The Banking &
Finance Trade Group of Kaduna Chamber of Commerce, Industry, Mines &
Agriculture (KADCCIMA) held its 2009 End-of-year Annual Dinner on
16/12/2009 at Unity Hall, Hamdala Hotel, Kaduna.
In
line with tradition, a thought provoking paper was presented on the
topic: THE GLOBAL ECONOMIC MELTDOWN AND THE NIGERIAN ECONOMY: CHALLENGES
AND PROSPECTS, By Mallam Kasimu Garba Kurfi, FCS MD/CEO of APT Securities
& Funds Limited and discussed by Mr. Abayomi Obabolujo, Publisher of
Stockswatch Magazine.
In view of the relevance of this subject to the on-going economic meltdown, readers of this blog are hereby invited to enjoy it.
Introduction:
The financial crisis began in the late 2007 in the United States of America (USA). It later metamorphosed into what we have today as the global financial melt down because it spread like wildfire across other countries of the world, the United States being a super-power politically and economically.
The root cause of the problem is the work of financial engineering or financialisation of capital which manifested in high default rates in sub-prime and adjustable rate mortgages (2005-2006).
Fannie-Mac (Federal National Mortgage Association) and Freddie Mac (Federal Home Lawn Mortgage Corporation) were the creatures of the Congress and officially known as GSE (Government Sponsored Enterprises). They were buying loans from banks on what is called secondary market. Banks offer loan to consumers then sell that loan to Fannie-Mac or Freddie-Mac. Therefore, the loan is no longer in the books of organisations and the originating bank now has funds to go back into the mortgage market and extend another loan to a new consumer.
Fannie and Freddie enjoy special status such as a $2.25billion credit line with US Treasury, and their securities are designated as Government securities that can be held by banks low risk bond, tax exemption and special regular privileges that potential competitors do not have. Their stocks are also traded on the New York Stock Exchange.
Fannie, in turn, handled many of these mortgages together and markets them as mortgage-backed securities. What that does mean to an investor is that once you buy one, you are buying a share of a pool of serial income from mortgage payments of homeowners who made contributions every month. The advantage is that you are diversifying your risk since these mortgages were placed in many different geographic baskets.
Another scandal associated with mortgage-backed securities is the rating agencies who were assigning high grades such as AAA, AAA- and so on.
The special privileges granted to Fannie and Freddie distorted the housing market by allowing them to attract the capital they would not have attracted in the first place under a free market condition. Therefore capital are diverted from the most productive sectors of the economy into the housing sector thereby making it possible for those who do not support the scheme to own houses, who lacked jobs or income to make down payment of money and good credit to go into foolish borrowing; these would otherwise not have qualified for mortgage loans in the past.
The “pro-ownership” tax code issued by the Government encouraged more people to buy homes thereby increasing artificial demand in housing sector while housing developers are getting all sorts of incentives. For example, first-time home buyers in Washington DC received $5,000 tax credit. If a couple bought a house for $500,000 and sold it for $1million there is no capital tax gain.
The U.S. increased the money supply through the banking system with the aim of lowering interest rate. From June 2003 to June 2004 inter-bank overnight was reduced to 1%. The new money supply found its way into the housing market. These also promoted the activities of speculators and increased reckless or ill-prepared investors into the game thereby misleading people into thinking that one would not loose money.
Similarly those who know little about the market and saw it an irresistible get-rich-quick-scheme jumped into the system. Caution was thrown to the wind by both bankers and customers. Of course, the economy was lost in a swirl of extravagance and recklessness devoid of professional ethics and direction.
Mortgage back-end of securities was re-packaged to domestic and offshore in various funds traded around the world like common stocks. Financial institutions, particularly investment banking like Lehman Brothers, Merrill Lynch were in the fore-front in selling these derivative products. Many investment bankers were creating so much derivatives out of derivatives, some of which have exotic names such as Collaterised Debt Obligation, High-Yield Corporate Bonds and Credit Default Swaps. Warren Buffet once called derivatives ‘weapons of mass destruction’ and his description proved true in today’s world. Multilayered derivatives were largely unregulated.
