PUBLICATION OF THE CENTRAL BANK OF NIGERIA
Volume 30, No. 1 January - March, 2006
ENHANCING LONG TERM SAVINGS CULTURE IN NIGERIA
CONCEPTUAL ISSUES ON SAVINGS IN NIGERIA - by Akperan James Adam, Ph.D and Akomaye Vincent Agba, Ph.D.
FINANCIAL LIBERALISATION ANDSAVINGS MOBILISATION - by Emmanuel Ating Onwioduokit ENHANCING LONG-TERM SAVINGS CULTURE IN NIGERIA THROUGH NATIONAL SAVINGS CERTIFICATE A PRO-POOR FRAMEWORK FOR ENHANCING - by Dr. (Mrs.) S. O. Alade MICRO-SAVINGS IN NIGERIA - by M. C. Ononugbo and C. P. Nwosu (mrs.) LIFE INSURANCE AS A SOURCE OF LONG-TERM SAVINGS IN NIGERIA: REGULATOR'S PERSPECTIVE NIGERIA'S EXTERNAL TRADE AND THE NEW - by Chief O. E. Chukwulozie PERSPECTIVES FOR ITS ENHANCEMENT - by G. K. Sanni IMPERATIVES OF NATIONAL SAVINGS: A CASE FOR ADOPTION OF APPROPRIATE BENCHMARK PRICE IS THE NIGERIAN CURRICULA IN ECONOMICS FOR CRUDE OIL RELEVANT FOR THE NIGERIAN ECONOMY OF - by Moses F. Otu THE 21ST CENTURY? - by J. A. Achilike Volume 30 No. 1 Jan./Mar. 2006
BEHIND THE SCENE
EDITORIAL ADVISORY EDITORIAL STAFF COMMITTEE SENIOR MANAGER Mr. P. A. H. Atama - Chairman O. Olatunde Dr. O. J. Nnanna - Member Mr. O. Olatunde - Secretary EDITOR S. A. Okogbue
ASSISTANT MANAGERS Austin Belonwu EDITORIAL BOARD Sunday Sorungbe
Dr. O. J. Nnanna - Chairman EDITORIAL ASSISTANT Mu’azu Waziri Mr. F. O. Odoko - Alternate Chairman Mr. J. Alegieuno - Member Mr. C. N. O. Mordi - Member Mr. C. O. Odiaka - Member Mr. R. H. Abarshi - Member Mr. O. Olatunde - Member Mr. A. Balogun - Member Mr. A. O. Adenuga - Secretary
BULLION is published every three months by Central Bank of Nigeria. Views expressed therein do not necessarily reflect the thinking of the Bank’s Management. Copies of the journal are available without charge through formal request to the Editor. Articles appearing in the journal may be reproduced only with the expressed permission of the Editor or the article’s author.
BULLION ISSN - 0331 - 7919 Volume 30 No. 1 Jan./Mar. 2006
BOARD OF GOVERNORS
Prof. Charles C. Soludo - Governor (Chairman)
Dr. Shamsuddeen Usman - Deputy Governor (Operations)
Mr. Ernest C. Ebi - Deputy Governor (Corporate Services)
Mr. Tunde Lemo - Deputy Governor (Financial Sector Surveillance)
Dr. Obadiah Mailafia - Deputy Governor (Policy) Volume 30 No. 1 Jan./Mar. 2006
CONTENTS PAGE
PAGE 1 - ENHANCING LONG-TERM SAVINGS CULTURE IN NIGERIA THROUGH NATIONAL SAVINGS CERTIFICATE DR. (MRS.) S. O. ALADE
PAGE 20 - LIFE INSURANCE AS A SOURCE OF LONG-TERM SAVINGS IN NIGERIA: REGULATOR'S PERSPECTIVE CHIEF O. E. CHUKWULOZIE
PAGE 32 - IMPERATIVES OF NATIONAL SAVINGS: A CASE FOR ADOPTION OF APPROPRIATE BENCHMARK PRICE FOR CRUDE OIL MOSES F. OTU
PAGE 40 - CONCEPTUAL ISSUES ON SAVINGS IN NIGERIA AKPERAN JAMES ADAM, PH.D AND AKOMAYE VINCENT AGBA, PH.D.
PAGE 52 - FINANCIAL LIBERALISATION AND SAVINGS MOBILISATION EMMANUEL ATING ONWIODUOKIT
PAGE 63 - A PRO-POOR FRAMEWORK FOR ENHANCING MICRO-SAVINGS IN NIGERIA M. C. ONONUGBO AND C. P. NWOSU (MRS.)
