high airfareon multiple taxes, levies andhigh cost of aviation fuel thatare passed on to the travellingpublic in the form of highercosts of tickets.

The high cost of air travelin Nigeria becomes more ob-vious when a comparison ismade between airfare rate inNigeria and other climes forsimilar distances. In the UnitedStates for instance, JetBlue Air-ways and many other airlines

charge about $75 to $79 (N11,500 to N12,200) for one-way trips of over an hour, thirty minutes. In Nigeria how-ever, one-way trips of less than one hour cost an average

Source: Federal Airports Authority of Nigeria (FAAN)


of N20,000. Thishas been furthercomplicated by a 25percent increase inairfare across all do-mestic routes an-nounced in May2011. Discount car-riers and no-frills air-lines charge even farlower airfares in Eu-rope. For instance,easyJet, Ryanair andVueling charge lessthan €20 for one-way trips of over anhour, thirty minutes.Although these dis-count carriers andno-frills airlines havea number of condi-tions for their ser-vices, their businessmodel can easily bereplicated in Nigeriabecause all domesticroutes in the country are short distances of usually belowtwo hours.

Challenges of the Nigerian aviationindustryThe industry is currently contending with a myriad of chal-lenges principal amongst which is funding. Aviation is oneof the most capital intensive industries and return on in-vestment is low. Funding constraints have snowballed intoheavy debt obligation by airlines as it is estimated thatairlines presently owe banks and the government as muchas N300billion. Airlines are heavily indebted to the Nige-rian Civil Aviation Authority (NCAA) due to failure toremit the five percent ticket charges built into the faresbeing collected by the airlines from passengers on behalfof the government. The accumulated debt has become aserious impediment to the operations of airlines in thecountry. The Central Bank of Nigeria (CBN) recently in-structed both local and international airlines to pay thefive percent ticket charges to the Nigerian Civil AviationAuthority (NCAA), into a special account which has beenopened with the apex bank. Airline operators also com-plain of foreign exchange and custom policies that lead todelays in importation of spare parts for aircraft mainte-nance, which results in the grounding of aircraft for along period of time with attendant losses to the airlines.

Infrastructure in most of the airports in the country isin a state of disrepair and in dire need of modernisationand expansion. For instance, the international terminal ofthe Murtala Muhammed Airport, Lagos was designed tocater for one million passengers per annum. The airportcurrently caters for over that number but there are noadditional facilities to take care of the growing number ofpassengers that have far outstripped the projection of the

Source: Federal Airports Authority of Nigeria (FAAN)

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ISSUES III: The Nigerian Aviation Industry: Can the Elephant fly?


ISSUES (III) | The Nigerian Aviation Industry:Can the Elephant fly?

planners. The same scenario applies in most other airports inthe country. There have also been embarrassing incidencesof straying animals on airport runways that have caused nearmishaps in some airports due to lack of fences to ward offintruding animals in airport vicinities. The deplorable state ofinfrastructure at the airports has given rise to a call for totaland immediate overhaul of infrastructure in the aviation in-dustry. Almost all the airports in the country are in dire needof remodeling, refurbishing or outright rebuilding to conformto modern requirements.

Another major challenge airlines are contending with isthe unsavoury rising price and scarcity of aviation fuel inNigeria. In a recent release, one of the major airlines in thecountry operating about 150 flights daily disclosed that it pur-chases about 500,000 litres of aviation fuel daily and at theprice of N180 per litre, the air-line spends about N90milliondaily on aviation fuel. The sky-rocketing cost of aviation fuelhas impeded the growth of air-lines as most of them are nowheavily indebted to aviation fuelmarketers. The ugly scenario hasescalated into serious operationalconstraints as some aviation fuelmarketers now insist on cashpayment before dispensing avia-tion fuel to airlines. This has cul-minated in flight delays and insome instances outright cancel-lation of flights. Some airlinesnow resort to refuelling their air-craft offshore in neighbouringcountries like Ghana and Togowhere the product is said to bemuch cheaper. Marketers of aviation fuel have attributedthe high cost of the commodity to cost of its importationsince the product is not refined in the country. Airlines arealso groaning under incidence of multiple taxation and sun-dry levies by various regulatory and supervisory agencies inthe industry.

A major challenge that deserves urgent attention is inad-equate skilled workforce required to keep the industry run-ning. The Nigerian College of Aviation Technology (NCAT)has not been able to turn out sufficient pilots and groundoperations personnel to meet the manpower needs of theindustry. This situation is threatening the health of the indus-try with attendant capital leakage to the economy as mostairlines maintain expatriate staff members who are remuner-ated in foreign currencies and end up repatriating a majorpart of their earnings. The available workforce in the indus-try is also ageing and the human capital shortage challenge isbeing further exacerbated by brain drain due to poaching byemerging economies in the Gulf and the Far East. Poor ser-vice delivery has become a norm in the industry. Incessantcomplaints of poor customer service delivery, late departuresand outright flight cancellations without cogent explanations

Some Defunct and Inactive Airlines in Nigeria

Source: International Airline Industry Directories, Wikipedia and airlinehistory.co.uk

A major challengethat deserves urgentattention is inad-equate skilledworkforce required tokeep the industryrunning. The Nige-rian College ofAviation Technology(NCAT) has not beenable to turn outsufficient pilots andground operationspersonnel to meetthe manpower needsof the industry.



and adequate compensations are dailyoccurrences that the travelling publichas become accustomed with. Theprevalence of owner-manager scenariois one of the banes of the aviation in-dustry. Most airlines have a ‘key-man’management structure that in some in-stances are inept and without the req-uisite technical pedigree to run a busi-ness as complex as an airline. The com-plexity of the airline business is such

that demands zero error in decisionmaking in all facets of its operation aspoor judgment and decisions are alwaysfatal.

Government interventionAlthough the Nigerian aviation indus-try is groaning under high indebtedness,the scenario is not peculiar to Nigeria.In other climes, the industry facestough times since the 9/11 attach andthe recent global economic recession.The rising price of crude oil is alsotaking its toll on airlines around theworld. The growing incidences of cabincrew strike action, especially amongEuropean airlines are indications thatthe industry is currently struggling. Ina bid to avert the collapse of the in-dustry, the government through theCentral Bank of Nigeria (CBN) estab-lished a N300billion Power and Avia-

tion Intervention Fund in August2010. Although the Fund was initiallyearmarked to stimulate credit to theenergy and manufacturing sectors, itwas extended to the aviation industryas a number of airlines have becomeheavily indebted and gravitating to-wards a collapse. The Fund is designedto enable airlines to refinance and am-ortise their loan obligations over a pe-riod of ten to fifteen years. Specifi-

cally, it would be used for the refinanc-ing of existing loans and leases and asworking capital for players in the sec-tor. The long term segment of the fundis exclusively applicable to new powerprojects only. This intervention fundhas helped avert the feared financialcrisis and restored confidence in theaviation industry.

Safety and ComplianceIssuesThe aviation industry is one industrywhere safety issues are taken very se-riously. Perhaps this explains why thereis an avalanche of regulatory and su-pervisory agencies in the industry. In-cidences of mishap are always fatal andthis negatively impacts the industry asconfidence wanes each time somethinggoes wrong. The industry in Nigeria hashad its share of downturn due to air

mishaps in the past which adverselyaffected industry growth and resultedin loss of confidence and risk aver-sion among the travelling public.

However, the various regulatoryand supervisory agencies have risen tothe challenge to address safety issuesin the industry. Consequently, after sev-eral years of improving safety standardsand painstakingly following rules laiddown by the United States Federal Avia-

tion Administration (US-FAA),Nigeria in August 2010 receivedthe coveted Category One Certi-fication. The certification gave aclean bill of health to the nation’saviation operations and Nigerianairlines can now fly their ownplanes to the United States. Hith-erto, Nigerian carriers ‘wet lease’aircraft and crew from other air-lines with Category One status forU.S. -bound flights, a practice thatis prohibitively expensive. CapeVerde, Egypt, Ethiopia, Moroccoand South Africa are other Afri-can nations with Category OneCertification.

Nigeria has also passed an In-ternational Civil Aviation Orga-nization (ICAO) audit after ac-quiring full-body scanners, explo-sive-detecting equipment and cre-ating separate bays at interna-tional airports for screening of

U.S.-bound passengers. The NigerianCivil Aviation Authority (NCAA) is cur-rently preparing the MurtalaMuhammed International AirportLagos, and Nnamdi Azikwe Airport,Abuja for certification by InternationalCivil Aviation Organization (ICAO). Ifand when the airports scale throughICAO audit and are certified, the repu-tation of the country’s aviation indus-try will receive further boost. With thesecertifications, the industry will attracthigher rating and lower insurance pre-mium for aircraft insurance. These cer-tifications and improvements in safetystandards in the Nigerian aviation in-dustry coming at a time when severalAfrican carriers are being blacklistedby the European Union (EU) for sig-nificant safety deficiencies requiringdecisive action are indeed commend-able.

JetBlue Terminal 5 at JFKInternational Airport

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The aviation industry andthe economyIn Nigeria like all other countries, theaviation industry serves as a vitalmeans of transportation and majorpivot for other sectors of the economy.The industry stimulates Foreign DirectInvestment (FDI) inflow into the coun-try and increases the potential for in-ternational trade. International trade inturn through its multiplier effectsopens up markets and enhances thecompetitiveness of domestic firms.The industry facilitates commercethrough the movement of productsand services quickly over long distancesthereby enabling economic and socialparticipation by individuals and com-munities locally and internationally. Onthe social scene, the aviation industryengenders social cohesion through a glo-bal transport network that connectspeople, countries and cultures. Its stra-tegic backward and forward linkagesto other sectors of the economy arousekeen interest for both the governmentand the citizenry. For the government,the health and safety of the industry isa determinant of how smoothly itserves as a medium of transportationand how efficiently it facilitates eco-nomic activities. And for the citizenry,the safety, convenience and reliabilityof air services determine the confi-dence they repose on the industry andtheir patronage of air transport ser-vices. Affordability of airline servicesis also paramount for the travellingpublic and especially in Nigeria whereairfare rates are prohibitively high.

Over the years, the Nigerian gov-ernment has embarked on severalpolicy measures to ensure that the avia-tion industry plays its catalytic role instimulating economic growth and so-cial cohesion. In recent times however,there has been renewed interest in theindustry as concerted efforts are madeto reposition it to conform to globalbest practices, including making theindustry not just accident-free but in-vestment friendly. The government alsointends to develop the industry maxi-mally to become the aviation hub ofWest and Central Africa. To achieve

these, the final draft of the NationalTechnical Working Group (NTWG) onTransport of the Vision 20:2020 madea plethora of recommendations to har-ness the potential of the aviation in-dustry in a bid to leapfrog its develop-ment. Although some parts of the rec-ommendations may be ambitious, theyare nonetheless feasible if the requi-site political will is mustered. For in-stance, the strategic visions for the in-dustry include increasing the numberof airports in the country from 21 to37 to reach all state capitals and theFederal Capital Territory (FCT).

With a population of over150 million people, Nigeria is themost populous country on theAfrican continent and has thelargest concentration of theblack race in the world. Thecountry’s huge youthful and mo-bile population portends enor-mous market potential for theaviation industry. On the inter-national scene, a viable aviationindustry will not only be a usefultool for regional developmentbut will also reinforce Nigeria’sleadership role in the continent.The industry is also a major em-ployer of labour covering areassuch as airline and airport op-erations in scheduled and char-ter flights for passengers andfreight, general aviation, aircraftmaintenance, air traffic controland regulation, and activities di-rectly serving air passengers,such as check-in, baggage-han-dling, and on-site retail and ca-tering facilities. It also has directlink with the hospitality industry.A thriving aviation industry willgive a boost to the hospitality industry.

Government’s StrategicPlan for the AviationIndustryTo achieve the goal of making Nige-ria the hub of aviation especially in theWest African sub-region, the NationalTechnical Working Group (NTWG) onTransport of the Vision 20:2020among other things recommendedtransit visa waiver for ECOWAS coun-

tries bound passengers. The sole pur-pose of this policy is to redirect suchpassengers to make Nigeria their ‘transitcountry’ as has been successfully imple-mented by the Netherlands to attainits status as the second aviation hub inEurope after Heathrow. There is alsothe proposal to build a 500 CapacityTransit Passenger Dwell Lounge toprovide efficiently for the surge in pas-senger that will arise from the proposednew visa waiver policy. The industryhas the potential to meet the aviationneeds of its neighbours in the provi-

sion of trans-border aviation infra-structure. The plan also includes theupgrading of Akanu Ibiam AirportEnugu to a Full Fledged InternationalAirport to serve one of the six airtravel passenger centres in the coun-try. The government also intends tohave flag carrier airlines as symbols ofnationhood, distinct from national car-riers which are usually owned 100 per-cent by governments. There is also theplan to expanding all International Air-ports in the country to A380 capability



to ensure that the country can copewith the envisaged 20 million passen-gers by 2020.