Why Did the Financial Crisis that emanated from the United States suddenly became a Global Melt Down?
 | |||
| MALAM KASIMU GARBA KURFI, FCS |
Introduction:
The financial crisis began in the late 2007 in the United States of America (USA). It later metamorphosed into what we have today as the global financial melt down because it spread like wildfire across other countries of the world, the United States being a super-power politically and economically.
The root cause of the problem is the work of financial engineering or financialisation of capital which manifested in high default rates in sub-prime and adjustable rate mortgages (2005-2006).
Fannie-Mac (Federal National Mortgage Association) and Freddie Mac (Federal Home Lawn Mortgage Corporation) were the creatures of the Congress and officially known as GSE (Government Sponsored Enterprises). They were buying loans from banks on what is called secondary market. Banks offer loan to consumers then sell that loan to Fannie-Mac or Freddie-Mac. Therefore, the loan is no longer in the books of organisations and the originating bank now has funds to go back into the mortgage market and extend another loan to a new consumer.
Fannie and Freddie enjoy special status such as a $2.25billion credit line with US Treasury, and their securities are designated as Government securities that can be held by banks low risk bond, tax exemption and special regular privileges that potential competitors do not have. Their stocks are also traded on the New York Stock Exchange.
Fannie, in turn, handled many of these mortgages together and markets them as mortgage-backed securities. What that does mean to an investor is that once you buy one, you are buying a share of a pool of serial income from mortgage payments of homeowners who made contributions every month. The advantage is that you are diversifying your risk since these mortgages were placed in many different geographic baskets.
Another scandal associated with mortgage-backed securities is the rating agencies who were assigning high grades such as AAA, AAA- and so on.
The special privileges granted to Fannie and Freddie distorted the housing market by allowing them to attract the capital they would not have attracted in the first place under a free market condition. Therefore capital are diverted from the most productive sectors of the economy into the housing sector thereby making it possible for those who do not support the scheme to own houses, who lacked jobs or income to make down payment of money and good credit to go into foolish borrowing; these would otherwise not have qualified for mortgage loans in the past.
The “pro-ownership” tax code issued by the Government encouraged more people to buy homes thereby increasing artificial demand in housing sector while housing developers are getting all sorts of incentives. For example, first-time home buyers in Washington DC received $5,000 tax credit. If a couple bought a house for $500,000 and sold it for $1million there is no capital tax gain.
The U.S. increased the money supply through the banking system with the aim of lowering interest rate. From June 2003 to June 2004 inter-bank overnight was reduced to 1%. The new money supply found its way into the housing market. These also promoted the activities of speculators and increased reckless or ill-prepared investors into the game thereby misleading people into thinking that one would not loose money.
Similarly those who know little about the market and saw it an irresistible get-rich-quick-scheme jumped into the system. Caution was thrown to the wind by both bankers and customers. Of course, the economy was lost in a swirl of extravagance and recklessness devoid of professional ethics and direction.
Mortgage back-end of securities was re-packaged to domestic and offshore in various funds traded around the world like common stocks. Financial institutions, particularly investment banking like Lehman Brothers, Merrill Lynch were in the fore-front in selling these derivative products. Many investment bankers were creating so much derivatives out of derivatives, some of which have exotic names such as Collaterised Debt Obligation, High-Yield Corporate Bonds and Credit Default Swaps. Warren Buffet once called derivatives ‘weapons of mass destruction’ and his description proved true in today’s world. Multilayered derivatives were largely unregulated.
Why Did the Financial Crisis that emanated from the United States suddenly became a Global Melt Down?
Like
I did mention at the opening of this lecture, that the US financial
crisis metamorphosed into what we have today as the global financial
melt down because it spread like wildfire across other countries of the
world, the United States being a super-power. Taking this further, the
US controls 26% of the world’s total wealth and more than one third of
total capitalisation of the world Exchanges compared with China’s only
6%. The derivatives packaged from US were traded all over the world, and
probably with the exception of Africa.