PAGE 74 - NIGERIA'S EXTERNAL TRADE AND THE NEW PERSPECTIVES FOR ITS ENHANCEMENT G. K. SANNI
PAGE 87 IS THE NIGERIAN CURRICULA IN ECONOMICS RELEVANT FOR THE NIGERIAN ECONOMY OF THE 21ST CENTURY? J. A. ACHILIKE Volume 30 No. 1 Jan./Mar. 2006
ENHANCING LONG-TERM SAVINGS CULTURE IN NIGERIA THROUGH THE NATIONAL SAVINGS CERTIFICATE BY DR. (MRS.) S. O. ALADE DIRECTOR, BANKING OPERATIONS DEPARTMENT
Empowerment and Development undertaken. Strategy (NEEDS) programme. But let it be known at the onset, that it is It is within these perspectives that this not for lack of good policies that past paper will consider the operations of a attempts by the monetary authorities National Savings Certificate as a have failed to correct the imbalance panacea to the dearth of long-term b e t w e e n t h e q u a n t u m a n d savings for long-term investments, to composition of available national justify the reforms and achieve savings and the demand for accelerated economic growth. In this DR. (MRS.) S. O. ALADE investment funds. Rather, many regard, the rest of this paper is divided factors, including cultural and other into six sections. Section 1 considers INTRODUCTION social values have been major the theoretical framework, while trend constraints. However, the recent analysis of savings in Nigeria will be n Nigeria's economic history, the proposal to introduce a National the focus of Section II. In order to strides of the last five years, which Savings Certificate could be seen as a appropriately focus modalities for the Ihave been internationally welcome solution to this lingering operation of the proposed National acclaimed, are unprecedented. The problem. Savings Certificate and appraise its many reforms that have engendered effectiveness, the features of the the current success have largely Nonetheless, it is imperative that, instrument will be x-rayed in Section included those in the financial sector, within the current economic reform III, using the lessons of experience of particularly, the positive policy shifts in agenda, lending to long-term India and the United Kingdom. The the domestic money market as first investments must attain a higher challenges that will need to be tackled steps towards a more robust and proportion of Banks' loan portfolios, if in addressing the problem of long- enduring facelift for the sector. Part of the on-going consolidation term investment will be highlighted in the expectations are that the programme for banks and other S e c t i o n I V . T h e P o l i c y improved enabling environment from similar reforms in the financial sector Recommendations for operating the the reforms would continue to make were to achieve the desired Nigerian scheme will be analysed in more investment funds readily objectives. However, it would be Section V, while the Conclusions in available, as well as attract droves of inappropriate to ignore the concerns Section VI will draw largely from the foreign direct investment. The being expressed that small savers analyses in Sections II and IV. challenges that remain include the and investors might not be adequately SECTION I need to deliver on the remaining catered for in the current LITERATURE REVIEW-LONG- objectives, as well as build on and consolidation arrangement, going T E R M S A V I N G S I S A N sustain the current achievements. forward. Similarly, the ongoing privatization programme can only be INDISPENSABLE OIL TO THE ENGINE OF ECONOMIC GROWTH In this regard, an area of concern, meaningful, equitable and supportive which requires continued close of the poverty reduction projects
consideration of the Nigerian under the millennium development a. What is saving and why save? policymakers is how to attain the level goals (the MDGs), if small investors Saving means a surplus of production of long-term savings that would are considered in the ownership over consumption, which can be adequately service investment needs. arrangement for the privatized achieved in two ways: either by More specifically, the type of institutions. In addition, the drive for reducing consumption or by investments that would drive the domestic long-term savings that will increasing production. The definition current economic reform agenda as enhance long-term investment should of savings as a reduction in enunciated in the National Economic be appropriately and timely consumption is aptly captured in the
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popular parlance that a farmer who always been a complicated process constitute a substantial proportion of consumes the seedlings meant for the and saving motives have always aggregate national savings and they next planting season cannot expect to remained under the influence of play two key roles. First, they offer reap a bumper harvest the next time general standards in a society. The potential benefits to savers, such as around. As such, in a real sense, the dogmatic history also shows a security, if things go wrong and notion of saving has preceded complete picture of the gradual and comfort in old age, as well as modern man; entailing the logical consistent building of motives and independence and opportunity division of available food over a driving forces of saving, such that an throughout savers' lives. Secondly, specific period, in order to create a idea is given of the respective household savings are an important store of surplus for rainy days. historical situations and modifications source of capital to fund investment in the ideology of the savers with the and growth in the economy. The motive for saving which has development of culture in different increasingly been influenced by eras. d. The Savings Market - The savings religious and ethical teachings remain market can be split into three broad no longer logical when exposed to the MANTEUFFEL (1900) distinguishes segments-short and long-term saving cultural renaissance of rational, the saving motives from saving markets. Short-term savings are economic and societal development conditions. To him, economic intended to provide the saver with a and when experiencing an economic behaviour and an expectation of profit readily accessible reserve of funds to expansion process. The logic of the count as saving motives, while the cope with any household emergency. new development trends affects the inborn instinct to save, upbringing and In that sense, for economic behaviour of the individual, and the training to save from childhood development considerations, real consistency and security of traditional constitute the saving conditions. In savings are long-term in nature, or at moral code are no longer valid. Saving other words, motives represent the the least, medium-term in nature the decision has thus become a reaction inner driving forces, while conditions money saved for a new car or a of an individual's objectives, a desire represent the outer ones. MARSHALL holiday would not be savings; that is of possessions in life. A saver (1905) also holds similar views and short-term money designed to see the possesses a variety of driving forces sees love in and