The development committee of the World Bank meeting held, and as the name goes,
What dominated most of the Development committee meeting centred mostly on the impact of the global crisis especially on poor countries And what the current crisis means in the way and manner of delivering development assistance, the way and manner of what the challenges means for the years ahead. Like I said what they actually mean for delivering development assistance. This is so very key especially, as the poses grave challenges for the possibility of these countries, particularly the least developed countries being able to meet the challenges of the millennium development goals. Many of these countries happen to be in Africa. And as a consequence of the global financial crisis some of them especially with regards to the rising energy crisis, Those of them that happen to be oil importers were beginning to have severe balance of payment challenges.
The whole question of the financing for development for the next Doha that is coming, the implication of scaling up aid, and providing ODA in a timely and predictable manner. To the least developed countries happen also to be an issue. There is Obviously various new initiatives within the world Bank group and also coordination between the Bank and the UN system. One is the new deal for global food policy, global food price response programme this is coordinated with the UNDP, there is the issue of scaling up aid next either replenishment that about $41billion or so and some people believe this is a pittance relative to what needs to meet these requirement of most of the these developing countries and I think for Africa, There is one major issue that is up for discussion that is climate and change.
The next WDR for 2010 will be focussing on environment and sustainable development. and they are working on it and if you listen to most of debating going on now especially in the US
You would say as Nigeria one major red flag is that as the world is increasingly getting concerned about having an efficient and environmentally development there by reducing the effect of carbon emissions as a consequence of the use of oil as a major source of energy, Nigeria and other oil exporting countries are going to face a major challenge. At the global level it has become an issue and therefore is one red flag from National development point of view as consequence of global concern as a country it is a major take away for us to strategically plan a response to it. Officially, the world is now committed to finding alternative to the oil that we have. And it is a double threat on the one hand the prices of crude oil is coming down, on the other hand the world is going to be working hard to find alternative, and you are likely going to find an inverse relationship between the price of oil and the development of alternative. And already the price of oil is started to head south and if great progress is made it may portend great danger for the price of oil. That is a major thing from Nigeria point of view.
There were two crises before the third one came, energy and food. You listen to John Mccain and Obama, I think both of them are committed to making sure that America make sure investment in the next 10 years to make sure the world can find alternative and encourage people to use less of oil. That is a challenge for us. In the IMF reform we lost a little bit
Global financial crisis its implication for Africa
In terms of the Present Financial crisis, the key question is how will this impact on Africa, what sort of impact is it going to have? The first thing to say is of course the effect of the crises are still working themselves out here in the US, in Europe and elsewhere and so it will take sometime before we see the full impact of that even within the countries that are the epic centre of the crisis and then to see what will happen to Africa countries.
But one can look at one or two channels where African countries might be impacted. I think the first thing is to also remember that before this financial crisis there have been the food, fuel and fertilizer crises. Now we have the financial crisis. I call them the four Fs. So there are four Fs; food, fuel, fertilizer and finance that are impacting countries right now. If you overlay all of these crises on each other it could result in some considerable impact. First in terms of the food and fuel crises you know that many countries have been suffering from the high commodity prices, even though the World Bank is forecasting that prices are beginning to come down but still they are at a level that is much higher than what they were in 2005. Even though prices are on the downward trend they are still at a level that is higher than they were two years ago and so the world economy is not out of the wood yet. So this is going to continue to be a problem. In Togo and Liberia for instance food inflation is still about 25 per cent, in Ethiopia food inflation is up to 92 per cent at the moment. In several countries, this is quite a problem. You take that and you take fuel pressure particularly for countries in land locked situations and you have this financial crises.
Channels of crisis manifestation
This financial crisis might manifest through the following channels, first a drying up in liquidity and in capital flows, you know one of the big thing that has happened is that interbank lending has been frozen, money is not circulating and banks are not lending to people, those of our countries in the continent that were hoping to go to the international finance market for funds, they will have to hold back this might tinker with their plans, inward flow of capital I think might also be impacted, so that certainly is one channel.
Another channel is through export. If the developed countries go into recession and emerging markets like India and China also experience the same thing then you will begin to see some impact on African exports because commodities export that we have, their prices will begin to go down and demand will be falling though, that means that Africa countries will be getting fewer revenue than they use to get.
What is the extent of this is difficult to tell right now. That is one possible channel. The World Bank is forecasting for 2009 that commodity prices will go down between 20-25 per cent compared to the previous forecast. This is one possible way that Africa countries might be impacted. Luckily for many countries the banking system are not as tightly linked to the banking systems abroad that are currently facing the crisis.
Crisis not yet in Africa banking system
The crisis is not being seen in Africa banking system and countries for now. Those countries that have high micro economic imbalances, those with high current and capital account deficient are the ones that are going to be very careful to take adequate measures because if anything happens they are the ones that will experience greater volatility. So these are the different channels you might see things occurring. But for now it is still a bit too early to tell.
Another is the volume of assistance, and as you saw from the communique of the development committee and from the discussion, there have been a lot said about developing countries maintaining their commitment in Greaniggles to make sure that their pledge does not diminish. As of now they are falling behind I think their pledge is that by 2010 $50 billion going to Africa but how do they meet up with the commitment. I think we are at about $38billion there is the need for them to keep the pressure on to make sure those aid commitment are met.