United
Kingdom based Guardian estimated that $14trillion was wiped off the
world’s share value in 2008. The prices of stocks crashed in most of the
Exchanges. The fear of long plunge led to the closure of many Exchanges
for days. In Nigeria we lost over N5trillion from the market
capitalisation from N12.3trillion to N7trillion in 2008.
In the US major investment bank, Lehman Brothers, founded in 1844 and had previously survived the civil war and the great depression of 1929 could not survive now. By June 2008 its shares value reduced to $4.00 from a height of $82.00, in just a single month! This sent alarm to all its shareholders before it is finally liquidated.
In the US major investment bank, Lehman Brothers, founded in 1844 and had previously survived the civil war and the great depression of 1929 could not survive now. By June 2008 its shares value reduced to $4.00 from a height of $82.00, in just a single month! This sent alarm to all its shareholders before it is finally liquidated.
Other
organisations that suffered from the meltdown were Bear Steam, Fannie
Mae, Freddie Mac, Merryl Lynch, AIG (Credit Default Sways), Morgan
Stanley and Goldman Sachs (converted to a commercial bank). Through the
mid 2009 household had lost $12trillion because of the collapse in house
and stocks price that usurp their purchasing power and pushed them to
sell.
The US stock market lost over $7trillion, Japanese Stock Index hit 26year low while Russian Stock Exchange Index (RTS) has fallen by 85% from its peak in May 2008. The global economy was confirmed to be in recession, slowed down economy, bankruptcy, layoff, falling commodity prices, i.e., crude oil price fell from $147.00 to less than $35.00 per barrel. Many Governments were advocating for bail out packages.
The US stock market lost over $7trillion, Japanese Stock Index hit 26year low while Russian Stock Exchange Index (RTS) has fallen by 85% from its peak in May 2008. The global economy was confirmed to be in recession, slowed down economy, bankruptcy, layoff, falling commodity prices, i.e., crude oil price fell from $147.00 to less than $35.00 per barrel. Many Governments were advocating for bail out packages.
The Bail Out:
By September 2008, the US Government took over Fannie Mae and Freddie Mac, being an institution that packaged at least 75% of the American mortgage loans with an exposure of $5trillion. The following week the Bank of America purchased Merrill Lynch at a cost of $33billion and a sum of $185billion was given as bail out funds to AIG. The argument is that the failure of a large firm that is significantly connected to other organisations could snowball into a ripple effect in the economy and cause such a catastrophe that many other companies could wind up and go out of existence too.
However, as the chain of events began to roll it became obvious that such arguments may not hold for long hence, Lehman Brother was allowed to fail, going with it over 100 smaller banks who closed down in 2009.
Similarly Washington Mutual ‘Wamu’ was the largest American Savings and Loans bank but was also liquidated by September 2008. An Emergency Economic Stimulation Act of 2008 was passed by members of the United States Congress with over $700billion bail out package. The same was advocated by other Governments of the world particularly the United Kingdom, other European and Asian countries.
The Root Of The Problem:The root of the financial crisis and recession was heroic – the United States is to blame for previous blunders. First on the list is its easy monetary policy in 2003-2004 which arguably inflated a housing bubble. Second but less debatable was that the Fed was at best an intermittent, and at worst a negligent Regulator who did little to restrain reckless mortgage lending and allowed financial giants such as Citigroup to acquire nearly fatal level of poorly understood risk. Other factors are:
è Failure to recognize financial risk
è Inadequate measures to control financial risk
è Systematic linkages of the global financial system
è Poor corporate governance in financial firms
è Technical failure of identifying the financial risk
è Failure of the financial regulators
è Human errors and deliberate acts
è Lack of knowledge by investors (educational gap)
Jeffrey Garton, a professor at Yale University, said that the current global institutional apparatus is woefully incapable of overseeing the financial system that was evolving. Big Rating Agencies failed to be more rigorous in their risk assessment while several financial instruments structure were using arcane language difficult to understand by the financial regulator let alone track down and regulate.