affiliation with the saver over a crisis or emergency. from all sides, which determine his family as a major inner drive which Savings are therefore designed to behaviour. The saving process is in arouses a sense of development, as reflect the growth in the economy, that context, an outcome of both the the expectation and progressiveness preserve wealth against inflation and economic attitude, as well as his to come forward in life to ensure a ensure that the saver can be socio-cultural development. As a better future to the family. The independent. The need for ease of result, taken, a sustainable theoretical influence of culture is specially access to short-term savings means description of development of an emphasized because he views the they are typically held in assets such absolute theory of the saving problem sense of saving as developing along as cash and deposit accounts. Long- is, therefore, impossible. with development of culture. term savings, in contrast, are often invested in assets that are relatively b. Cultural influence on Savings - In c. The Role of Savings in the illiquid and relatively risky in that the old Greek literature, saving appears to Modern Economy - Over time, ethics saver may not get back the full value of be an ethical feeling and someone's and culture in savings have kept whatever was invested, initially. These duty towards oneself, friends and losing their significance with respect include savings in pension schemes, state. At the micro level, this saving to society and economy, major government bonds and stocks, and behaviour fulfilled the need for attention is now diverted to economic investment in endowment policies security; at the macro level, people factors. In the modern world, savings such as life insurance and mortgages. were encouraged to allow others to are as important to the corporate In between these sets of instruments use the stored funds for a specific world and the general government, as are investments in savings that are price (interest). Similarly, the they are to households, because somewhat of medium term tenors appropriateness of storing and saving savings provide independence and such as, corporate equities (company money was the focus of theological allow the saver to plan for the future, shares), savings with unit trusts and thought, as enunciated in most as well as secure investment for commercial papers. religious beliefs. Historical enhanced production and growth. In observation reveals that saving has most economies, household savings The initial objective of long-term
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savings is usually to enable the saver In an equilibrium model where there follows Y = A where s =1-c which to accumulate a capital sum. The are no lags in consumption or output, produces the multiplier result that: ultimate aim may be to use this capital the Keynesian linear relationship sum to fund specific spending, such indicates that the flow conditions of If the marginal propensity to save is a as paying off a mortgage for a house, the product market equate planned constant s (0 < s <1), then the or alternatively, to boost living investment and savings. In other equilibrium level of income is a standards by using the lump sum to words, multiple (1/s >1) of autonomous provide an income, often by saving Y = Z = C + I = C(Y) + I; where expenditure A, i.e. all forms of within a pension plan. Pension Y = National Income; autonomous expenditure on savings, either via a personal pension Z= National Expenditure; consumption and investment get or via an occupational pension, are C=consumption; and multiplied up into income. thus an important part of the long-term I = Investment savings market. This same identity makes Investment g. Alternative Theory of Savings - A equal to Savings, i.e. I = S Study conducted by some economic e. Long-term Savings and The Linear Multiplier indicates that if theorists including Martin Kane E c o n o m i c G r o w t h - W h a t the marginal propensity to save is a Jensen of Brown University, tried to relationship? - For rapid and constant, s (0 3 Volume 30 No. 1 Jan./Mar. 2006 capital-output ratio is intimately tied to stands in no simple relationship to the average Nigerian investor operates at savings behaviour since capital is rate of accumulation. the short-end of the business coupled wealth and wealth is the stock which with the fact that the enterprise is savings flows into. In this way wealth, SECTION II small, or at best medium-scale in size. savings, and income together THE SAVINGS CULTURE IN Consequently, the money market has determine the outcome. NIGERIA: TREND ANALYSIS equally developed along the lines of The availability of long-term investible the priority needs of the borrowers, Their submission is also rested on the funds will, ceteris paribus, depend on while the economy is the worst for it. f a c t t h a t , m o s t , i f n o t a l l the availability of long-term savings. In For lack of other avenues, the small macroeconomic theories of savings other words, the availability of long- and medium-scale Nigerian are long-run theories, which are likely term investment funds in an economy entrepreneur starts a business by to be upset by short-run (temporary) can only take a cue from the centre of borrowing from friends or relations, or changes in, for example, labour concentration of the tenure of savings taking credit at impossible interest income. Decline in savings rate has in the financial market, since it would rates from local thrift and saving received enormous attention, simply be ill-advised to apply short-term societies, or the traditional daily because basic book-keeping funds to finance long-term saving arrangements, called by combined with the fact that the great investments. This error was the bane different names in different cultures. majority of domestic investment is of the distress conditions of finance financed by domestic savings (Taylor houses, insurance outfits and some Nonetheless, this is not to allude that 1996), suggests that without savings deposit money banks in the early 90s the monetary authorities have done there cannot be growth. Decreases in in Nigeria. An economy that is awash little to address the problem of savings rates need not lead to lower with short-term savings, but low on the savings, as many policy reforms had wealth accumulation. However, the long-term tenor, may not expect been introduced in the past, especially Study submitted that it is the latter accelerated investment that should in the money market. Many factors, which ultimately matters for long-run catalyse real gr owth. including failure to diversify the growth. country's economic base, as well as Dearth of Savings: A global cultural hindrances and lack of Yet, the link between savings rates phenomenon - The dearth of savings adequate exposure to modern and growth performance is not as had always been of grave concern to business techniques have contributed simple as one may be led to believe. developed countries, as it has always substantially to the ineffectiveness of Carroll