Evolution of the AviationIndustry in NigeriaThe origin of civil aviation in Nigeriadates back to the colonial era. The in-dustry is a product of a mere happen-stance of history that dates back to1925 in Kano when the city wasgripped by a tense stand-off betweenthe residents and the colonial govern-ment officials. During the feud, a Brit-

ish Royal Air Force (RAF) fighter landedon a Polo ground in Kano to under-take a surveillance of the riotous situ-ation. Without air routes, maps, andradio communications, the flight wasregarded as a particularly hazardousoperation. At the end of the uprising,the Royal Air Force continued flightsto Nigeria with an aircraft charteredfrom the British Overseas AirwaysCorporation (BOAC) carrying passen-gers and mail. The flight destinationslater expanded to include Lagos, Port

Harcourt, Enugu and Jos routes. Thejoint effort of RAF and BOAC wasnot limited to Nigeria as it was extendedto other English speaking West AfricaCounties namely Ghana, Gambia andSierra Leone. The growing activities ofBOAC in the Anglophone West Afri-can Countries led to the establishmentof a regional commercial airline – theWest African Airways Corporation(WAAC) in 1947.

From Monopoly toLiberalisationThe Nigerian domestic aviation indus-try started as a monopoly. Upon inde-pendence in March 1951, Ghanaopted out of the West African AirwaysCorporation (WAAC) having decidedto float Ghana Airways Limited, whichbecame operational in 1958. The as-sets of WAAC were shared and Nige-ria inherited some aircrafts and landedproperties. The federal governmentsustained its interest in the continuityof the airline’s services. The BritishOverseas Airways Corporation(BOAC) and the Elder Dempster Ship-ping Lines were invited to participatein the ownership of WAAC in anagreed equity proportion; FederalGovernment of Nigeria – 51 percent,BOAC – 33 percent, and ElderDempsey Shipping Line – 16 percent.The new company was incorporatedby the Federal Government in part-nership with BOAC and ElderDempster Limited in 1958. In 1961,the West African Airways Corporation(WAAC) was re-registered and rechris-tened Nigeria Airways Limited, follow-ing federal government’s acquisition ofthe combined interest of BOAC andElder Dempster Lines. This develop-ment followed the need to have a na-tional flag carrier after Nigeria attainedpolitical independence in 1960.

Nigeria Airways exclusively pro-vided aviation services until some pri-vate enterprises obtained licenses toprovide charter services in the coun-try. Like most state owned enterprisesof the era, Nigeria Airways operatedsub-optimally. Scheduled passengerservices were undertaken irrespectiveof route viability and profitability. The

gross underperformance of NigeriaAirways necessitated the breaking ofits monopoly by the federal govern-ment in the early 1980s and the issu-ance of Air Transport Licences (ATL)to private operators to provide domes-tic scheduled and non-scheduled pas-senger services. The first three benefi-ciaries of the aviation industryliberalisation are Okada Air, Kabo Air,and Gas Air. The liberalisation andentrance of private sector operatorsin the aviation industry engenderedcompetition, innovation, and improvedcustomer service delivery. The some-what boom in the industry after theshift from monopoly encouraged theentrance of more operators. With time,the aviation market became over-crowded with attendant overcapacity,high aircraft operating and maintenancecosts and low return on investmentaggravated by several taxes and levieswhich culminated in diminution offleets in the industry.

Regulation of the AviationIndustryThe aviation industry is one of the mostregulated industries all over the worldperhaps due to stringent safety consid-erations. International air transportregulation commenced with the 1944Chicago Convention. The conventionfollowed studies initiated by the UnitedStates and subsequent consultationsbetween the Major Allies. Fifty-fourcountries attended the conference andat the end, a Convention on Interna-tional Civil Aviation was signed by fifty-two countries, setting up the perma-nent International Civil Aviation Or-ganization (ICAO). The InternationalCivil Aviation Organization based inMontreal, Canada sets standards andrecommended practices for the safeand orderly development of interna-tional civil aviation. Its mission is tofoster a global civil aviation system thatconsistently and uniformly operates atpeak efficiency and provides optimumsafety, security, and sustainability. Also,the International Air Transport Asso-ciation (IATA) is the global tradeorganisation for the aviation industry.The IATA develops the commercial

Murtala MuhammedInternational Airport,Lagos.

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standards for the global aviation indus-try.

On the domestic scene, the Fed-eral Ministry of Aviation formulatesand coordinates aviation policies in thecountry. There are however severalgovernment agencies that oversee vari-ous aspects of the industry. The Nige-rian Civil Aviation Authority (NCAA)is the regulatory body for aviation inNigeria. The Civil Aviation Act of 2006established and empowers NCAA toregulate aviation safety without politi-cal interference, and also to carry outoversight functions of airports, air-space, meteorological services, as wellas economic regulations of the avia-tion industry. The Federal AirportsAuthority of Nigeria (FAAN) is theservice organisation statutorily chargedto manage all commercial airports inNigeria and provide service to bothpassenger and airlines. The agency ischarged with the responsibility of cre-ating the enabling environment for thedevelopment of air transport in themost economic and efficient mannerand the services connected with avia-tion. The Nigerian Airspace Manage-ment Agency (NAMA) is anotheragency in the aviation industry that isresponsible for the development of theNigerian airspace to a level consistentwith the requirements of the ICAOStandards and Recommended Practices(SARPSs). The Agency is saddled withthe provision of air navigation servicesto ensure safe, efficient, expeditiousand economic flight operations.

Some recent developments in theNigerian aviation industry

A recent novel development in theNigerian aviation industry is the com-missioning of the Total Radar Cover-age of Nigerian Airspace (TRACON)Air Traffic Control System providedby Thales S.A of France. TRACONwas designed to provide total radarcoverage for the Nigerian airspace toenhance civil and military surveillanceof aircraft operating into the Nigerianairspace. The EUROCAT air trafficmanagement system provides the lat-est technology to ensure safe and effi-cient operations for en-route, approachand airport movements.

Contracts for the airside terminal

building and rehabilitation works at theNnamdi Azikiwe Internation Airport,Abuja and contract for the construc-tion of the new terminal building atMallam Aminu Kano International Air-port, Kano have been recently awardedby the federal government. Also, reha-bilitation and expansion work has beencompleted at the Akanu Ibiam AirportEnugu and the airport has been re-opened for flight operations.

These airport rehabilitation projectswill no doubt give the airports the muchdesired facelift required to meet inter-national standards. The recent airportenhancement projects would cost thefederal government about 22.3billion.

Another novel development in theindustry is the recent entrant of a newdomestic operator, First Nation Air-ways, despite the operational challengesfaced by existing airlines. The devel-opment has rekindled optimism in theindustry and it is believed that the newcarrier would help engender healthycompetition that will stimulate qualityservice delivery and customer satisfac-tion.

Going Forward: Stillenormous potentialWith over 150 million youthful popu-lation and about six functional airlines,the Nigerian aviation industry still hasvast room for growth. However, thecliché of the more the merrier maynot necessarily apply in the industry asthree or four viable airlines having afleet of 50 aircraft each could servethe nation’s domestic aviation industrybetter than so many airlines operatinguneconomically with heavy debt over-

hang. With improved infrastructure andthe right business model, the Nigerianaviation industry has all it takes to be amajor contributor to the nation’s GDP.The federal government’s strategic planof making the country the hub of avia-tion in the West African sub-region asenunciated in the Vision 20:2020 hasreinvigorated government’s interest inthe industry.

Although the Nigerian aviation in-dustry has a number of challengespresently, it has all it takes to rankamongst the most viable in Africa.Despite the liberalisation inducedgrowth, the industry has not grown toits optimum potential. A greater pro-portion of the population still patroniseland transportation for long distancetravels. Current passenger movementfigures from airports in Nigeria indi-cate that only about 8 percent of thepopulation travel by air. This is due inpart to the high cost of airfare in thecountry and high aversion to air travel.With stringent safety measures beingenforced in the industry and interna-tional safety compliance and certifica-tions, confidence is building and a goodnumber of the population will beginto embrace air travel. This is expectedto herald another phase of growth inthe industry, especially if the right policymix is put in place to significantly re-duce airfare rates to affordable levels.The new phase of growth should becarefully managed by government poli-cies to encourage airlines to merge in abid to achieve economy of scale andmaximize the gains.(* Sunday Enebeli-Uzor is an Ana-lyst, Zenith Economic Quarterly)

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Fore

ign In

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* By Neil Hitchens

he first quarter of 2011 has been domi-nated by one continuous and seem-ingly never ending background theme- volatility. The almost constant geo-

political turmoil continues to selectively andnegatively impact equity and bond markets,which have also had further downside shocksafter the stunning natural disasters experiencedaround the Pacific Basin. Overall market sen-timent is, at best, slightly positive but sporadi-cally, marginally negative. But this hides a dis-parate range of performances from aroundthe globe for the year to date.

As can be seen from the graph below thereturns from all markets, while starting theyear in a positive fashion firstly saw perfor-mances decouple as first the Tunisian and thenEgyptian and other Middle Eastern upheav-als kicked, before the more serious contagionfrom the Libyan uprising was then trumpedby first the New Zealand earthquake followedby its more powerful cousin in Japan. How-

ever as various difficulties seemed to be re-solved, especially the better than predictedmelt-down from the Japanese earthquake/tsunami, from there on, what we saw was aclassic Black Swan theory reaction (outlinedbelow).


investors have witnessed firsthandmany times previously, despite the defi-nition being coined only in 2007.

Black Swan Theory is a philosophi-cal and mathematical theory foundedby Nassim Nicholas Taleb. It describesrandomness and uncertainty. Thetheory was described in Taleb’s bookThe Black Swan: The Impact of the HighlyImprobable. Its name originates in theassumption in Medieval Europe thatblack swans could not exist, when infact, they are rare, but do exist.

According to the Black SwanTheory, unpredictable events are muchmore common than people think andare the norm and not the exception.Taleb believes that the more educatedpeople are, the more likely it is thatthey incorrectly believe these unpre-dictable events are uncommon. Talebsays that because of an information

So while the MSCI (MorganStanley Capital International) WorldIndex of Developed Markets peakedon March 19th at a rise for the yearof 6.45%, the Emerging Markets In-dex by then having firstly fallen awayon the news from Egypt recovered tothen peak on April 8th at +4.52% .The Frontier Markets Index peakedon January 26th at +2.41% only to sinklike a stone and collapse to -9.83% onMarch 2nd before rallying to only be -4.88% as we write this.

Developed Markets –Historic Japanese parallelsand “Black Swan Theory”.The Japanese earthquake induced tsu-nami of March 11th produced some-what expected but nevertheless ex-treme short-term volatility globally.The Japanese market sell-off was mir-rored globally as the bad news seepedinto equities. However the bad newswas then deemed to be not as cataclys-mic as first thought and markets thenreversed the initial sharp sell-off andin most cases saw the decline elimi-nated after a couple of weeks.

What we have seen here is a classicexample of the much talked about‘Black Swan Theory’ which seasoned

overflow in today’s society, we oftendon’t interpret data accurately and cre-ate correlations that are not always rel-evant, when randomness more oftenis the rule. Taleb does not believe inthe expertise of bankers or financialanalysts and says that society incor-rectly believes that they can predict thefuture.

Black Swan Events have three steps:1 - The event is a surprise2 - The event has a major impact3 - After its first recording, the eventis rationalised by hindsight.

As we saw from the market’s reac-tion there was a collective flight to un-certainty, reversed almost as quickly asthe fear of the event was put into ra-tional proportion.

While the earthquake shook on theafternoon of March 11th, Japanesemarkets were open and ended the dayweaker by only -180 points/-1.7%; theFTSE 100 closed off -16 points/-0.3%but the Dow was up +60 points/+0.5%.

However, after serious problemswere revealed with the FukushimaDaiichi nuclear reactor, Japanese indi-ces opened with steep losses on Mon-day the 14th, at one stage down -7%,followed by even greater falls the next

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However the bad news was thendeemed to be not as cataclysmicas first thought and marketsthen reversed the initial sharpsell-off and in most cases sawthe decline eliminated after acouple of weeks.

After the Japan quake:Queuing just for theescalator down to thefood floor


FOREIGN INSIGHT | Volatile First Quarter - No Respite in Sight

day, March 15th, ending at a two yearlow of 8,605, down 1,015 points / -10.6% (via an intraday low of 8,227 /-14.5%).