The Nigerian Economy:
While the Federal Reserve of United States intervened in the mortgage through Fannie Mae and Freddie Mac, at the same time in Nigeria we were busy giving instructions to banks to consolidate to a minimum amount net shareholders fund of N25billion with a proviso that any bank that failed to meet up with the minimum recapitalization by 31st December 2005 will cease to exist.
Almost all the banks became guests to the Nigerian capital market to meet up with the recapitalization deadline by issuing their own shares, but with no recourse to financial risk and human capacity to manage such funds, anyway.
At the end of the exercise 89 banks were reduced to only 25 banks while those that failed to meet up with the recapitalization condition were liquidated or winded down. Immediately after the banking consolidation exercise the Central Bank of Nigeria (CBN) promised banks that any bank that can build up its shareholders funds up to $1billion will be given the opportunity to manage some of our foreign reserves.
This triggered off a second round of consolidation exercise, this time though the compelling condition was not so visible or openly pronounced.
The
banks once more began visiting the capital market in search of
additional funds. Some of the banks visited the capital market almost
three times between 2005 and 2008.
Unfortunately, we are not aware that they were required to show proof of how they utilized their previous funds before being cleared for additional funds raising. This led to a situation where our Banks found themselves accommodating a lot of funds over and above what they could comfortably manage - even above their immediate requirement: all these in a bid to meet certain criteria that may not even have been part of their strategy of immediate needs.
Awash with so much funds that were probably not originally planned for, and in the midst of no prying eyes or someone monitoring and ensuring that the purpose for which funds were raised, as specified in the Offer documents were met, the next point of call was easy profit making ventures, risk element cycled into the cooler.
This is how most banks got involved in margin facilities whereby they invited customers to take up margin loan facilities using the shares bought with such monies as collateral to the loans. Both the banker and customer failed to appreciate or understand the financial risk inherent in such deals. Surprisingly, every other bank followed suit in this new found avenue for a supposedly idle funds. This exercise saw the sum of N1.5trillion being invested in the capital market, all in the name of margin facilities. Some banks used their subsidiaries to buy their own shares and also give money to their relatives, directors and associates to play the capital market.
Had there been the usual systematic risk appraisal in banking and financial management where inherent risks are highlighted and mitigating factors subjected to the crucial acid test, such decisions would not have found suitor with banks management.
A good risk analysis and mitigating factor, building different scenarios of Best and Worst Possible Outcome would have envisaged a crash in the share prices used as collateral and the banks’ responses to safeguard their shareholders fund, especially for individuals and non institutional investors who do not have any other thing the bank could fall back to in the event of the loans going bad. And that set the stage for the present bubble.
A handsome return of 75% by the All-Share-Index of our capital market for the year ended 31st December 2007 attracted many local and foreign funds into our market and also caused it to be rated as the best return all over the world. It was estimated that over $6billion was invested by the hedge fund managers for speculative trading.
The reduction of inflation and interest rate to a single digit by the CBN also encouraged our bankers to play the capital market with depositor’s money. By April 2008 the All-Share-Index have reached an ever high level of more than 12,000 basis point while our market capitalisation climaxed to over N12.3trillion.
By April 2008, CBN issued a directive to banks to stop margin loan facilities even though they later denied it. At the same time hedge funds managers started withdrawing their investments ‘in order to mitigate the credit crunch that is happening in their home countries’. This led to dumping of shares in the stock exchange and that formed the beginning of the capital market crisis.
In addition to the stock market crises, the banking crisis actually reared its head in October 2008 but was delayed by the opening of Expended Discounted Window (EDW) to avoid bank failure as some of the banks were unable to meet up with their daily demand by depositors. Banks misused this opportunity by taking it as a permanent source of funding instead of disposing some of the assets (most of which today has turned toxic), adopt cost-cutting measures and conservation of cash in their day-to-day operations.