and Weil (1994) directly been to developing ones. For past reforms. On the other hand, vast address the question of Granger instance, Great Britain and US sums of deposits have been lying idle causality. They find that growth displayed average net savings rates for many years, especially public- Granger-causes savings, which well below 10% since the beginning of owned insurance and mortgage means that causality cannot run in the eighties. However, countries such institutions, begging for utilization. one direction from savings to growth as France, Germany, Sweden and (but it does not mean that causality Denmark have saved between 15 and Analysis of Savings Trend in runs from growth to savings). Levine 20% of GDP in the same period, while Nigeria and Renelt (1992) single out a positive Norway and Japan are above 25% on In Tables 1 & 2, out of annual average relationship between the investment average. The savings ratio defined as savings of N197.2 billion for the ten share in GDP and the growth rate as household savings as a percentage of year period, 1992-2001, long-term by far the most robust finding of cross- gross household disposable income savings accounted for barely 10%, country regressions. in the UK remained below 8.9% while short-term savings was about average, and there are particular 56%, although medium-term saving Furthermore, the study examines the concerns about the flow of savings did not perform poorly at 34%. effect of capital taxes on economic into pension funds. However, the trend was not even in all growth, and submitted that there is no the years, as the bulk of the figures significant negative correlation (at - In Nigeria, the seriousness of the were concentrated in the last four 0.10) between capital taxes and problem of low long-term savings may years, especially for long-tem savings growth of savings. This is because the not have been greatly felt because of which was as low as 0.4% and 0.3% savings rate, however, measured is some peculiar environmental and for 1992 and 1993, respectively. not an accurate measure of thrift; and cultural reasons. For most parts, the 4 Volume 30 No. 1 Jan./Mar. 2006 Total savings as a percentage of attend long-term investment by damaged consumer confidence in the Gross Domestic Product (GDP) was merely exploiting the premium long-term savings industry. Coupled very low at annual average of about available in the TB rates and the with that, is the failure by some firms to 8% (the ratio was worse between pittance, which they paid on short- package their products appropriately, 1995 and 1997), but trended upward term deposits. offer excellent service by treating their as a percentage of Foreign Direct customers properly. Many of the Investment (FDI) from 179% to 574%. In contrast, the weighted average factors that are eroding public trust in The reason for the latter, was more for lending rates were as high as 36% banks and long-term savings the declining rate of FDI inflow during and 30%, respectively in 1993 and generally are similar to those that are the period than because the rate of 1992, as against the deposit rates of undermining confidence of Nigerian savings was falling (see Table 3). about 24% and 21%, indicating a gap workers in the recently introduced of 12 and 9 percentage points, pension savings scheme for the In terms of credit to the economy, the respectively, or premia of 33% and Nigerian Civil Service. banking sector has progressively 30% for those years. It should be been lending higher proportion of total noted, however, that those were the Under this circumstance, the credit to the private sector, about 22% only years that deposit rates went as intervention of government would be in 1993 to close to 98% in 2001, and high, and those years witnessed the required naturally to restore as a ratio of GDP, the increase to the emergence of upfront interest confidence and bridge the savings sector has been substantial such that payments of as high as 60% paid for gap, much in the same fashion of it doubled from 8% in 1992 to about deposits in finance houses. This could government traditional intervention in 16% in 2001 (see Table 4). However, not be sustained, and it led to the similar economic disequilibrium the maturity structure of loans as crash of that segment of the financial conditions. Globally, the intervention revealed in Table 5 supports the sector and the distress of some has come by way of the introduction of earlier submission about the short- banks. various savings instruments to tenor of the investment business done mobilize the much needed long-term by banks in Nigeria. Credits on call SECTION III savings for accelerated investment accounted for over 52% of total, while O P E R AT I N G A N AT I O N A L and economic growth. Nonetheless, other short-term loans of up to one SAVINGS CERTIFICATE SCHEME the most common savings instrument year accounted for 31%, with the TO PROMOTE LONG-TERM employed by governments through balance of 17% for loans and credits INVESTMENT: LESSONS OF public institutions in recent times, is of maturity of 3years and above. E X P E R I E N C E O F S O M E the National Savings Certificate COUNTRIES Scheme. Interest rate trends for deposits It is widely acknowledged that lack of and loans and advances - Anything consumer confidence in parts of the A case study of two countries, India that hampers the smooth working of financial services industry, has been and the United Kingdom will be the the savings market will have deterring many households from focus of this paper, to serve as lessons implications for the cost of capital to saving as much as they might of experience for recommending industry and commerce. It is therefore otherwise choose to. This deep- appropriate logistics and policies in little surprise that the cost of capital in seated distrust of the financial adopting the Nigerian version of the Nigeria has always been high and on services industry has manifested National Savings Certificate. the upward trend. In Tables 6 and 7, more in the banking sector, resulting movement in the weighted average in global bank failures in recent times, India interest rates for deposits of up to with dire and significant adverse long- The National Savings Certificates 1year tenor and regular savings in the term consequences, not just for (NSC) are issued by the Department commercial banks (of between 9 and savers and financial services industry, of Post, Government of India, and are 13%) lagged behind the Central but also for the wider economy. More available at all post office counters in Bank's Treasury Bills rates of between than that, in the other segments of the the country. The scheme is aimed at 12% and 17% between 1998 and industry, repeated mistakes, combining the growth in savings with 2003. The implication of this state of m i s u n d e r s t a n d i n g s , a n d reductions in tax liability. The duration affairs is that the deposit money banks misrepresentations in recent years of the National Savings Certificate is 6 could still be in business without much about the risk attached