The Bank of Japan stepped in withmarket calming measures but this wasnot sufficient to calm global marketswhich fell into a sharp tailspin as irra-tional fears over the extent of possiblenuclear contamination spilled over intofull blown global equity contagion andthe MSCI World Index (in US$) hit alow for 2011 on March 16th of 1,260,to give a performance for the first halfof the month of -7%, off -2% for theyear.

But short term fears were re-ex-amined in the classic Black Swan mouldand market sentiment turned around180° on March 17th as the nuclearproblems were re-evaluated. So weended the month with The Dow at12,319, some +6% up from the lowclosing point of March 16th, the FTSEat 5,908, +5.5% from the lows andeven the Nikkei at 9,755 is +13.4%from that low close of 8,605. The

MSCI World Index recovered to endMarch +5.9% from the lows but stillended down -1.24% for the month asthe Japanese weighting was down -11.4%; other developed marketsended the month overall roughly flat.

Is this then a case of déjà-vu?What parallels can be drawn betweenthe 2011 earthquake and the Kobe di-saster of January 1995? What shouldinvestors be doing now?

Japanese investors have certainly

reacted almost identically in the veryshort term as to what shares aredeemed a market Buy and a marketSell. Shares in companies such as FudoTetra (Code 1813 JP) which makesearthquake resistant foundations haverocketed; in 1995 they rose from¥2,550 to ¥7,000 a rise of +175%,in 2011 the rise was from ¥113 to¥238, +110% but in both cases theshares slid back after this ini-tial euphoria. In 1995 theshares had halved in valuefrom the peak within 4months and this is likely tohappen again.

The biggest loser in 2011has been Tokyo ElectricPower (Code 9501 JP) -78%since the earthquake.‘TEPCO’ was, unfortunately,responsible for the nuclearprogramme and its weaknesswill continue to be mirroredin the heavy industry sector.

Longer term though thesectors that were the best

performers for 1995 could probablyhave similar moves in 2011: Construc-tion, Housing and Infrastructure Ser-vices were winners in 1995; HeavyIndustry, Manufacturing and Iron andSteel Producers fared worst.

The Nikkei Index, fell for a fewdays in both cases after the earthquakeonly to rally for a few days. Howeverin 1995 the index then continued tofall over the next couple of months tolose a further 10-15% from the first

quake induced sell-off levels.In 2011 it is inevitable that the Japa-

nese economy will contract sharply forthe next few quarters, and as such theNikkei and Topix indices are likely tosee some softness, maybe as much as -25% from the pre-disaster levels again- which indicates a potential bottom tothe Nikkei of around 8,700 and theTopix of around 750. But at or aroundthis level we would rate the index as along term buy.

New YorkStockExchangetrading floor


dard & Poor’s) 500, which gives a widerspread of stocks, is +4.52% and eventhe smaller but equally broad-basedcapitalisation-weighted index of theNASDAQ (National Association ofSecurities Dealers Automated Quota-tions) Composite is +4.05%. As theU.S. is the largest component of theMSCI (Morgan Stanley Capital Inter-national) World Index, it has helped to

bolster overall returns for2011 while concurrentlyglossing over some of theweaker performing indicescontributions.

This US cloak of re-spectability covers disparateperformances. The US hasbeen partly helped by safetybased inflows to the US Dol-lar as political tensions grew,but this positive perfor-mance comes amongst everincreasing signs that the USeconomy is finally firing onall cylinders. The recent eco-nomic releases continue tohint that the US economy’sgrowth has now spread be-yond just manufacturing –all of which led to a broadbased rally into the end ofMarch and beginning ofApril.

The best performing De-veloped Markets this yearare somewhat surprising,given the underlying eco-nomic and political problemsunfolding in all of them.Italy leads the pack+16.45% for 2011, closelyfollowed by Spain, +15.56%,Greece, +13.07% and Ire-land, +12.74%. Apart from

Italy, the other three countries are cur-rently performing a death-defying jug-gling act with their debt. Once in a whileequity participation and investmentdefies logic and this is one of thesemoments. Spain, Greece, Portugal andIreland are at the brink of a debt preci-pice. Step back and look at the oneyear performances of these marketsand you will see that this recent rally ismore of a herd-instinct compoundedby the illogical fear of missing a rally,

which once started feeds upon itself.The last 12 months make for very sorryreading for most of these markets.While the World Index has risen nearly8%, Italy is flat / 0.0%, Ireland re-mains marooned at -11.7% and Greeceis -26.97%. Spain just adds to the painwith a 12 month return of -4.39%. Wewould avoid Ireland, Greece, Spain andPortugal in the short term until thedebt question is answered.

All this Southern European miseryis in sharp delineated contrast toNorthern Europe where Germanycontinues to be the regional stimulant.Whereas other countries have risingunemployment, Germany’s is shrink-ing. The German economy grew by+4.0% year on year, its highest ratesince reunification two decades ago –a performance in sharp contrast toGreece’s not entirely unexpected -6.6%contraction. As a result, better andmore sustainable performances in Eu-rope this year have been reported fromFrance, +11,96%, Germany +10.15%,Denmark, +9.13% which look evenmore impressive over 12 months - theGerman markets have risen +16.93%,Denmark +23.62% and Sweden+24.08%. We rate Germany and itsnear neighbours as a buy as the virtu-ous economic cycle continues to powerahead.

Euro zone faces freshcrisis amid fears thatGreece Cannot repay DebtDespite the somewhat odd “love-in”for equity markets in Greece, Irelandand Portugal, the real disaster - the 20ton elephant in the room - is in theEuro zone debt markets. The some-what unexpected remarks by the Ger-man Finance Minster, WolfgangSchauble, on April 14th should not havebeen unexpected at all for those of uswho have been following this slowlyunfolding car-crash of a story on ablow by blow basis.

Greece was the first country in theEuro zone to receive a bail-out last yearbut there are continuing mounting con-cerns about its economy. The countryremains deep in recession and auster-ity measures demanded by international

Developed Markets – TheUS may, finally, be back asthe engine for growthDeveloped markets marched in stepwith Japan to the downside with aver-age declines of around 6% fromMarch 11th until the close on March16th. But there was an almost com-

plete reversal to the end of Marchwhich continued into the beginning ofApril when further fears about geopo-litical contagion reared their headsagain as the Libyan crisis seemed tohave no possible short-term solution.

Yet, despite a softer MSCI WorldIndex since the Japanese tsunami allmajor US indices have performed wellso far in 2011. The Dow Jones Indexof the 30 largest capitalised US stocksis +6.11% as we write. The S&P (Stan-

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Volatile First Quarter - No Respite in Sight | FOREIGN INSIGHTS


creditors are smothering any nascentrecovery, if there was one there in thefirst place.

Readers will have noted my previ-ous comments about how to avoidbeing caught in this inevitable default.The International Debt markets havebeen trying to tell the global commu-nity for months what is happening - allthe lights are flashing and the alarmbells ringing. Tax revenues in Greecesimply do not now cover future inter-est payments and while it can go to thewell of the International MonetaryFund yet again for a further rescuepackage, to be honest what is the point,apart from just delaying the inevitable?Although Greece will not default offi-cially, just yet, holders of its debt may‘agree’ or be ‘persuaded’ to not onlyhave their coupon (interest payments)reduced but also have the maturitydates of their paper extended. Quitehow this could not be described as adefault is down to whatever Euro Dic-tionary of excuses will be wheeled outat the time.

Looking at the current Bloombergyield curve, 2 year Greek debt yields17.9%, or the 3 year yields 19.2% andwith 4 year yields of 17.5% it merelyshows the writing is on the wall andthe game is up for the Hellenes espe-cially when you compare their rates toequivalent German debt yielding1.85% (2 years), 2.14% (3 Years) and2.45% (4 years).

We now have an estimate from themarkets of when the default is cur-rently estimated to occur. At the ultrashort (under 9 months to maturity) endof the Greek yield curve the marketis factoring in a default sometime be-tween 20th August 2011 - whenthe Hellenic 3.9% bond maturesand currently yields ‘only’ 5.6%- and the 19th December whenthe Hellenic 4.4% bond maturesand is currently yielding 15.4%.

This pattern is repeated butto a lesser extent with Ireland,where 3 year rates peak at justunder 10% and Portugal, 10.5%.A measure of the lunacy of suchsky-high rates is that debt issuedby Iraq, maturing in 2028, evenafter factoring in all possible

short-term scenarios, today yields“only” 6.25%. The domino effect ofa Greek default will drag in Ireland andPortugal and despite the European Sta-bility Mechanism there is also a seri-ous question mark over the ability ofSpain not to get sucked into the vor-tex as well, despite their having beenable to extricate themselves, for themoment.

Greek debt should be avoided whileonly investment at the ultra short endof the yield curve is suggested for Ire-land and Portugal. For those who are

looking at Spanish debt - we adviseextreme caution, short dated only.

Emerging Markets – stron-ger performances nowfrom just about everyregionEmerging Markets while never entirelyinsulated from any global correction,showed their resilience after almost twomonths of near daily gloom, to snapback to winning ways from the middleof March.

Foreign investors again fo-cussed on the longer term in-vestment and growth pictureafter panicking at the possibledomino effect of actual, or pos-sible, regime changes acrossNorth Africa and the MiddleEast. For the first time in manymonths we now see the major-ity of the MSCI Emerging Mar-kets Index components puttingin some very good numbersand the index as a whole hasnow risen nearly 8% from the

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recent lows. An overall return of 13%for the MSCI Emerging Markets In-dex for the past 12 months is note-worthy on many levels. The short termperformance would have been farstronger had Latin America not beenas relatively weak, thanks to Peru, cur-rently down -22.57% for the year. ThePeruvian market is still spooked by thepossibility of presidential candidateHumala, an ally of Venezuela’s HugoChavez, winning the elections, but thepossible alliance of the remaining can-didates is still mere talk with little posi-tive action.

The best performances forthe year to date have comefrom Hungary, +27.18%, theCzech Republic, +18.16% andRussia, +14.98%. Hungaryand the Czech markets can al-most be classified as fully de-veloped but their perfor-mances have been boostedboth by the strength of theirnear neighbour, Germany, butalso from the fact that neithercountry has signed up to the

Euro and from the reaction of the lo-cals it is likely we will still be using theForint and the Koruna for many yearsto come. Sometimes it is best to havethe courage of your convictions andnot force your country into an inap-propriate and highly unpopular exter-nal monetary regime. We rate both thesemarkets a medium term buy, with theproviso that any weakness in Germanywill be mirrored here quite soon after-wards.

Russia, though poses a bit of a co-nundrum. While no one can deny that

the strength of the underlying Russianeconomy is not one to be sniffed at,almost out of nowhere there appearsthe distinct possibility of a genuinelycontested Presidential election betweenPutin and Medvedev which wouldchange the political landscape radically.As such the equity picture over thesummer could become a little clouded;so it is perhaps time to take profits andreduce weightings here: +15% is, afterall, +15%.

However we should also note thereturns recently from India, +10.75%in the past 3 months and Korea, whichboth had a strong run into month endand beyond on the back of an overallpositive picture for Asia-ex Japan eq-uities, as Japanese component produc-tion looks as if it has to be relocatedout of Japan, despite the fact that someJapanese factories have resumed pro-duction after the earthquake. An addi-tional boost is evidence the economicrecovery in the US will boost US im-ports. Some of the risk appetite ofIndian investors seems to have re-turned and all components of theSensex index rose over the past month.Korea and India can be seen as ashorter term buy.

Egypt - the Cairo Boursemakes a belated return tobusiness as usualA little later than expected, Cairo re-opened for business on March 23rd.The whole Egyptian experience can beseen as a typical Black Swan event.

As we had predicted, the firstcouple of days trading, to eliminate thestock sell ‘overhang’, saw not entirely

unexpected falls of -9% and -4%. However as we expected(and have seen many times overthe years in markets) the exter-nal investor then returned withan eye to some bargain hunting.Trading volumes initiallymatched and then exceeded pre-vious levels as investors piledback into the market.

From the low of 4,950 seenat the close on March 24th, thebourse then climbed to end at5,558 on April 3rd, some

Frankfurt StockExchange


+11.1% up from the lows. Market tim-ing, as they say, is critical but if youhold your nerve and have previousexperience of market corrections (asopposed to full blown market crashes- a totally different proposition) veryshort term profits can and will be made.The art is in knowing when to take themoney and run!