In the process also, there was the sudden devaluation of the Naira by the CBN whereby losses were incurred from ‘carry trade’ which arose from borrowed U.S. dollar at low interest without looking at the exchange risk and this sent many into default and some of our manufacturing companies were declaring huge losses as a result of devaluation of the Naira.
Unfortunately, we are not aware that they were required to show proof of how they utilized their previous funds before being cleared for additional funds raising. This led to a situation where our Banks found themselves accommodating a lot of funds over and above what they could comfortably manage - even above their immediate requirement: all these in a bid to meet certain criteria that may not even have been part of their strategy of immediate needs.
Awash with so much funds that were probably not originally planned for, and in the midst of no prying eyes or someone monitoring and ensuring that the purpose for which funds were raised, as specified in the Offer documents were met, the next point of call was easy profit making ventures, risk element cycled into the cooler.
This is how most banks got involved in margin facilities whereby they invited customers to take up margin loan facilities using the shares bought with such monies as collateral to the loans. Both the banker and customer failed to appreciate or understand the financial risk inherent in such deals. Surprisingly, every other bank followed suit in this new found avenue for a supposedly idle funds. This exercise saw the sum of N1.5trillion being invested in the capital market, all in the name of margin facilities. Some banks used their subsidiaries to buy their own shares and also give money to their relatives, directors and associates to play the capital market.
Had there been the usual systematic risk appraisal in banking and financial management where inherent risks are highlighted and mitigating factors subjected to the crucial acid test, such decisions would not have found suitor with banks management.
A good risk analysis and mitigating factor, building different scenarios of Best and Worst Possible Outcome would have envisaged a crash in the share prices used as collateral and the banks’ responses to safeguard their shareholders fund, especially for individuals and non institutional investors who do not have any other thing the bank could fall back to in the event of the loans going bad. And that set the stage for the present bubble.
A handsome return of 75% by the All-Share-Index of our capital market for the year ended 31st December 2007 attracted many local and foreign funds into our market and also caused it to be rated as the best return all over the world. It was estimated that over $6billion was invested by the hedge fund managers for speculative trading.
The reduction of inflation and interest rate to a single digit by the CBN also encouraged our bankers to play the capital market with depositor’s money. By April 2008 the All-Share-Index have reached an ever high level of more than 12,000 basis point while our market capitalisation climaxed to over N12.3trillion.
By April 2008, CBN issued a directive to banks to stop margin loan facilities even though they later denied it. At the same time hedge funds managers started withdrawing their investments ‘in order to mitigate the credit crunch that is happening in their home countries’. This led to dumping of shares in the stock exchange and that formed the beginning of the capital market crisis.
In addition to the stock market crises, the banking crisis actually reared its head in October 2008 but was delayed by the opening of Expended Discounted Window (EDW) to avoid bank failure as some of the banks were unable to meet up with their daily demand by depositors. Banks misused this opportunity by taking it as a permanent source of funding instead of disposing some of the assets (most of which today has turned toxic), adopt cost-cutting measures and conservation of cash in their day-to-day operations.
In the process also, there was the sudden devaluation of the Naira by the CBN whereby losses were incurred from ‘carry trade’ which arose from borrowed U.S. dollar at low interest without looking at the exchange risk and this sent many into default and some of our manufacturing companies were declaring huge losses as a result of devaluation of the Naira.
The Challenge:Economic
development and growth of the world and Nigeria in particular were
challenges that arose due to the banking crisis and stock market
crashes. It become apparent that unless a comprehensive approach to
systematic risk management in order to reduce financial instability and
financial crisis, our economies is all in for real trouble. The price of
the single major source of the foreign exchange in Nigeria, the Crude
oil, fell as a result of lower demand by the developed economies due to
global melt down. The price of crude oil fell from $147.00 to $35.00 per
barrel. These severely affected our budget whereby many capital
projects outlined by the Federal, State or Local Governments were either
postponed or outrightly cancelled.
The Excess Crude Oil Reserve was redistributed to augment the revenue shortfall. On the other hand the Niger-Delta militant crisis reduced the output of oil daily production by 50% or more. The impact of this saw the exchange rate that was stable for 2006-2007 to be no longer sustainable by the end of the first quarter of 2009 as the Naira was devalued by more than 35%.