This may be a bit difficult since they themselves are experiencing a squiz due to this crisis. Certainly there is has been great effort to urge them to keep their eye on the board there. Africa countries need to do their own bit. You know we also need to make our own effort to continue the reforms they started. You know that one of the good thing, the reason why Africa countries might not suffer much from this crisis as they could have is because they have been reforming.
These reforms have led to growth that we have seen so there is need to continue the reform on this part not to go back and say we are not going to continue the reforms we are going to nationalise our banks, no. Africa has to continue because it has been delivering growth and will enable government to deliver better services to Africa people. So Africa has to continue the effort ans also see how we can use our resources better and improve tax effort and savings mobilisation.
What is the World Bank doing in this regard?
How is the World Bank preparing in case any of these countries have issues, first on the food, I know you have heard about the $1.2billion facility, that is there and quite a bit of the money is being committed to Africa countries and has been targeting the most vulnerable countries with grants, out of the $1.2billion, $200million is a pure grant and out of that about $54million has been disbursed mostly to African countries and this is grant money. The Bank is very much geared toward helping out and it is also now doing programmes for the longer time, it has the rapid response facility, the bank is doing longer time agricultural programme and the commitment is to increase agricultural lending about $450million to $800million within the next year that is a substantial amount of assistance on the agriculture side. Now on the fuel side the Bank is preparing a fuel initiative for the poor, energy for the poor initiative, that is still underway that will be another facility.
On the Financial crisis, Bank is also gearing up, we have an international SWOT team, that can be sent to any country that is having problem to go and access if their financial system is under stress it can call on the Bank which will send this team to go and access. The Bank is gearing up to be in a position to support countries with additional resources if needed most those resources will come from the IBRD, that is not the soft loan of the bank but the regular lending arm of the bank. It is mostly emerging markets ie the more developing countries that are requesting the resources right now.
Now for Africa it is okey. I think Africa has a lot of resources at its disposal to be able to manage most of the requirement
What are the likely effects of the current financial crisis on the Nigeria banks?
From what we could see and I know you all talked to the Central of Nigeria Governor , did you not, I just met with him a short while ago, it looks like the Nigerian banks are relatively in good condition and the ownership of Nigerian banking system is internal, there is not that much foreign ownership, the banking system in Nigeria is not much tied to what is happening abroad to that extent it okey now. I think they have to watch the amount of foreign borrowing, you know if you borrow in foreign currency to finance domestic project you are exposed to foreign currency risk. So the amount of foreign financing that Nigerian banks undertake, should be watched. There are other internal issues that does not have anything to do with the current crisis but they need to watch their exposure. I here there are many states floating bonds, a lot of internal borrowing going on but sub national entities, I am sure that they have requirement that restrain them a bit they need to watch the risk to which they expose themselves. But it looks as far as this financial crisis is concerned the link to the toxic commodities here that are undermining banks is relatively limited. We should be okey.
Consolidation: N72.692bn trapped in 10 failed banks
By Omoh Gabriel, Business Editor
A total of N72.692billion was the deposit trapped in 10 of the 14 banks that could not meet the minimum N25billion during consolidation. This amount would have been lost if the banks had been allowed to fail ordinarily but with the intervention of government private sector depositors in these banks were able to recover their deposit. The failed banks in liquidation which liquidation have been concluded are Allstate Trust, Trade Bank, Lead Bank, Assurance and Metropolitan. Others are City Express, Hallmark, African Express, Eagle and Gulf. Three of the four failed banks still have cases pending in court while SGBN has won its case in is preparing to return.
Analysis of the available data for 10 of the 14 banks showed that the assumed private sector deposit trapped in these banks was N72.692billion, value of assets cherry picked by four banks amounted to N20.513billion, premium paid by NDIC on the insured deposits in the 10 banks was N2.688billion, promissory notes issued by CBN amounted to N25.764billion thus giving a total of N47.856billion of total deposits equivalent accessed by depositors in these 10 banks.
A break down of the amount by the monetary authorities titled the resolution of private sector deposit in the failed banks show that in Allstate Bank the assumed private sector deposit was N22.265billion while the value of the assets cherry picked by Ecobank was N2.699billion. According to data released by the authorities the Nigerian Deposit Insurance Corporation paid a premium of N1.65billion on deposit in the bank while the CBN gave a promissory note of N11.376billion thus giving the total deposits equivalent assessed by Ecobank in Allstate to N15.725billion.
According to available figures Trade bank which was acquired by UBA had N7.327billion private sector deposit with assets that were picked by UBA worth N1.644billion and NDIC premium on the deposit amounting to N250million . The CBN released a promissory note valued N3.910billion thus giving a total deposit equivalent accessed by depositors N5.805billion.
Lead Bank which was acquired by Afribank the report said had a total private sector deposit of N7.336billion, N1.016billion worth of assets picked, NDIC paid premium of N270million with the CBN backing up depositor with a promissory note of N5.805billion. Assurance Bank that was also taken over by Afribank had private sector deposit of N5.091billion N1.754billion picked assets, N370million paid premium by NDIC and N1.872billion released by CBN thus giving depositors in Assurance Bank access to N3.996billion through Afribank.