It is exactly here that you shouldnot outstay your welcome as the sec-ond down leg, as we have seen in Ja-pan, usually kicks in after 5 - 10 trad-ing sessions. Were you unlucky enoughto have decided to enter Egypt on April3rd you would now be nursing lossesas we write off some 5%, possiblymore if you had exited on April 12thwith the index off 6.4% from the high,only 7 trading sessions earlier.

It is not only liquidity that you seekin a manager, it is also transparencyand above all agility and the necessaryknowledge to take advantage of theseirregular sharp market moves. With agecomes experience and with experiencecomes market awareness.

Frontier Markets – Selec-tive caution strongly ad-vised but some goodreturnsAs is their very nature, Frontier Mar-kets continue to report divergent re-turns for the year to date, returning anoverall negative -4.88%. Despite spo-radic, further outbreaks of regionalspecific unrest, which gives some mar-kets extremely volatile intra-monthranges, this does not necessarily leadto falls across the index.

Two examples of short term sharpmoves are seen with Bangladesh andSri Lanka. Bangladesh, for instance, hashad a good run recently to recover byover 12% from the recent lows as thelast of the 2010 bubble unwound it-self. But it still remains down -29.75%for the year, but +151.8% over 2 years.Sri Lanka also had a recent small dipof some 6% on muted profit takingafter the recent run up in the ColomboExchange, but then returned to its re-cent strength as part of its recent rise,up a whopping +92% over the past 12months and +330% over the past 2

years. We feel that there is still more tocome from Sri Lanka and have this asa buy, while Dhaka remains a watchbut possible buy on weakness.

Other noteworthy returns in theFrontier Market arena for the year todate continue to be dominated byEmerging Europe, with Bulgaria,+36.21% Romania, +35.48%,Serbia,+ 29.45% and Bosnia +27.42%.We do, though, continue to remain ex-tremely wary about these four marketsas they have all risen very sharply overthe past three months. The odds of anextreme market correction increaseevery day and sharply delineated stopsshould be in place to mitigate losses ifthe tsunami of positive momentumturns sour. Caution is advised and newpositions are not recommended.

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Commodities still volatile, but near termdirection beginning to flailContinued geopolitical risks as well as the imminent Eu-ropean debt crisis (Part 4) have yet to show any improve-ments. Uncertainty has maintained the previously notedlevels of volatility across the board in most commodities.The Brent Crude Future is now at almost daily recordhighs and is at $122.30 a barrel having spent most of themonth hovering nervously around this level. A few daysafter the Japanese disaster it fell to the low $108’s onfears of a short term fall in Japanese demand, but it shotback to current levels on a rerun of the Libyan violence.Until and unless the Libyan crisis is resolved oil is likely toremain highly volatile with the possibility of a sharp re-treat on any confirmed resolution of the Libyan crisis. Anear term advance to $130-$135 cannot be ruled out andas such, oil remain a cautious Buy.

Gold also followed a similar pattern to oil and is nowat a new high of $1,475, having traded lower in March atone stage, dropping to $1,385 on Japan. Investors con-

tinue to increase their goldpositions to shield theirwealth from both geopoliti-cal problems but also thethreat of rising inflationcaused by a mixture of ashortage of componentsfrom Japanese electronicsfactories and continuing highraw foodstuffs prices. Goldremains a momentum Buywith a near term target of$1,600 now not looking toofar away and with $1,750 adistinct possibility.

Cocoa, though, climbeda wall of worry at the be-ginning of March on thenews from the Ivory Coastas the incumbent presidentclung to power and armedgroups swept south of theceasefire line drawn after thecivil war. Short term fearsabout supply disruptioncombined with speculativehedging pushed the futurescontract to a high of $3,733a ton intraday on March 3rdonly for it to fall backsharply well before the endof the major hostilities atthe beginning of April. Ship-ments will now begin to in-crease from the Ivory Coast,but as always the speed and

amount will occasionally disappoint, pushing prices up inshort spikes. But downward pressure will out and with atarget of $2,700. Cocoa remains a Sell on any upward vola-tility.

Agricultural commodity based inflation,though, just won’t go awayThe World Bank on February 15th said that food prices havesurged to dangerous levels, pushing 44 million more peopleinto poverty since June 2010. The 2.9 billion people in Bra-zil, Russia, India and China spend 19% of their income ongroceries, in the US, 6%.

Agricultural commodity inflation has been rather ignoredgiven all the recent distractions, but the price rise of basicfoodstuffs and commodities over the past 12 months areignored at your peril.

Corn has risen to 746.5 cents a bushel in the past year,or +109%, Wheat now at 736.5c, +55.54%, Soybeans,1,325c, +37% and even your daily coffee is more expensivewith Arabica beans +116% and the sugar to go into this hasrisen 46% in a year. Supply disruption has even impactedCotton, +144.4% over the past 12 months.

Such prices will take some time to unwind from theselevels and even longer to work their way through any infla-tionary measurement. Also to muddy the waters even fur-ther is increased foodstuff demand from ethanol distillersas global demand for greener fuel solutions increases.

Agricultural commodities remain a selective buy

Living in interesting timesWhile indeed we live in ‘Interesting Times’, the comingmonths will certainly be fraught with both many ‘knownunknowns’ and, indeed, many “known known’s” still to re-solve. Many may wish for a speedy return to the ‘uninterest-ing times’ that existed only a few months ago but I am afraidthis is unlikely to happen.

As we have cautioned previously, the investment out-look remains nervous with higher oil and gold prices to con-tinue unless, and until, a clearer near-term picture emerges.The market remains a fickle mistress and a ‘stop-loss’ men-tality must be maintained: if the situation gets worse stocksare likely to be both volatile and weak.

If this remains the case the market maxim “Sell in Mayand Go Away” is a sometimes self-fulfilling prophecy; butwe see no reason why it cannot be selectively used this year.Best to selectively take profits and keep your powder dryfor 2 or 3 months until events resolve themselves one wayor another. This however does not preclude selective foraysinto the markets when there are over reactions both on theup or downside.

However given the European bond volatility and anguishyet to come, the watch word could well be (with my apolo-gies to all our Hellenic friends).

‘Beware Greeks bearing [High Yield] Gifts......’(*Neil Hitchens, is a Senior Relationship Manager, Zenith Bank(UK)).



Dis

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* By Steve B. Osineye

Nigerian Electric Power Sector,within the context of the Roadmaprecently launched by the FederalGovernment. It would look atpossible scenarios in the time periodspecified and identify the opportuni-ties and critical success factors for afar-reaching development of thepower sector. The relevant questionto consider at this point is ‘would thecountry be out of the woods’ or ‘outof the dark tunnel’ if you will, by2015, which coincides with the endof the first term of the JonathanGoodluck’s Administration and whichis also the timeframe set for theimplementation of the Roadmap?Prior to the unveiling of theRoadmap, there had been ‘air ofpervasive pessimism’ about thepersisting poor state of the electricpower sector.

This piece would be showing thatin spite of this, there is a cause to seethe ‘silver streak ringing the darkcloud’, as it were, and that with thepolitical will, policy consistency,transparency and efficient projectmanagement practices, Nigeria, mightsoon, within the period 2011-2015 betaking a breather. It is a criticaltimeframe whithin which most of theprojects planned and on-going in the

sector, both by private IPPs and thepublic sector, would come on stream.It is an opportunity Nigeria must notmiss; especially since PresidentGoodluck Jonathan had as part ofhis campaign promised to increasegeneration to more than 15GW by2013.

Present Status: “It can only

get better”Nigeria’s electric power sector hasbeen dominated by a State-controlledmonopoly regarded by many asincompetent, and as not meetingexpectations. Power generation,transmission and distribution infra-structure, are still inadequate,worsening the problems of the realsector of the economy. Now, all thislooks set to change; especially sincethe introduction of the ElectricPower Sector Reform Act of 2005.The policy environment has beenenhanced to put the sector on a pathof sustainable development.

So far, strides in the sectorinclude the enactment of the PowerSector Reform Act 2005 and thecreation of critical institutions thatwould drive developments in thesector, the increasing number ofIPPs in various States and the on-going Rehabilitate Operate andTransfer (ROT) programmes andother gas pipeline systems develop-

he aim of this section isto review the develop-ments, challenges andopportunities in theT ment projects which are indicative of

Government’s efforts to liberalize thesector. At present, there are morethan 11 gas-fired power plants, 102transmission lines/sub-stations, 16gas pipelines and 290 distribution

ShiroroHydro-Electricplant


projects currently beingbuilt in Nigeria, with a totalof more than 700 distribu-tion projects being plannedboth under the PHCN andNIPP programmes for theshort- and the medium-terms. A look through thevarious Federal Govern-ment Power Budgetbreakdowns from 2009through 2011 wouldindicate an increasingnumber of ‘green-field’projects and the upgradeand expansion of existingpower infrastructure.

There is a re-invigoratedmove towards privatizingthe public utility company,PHCN. According to theimplementation timeline setby the Roadmap, theprivatization of PHCNshould be completed byJune 2011, by which time,

the Nigerian Bulk Electric-ity Trading Company Plc,already constituted, wouldbe in charge of buyingpower in bulk and ‘wheel-ing’ electric power throughthe Transmission Companyof Nigeria (TCN) to thedistribution companies. Infact a new structure for thepower supply industry isfast emerging (see chart onthe stakeholders in theelectric power Industrybelow). The erstwhilemonolithic structure isgiving way to a multi-layered structure withcomponents such as theNigerian Bulk ElectricityTrading Company(NBETCo Plc) whichreplaces the Power HoldingCompany of Nigeria(PHCN); a TransmissionCompany-Transmission

Company of Nigeria(TCN) - to be establishedby June 2012 under aManagement Contract; and11 Distribution Companies(DISCOs). The existinghydro plants are to beconcessioned, while thePHCN thermal plants andthose IPPs built under theNational Integrated PowerProjects (NIPPs) would beprivatized through the saleof a minimum of 51%stake. In pursuit of this,there is an intensive effortto rehabilitate existingtransmission and distribu-tion infrastructure inreadiness for strategic coreinvestors.

Local firms, in technicalpartnerships with estab-lished foreign firms, areactive in the emergingsector, executing variouscontracts under the trans-mission and distributionupgrade and expansionprogrammes being imple-mented in the sector, and instate-sponsored IPPprojects. Efforts are also onto connect rural and off-grid communities throughan aggressive rural electrifi-cation drive. An increasingnumber of State Govern-ments are executing/planning independent powerprojects. Some StateGovernments have indi-cated their readiness to buyinto distribution companies,that were unbundled fromPHCN’s previous mono-lithic or vertically-integratedstructure.

Early March 2011, theFederal Governmentannounced the reassign-ment of key staff of thePower Holding Company(PHCN) - the public powerprovider and its supervisoryMinistry of Power in a boldand strategic move to wind

down its operation andmake way for the successorcompany-the Nigerian BulkElectricity Trading Com-pany Plc. The new com-pany is expected to buypower and distribute todistribution companies, 11of them, through theTransmission Company ofNigeria (TCN). The moveis seen as operationalizingthe key provision of theElectric Power SectorReform Act 2005 andmoving the electric powersector reform programmesignificantly forward. Themove is also consistent withthe Action Steps highlightedin Goodluck Jonathan’s“Roadmap for ElectricPower Sector Reform”.The Roadmap, released inthe last quarter of 2010,highlights Government’scritical intervention activi-ties in the upgrade andexpansion, in the areas ofgeneration, Transmission,Distribution, Gas to Powerprojects, gas transmissionprojects and the role of theprivate sector in all ofthese.

The “Dash for Gas”:Nigeria seeks policies thatpromote least-cost ofgeneration while ensuring aviable mix of fuel sources,all within the framework ofa comprehensive energypolicy that needs to beconstantly reviewed andrefocused in the overallinterest of energy ad-equacy, affordability,reliability and security. Gaswill play a major role in thenew generation strategy,especially as Nigeria seeksan end to gas flaring (andthe monetization of its vastgas resources) in thecontext of the NationalGas Master Plan. The

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Discourse: Reliable Power Supply: WayForward for Nigeria (2011-2015)

downstream elements, the transmission and distribu-tion systems, will need to be developed accordinglyto deliver gas to the appropriate end-user and, asenvisaged, the three Central Processing Facilities.Gas demand is estimated to have increased from660mmcfd to 1,700mmcfd as at 2010. Given theclose linkage between gas and electricity and the factthat gas is now the primary fuel of choice forelectricity generation (especially for large industrialconsumers in industrial clusters), Nigeria is recogniz-ing the importance of ensuring consistent plans andregulatory regimes to govern natural gas utilization.This vision has been encapsulated in the NationalGas Master Plan. Indeed, the gas revolution hasstarted, with increasing commitment and involve-ment of IOCs and other foreign developmentpartners.