Further compounding the issues is the near disappearance of remittances made by Nigerians in Diaspora that was over $8billion. Most of them were heated by the financial crisis.
Inflation rate that had been brought down to a single digit increased to almost 15% as at 31st December 2008.
The liquidity crises in the economy, particularly banks, which day of reckoning came after it was postponed through the EDW, further aggravated the situation. Bank workers whose envious pay package were considered second in earnings only after the Oil and Gas industry did not only drastically cut down on their staff strength but also effected downward review of salaries and all emoluments by as much as 50% or more. Credit lending suffered as over leveraged world has to find ways to cut debt burdens down to size.
Regulators who are supposed to be the gate keepers failed to understand all these and proven actions that spur systematic risk failed. Many of them were rather captured by those they were supposed to be regulating.
The Excess Crude Oil Reserve was redistributed to augment the revenue shortfall. On the other hand the Niger-Delta militant crisis reduced the output of oil daily production by 50% or more. The impact of this saw the exchange rate that was stable for 2006-2007 to be no longer sustainable by the end of the first quarter of 2009 as the Naira was devalued by more than 35%.
Further compounding the issues is the near disappearance of remittances made by Nigerians in Diaspora that was over $8billion. Most of them were heated by the financial crisis.
Inflation rate that had been brought down to a single digit increased to almost 15% as at 31st December 2008.
The liquidity crises in the economy, particularly banks, which day of reckoning came after it was postponed through the EDW, further aggravated the situation. Bank workers whose envious pay package were considered second in earnings only after the Oil and Gas industry did not only drastically cut down on their staff strength but also effected downward review of salaries and all emoluments by as much as 50% or more. Credit lending suffered as over leveraged world has to find ways to cut debt burdens down to size.
Regulators who are supposed to be the gate keepers failed to understand all these and proven actions that spur systematic risk failed. Many of them were rather captured by those they were supposed to be regulating.
The Prospects:History
teaches us that the occurrence of financial crisis continually repeats
itself over a period of time. The fact that we have witnessed financial
meltdown now does not guarantee it will not occur in the future, or even
in the near future. However, the present financial crisis should serve
as an opportunity for a very strong self-assessment, self-analysis and a
retooling of our economic policy and financial regulations.
We must develop both human and non-human capacity to ensure our regulatory institutions and financial firms are well prepared to understand and manage financial risks by fashioning out an effective strategy to respond promptly to situations as they occur to avoid future financial instability.
The Knowledge Gap: A standard of a minimum requirement should be clearly set for obtaining the right to engage in some risks involved in that activity. Risk management should not be a process but a culture that must be imbibed by all and sundry. The Code of Ethics and Corporate Governance should be compulsory in our companies, and effectively monitored, not merely by stating same in bulky annual financial statement of accounts but must be subject to routine audit and reporting by the regulators.
Disclosure Requirement. The International Financial Reporting System should strictly be adhered to in all our disclosure and financial reporting.
Our political leaders who keep jumping from Singapore to Malaysia to Dubai or even Ghana with little knowledge hoping that those places are investment havens can see that is no longer true. Real Estate in Dubai have lost over 50% just within few months while in Ghana their stock market lost more than Nigeria’s and almost the worst in the world over.
The financial global meltdown confirmed the need for Regional and International cooperation. This could force agreements and policies to be easily implemented within a region or the world in general, as we witness by the G20.
It also gives an opportunity whereby financial regulators such as CBN, NDIC, SEC, PENCOM, NAICOM and NSE would meet together to harmonise their decisions and issue uniform rules without much conflict and setting up Financial Regulatory Consultative Committee forum.
Happily the crisis has given us an opportunity to take some positive decisions which ordinarily would have taken us longer time before we arrive at it. They include such like the Buy-Back of Company’s own shares, Market Makers, Asset Management Company by the CBN, harmonization of Code of Corporate Governance, International Financial Reporting System and Uniform Accounting Year for banks.