to various years. The following are the other sweat of taking the usual risks that savings products have severely features of the Certificate: 5 Volume 30 No. 1 Jan./Mar. 2006 The Certificate could be orders of the court. Currently, over £17 billion is invested purchased at a Post Office in the in National Savings & Investment prescribed form either in person Transfer is possible only after a Savings Certificates. There are two or through an authorized agent of period of at least one year from types of Savings Certificates available the Small Savings Schemes. the date of the certificate, and Index-linked Savings Certificates and only if transferee is eligible to Fixed Interest Savings Certificates. Certificate could be held purchase certificates. If a individually, jointly, or on behalf of certificate is encashed within a 1. Index-linked Savings Certificate - a minor. The Certificate could be period of one year from the date This Certificate increases in value purchased through an authorized of the certificate only the face each year in line with inflation, as agent of the Small Savings value of the certificate is payable. measured by the Retail Prices Index Schemes. (RPI). Extra interest is also added on If a certificate is encashed after top at fixed rates meaning that The National Savings Certificate expiry of one year but before the savings are guaranteed to grow is issued in denominations of expiry of three years from the ahead of the rate of inflation, whatever Rs100, Rs500, Rs1,000, and d a t e o f c e r t i f i c a t e , t h e happens. The investment has tax-free Rs10,000, and could be paid for encashment will be at a discount, returns, including assured security in cash, cheque, or by i.e. at an amount equivalent to the choice of investment terms, because it surrendering a matured old face value of the certificate is backed by HM Treasury, so any certificate. together with simple interest. The money invested in index-linked difference between the simple Savings Certificates is 100% secure. There is no limit to the amount to interest and the interest accruing Index-linked Savings Certificates are be purchased. will be deemed to be the discount. sold in Issues, each of which has its own number. Whenever there are new The Certificate will be issued Application for transfer will be guaranteed rates on offer, a new issue immediately on purchase, or a made on a prescribed form by the is released, and several issues are provisional receipt will be given, transferer and the transferee; and released every year for both 3-year which could be exchanged later. transfer can be permitted only by and 5-year terms. New issues don't the post-master. affect any existing index-linked C e r t i f i c a t e s o f l o w e r Savings Certificate. denominations could be Transfer could be allowed as exchanged for a certificate of security to the government, 2. Fixed Interest Certificate or higher denomination of the same central bank, any government Reinvestment Certificate - This aggregate face value or vice corporation, or local authority. offers fixed rates of interest so that versa, provided that certificates of customers know at the start how much different dates are not combined Interest on the Savings interest they will receive. They are tax- in such exchange. The date of the Certificates is liable to tax under free and are available in 2-year and 5- certificate issued in exchange will the Income Tax Act, on the basis year tenors. The Certificate is be the same as that of the original of the annual accrual, but no tax purchased from the proceeds of certificate surrendered and not will be deducted at the time of encashed National Savings the date on which the exchange is payment of discharge value. Certificates or Ulster Savings made. Certificate of any issue or Yearly Plan United Kingdom Certificates. A Certificate may be transferred National Savings Certificates are a from a post office at which it is United Kingdom Government security Who may buy the Certificate? - registered, to any other post issued under the National Loans Act Individuals, or jointly with one or more office. The Certificate is 1968. Savings Certificates are on sale other individuals, and a person may transferable with the previous all year round, meaning that National buy on someone else's behalf. consent in writing of an officer of Savings & Investment (the institution Trustees and Receivers can buy on the post office, from a deceased charged with operating the savings behalf of mentally disordered holder to his heir, to a court of law scheme), always has fixed rate offers persons, while registered friendly or any other person under the available to savers and investors. societies or any other body of persons 6 Volume 30 No. 1 Jan./Mar. 2006 approved by the Director are also reinvest in a Fixed Savings specific period of time, which will not eligible. However, children under 7 Certificate, or cash in the investment. be for less than one year, starting on years of age cannot buy, but the No action is required for roll-overs for the date of the purchase. The rates of Certificate could be held on a child's another term of the same length, but interest are graduated each year, behalf, or jointly for two or more the purchaser can communicate his because of the compound rate. Each children. desire by telephone. However, to period of time is called a “term”, and avoid fraudulent claims, customers each term will have its own “issues” of How to Apply - Application could be wishing to repay part or all of their Certificates issued in sequence and by the Internet, post, telephone, or in maturing Savings Certificates will different interest rates apply to each person at any post office which carries need to give their consent in writing. issue within each term. Each term that out National Savings & Investment is available and the interest rate that business, and in all cases, application Certificates can be cashed in by apply to each issue will be published in to purchase is subject to acceptance completing the form on the back of the the London, Edinburgh and Belfast by the Director. If accepted, the date of certificate of investment and sending Gazettes. purchase is the date the application it to NS&I. Payment will be made by and payment, or authority to pay, are direct credit to a bank account Interest will be compounded annually received. (including a National Savings Bank on the anniversary date and all Investment Account) or any account interest will be free of U.K. Income Tax Regularity of Sales - Certificates of nominated. Part of the current value of and Capital Gains Tax. Savings more than one term may be on sale at a Certificate may be cashed in or Certificates cashed in within the first any one time, therefore, the purchaser reinvested. The value repaid or year of investing don't earn any index- is expected to specify choice of term reinvested will be made up of part of linking or extra interest so, it is best to when applying to purchase. A the purchase price of the Certificate keep the investment for at least a year. Certificate of