The development objectives of the NigerianElectricity and Gas Improvement Project is to: (i)improve the availability and reliability of gas supplyto increase power generation in existing public sectorpower plants; and (ii) improve the power network’scapacity and efficiency to transmit and distributequality electricity to the consumers. There are threecomponents to the project. The first componentbeing risk mitigation through a series of Partial RiskGuarantee (PRGs) in support of gas supplies toincrease power generation from existing publicsector power plants. The second component is theenhancement of transmission and distributioninfrastructure. This component will reinforcedistribution networks to increase electricity supply inselected cities including Kano, Kaduna, Eko, Ikeja,Ibadan, Abuja, Benin, Port Harcourt, Yola, Jos andEnugu. Finally, the third component is the technicaladvisory services. Provision of logistic support andtechnical advisory services required to sustainongoing reforms undertaken by government inefforts to improve the performance of the power sectorincluding: a) design of gas infrastructure and transmis-sion and distribution systems needed to handle expectedincreases in power supply; and b) formulation andexecution of community outreach activities including acommunication program to foster and to sustain openand continuous dialogue amongst all relevant stakehold-ers about the project.

It has been a long tortuous road, though!Recall that previously, President Yar Adua constituted an11-member Committee for the Accelerated Expansionof Nigeria’s Power Infrastructure in February 19, 2008,to underscore the fact that Nigeria was serious aboutresolving the chronic electricity supply crisis it currentlyfaces. He charged the Committee to deliver 6,000MWof additional power by December 2009. Earlier he hadpromised to declare a State of Emergency in the powersector. The probe by the House Committee on Power

sought to establish reasons for delayed implementationof the National Integrated power Project (NIPP) underthe Obasanjo Administration. The present Administra-tion set up two special Committees-the PresidentialAction Committee on Power (PACP) and the PresidentialTask Force on Power (PTFP), regarded as the ‘engineroom that drives the vision of the PACP,” in the 2010Roadmap for the Power Sector Reform.

The Roadmap for Power Sector Reform?The Roadmap is a comprehensive Action Plan, the firstof its kind to activate fundamental changes and focus ona consistent reform path for the Nigerian power sector.It addresses wide reaching reforms in the sector, whichincludes encouraging captive generators, JV IPPs, andstrengthening national transmission capacity to enhancepower generation through the building of a new 700kVcapacity transmission.

The current effort at revitalizing the power sector


recognizes that it is not onlyin capacity addition thatattention must be focused,but also the need for theoverhaul and extension oftransmission infrastructure.Much of the network isopen to vandalization and isinadequate to meet theupsurge in planned capacity.To meet the needs of ruralelectrification, the transmis-sion network is beingupgraded. The same is truefor the expansion ofdistribution facilities. It isthe general opinion thatadding to generationcapacity might be simpler;but the bane of the sectorhas been inadequate andneglected distributionfacilities to guaranteereliability and accessibilityof power supply to theconsumers.

The Road map is a boldand significant move by thecurrent administration toimprove supply of electric-ity in Nigeria. For the firsttime ever, it representsspecific action steps neededto move the country frompresent installed capacity ofless than 10GW to morethan 15GW by 2013,through the completion ofexisting IPP projects, newcapacity additions andupgrade and expansion intransmission and distribu-tion infrastructure.

The Government hasrecognised that increasedpower generation must beaccompanied by a strength-ened power grid. Theexisting transmissioninfrastructure is inadequateto meet expected improve-ment in generation, in themid to long term. Toaddress the critical issue ofthe adequacy of transmis-sion capacity, the Roadmaphas clearly stated theintention of the Govern-ment of Nigeria:

“The Federal Govern-ment plans to embark onsignificant increase intransmission that willimmediately begin tofundamentally address theanticipated capacity prob-lems. We are planning tobuild a proper transmissionnetwork at devoted level of700kv that will go fromAfam, Rivers State, throughMakurdi, to Jos, Kaduna,Shiroro, and Jebba, thendown to Lagos, to Oshogbobefore going through Beninto Onitsha and beforefinally going back to Afam.The procurement anddesign of this network willhopefully commence nextyear. The line will also runfrom the 700KV line inKaduna to Kano and fromJos to Gombe.”

A Renewed HopeThe current electric powersupply crisis is not insur-mountable. With carefulplanning and the design ofan effective structure ofincentives for the privatesector players, timely,strategic and transparentexecution of public sectorpower projects and thecontinuing focus on thepivotal role that adequateand reliable energy supplyplays in industrial produc-tion, and hence, economicgrowth and development,set power sector targets canbe met. Huge opportunitiesalso abound, waiting to beexplored by forward-looking States and powerengineering companies. Atthe level of States (Sub-National Governments)there is an increasingcommitment to providerural electrification and theadoption and implementa-tion of alternative energyinitiatives & solutions -Solar, bio-gas, wind, etc., tomeet the energy demand oftheir off-grid rural commu-nities.

The entry of indepen-dent power producers(IPPs) and others incaptive/distributed genera-tion category has under-scored the commitment ofthe private sector to tackle

the issue of adequacy,security and reliability ofpower supply in order toenhance industrial produc-tion, especially in industrialclusters.

More Oil producing andmarketing companies areinterested in building powergeneration infrastructure,some in order to exploreopportunities in the energyindustry value chain, (andposition themselves strategi-cally as integrated energysolutions providers) andothers, to explore opportu-nities in pro-active Statesthat want to leverage oncurrent strides in powersector reforms. Presently,on-going/planned projectsby Joint Venture Oilproducers are expected toadd 2,998MW to installedgeneration capacity.

Increasing opportunitiesin Nigeria’s electric powersupply industry havecontinued to boost the salesand marketing of powerequipments, especiallydistribution equipments-transformers, switchgears,etc. No doubt, an increasingnumber of companies arepositioning to play signifi-cant, strategic role inNigeria’s emerging powermarket. There is growingoptimism therefore that thepresent crisis would beovercome once gas-firedthermal IPP generation isenhanced by a robust andcompetitive gas produc-tion/gathering, transporta-tion/distribution andpricing regime.

Government’s policystatement indicating itsintention to sell 51% stakein PHCN to strategic coreinvestors was furtherstreamlined in the recentRoadmap with timeframesset and standards for



measuring milestones andprogress clearly communi-cated. However, a criticalsuccess factor would be thepolitical will to go throughthe activity steps in theRoadmap, within theimplementation timeline.

Some observers are ofthe opinion that if theprotracted privatization ofthe Nigerian Telecommuni-cations Company (NITEL)is anything to go by, theprivatisation plan for for

PHCN could drag onlonger than desirable.Recall that the privatizationof NITEL is still on holddespite having been soldearlier to Pentascope andlater to Transcorp. Thetransactions were revokedin each case, on groundsthat the buyers were notfulfilling their own part ofthe ‘privatization bargain’by injecting fresh funds inthe company within areasonable timeframe.

Labour issuesin the sector arebeing carefullymanaged to makethe distributioncompanies(Discos) and otherpower assetsattractive topotential investors;since over timethe issue ofunfunded pensionliabilities havealways surfaced inthe considerationof due diligenceand eventual salesof public compa-nies, and PHCN isno exception(please see section6.d below).

The increasingnumber ofupgrades andexpansion projectsin the distributionsegment, financedthrough banksinterventions, likethe on-goingNigeria Electricity& Gas Improve-ment Project,would enhance theappeal of publicdistribution assetsthat have been putup for sale.

Ahead of theplanned

privatization, some financialinstitutions and StateGovernments are alreadypositioned to play, activestrategic roles in theprocess. Some StateGovernments are reportedto be interested in stakes inthe distribution companies.Some of the institutions onthe other hand that havesignaled interest include theAfrican Finance Corpora-tion (AFC), and some localbanks. Traditional support-

ers of Nigeria’s powersector including the IFCand IDA, (both of theWorld Bank Group) andthe African DevelopmentBank (AfDB) continue tosupport the privatizationprocess.

ChallengesThe Gas ChallengeThe issue of availability ofadequate gas supply topower stations has been acritical one at every point intime. In fact, some thermalstations were built withoutconsideration of the needfor a correspondingconstruction of gas supplypipelines to link thesestations. In addition, thetotal estimated gas need forexisting IPPs were around600mmcfd, with only abouthalf of this available due tothe inadequacy of the gastransmission network.However, this situation isset to change, especiallywithin the context of gastransmission projectsplanned within the frame-



work of the Roadmap.Already, this has startedwith the Domestic GasSupply Obligationslaunched by the federalGovernment, which makesit mandatory for domesticgas companies /IOCs likeShell, ExxonMobil,Chevron, and Total, todeliver gas to the domesticmarket before exports.The DGSO incorporatesbilateral commerciallyenforceable contractsbetween these IOCs andall-end-users includingpower companies. Institu-tional framework formanaging the commercialrelationship and theimplementation andmonitoring of the DGSOis through the StrategicGas Aggregator (SGA), tobe established by theMinistry of PetroleumResources. The yearly gasdemand profile for powergeneration is captured inthe table on page 66:(Please see “Power SectorInvestors Gas to Power

Initiatives and Opportuni-ties”, Mrs. Diezani Alison-Madueke HonourableMinister for PetroleumResources, Federal Repub-lic of Nigeria, State House,Abuja, 14th October2010).

Transmission

Capacity ChallengeAccording to the Govern-ment, although the “totalnominal transformationcapacity is projected toincrease to 8,653 MWequivalent by December2013, the gap betweengeneration capacity andtransmission capacity willhave grown still further

during the intervening twoyears. This is because thegains of the urgentlyneeded new investments intransmission networks maytake longer to manifest.

Existing Structure canonly wheel 4GW ofgeneration. The solutionhas been highlighted in thecomprehensive Roadmap.Apart from the attention toon-going upgrade andexpansion projects for thetransmission segment, theGovernment is monitoringtransmission projectsparticularly since they are acritical segment. There areover 103 on-going trans-mission expansion projectsunder implementation bothfrom PHCN and theNational Integrated PowerProjects (NIPP). Thechallenge noticed by thePresidential Task Force onPower (PTFP) is the delayin the execution of mostof these projects, with a 4-5 year delay being high-lighted for most of them.The proposed super grid:the 700kV transmissionline, yet to be put up for acompetent transmissionconsultancy, is expected toresolve key issue ofadequate transmissioncapacity. The super gridwould also help to evacu-ate power from theproposed Mambilla hydropower plant.

Apart from the on-going transmission upgradeand expansion efforts andthe proposed Super Grid,Government expects thatthe management contrac-tor for the TransmissionCompany of Nigeria(TCN) would be activelyinvolved in makingsignificant investments inensuring the reliability andstability of the network

infrastructure, through theprovision of grid integrityand reliability systems; andpower quality and stabilitysystems. TCN’s capitalinvolvement wouldessentially leverage rev-enues generated by theelectricity market from theTransmission Use ofSystem Charges (TUSC)paid to the TransmissionCompany of Nigeria(TCN). In the long-run, acase for Regional Trans-mission Organizations(RTO) may becomefeasible, especially alongthe six-geopolitical zones,and for an efficienttransmission segmentation.

There are otherchallenges like ensuringgood governance structurefor public projects,capacity building forregulatory agencies in thepublic power sector, thechallenge of competitivebidding and procurementfor power projects, etc.,and the critical challengeof setting clear targets forthe power sector post-2015, when policy continu-ity and consistency couldbecome an issue.

Managing theFundingRequirement of the

Power SectorThe Roadmap has indi-cated that the fundingrequirement for theupgrade and expansion ofpower generation assetsamounts to an estimatedUS$3.5 billion per year, forthe next ten (10) years.This investment is neces-sary if the country is tomeet the Vision 20:2020target of 40GW, about thecurrent installed generationcapacity in South Africa.

...the total estimatedgas need for existingIPPs were around

600mmcfd, with onlyabout half of thisavailable due to theinadequacy of thegas transmissionnetwork.



This significant requirementcannot be met by theFederal Government alone.Add to this, other requiredcritical investment require-ments along the entirepower supply chain,including investment inbuilding fuel-to powerinfrastructure, gas pipelines,central processing facilities,power transmission anddistribution networks, etc.,the total estimated amountis US$100 billion over thenext 9 years to 2020.(Note unit cost per MWwould indicateUSD2.9million/MW orN435m/MW, which is notsignificantly different fromthe N420/MW indicated byNERC in 2007 (see“Nigeria: Electric PowerSector Report 2011”, pg.94, from OliviaPhillipInternational ConsultingLtd, Nigeria).