It also gives the Federal, State and Local Governments some of the tools they needed to improve their jobs. Many of our experts in Diaspora would have not liked coming back home talk less of acceptance of Government’s job offer. But with so many of the private sectors retrenching the Government have been given a once in a general chance to hire the best and the brightest.
Government have been given chance to review and access plenty of economic models to draw upon. It is up to the Governments to review its status whether it is too large or too small to work.
The recent civil service reform whereby an Assistant Director and above cannot stay for more than eight years on one position but is either promoted or relived is one of the policies.
Emergency economic spending, less overseas training and traveling and review of political appointments and reducing too much over-bloating political aides and many other unnecessary spending could not have been reviewed if not because of the global financial meltdown.
Attempts to reform the banking system and removal of many chief executives from what they claim to be family empire or personal businesses could nave been resisted by all and sundry without the financial crisis such as this.
The recent review of Petroleum Bill Act and complete deregulation of the downstream sector could not have been thought of or even pronounced by the Government as it is today by any Government official without fear of molestation.
The depth of the crisis brought to focus to Africans and Nigerians on the imperatives of diversification of sources of revenue. Most State Governments are looking inward to alternative sources of generating revenue. Some cases as examples are the Edo State Government that recently announced that its monthly Internally Generated Revenue (IGR) moved from N400million to N2,000 and N2,500million, while the Lagos State Government generated over N15,000million monthly, which was not the case before. More efforts is still needed in this direction, especially the infrastructural aspect to lift the real sectors which sources of IGR is more enduring, sustainable and equally uplifts the living standard of the citizens. We pray we will get there soonest.
It also gave us a time of transformation. People are much more worried about the future, Governments’ robust and coordinated response to the financial and economic crisis. Most Governments have defined their priorities by reinvigorating social market economic and sense of urgency to work jointly towards a goals.
The credit contractions by the banks have of necessity caused most States and the Federal Government to resort to long term sources of funds through the Bond Market. The Federal and State Governments source billions of Naira through this window which had been one of the most idle, but the best in matching long term funs with long-term projects.
It also enthrones the spirit of accountability since if you must source funds from the Bond market you must be able to not only show your financial accounts/statements for the past five years but also show the purpose of the project the fund is financing and means of generating the income to repay the obligations as at and when it crystalises (cashflow).
The crisis challenges the Government to look for alternative way of addressing infrastructural need thereby looking for Private Participation Partnership (PPP) or Build, Operate and Transfer (BOT), and so many concessionary means of joint partnerships between Governments and private partnership.
We must develop both human and non-human capacity to ensure our regulatory institutions and financial firms are well prepared to understand and manage financial risks by fashioning out an effective strategy to respond promptly to situations as they occur to avoid future financial instability.
The Knowledge Gap: A standard of a minimum requirement should be clearly set for obtaining the right to engage in some risks involved in that activity. Risk management should not be a process but a culture that must be imbibed by all and sundry. The Code of Ethics and Corporate Governance should be compulsory in our companies, and effectively monitored, not merely by stating same in bulky annual financial statement of accounts but must be subject to routine audit and reporting by the regulators.
Disclosure Requirement. The International Financial Reporting System should strictly be adhered to in all our disclosure and financial reporting.
Our political leaders who keep jumping from Singapore to Malaysia to Dubai or even Ghana with little knowledge hoping that those places are investment havens can see that is no longer true. Real Estate in Dubai have lost over 50% just within few months while in Ghana their stock market lost more than Nigeria’s and almost the worst in the world over.
The financial global meltdown confirmed the need for Regional and International cooperation. This could force agreements and policies to be easily implemented within a region or the world in general, as we witness by the G20.
It also gives an opportunity whereby financial regulators such as CBN, NDIC, SEC, PENCOM, NAICOM and NSE would meet together to harmonise their decisions and issue uniform rules without much conflict and setting up Financial Regulatory Consultative Committee forum.