In the same vein Metropolitan Bank which was cherry picked by UBA had private sector deposit of N1.048billion , assets valued at N250.391million. N46.185million paid premium by NDIC and N162.0066million aid from CBN in the form of promissory note thus giving private sector depositors unlimited access to their deposit in Metropolitan Bank up to N458.643million. In the case of City Express Bank acquired by UBA, the total private sector deposit was N7.808billion, assets cherry picked amounted to N680.032million, NDIC premium paid on insured private sector deposit amounted to N102million while CBN promissory note released to UBA amounted to N1.7billion thus giving private sector depositors of City express Bank access to a total of N2.482billion.
Monetary authorities data further showed that the failed Hallmark bank had a total of N12.045billion verified private sector deposit that were in danger of being lost, assets worth N10.758billion without any insurance premium and a CBN promissory note of N107million thus giving the failed bank‚Äôs depositors access to their deposit through Ecobank to the tune of N10.865billion.
African Express Bank on the other hand had a total private sector deposit of N997.848million, assets valued at N150million and CBN assistance of N185million resulting in total deposit equivalent accessed by depositors of the failed bank to the tune of N335million through UBA which acquired the private sector deposit in the bank.
Eagle Bank which was acquired by Zenith had assumed private sector deposit of N890.807million with assets valued at N1.110billion. The acquired assets were more in value than the deposit liabilities and as a result their was no need for assistance in the form of promissory note from the CBN or premium on the deposit from the NDIC. Depositors in the bank thus had access to their deposit through Zenith Bank. In the case of the failed Gulf Bank the total private sector deposit in the bank was N7.880billion, assets valued at N450million and CBN assistance N1.773billion giving private sector depositors access to N2.223billion through UBA.
At the board of the World bank there is going to be an extra seat for Africa countries which means that Africa voice will be heard even more than before since we now have a third chair
on the board. I think this is a major positive piece of progress by the world bank and it has received the blessing of the development committee which gives Africa countries more say and I think we should commend the work that has been done by Africa board of governors, Board of the World Bank and Mr. Zoellick President of the Bank in trying to get this through. You know it has been a long time that Africa has been looking for this and now we got it. I think it is a good thing. I just wanted to mention this as a positive development.
IMF Outlook for Sub-Saharan Africa Highlights Impact of Global Financial Turmoil and Fuel and Food Price Shocks
The International Monetary Fund (IMF) yesterday said that economic growth in Africa is expected to slow down to 6.5 per cent In a press briefing by Ms. Antoinette Sayeh, Director of the IMF’s African Department to outline the October 2008 Regional Economic Outlook for Sub-Saharan Africa said “In an increasingly adverse global environment, sub-Saharan African growth is expected to slow to about 6 percent in 2008 and 2009, down from 6¬Ω percent in 2007. Meanwhile, inflation is projected to increase to 12 percent in 2008 and 10 percent in 2009. The growth projections are somewhat lower and the inflation projections markedly higher than in the April 2008 Regional Economic Outlook: Sub-Saharan Africa, especially for 2008.
“The worsening macroeconomic situation reflects headwinds from strong increases in food and fuel prices, slower world growth, and global financial turmoil. So far, the main effects of the global financial turmoil appear to be indirect, in the form of slower global growth and volatile commodity prices. Recent heightened turbulence raises the risks, including of a decline in resource flows to Africa in the form of private capital, remittances, and even aid.
“The food and fuel price shock has put upward pressure on inflation and current account deficits. Further, donor support has not risen to cover the larger import bills caused by the price shock, leaving the adjustment to domestic resources. Foreign exchange reserves have held up fairly well so far but cannot be expected to absorb the long-term consequences of the food and fuel price shock. High volatility means that the situation is changing rapidly, but these concerns remain valid for many countries in spite of the recent easing of oil and food prices. In a number of countries, adjustment to higher price levels is not yet complete, and inflationary pressures may still be present.
“The challenge for policymakers is to adjust to the food and fuel price shock, preserve economic stability in the face of global financial turbulence, and shield the poor. With food and fuel prices substantially off recent peaks, it should be easier to fully pass through higher prices to the economy to encourage adjustment. With food accounting for a major part of household expenditure, the resulting loss in the purchasing power of the poor is a serious concern. Measures to cushion the impact of higher food and fuel prices on the poor therefore need to be well targeted‚Äîand also supported by donors. For oil exporters a particular challenge is to preserve a medium-term perspective; caution use of oil revenue windfalls permits smoothing of fiscal spending in the face of price declines as well.
“There are unprecedented risks to the global economic outlook, and the resilience of growth and macroeconomic stability in the continent is being put to a test. Countries need‚Äîmore than ever‚Äîto be able to respond quickly to unexpected exogenous shocks. Those countries facing inflationary import price shocks, declines in their terms of trade, and lower remittances and private capital inflows face an especially acute challenge. In these circumstances, maintaining, if not increasing, aid remains of paramount importance,” Ms. Sayeh said.