The World Bank Groupinvolvement in Nigeria’spower sector has spannedover two decades, onvarious projects includingthe Transmission Develop-ment Project, concluded in2008, the Nigerian Electric-ity and Gas ImprovementProject (NEGIP), a SpecificInvestment Loan/PartialRisk Guarantee frameworkin support of Gas Supplyand Aggregation Agree-ments (GSAAs) of someIOC JV Operators with thePHCN. On the part of thefederal Government, it isestimated that from 1999, atotal of US$5.1billion hadbeen spent on variouspower sector projects,especially on the NigerianIndependent Power Projects(NIPP), with a furthercommitment ofUS$5.3billion to completethe outstanding NIPP,expected to add about

2,700MW to the nationalgrid. Even with the director special Governmentintervention in providing aN500 billion Fund (to beshared with the Aviationsector), and yearly budget-ary provisioning, thefunding requirement overthe next 10 years may notbe met.

A critical steptowards meeting thefunding requirementis to explore domes-tic sources, espe-cially the capitalmarket. Mostanalysts would agreethat there is reallyno shortage indomestic savings inNigeria, rather, asignificantly largepool of savingswaiting to be tappedby the right financialinstruments throughNigeria’s financialmarkets. With astrong and effectivecapital market, thedomestic savings canbe channeled intoproductive powersector investment.Nigeria may notafford to financeher power sectorrequirements based onexternal financing alone-too much reliance on thatmay cause balance ofpayment problem. Withappropriate institutionalreforms in the capitalmarket, private energyproject developers may beencouraged to ‘trade theirproject debt and equity inthe domestic capital marketin order to minimize risks,especially at project comple-tion stages and at thecommencement of newoperations.

In the coming years,

new IPPs devoted toserving large industrialclusters may be morewilling to tap into Nigeria’scapital market to meet theirfinancing requirement. Wehave so far seen one or twoprivate placements, enroute to full capital marketdebt/bond issues or equity.With the increasing number

of IPPs, there existsopportunities for jointventures and collaborationamong parties in thefinancing of BOT schemes.Nigerian banks that arehighly capitalized and withwide experience in projectfinancing are offeredsignificant opportunities toparticipate in this emergingsector.

Before the advent ofIPPs, major Nigerian Banks(then ‘Big Three’ inclusive)had exposure/syndicatedlending to the NigerianElectric Power Authority

(NEPA, now PHCN). Butpast lendings to NEPA bydomestic banks have notbeen without their difficul-ties; concerns about riskshave been accentuated bydelayed interest payment,necessitating in someinstances, the capitalizationof past interest due,extension of repayment

period and even therestructuring of facility. Inview of this and to managerisks, lending banks haveraised the issue of creatingdedicated accounts for debtservice, irrevocable stand-ing payment order, time-limits for repayments ofprincipal and interest andfirst-line charge for debtservice in case of theprivatization/sale of thegeneration asset.

As the electric powersector is thrown open toprivate sector participation,domestic banks and



development financeinstitutions are expected toincrease their involvementin power sector financing.The scale of currentschemes for the energysector generally, like theNigeria Energy Develop-ment Fund, is expected toexpand, especially comingafter the recent recapitaliza-tion/consolidation in theNigerian banking sector.An example of a develop-ing economy where localfinancial institutions areincreasingly active in powersector financing is India.Lending by Indian banksand institutions is at theheart of so-called mega-power projects. Banks alsoextend resources throughthe Power Finance Corpo-ration (PFC), in what isreferred to as “intermediarylending”. PFC is a publicsector financial entityfocusing strictly on powersector financing.

In collaboration withother development financeinstitutions like the NationalHydroPower Corporation(NHPC), financial institu-

tions havegained amoreinfluentialrole in India’spower sectordevelopment.In Nigeria,there aresignificantopportunitiesfor raising power sectorfinance; for example,through the Urban Devel-opment Bank (which ismoribund at the moment),and through the capitalmarket (with a NigeriaPower Fund or generally anadequately capitalized,open-ended InfrastructureFinance Fund). Potentialinstitutional investors couldinclude the Nigerian GasCompany (NGC), andreserves by IPP operatorsthemselves and other non-bank financial institutionslike the Life Insurancecompanies and PensionFunds Custodians.

Development, upgradeand expansion of powerinfrastructure indeed iscapital intensive, requiring

support of local andinternational financialinstitutions, in a mutuallyrewarding partnership. Thedomestic capital marketmust brace up to play amore active role in raisingthe financial requirementfor the development ofenhanced infrastructure forthe power sector.

Roadmap: CriticalSuccess FactorsThe Roadmap has clearlydemonstrated the policyfocus in the Power sector,at least for the period 2011-2015. However, apartfrom demonstrating thepolitical will of the presentAdministration to ‘follow-through’ the comprehensive

power sectorreform path, thereare critical issues ofproject managementcapacity andtransparency thatmust be addressedin the whole processof reform. Gover-nance structuremust be strength-ened. Procurementprocess needs to bestreamlined; Projectdelays need to beminimized. Also,there is a criticalneed to infuse ahigh-level capacitybuilding initiative,through TechnicalAssistance (TA)

arrangements with devel-oped economies andmultilaterals or through theinstitution of a ‘twining’arrangement betweenelectric power supply-sideinstitutions in Nigeria andother relevant public sectorregulatory agencies indeveloped power markets.Examples of direct ‘twin-ning arrangement’/technicalassistance relationship mightbe between the FederalElectricity regulatoryCommission (FERC, US)and Nigeria ElectricityRegulatory Commission(NERC) or between theAmerican TransmissionCompany (ATC) withTransmission Company ofNigeria (TCN), instead ofthe current over reliance onTechnical assistanceprogrammes embedded inWorld Bank programmes.

Effective coordinationof the various key areas ofthe power sector reformprogramme is also essential.For instance, the develop-ment of the gas sector iscritical to the successfulachievement of set targetsin the power sector.Various other issues mustbe properly coordinated,ranging from privatizationof existing assets, tocapacity additions, to thebuilding of the Super-grid.High level project manage-ment capacity building isalso a critical success factorin efforts to deliver on theaction plans in the

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Roadmap, effectively andefficiently.

Broad Policy

Framework:Broadly there is a compel-ling need for a SystemsApproach to Yearly Capac-ity Addition. The‘Roadmap’ has adequatelysignaled, and highlighted thecommitment of thePresident GoodluckJonathan Administration to‘getting things right’ in thisdirection. The upgrade andexpansion of projects ingas transmission infra-structure, should betreated as an essentialplank of the national GasMaster Plan, and a pre-requisite for effectivepower sector reform. Nodoubt, uncoordinatedcapacity addition plans‘out of sync’ with gastransmission infrastruc-ture or gas transportationagreements may notguarantee reliability andtimely delivery of theseGreenfield power projects.

In addition to this,there are advantages ofeconomies of scale thataccrue from incremental,large capacity additionsinstead of scattered mini-projects. In a way too,there are constraints tohaving mega powerprojects, one of which ismeeting the huge fundingrequirement. But this isnot insurmountable oncethe (enabling) regulatoryenvironment is provided,and issues relating toPower Purchase Agreement(PPAs) and power tariffsare standardized andmutually agreed. Once realeconomic growth resumesand Nigeria’s Sovereignratings significantly im-prove, the country may be

able to take advantage offoreign direct investment tofinance large scale powerprojects, like the NigeriaLiquefied Natural Gas(NLNG) project.

Other options forfinancing such large scaleprojects may be fromContract Finance, especiallyfrom Original (power)Equipment Manufacturers(OEMs) like GE (USA)that are involved in theentire value chain in theglobal power industry. Werecall that in May 26, 2009,

General Electric Companyand the Government ofNigeria announced thesigning of a landmark“company-to-country”agreement aimed atpromoting collaborationbetween GE and Nigerian

public and private sectororganizations that aredriving the development ofcritical infrastructureprojects across the country.Presently, there are morethan 200 GE employees inNigeria based in offices inLagos; a GE Oil & GasService Center (incorporat-ing a gas turbine servicecenter, the first of its kind)in Port Harcourt; and afacility in Onne Port.Based on Nigeria’s currentcritical need to close thesignificant power demand

gap, a carefully crafted ‘Oilfor Power’ policy (or Oilfor Infrastructure) mecha-nism may be more relevantin this direction; and onethat the Goodluck JonathanAdministration wouldcarefully consider, to fast

track the delivery of theRoadmap.

Outlook on theSector & Opportuni-ties: 2011-2015:In conformity with thepolicy intentions in theRoadmap, which haveunderscored Nigeria’sdetermination to resolvethe lingering electric powercrisis, and the various on-going upgrades and expan-sion projects in all thesegments of electricity

power generation, it iscertain that the presentAdministration woulddeliver on its promise toachieve a structural reformof the electric power sector.Also, one can anticipate anincreasing role for IPPs in



the emerging power sectoras the option of privatepower generation to servean increasing number ofindustrial clusters in majorcities across the countrybecome more popular.

Current attentionfocuses on industrialclusters in cities like Aba,Ewekoro, Ikorodu, Agbara;and wherever energy-intensive industries operateor are proposed. Others areLekki Free Trade Zone,Lagos State Energy City,Badagry, a city designed toserve the needs of Oil &Gas Industry proposed forthat axis, up to the borderwith Ghana where Oil E&Pis expected to intensify inthe next 10 years. Even atpresent, energy intensiveindustries usually providetheir own captive genera-tion: Cement, Steel, OilRefining, Aluminumsmelting, LNG production,etc.,

Key local playersserving the captive powergeneration segment includeindependent Power produc-ers like the Energy Com-pany of Nigeria (ENCON),a subsidiary of theNEGRIS Group, SchneiderElectric Nigeria Ltd,Shoreline Power Ltd,Geometric Power Ltd andother captive generatorslicensed by the NigerianElectricity RegulatoryCommission (NERC).Conglomerate Oil & Gasmarketing companies likethe Oando Group are alsopositioning to be ‘newplayers’ in the emergingcaptive power generationsegment, through itssubsidiary, Oando Gas &Power Ltd.

We see the privatizationof the public power assetsproceeding as planned

within the context of theRoadmap. Already, theBureau of Public Enter-prises (BPE) has reportedlyreceived expression ofinterest (EIOs) from about331 firms seeking to buyinto the successor compa-nies of PHCN, disaggre-gated into 174 applicationsfrom prospective investors/concessionaires interested infour thermal plants and twohydro plants, while 157 areinterested in the 11 distribu-tion companies. The bidsclosed on March 4, 2011.

More State IPPsEmerging:There has been a growinginterest by State Govern-ments wishing toimplement gas-firedpower projects. Thevery first independentpower project is thatof the NigerianElectricity SupplyCompany (NESCO),a mini-hydro project,started around 1958in the early days ofthe ElectricityCompany of Nigeria(ECN) and supplyingthe Jos region, theprecursor of the NigerianElectric Power Authority(NEPA) which transformedto Power Holding Companyof Nigeria (PHCN). SomeStates have reachedadvanced stages in theirquest to generate indepen-dent power and this trend isexpected to continue.More States would partnerwith Oil companies willingto explore or develop IPPprojects as a strategic movein efforts to play in thewhole energy value chain.One of the companies towatch is Oando Gas &Power, in addition to otherprivate sector companies

like ENCON, a subsidiaryof the NEGRIS group,Shoreline Power Limited,Geometric Power Ltd,Rockson EngineeringCompany, etc. Alreadythere are advanced plans toimplement IPPs in theLagos Free Trade Zone andthe Lagos Energy Cityproject based in Badagry.Other States like DeltaState is seriously consider-ing IPP projects within theframework of its Gas Cityproject.

Increasing States’interest in owningDistribution Assets:Apart from interest indeveloping Greenfield

power projects, some StateGovernments are position-ing to acquire stakes inpublic power assets oncethese are offered for sale inthe proposed privatizationplanned under the powerreform Roadmap. Thistrend is intensifying in statesthat have demonstrated andarticulated the need todevelop the energy poten-tials of their domain.

More rural electrificationprojects:There is need for enhancedcoordination between theRural Electrification agency(REA) and State Govern-

ments to reduce projectdelays in this regard. StateElectricity Board needs tobe invigorated to appropri-ately connect with REA andother national institutions.

Also, more cases of OilInfrastructure dealsbetween countries such asChina, South Africa,France, etc. are expected inthe coming years. This mayalso be a source of capacitybuilding in Nigeria’s powersector. In the recent past(for instance, in the 2005licensing rounds), someselect bidders in the OilBlock licensing roundsmade commitments toinvest in independent powerprojects (IPPs) in Nigeria.