Happily the crisis has given us an opportunity to take some positive decisions which ordinarily would have taken us longer time before we arrive at it. They include such like the Buy-Back of Company’s own shares, Market Makers, Asset Management Company by the CBN, harmonization of Code of Corporate Governance, International Financial Reporting System and Uniform Accounting Year for banks.
It also gives the Federal, State and Local Governments some of the tools they needed to improve their jobs. Many of our experts in Diaspora would have not liked coming back home talk less of acceptance of Government’s job offer. But with so many of the private sectors retrenching the Government have been given a once in a general chance to hire the best and the brightest.
Government have been given chance to review and access plenty of economic models to draw upon. It is up to the Governments to review its status whether it is too large or too small to work.
The recent civil service reform whereby an Assistant Director and above cannot stay for more than eight years on one position but is either promoted or relived is one of the policies.
Emergency economic spending, less overseas training and traveling and review of political appointments and reducing too much over-bloating political aides and many other unnecessary spending could not have been reviewed if not because of the global financial meltdown.
Attempts to reform the banking system and removal of many chief executives from what they claim to be family empire or personal businesses could nave been resisted by all and sundry without the financial crisis such as this.
The recent review of Petroleum Bill Act and complete deregulation of the downstream sector could not have been thought of or even pronounced by the Government as it is today by any Government official without fear of molestation.
The depth of the crisis brought to focus to Africans and Nigerians on the imperatives of diversification of sources of revenue. Most State Governments are looking inward to alternative sources of generating revenue. Some cases as examples are the Edo State Government that recently announced that its monthly Internally Generated Revenue (IGR) moved from N400million to N2,000 and N2,500million, while the Lagos State Government generated over N15,000million monthly, which was not the case before. More efforts is still needed in this direction, especially the infrastructural aspect to lift the real sectors which sources of IGR is more enduring, sustainable and equally uplifts the living standard of the citizens. We pray we will get there soonest.
It also gave us a time of transformation. People are much more worried about the future, Governments’ robust and coordinated response to the financial and economic crisis. Most Governments have defined their priorities by reinvigorating social market economic and sense of urgency to work jointly towards a goals.
The credit contractions by the banks have of necessity caused most States and the Federal Government to resort to long term sources of funds through the Bond Market. The Federal and State Governments source billions of Naira through this window which had been one of the most idle, but the best in matching long term funs with long-term projects.
It also enthrones the spirit of accountability since if you must source funds from the Bond market you must be able to not only show your financial accounts/statements for the past five years but also show the purpose of the project the fund is financing and means of generating the income to repay the obligations as at and when it crystalises (cashflow).
The crisis challenges the Government to look for alternative way of addressing infrastructural need thereby looking for Private Participation Partnership (PPP) or Build, Operate and Transfer (BOT), and so many concessionary means of joint partnerships between Governments and private partnership.
Conclusion:In
conclusion there is a saying tough time never lasts but tough people
do. There is light at the end of the tunnel and it is not an oncoming
train. Deep recession usually lead to strong recovery. Businesses will
be recovering in 2010. Many companies have suffered a long ferocious
beating, many have expired but the tougher ones will emerge leaner but
stronger.
More companies may open offices in 2010. Policy makers will spend more time for planning and fine tune existing strategies. Corporate Boards will be expected to be pre-occupied with risk management, if lessons were learned from the past.
History had been made, and will continue to be made. The years had ran out fast, but innumerable days lie ahead; so also the opportunities for greater heights countless. I pray that you shall be among those that will embrace the countless opportunities, myself not being left out too (laughs).
More companies may open offices in 2010. Policy makers will spend more time for planning and fine tune existing strategies. Corporate Boards will be expected to be pre-occupied with risk management, if lessons were learned from the past.
History had been made, and will continue to be made. The years had ran out fast, but innumerable days lie ahead; so also the opportunities for greater heights countless. I pray that you shall be among those that will embrace the countless opportunities, myself not being left out too (laughs).
Thank you for listening.
KASIMU GARBA KURFI
KASIMU GARBA KURFI
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