investment that is issued together with any interest that part has will show the amount and date of earned. A replacement certificate of Recently introduced Savings purchase. investment, showing the original date scheme - In October, 2004, National of purchase and the balance of the Savings & Investment introduced a Purchase and Holding Limit - The purchase price remaining, will be new savings scheme to allow minimum for each purchase is £100, issued. customers to set up standing orders except for reinvestment certificates for Premium Bond purchases from where there is no limit. The maximum Retention after the fixed rate term - £50 upwards, with no limit on how purchase is fixed at £15,000 (of After the original term, a Certificate much can be invested each month purchase price) of that issue, but this may be eligible to earn interest for a providing the customer does not is also not applicable to reinvestment further term of the same length. The exceed the maximum holding of where there is no maximum, nor do U.K. Government Treasury will decide £30,000. It became available to buy Reinvestment Certificates count in whether this will apply and, if so, on online from January 2005. applying the limit to other holdings of what terms as to interest. The Director the same issue. For Certificates held will write to the holder, at the last National Savings and Investment is in the joint names of two or more recorded address for the holding, always looking for more convenient persons the total value of the shortly before the end of each term to ways for customers to save. It has Certificates will be counted against tell them of the Treasury's decision. If introduced a new telephone service, each of the joint holders when such interest does apply it will be which makes it easier than ever for reckoning the value of Certificates applied automatically and will be customers to reinvest in Savings held by them for this purpose, and guaranteed for the whole of the further Certificate, thereby removing the each Trust is treated separately. term but, the holder will remain free to need to fill out lengthy forms. cash in the Certificate at any time Encashment and Reinvestment - including for reinvestment into SECTION IV At the end of the term, the purchaser another issue or another NS&I CHALLENGES IN THE NIGERIAN can continue holding the investment product. ENVIRONMENT FOR APPLYING for another term of the same length; T H E N AT I O N A L S AV I N G S reinvest in an index-linked Savings Interest and Tax relief - A Certificate CERTIFICATE SCHEME Certificate for a different term; earns interest at rates fixed for a Individual savers ought to be best 7 Volume 30 No. 1 Jan./Mar. 2006 placed to decide how much and in Unattractive Returns on Savings - what proportion of the total what form they should be saving. To One of the main priorities of the returns is accounted for by staff ensure that they are in a position to financial industry should be to ensure and management emoluments? make such decisions, it is essential competitive returns to the saver. that savers can be confident both that However, in Nigeria, the spread Poor service delivery - As a result of they will be treated fairly by the long- between the prime lending rate and the make-up of the financial industry, term savings industry and that they deposit rate is quite substantial. While unavailability of relevant consumer will be given clear, readily accessible the deposit rate is very low and protection agencies, (until most and factual information on savings sometimes declining, the lending rate recently), coupled with lack of related issues. In addition, like a is on the high spectrum and keeps consumer education on their rights, rational economic man, the long-term rising. Although, on balance, Nigeria's the Nigerian financial industry has saver would naturally consider the nominal interest rate regime could be turned into oligopolies of a sort, where safety of his fund, expect an attractive adjudged competitive for investment they determine both the supply and return on investment, transparency of when compared with what obtains the price of their products. For the investment managers, and fair internationally, the problem is that the instance, for the fact that the bulk of treatment and excellent service real interest rate is negative, if the rate deposit liabilities of deposit money delivery, in that order of priority. of inflation is taken into account. banks is sourced from the public Indeed, these are the main areas of Naturally, a rational saver would sector, some banks before the recent challenge for mobilizing the much- rather save in a more competitive and reforms, were in the habit of bluffing needed savings for investment and positive interest rate-bearing the patronage of individual small economic growth in Nigeria, but which instrument. In that context, it would be savers by demanding impossible will be addressed in a National incontrovertible to conclude that the amounts as minimum deposits for Savings Certificate scheme. Each of average Nigerian saves more out of opening new accounts. Furthermore, these problems will be put under necessity than because of the with the exception of a few banks, searchlight in the rest of this section. consideration of attractive returns. customers of the banking industry This is irrespective of the financial spend hours for most transactions that Unsafe Haven for Savings - Long- instrument in consideration, whether should under normal conditions term savings, in the form of bank fixed bank deposits, pension funds, require just a few minutes. In other deposits, pension funds, insurance insurance or mortgage endowment, areas of the financial industry, the and mortgage endowments and other or any other form of long-term saving. same condition obtains - genuine forms of savings constitute a This could also explain the low inflow claims are denied or not promptly fundamental part of the financial of portfolio investment and Nigeria's attended to, while high risk financial security of the Nigerian population. It inability to internationalize its capital products are sold to the unwary is important both for savers as market. customer. individuals and for the economy as a whole that the level of savings and the Lack of transparency of Investment SECTION V industry that manages them should be Managers - An important litmus test NATIONAL SAVING CERTIFICATE in a healthy state. There is no scope for investment managers should be to SCHEME IN NIGERIA: THE for complacency when it comes to ask the following questions: J O U R N E Y S O F A R A N D public trust in the solidity and solvency h o w t r a n s p a r e n t l y o r RECOMMENDED MODALITIES of savings institutions. In this wise, appropriately has the packaging FOR ITS OPERATION savings institutions would be well of investment revealed the (i) The Journey So far in Nigeria: To advised to take responsibility for necessary information to the frontally tackle the challenges tackling the problems confronting saver and supervisory agency on highlighted above, and foster a