The Need to Diversify

Energy Mix:It makes a world of senseto develop cost-effectivealternative energy sourcesto guarantee universalaccess to non-grid areas. Itdoes not make sense tocontinue to rely solely onhydro resources shared bycontiguous countries;especially since these hydrosources pose their ownenvironmental threats.Hence, diversification ofenergy sources is a sine quanon towards achievingenergy security and reliabil-ity. It is also cost-competi-

Presently, there are more than200 GE employees in Nigeriabased in offices in Lagos, a GEOil & Gas Service Center(incorporating a gas turbineservice center, the first of itskind) in Port Harcourt and afacility in Onne Port.



tive especially when gasresources are currentlybeing flared or wasted.

Diversifying the energymix, through a dash for gas-Gas to Power – is alsoenvironmentally sound andtherefore an urgent step totake and relentlessly pursue.Monetizing the gas re-sources through gas topower mechanism can alsoreduce environmental stresswhich has been the mainplank of environmentalactivism (and ethnicmilitancy) in the NigerDelta.

There is a clear need todiversify Nigeria’s energymix; this is the trend inother countries still imple-menting reforms in theirelectric power sector.Reportedly, DaewooEngineering & Constructionhas secured a contractworth N828bn ($733m) toconstruct a coal-fired powerplant in Odu and Abocho inKogi State, Nigeria, and willuse coal from nearbyOkaba and Ogbogbo coalmines where the firm hasconcessions. Each powerplant will have a capacity of500MW and cost between$750m and $800m. Someof the earlier licencesgranted by NERC wouldalso be using coal togenerate electricity.

In the Republic ofSouth Africa, for instance,the long term goal is toshift focus from high coal-dependence. An increasingnumber of renewableenergy projects are beingexecuted in Nigeria (seetable below) ranging fromwind farms, solar energydemonstration projects, etc.To make significantprogress in this direction,more IOCs with expertisein Renewable energy would

have to show interest andcommitment; this alsoapplies to the World BankGroup. Nigeria may alsoneed to be more proactivein tapping into the GlobalEnvironmental Facility(GEF).

We have clearly statedelsewhere that significantopportunities exist foractualizing the dreams ofrenewable energy, especiallyin off-grid rural locations.Some States have risen tothese challenges and havedomesticated the NationalRenewable Energy Policythrough their MDAs,though much more needsto be done. Lagos Statehas the highest concentra-tion of renewable energyproject with more than75% of emerging firmsfocusing on the provisionof solar energy systemsand technologies for arange of horizontalapplications. There areopportunities for otherIFIs, notably the WorldBank and existing JointVenture IOCs like Shell.,that have had, for a longtime, internationalsubsidiaries in Solar/renewable power genera-tion operations in devel-oping countries. At thefederal level, the EnergyCommission of Nigeria(ECN) is at the forefrontof promoting the use ofalternative energy systems(see the table of ECNprojects for 2009 below).There exists significantopportunities to explorerenewable energy technolo-gies. There is the need formore demonstrationprojects to showcase theimportance of renewableenergy in Nigeria’s energymix.

Also, to take advantage

of Economies of Scale,there is the need for largescale IPP Power Projectsgreater than 1000MW,similar to India’s MegaPower Project Policy. Toachieve that, appropriatestructure of incentivesmust be designed toencourage investors.Furthermore, the option ofpower generation along theSix Geopolitical Zones must

be explored with respectiveregional transmissionorganizations, in a global,ring fenced manner. Thesezones may then be ready totransform into structuresfor regional power markets,say post-2020. Powerinfrastructure can be aplatform for even eco-nomic development in all

the six geo-political space, aframework to reducenegative sectional andvested interest which seethe national asset as a ‘CashCow’ to be milked dry.This arrangement iscongruous with the NCPletter of DevelopmentPolicy which states thatpolicy framework forreform efforts in the powersector should “Ensure that

electricity supply is mademore reliable, economicallyefficient and equitable so asto effectively support thesocio-economic develop-ment of the country”. Thisis also important for spatialdistribution of other socio-economic infrastructure.

There is also the need toaddress the issue of



demand-side management,i.e. energy efficiency andconservation. This is key,on account of the costsaving/resource-conservingimplications of demand/supply-side management.Key technologies andsystems to minimize energylosses at the three criticalstages of Generation,Transmission & Distribu-tion are highlighted in the

table (on page 74).

Pursue effectivemanagement of

Labour IssuesAbout two weeks after theannouncement of theRoadmap for the reformof the electric powersector, the Nigerian LabourCongress threatened to

derail the process, effec-tively indicating that theprivatization of the sectoris not in the best interest ofthe economy, particularlythe labour sector. Recallalso that a day before theannouncement of theRoadmap, there had been ageneral strike by workers inthe power sector forimproved condition ofservice. However, it is

generally agreed that thereis need to infuse managerialand operational efficiencyin the power sector throughprivate sector participation.

But until the issues ofindustrial relations andlabour productivity areaddressed, rent-seeking,sectional and vested interestmight continue to impede

reform implementation andprogress. There is a needfor Labour itself to identifyclearly what is in the bestinterest of its workers andwork toward convergencewith the higher nationalinterest. Labour’s concernamong other issues, is thatownership of privatizedpublic power assets doesnot end up in the hands ofpoliticians, but in the hands

of truly compe-tent private sectorfirms. Reserving acertain percentageof ownership ofthe public sectorcompany to theworkers, maycause a shifttowards improvedefficiency andworker accep-tance of the factthat privatization,at the end, is inthe best interestof appropriatelyskilled workers inthe power sector.

Some coun-tries have had tobe more proactivein quickly definingor circumscribingthe scope oflabour powerissues in mattersof privatizationof public assets,through enforcingde-unionizationand encouragingnon-unionization

in the select strategic sector,as in Thatcher’s Administra-tion in the UK. On theother, hand, if Labour canbe assured that pensionliabilities of its workers areadequately funded, thatthey collectively hold astake in the privatizedcompany, say 10%, thenthey could become willing

partners in effort to movethe sector forward. Thefact is that reform issues,or for that matter, changeprocesses generally requireeffective people-issuemanagement to carry allstakeholders along. Effec-tive management of thereform process requiresproviding some form of‘soft-landing’ for potentiallosers, who are strongenough to throw ‘spanners’in the wheel ofprivatization. The Govern-ment has expressed prefer-ence for dialogue to resolveissues of severance pay,pension liabilities, etc.

The Need for

Capacity BuildingThere is a clear need tobuild capacity in Nigeria’selectric power industry, interms of manpowertraining necessary toachieve efficient localOperations & Maintenance(O&M), including repairand maintenance oftransformers; such repairsare reportedly currentlycarried out in South Africaeven though the PHCN hasits power transformerworkshops for routinemaintenance and repairs.Hitherto, the usual route tocapacity building has beenthrough leveraging foreigntechnical assistanceprogrammes.

Related to this is theissue of content localiza-tion; presently over 90% ofthe materials required forpower supply is importedand hence dependent onforeign exchange. Thissituation is a big constraintto operations & mainte-nance (O&M) and rein-forcement of power supplyfacilities. There is urgentneed, therefore, for local

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power engineering compa-nies to keep buildingcapacity, and set up jointventure assembly/manu-facturing facilities for someof the key power supplyequipments, especially inthe Transmission &Distribution (T&D)segment.

Some items like cables,low voltage switchgear andsome grades of lubricantsare being produced locally.But increased scope oflocal manufacture ofvarious inputs in electricityproduction is highlydesirable. Some powercompanies that have beenin the country for quitesome time have seized theopportunity to makesubstantial investment inthe local manufacture ofswitchgears. These include

ABB and Siemens.Apart from these two

companies, other privateinitiatives continue toexplore emerging opportu-nities. The most recent isElSewedy Electric Ltd(Nigeria) which has set upshop in partnership withthe Lagos State Govern-ment to assemble andmanufacture transformers.Some other companiesdistribute transmission anddistribution equipment-electric power apparatuses-transformers, low voltagecompensators, Highvoltage Insulated test step-up, PVC plastic flameresistant line slots andgeneral products for powerplant design, operation andmaintenance.

There is a small butstriving market for used

transformers, switch-gears,etc, while Siemens andABB have continued theirinterest in the localassembly of switchgears,distribution transformers,insulators, etc. TheGovernment can envisionand stipulate that 30%local manufacture ofpower equipments andaccessories be achievedwithin the next 10-15years, with appropriatestructure of incentivesgiven to power engineeringcompanies. A NationalScience & TechnologyPlan, among other mea-sures could see the Enugu-based Project Develop-ment Agency (PRODA)taking a more active role intechnology transfer asregards the manufactureof components of electric

moving parts/motors andappliances.

ConclusionNo doubt, as admitted alsoin the Roadmap, theavailability of adequateand reliable electric powerin Nigeria is one that hasbeen a mirage in theprevious decades. Yet, thepower sector can beconsidered as the “Infra-structure of infrastruc-ture”, one that is central toindustrial production,economic growth anddevelopment.

“Electricity underpins andintegrates the world economy,enabling not only industrialproduction, but also the globalreal-time network for communi-cations, finance, and trade. Thehyper-connected, 24-hour world



Reference1. FGN, 2011: The Roadmap to Electric Power Sector Reform,

(full Version) unveiled by President Goodluck Jonathan, Octo-ber 2010. The Presidency.

2. OliviaPhillip International Consulting Ltd, 2011: Nigeria-Elec-tric Power Sector Report 2011, March, pps 460. (See also,the forthcoming June 2011 Supplement on Nigeria’s Elec-tric Power Sector 2011), Lagos, Nigeria.

3. World Bank, 2009: Nigeria Electricity and Gas ImprovementProject, Report # 47945-NG, (A PAD on a proposed credit in theamount of SDR 134.4 million (US$200million Equivalent) to theFederal Republic of Nigeria along with a proposed series of IDAPartial Risk Guarantees in the amount of US$400million insupport of Gas Supply and Aggregation Agreement of SPDC,CNL and other International Oil Companies (IOCs) with PHCNfor the NEGIP).

4. ABB Inc., 2007: Energy Efficiency in the Power Grid, Corpo-rate Communications, 501 Merritt 7, Norwalk, Connecticut 06856,www.abb.us

5. Karl G. Jechoutek & R. Lamech, 1995: “New Directions inElectric Power Financing” in Energy Policy, Volume 23, Num-ber 11).

6. World Bank, 2010: PAD on Proposed Loan to Eskom HoldingsLtd of US$3.75billion.

7. Energy Commission of Nigeria, 2007: NIGERIA’S experienceon the application of IAEA’S energy models (MAED & WASP)for national energy planning*By A. S. Sambo; O. C. Iloeje; J.O. Ojosu; J. S. Olayande; A. O. Yusuf. Energy Commissionof Nigeria Plot 701C, Central Business District P. M. B. 358,Garki Abuja, Nigeria Email: [email protected],[email protected], [email protected]; Tel: 234-09-5234920; Fax: 234-09-5234922/25

8. World Bank, 2001: Project Information Document on Transmis-sion Development Project, 2001-2005

9. Nigerian Electricity Regulatory Commission, 2007: “EnergyTariff – Implication for Independent Power Production”, ProfIloeje, Executive Commissioner, the Nigerian Gas StakeholderForum, Abuja, 26th - 27th November, 2007

10. NNPC, 2007: The Nigerian Gas Master-Plan, Nigeria Gas Stake-holders Forum, Abuja, Nigeria, November 26, 2007.

11. Energy Information Administration (EIA), 2010: Nigeria -Coun-try Analysis Brief, www.eia.doe.gov.

12. Energy Commission of Nigeria, 2007: Nigeria- Experience onthe Application of IAEA’s Energy Models (MAED &WASO) forNational Energy Planning (ECN on energy demand projectionsemploying standard models of the International Atomic EnergyAgency (IAEA). Please see also ECN & IAEA: Nigerian EnergyDemand and Power Planning Study for the Period 2000 – 2030;Part 1 Energy Demand Projections, Technical Report No.ECN/EPA/04/01

13. Makoju, Eng. (Dr) J.O. 2007: “Developments in the PowerSector: Implications for Domestic Gas Sector”, paper deliv-ered at the Nigerian Gas Stakeholders Forum, November 2007.

14. Lagos State Government, 2008: “The Great Leap Budget”, Bud-get Address of the Governor delivered at the State House ofAssembly, 17-Dec-07.

15. World Bank, 2007: “Nigeria Signs Pioneer Agreement for CleanEnergy” (World Bank press release (News release #2007/20/ESSD) on the Aba Power project sponsored by GeometricPower limited, the first recorded case of a CDM project inNigeria.

16. Federal Government of Nigeria, (various years-2009-2011:Power Sector Budget breakdown 2009, 2010, 2011 (Breakdownof power sector allocations for the FYs 2009, 2010, 2011).Ministry of Finance (Budget Office), Abuja.

17. Federal Government of Nigeria, 2005: Electric Power ReformAct 2005 (Official Gazette of the FGN), Apr-05

18. The World Bank, 2010: PAD on a proposed loan in the amountof US$3,750 million to Eskom Holdings Limited guaranteed byRepublic of South Africa for an Eskom Investment SupportProject, Report No: 53425-ZA, March 19, 2010, Energy Group,Sustainable Development Department, Africa Region.

19. Energy Commission of Nigeria (ECN), 2006: Hydro PowerResources in Nigeria, being a country position paper presentedby Ismaila Haliru Zarma, scientific officer, at the 2nd HydroPower for Today Conference organized by the InternationalCentre on Small Hydro Power (IC-SHP), Hangzhou, China 2006.

20. Cambridge Energy Research Associates/Arthur Anderson,2000: The New Economy.

21. FGN, (Ministry of Petroleum Resources), 2010: “Power SectorInvestors Gas to Power Initiatives and Opportunities”, Presi-dential Retreat for Power Sector Investors, Mrs. DiezaniAlison-Madueke Honourable Minister for Petroleum Resources,Federal Republic of Nigeria, State House, Abuja, 14th October2010).

22. ESMAP, 2008: Regulatory Review of Power Purchase Agree-ments: A Proposed Benchmarking Methodology, October2008, Energy Sector Management Assistance Program, For-mal Report 337/08, c/o Energy, Transport and Water Depart-ment, The World Bank Group, 1818 H Street, NW, Washington,D.C. 20433, U.S.A.

would be paralyzed withoutelectricity. Electricity’s role in theeconomy will continue to increasein the new century. Nearly allmodern technology and equipmentrequire the use of electricity bothin their production and in theiruse. Microprocessors and anythingcontaining embedded microproces-sors (televisions, computers,communications equipment, etc.)depend on reliable and high-quality electricity. E-Commercewould be paralyzed withoutelectricity. At the same time, theoverall growth in electricitydemand will remain linked to therate of economic expansion. Tothe extent that the ‘NewEconomy’ results in strongerelectricity demand growth, theresulting need for ever-more-reliableelectric infrastructure will alsoincrease”. (CERA, AuthurAndersen 2000)

Availability of adequateelectricity is central to theachievement of the criticalgoals of the Vision 20:2020;there is no short-cut or halfmeasures about it. Hence,the need for a comprehen-sive package of reforms inthe sector such as is encapsu-lated in the Roadmap. As itis, implementation of thiscomprehensive plan must beconsistently done.

Going forward, Nigeriashould make energy effi-ciency and conservation apriority, protect the environ-ment, and seek diversifiedsources of power. It shouldconsistently seek to improveand expand its power grids.There should be a plan todevelop coal-fired powerplants that are efficient andenvironmentally friendlywhile vigorously developingSmall Hydro Power (SHP).Development of nuclearpower, while it could help todiversify the energy mix,should be carefully plannedand implemented in accor-


dance with international bestpractices.

Natural gas as a source ofpower is expected to grow andbe a source of large capacityadditions in the near future.Development of new andrenewable sources of energy,like wind-power and solar-power, though presently at thedemonstration stage, withtechnical assistanceprogrammes, is expected togain momentum. The objec-tive is to balance the needs forsustained economic develop-ment, all-round social progress,perpetual utilization of re-sources, and improvement ofthe environment and soundecological cycles.

In achieving the powersector reform goals, Nigerianeeds to strengthen interna-tional cooperation and ex-change, especially with regardsto tapping into opportunities inthe West African Power Pool. Itneeds also to draw on interna-tional energy cooperationagreements and best practicesas it relates to issues of energyefficiency, conservation,procurement and competitivebidding. In this way, Nigeriamay open its power sector tothe outside world at a higherlevel and for a wider scope ofpower related activities. Thereis no doubt that Nigeria is onits way to becoming an emerg-ing, but vibrant power marketin the West African sub-region,one that would be an attractivehub for foreign investors.*Steve Osineye is the Man-aging Consultant/CE ofOliviaPhillip InternationalConsulting Limited, a busi-ness consulting, advisory andenterprise development firmbased in Lagos, Nigeria.


MACROECONOMIC ENVIRONMENTThe Nigerian economy in first quarter 2011 lost some of the gains of last quarter 2010, but also

recorded strong growth in several parameters. Inflation figures for instance, ended the quarter higher

than the preceding quarter, generating concerns among policymakers. Gross Domestic Product

(GDP) contracted slightly, but ended higher than expected. The Monetary Policy Rate (MPR) was

raised to hold back inflation. The nation’s currency, the naira, lost grounds against other major

currencies. In the capital market, the bears maintained its grip. However, foreign exchange reserves

rebounded during the quarter. In the international crude oil market, prices surged, regaining some

initial losses.

GROSS DOMESTIC PRODUCTGross Domestic Product (GDP) began the firstquarter with a seasonal dip at 7.43 percent,slumping from 8.29 percent recorded in the pre-ceding quarter. Real GDP growth was mainlydriven by the non-oil sector. Despite being theperiod of land preparation in the Northern re-gion and cropping season in the Southern states,agriculture continued its dominance as major con-tributor of GDP. For the oil sector, the divi-dends of the Amnesty deal embraced by theNiger Delta militants continue to yield positivereturns, with production jumping by 29.3 per-cent between February and March. Real GDPgrowth in 2011 is projected at 7.1 percent, slightlylower than the 7.4 percent recorded in 2010.

Source: National Bureau of Statistics

INFLATIONThe Year-on-Year (y-on-y) inflation rate was atbest patchy all through first quarter; up one monthand down the next. The headline inflation ratewent up to 12.8 percent in March, not quite thetarget the authorities had hoped for. Inflationarypressures moderated significantly in Februaryagainst expectations, in response to CBN’s tight-ening policy in January and weaker demand dueto delayed passage of the 2011 budget. Despitethe positive signs however, high prices of somestaples like yam, beverages, fruits, vegetables, fishand cereals persisted all through the quarter. In-flation ballooned in March due to higher costsof imported food items, transportation, buildingmaterials, diesel and kerosene. In the monthsahead, inflationary risk remains a threat due tothe expansionary stance of the 2011 budget;higher global food and energy prices as well aspossible deregulation of the downstream petro-leum sector.

Source: National Bureau of Statistics


EXTERNAL RESERVESThe nation’s external reserves recorded marginalimprovements in first quarter 2011, owing to in-crease in output and rising crude oil receipts. Ex-ternal reserves it increased by about $4.1billion to$36.4billion on March 4, 2011 from $32.3billionregistered at the end of December 2010. The build-up in reserves was however short-lived, as leak-ages remained. It tumbled back to $33.2billion asat end March 2011, capable of financing up to14 months imports. The reserves, which had ear-lier skyrocketed to an all-time high of $64billionin August 2008, nosedived amid continuous with-drawals. Threatened by shrinking reserves, the au-thorities attributed the development to the enor-mous cost of first line charges such as refinedpetroleum product subsidies; Joint Venture Cashcalls (JVC); as well as high import dependency. Inthe near to medium term, the authorities projectimprovements in the stock of external reservesas a result of higher crude oil prices and improve-ments in output.

Source: Central Bank of Nigeria

INTEREST RATEIn a widely anticipated move, the CBN stuck toits script and raised its key lending rate twice dur-ing the first quarter. The first hike came at nosurprise in January when the apex bank raised theMonetary Policy Rate (MPR) by 25 basis pointsto 6.5 percent. However, the second increase by100 basis points in March caught manufacturersoff guard, as MPR was adjusted to 7.5 percent ina bid to hold back inflation.

The average interbank rate climbed upwardwithin the quarter with significant rate swings. Forinstance, rates on the call and 7 Days tenorsclimbed as high as 11 and 11.5 percent, respec-tively. After a headlong rise, rates dipped in Janu-ary as a result of inflows of N410billion Statu-tory Revenue Allocations to the three tiers of gov-ernment and N50billion recurrent injection intoparastatals. The downswing was however short-lived as rates inched up in February and Marchdue to higher than expected activities at CBN’sDutch auction, enormous NNPC remittances andaggressive mop up operations by the apex bank.Pendulum swings on rates during the quarter made

Source: Financial Markets Dealers Association of Nigeria



the N1.2trillion FAAC allocations to the tierthrees of government and the transfer of aboutN190billon Cash Reserve Requirement balanceto Deposit Money Banks ineffective as liquid-ity squeeze persisted for the remaining part ofthe quarter.

In terms of cost of borrowing, the aver-age Prime Lending Rate (PLR) remained stabledue to CBN’s extension of guarantees on in-terbank transactions and foreign credit lines bythree months from June 30, 2011 to Septem-ber 30, 2011. Even though lending rate re-mained at elevated levels, hovering around 17percent, it was nevertheless 152 basis pointslower than the average closing rate as at March2010.

Returns on the average deposit rate inchedup across most investment horizons, with vola-tility higher on the overnight and strict call ten-ors.


EXCHANGE RATEThe nation’s currency, the naira, got off to ashaky start in first quarter 2011, losing groundsagainst other major currencies but however fin-ishing around CBN’s target. It closed the pe-riod with mild depreciation at about N151/US$. The naira witnessed volatile movementsagainst the US dollar, reaching new highs atthe parallel market in March. Demand pres-sures resurfaced earlier in January with thenation’s currency coming under fierce pressureon various fronts, from higher costs of im-ported refined petroleum products and fooditems to heightened political risk ahead of theApril general elections. In its twice weekly auc-tions, the CBN offered about $7.4billion andsold $7.2billion, with total demand of about$8.7billion during the period. The shortfall wasnevertheless filled by inflows from oil majorsand telecom companies. Despite the bridgehowever, continued thirst for the green backremained at the interbank market, resulting inunmet demand on several occasions. The pre-

Source: Central Bank of Nigeria


CAPITAL MARKETThe stock market got off to a flying start infirst quarter 2011 but ended the quarter withsome disappointments for stock investors. TheAll-Share Index and market capitalization gaveup earlier gains to finish disappointingly lowerat 24,621.21 and N7.86trillion, respectively,from 24,765.60 and N7.91trillion in the pre-ceding quarter. The mood in the market, espe-cially during the last two months of the quar-ter could best be described as somber as theannual market return swung into negaative inMarch. Political risks made investors extremelynervous, as attractive rates in the money mar-ket pulled funds away from equities. Longerthan expected delays in the release of year-end results among Deposit Money Banks trig-gered short-term profit-taking activities andspeculations. On the positive side, market ex-pectations remained high as the Asset Man-agement Company of Nigeria (AMCON) gotapproval for the second phase of loan pur-chases despite delays from the authorities.Market operators cheered as the Exchangeadded two more hours to trading. Also a num-ber of quoted companies such as Nestle, Ni-geria Breweries, Julius Berger Plc, Zenith Bankand GTBank among others declared impres-sive dividends of N10.60 (plus 1 for 5 bonusoffer); N1.25; N2.00; 85k and 75k (plus 1 for4 bonus offer), respectively.

Source: Nigeria Stock Exchange

Source: Nigeria Stock Exchange

mium between the official and interbank ratewidened slightly to 3 percent as at end March2011, compared to 1.8 percent in December2010. Pressure on the naira is expected to mod-erate following the successful conclusion ofthe April elections.


Source: Energy Information Administration

OIL & GASCrude oil prices shot up in the first quarter of2011, recovering initial highs despite a bumpytake off in the first half of the quarter. Oilprices surged by more than 25 percent its high-est levels since August 2008. It was a case ofhistory repeating itself with Brent crude oilprices propelled to about $117 per barrel onthe closing day of the first quarter, similar tothe first three months of 2008. Nigeria’s brandof crude oil, bonny light, recovered more than$16, its strongest quarterly gain since 2005. Ittraded in a band of $88-$107 per barrel. In-dustry analysts attribute the rebound in crudeoil prices to several reasons such as supply dis-ruptions and civil unrest in the Middle Eastand North Africa (MENA) region; soaring de-mand in emerging markets; post-quake recon-struction in Japan; elections in Nigeria; theweaker dollar and a strengthening in U.S. eco-nomic recovery, among others. In its MiddleEast and North Africa Energy Conference inLondon, OPEC reiterated that it has no inter-est in very high oil prices and that the markethas more than enough crude oil to meet cur-rent demand.

http://www.arabianoilandgas.com/pictures/gallery/Offshore/Iran%20offshore.JPG

zeq 26.pmd - to zenith bank

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