culture them, especially in the area of the returns and risks inherent in of saving as a national priority towards rebuilding public confidence. It is little the savings product, especially for addressing the macroeconomic surprise that the newly introduced insurance and mortgage conditions and development issues pension scheme in the civil service is endowments? within the economy, it was imperative meeting with silent protest from what is the extent of hidden to introduce a new financial potential contributors for the same insider abuse in the operations instrument. To this end, the Federal reason. that may adversely impact on the Government of Nigeria set up a business. steering committee to consider the 8 Volume 30 No. 1 Jan./Mar. 2006 introduction of a national savings To provide long-term financial 2. There are some similarities certificate scheme. In 2003 an resources, which the FGN between the implementation approval was granted for the issuance could use to refinance or modalities in the UK and India of the National Savings Certificate r e p a y i t s s h o r t - t e r m which Nigeria could emulate. (NSC) to promote savings culture in obligations. These are in the areas of easy Nigeria and provide access to funds To enhance the development accessible to institutions charged for industrialist, manufacturers, of a domestic debt market, with the sales of the NSC, businessmen and other sundry users which will encourage long- qualification to purchase, low of cheap funds. The principal target of term investment in the denominations of the certificate the instrument is the general public, productive real sector. exchange, ease of transfer, and particularly low and medium income Mobilisation of long-term the fact that the certificate could group. savings which can be applied serve as security for credit. for on-lending to small scale A National Savings Board was i n d u s t r i e s , t h r o u g h 3. In terms of limit of purchase, it is constituted by the Hon. Minister of participating DFIs or deposit recommended that an admixture Finance, comprising the Ministry of money banks. of the UK guideline, which places Finance, Central Bank of Nigeria, a limit, and the Indian rule which Debt Management Office and the (ii) Lessons of Experience in the does not have a limit, be adopted. S e c u r i t i e s a n d E x c h a n g e Adoption of Modalities for This is because caution should be Commission, with the Minister of Operating the NSC: It cannot be applied in avoiding the latter set of Finance as the Chairperson of the controverted that the introduction of purchases exploiting the good Board. The proposals of the Board the National Savings Certificate in reforms to advantage and have been incorporated in the Central Nigeria will adequately serve two crowding out individual small Bank of Nigeria's (CBN) Monetary, major purposes: harness the vast idle savers. In this regard, purchases Credit, Foreign Trade and Exchange liquidity in the informal sector, outside by individuals should not have a Policy Guideline for the fiscal year the banking system to complement limit, while those by banks and 2004/ 2005 circular No.37 of 2nd liquidity management; and serve as a other corporate organizations January, 2004.. stop-gap for a sustainable process of should be limited. long-term savings mobilization in the The NSC is a long-term interest financial system. Without necessarily 4. The programme should be made bearing instruments to be issued by repeating the features of the country an ongoing concern and different the Central Bank of Nigeria on behalf experiences of the UK and India tenors should be introduced as is of the Federal Government of Nigeria. analyzed in Section III, and with no the case in the UK. The introduction of NSC is intended to prejudice to what the current NSC broaden and offer alternative Board may have designed, the 5. T h e e n c a s h m e n t a n d investment options to the investing application of the NSC programme in reinvestment rules in the UK are public, with a view to facilitating Nigeria should take the following quite attractive and could be savings and investment growth. character: adopted. Given that the interest rates on the coupon is at a rate substantially 1. A National Savings Certificate 6. The discounting rule to above the interest rates paid by banks scheme implemented along the discourage encashment of the on savings account deposits, it is lines of the UK arrangement savings certificate before one expected that the NSC will provide low would encourage and assure year will help to sustain objectives income savers a more attractive savers of the security of their of the savings scheme, of investment option. investments. The Index-linked effectively mobilizing medium to Savings Certificate and the Fixed long-term savings. Objectives of the NSC Interest or Reinvestment 7. There is need to review tax Mobilisation of long-term Certificate introduced in the UK regimes in promoting savings. s a v i n g s w h i c h t h e are quite attractive and will help The first step in this regard is to government could use to savers hedge against inflation, in make returns on the National finance the rehabilitation of addition to assuring security of Savings Certificate introduced to its ageing infrastructure. investment. be largely tax-free. For instance, 9 Volume 30 No. 1 Jan./Mar. 2006 with respect to the taxation of economy at large have benefits to p r a c t i c e s . I t i s t h e r e f o r e returns, an admixture of the UK derive from the product. The realities recommended that all the major trade and India guidelines will be on ground demonstrate the need to bodies in the long-term savings appropriate to encourage implement the scheme. It is, industry should have clear codes of retention of the certificate to therefore, not advisable to abandon practice and the Central Bank should maturity. In this wise, Certificates the scheme. Fostering a culture of be at the forefront in this regard to discharged after one year, but saving is a national priority and there establish such a code. before maturity should be taxed is need for a national savings scheme, at the income tax rate on the basis to raise public consciousness in On the issue of poor service delivery, of the annual accrual (the India saving, for a high level of domestic the main challenge here is for the rule), but the returns on the saving is necessary to sustain players in the market to re-orientate Certificate should be tax-free if economic growth in the long run. their corporate ideals to conform to the discharged at the end of its tenor. objective of playing the traditional (the UK rule). Beyond the usefulness of the National roles of funding investment, away Savings Certificate for mobilizing from the most recent unprofessional SECTION VI long-term savings, the other operational focus of cutting corners CONCLUSION segments of the financial system will and benefiting mainly from the short- The need to fashion out a new still be expected to play their roles to end of the market. This was the bane instrument that would not only be complement public sector efforts. In of the distress conditions in the 1990s attractive to the traditional investing this vein, the outstanding challenges of banks, finance houses, and some public but would also attract the in the financial sector cannot be insurance companies, and it remained attention of the informal sector who ignored and will, therefore, need to be one of the main issues that informed are in control of the bulk of the over addressed frontally in the following the current ongoing reforms in the N500billion of currency in circulation areas: financial industry in Nigeria. The has now not only become imperative banking sector, for instance, could b u t h a s a l s o a s s u m e d a n The problem of natural suspicions and bluff investments in the real sector unprecedented urgency in the light of fear towards product providers in the because of the lucrative transactions the anticipated success of this present banking, pension, mortgage and in the foreign exchange market. Government economic reform insurance industries could be agenda. effectively tackled if consumers A closer linkage between the receive clearer and more succinct investment returns for customers and The introduction of the National product information to avoid executive remuneration may be Savings Certificate in Nigeria is misunderstanding and mitigate beneficial in ensuring greater expected to serve three major incidences of litigations. A simple risk professional conduct. In this sense, purposes; namely, harness the idle indicator by investment products management fees charged by funds in the informal sector/outside providers would help savers with their providers should be linked to the the banking system to complement investment decisions. investment performance of products liquidity management; serve as a in order to align interests of savers and sustainable process of long-term Greater public knowledge of the roles the industry more closely. Full and savings mobilization; and inculcate of the respective regulatory easily understood disclosure of fees savings culture, particularly the low authorities in the financial industry in and commissions to savers is vital for income earners and the un-banked. It protecting their interests would help an efficient market. In the same vein, is, therefore, of great regret that the restore confidence. A publicity regulated prices in the financial scheme is yet to take off after the campaign should be launched to services industry should be set after policy pronouncement and the educate the public in this regard. clear and transparent analysis. inauguration of the Board of the National savings certificate in 2003. From the expositions in the previous The possibility of granting access to a sections, it has been clearly proportion of pension savings during The National Savings Certificate, highlighted that the current low level of periods of unemployment or sickness when implemented, offers a number consumer confidence in long-term should be examined to encourage of prospects that will justify its savings largely reflects weak more investments in that segment of establishment. The CBN and the regulatory framework and industry the industry.. 10 Volume 30 No. 1 Jan./Mar. 2006 Attracting long-term savings should service, which makes it easier for the bane of the flourishing informal entail incentives that simplify the customers to reinvest in Savings markets in Nigeria. The simplicity of process of documentations while Certificate, thereby removing the the traditional Esusu informal savings investing in financial instruments. We need to fill out lengthy forms. This scheme cannot be matched in this can borrow a leaf from the UK's becomes even more pertinent when it regard. National Savings & Investment is considered that lengthy process of initiative of introducing a telephone documentation in the formal sector is REFERENCES National Savings & Investment, Durham, January, 2005 “ Savings Certificates” The Economic Times, 2001“National Savings Certificate India: Basic Features” R.G.D Allen “Macroeconomic Theory” Martin Kaae Jensen, Brown University “On Alternative Theories of Savings” House of Commons Treasury Committee “Restoring Confidence of Long Term Savings- Eighth Report of Session 2003- 2004” Brahim Research/Cicero Consulting “Summary of Research Results on Restoring Confidence in Long-Term Savings: A Consumer Perspective” 2004. Sophon Rojthermrong October 2003, “Savings Culture” 11 V olume 30No.1 TABLE 1 SAVINGS IN NIGERIA ( FROM 1992-2001) ( =N= Millions) Short Term Savings (Savings Account) Medium Term Savings (Time Deposit Account) Long Term Savings Notes & Domiciliary Debenture Deposit Year Private Sector Account State Govt Local Govt FGN Total Private Sector State Govt Local Govt FGN Total Bond Certificate Total Grand Total 1992 2 6,033.40 - 1 6.30 2 1.40 160.70 26,231.80 13,333.30 2,007.90 371.90 488.90 1 6,202.00 171.80 - 1 71.80 4 2,605.60 1993 3 6,834.20 - 1 42.90 7 7.70 23.60 37,078.40 22,890.30 419.80 165.10 342.30 2 3,817.50 186.30 - 1 86.30 6 1,082.20 1994 4 9,295.30 1 ,698.20 1 62.20 1 43.60 309.80 51,609.10 25,114.00 639.60 135.90 327.40 2 6,216.90 285.30 2,638.60 2 ,923.90 8 0,749.90 12 1995 6 1,250.90 7 ,392.30 7 34.60 1 49.50 551.60 70,078.90 28,993.20 821.10 151.10 675.80 3 0,641.20 778.00 3,873.40 4 ,651.40 1 05,371.50 1996 6 8,471.10 5 ,679.10 2 48.90 5 6.90 531.60 74,987.60 43,278.30 612.50 109.00 2,044.00 4 6,043.80 486.30 4,646.50 5 ,132.80 1 26,164.20 1997 8 3,862.40 5 ,507.60 1 54.30 8 2.80 1,164.80 90,771.90 50,781.00 1,126.90 168.30 3,844.90 5 5,921.10 825.30 9,684.50 1 0,509.80 1 57,202.80 1998 1 00,889.50 9 ,414.70 3 59.80 1 24.20 335.10 111,123.30 58,679.20 2,471.50 112.50 6,028.40 6 7,291.60 475.70 5,855.60 6 ,331.30 1 84,746.20 1999 1 27,811.90 3 5,067.90 2 61.10 2 93.40 160.20 163,594.50 107,299.00 2,507.70 958.40 2,313.60 1 13,078.70 370.00 10,904.50 1 1,274.50 2 87,947.70 2000 1 63,963.90 3 9,072.90 3 91.10 2 69.20 6,122.90 209,820.00 145,871.20 7,493.80 1,041.00 18,021.00 1 72,427.00 290.00 12,132.50 1 2,422.50 3 94,669.50 2001 2 16,258.10 4 7,198.40 1 95.70 5 5.60 1,067.40 264,775.20 230,774.00 3,683.90 995.80 5,229.10 2 40,682.80 25,609.60 214.70 2 5,824.30 5 31,282.30 AVERAGE 9 3,467.07 1 5,103.10 2 66.69 1 27.43 1,042.77 1,100,070.70 72,701.35 2,178.47 420.90 3,931.54 7 9,232.26 2,947.83 4,995.03 7 9,428.60 1 97,182.19 Soucrce: Central Bank of Nigeria Statistical Bulletin, Volume 14, December 2003 Jan./Mar . 2006 V olume 30No.1 TABLE 2 DISTRIBUTION OF EACH TERM SAVINGS AS PERCENTAGE OF TOTAL SAVINGS IN NIGERIA YEAR SHORT TERM MEDIUM TERM LONG TERM 1992 61.57% 38.03% 0.40% 1993 60.70% 38.99% 0.30% 1994 63.91% 32.47% 3.62% 1995 66.51% 29.08% 4.41% 1996 59.44% 36.50% 4.07% 13 1997 57.74% 35.57% 6.69% 1998 60.15% 36.42% 3.43% 1999 56.81% 39.27% 3.92% 2000 53.16% 43.69% 3.15% 2001 49.84% 45.30% 4.86% AVERAGE 59.00% 37.53% 3.49% Soucrce: Central Bank of Nigeria Statistical Bulletin, Volume 14, December 2003 Jan./Mar . 2006 V olume 30No.1 Table 3 PERCENTAGE RATIO OF TOTAL SAVINGS TO GROSS DOMESTIC PRODUCT (GDP) AND FOREIGN DIRECT INVESTMENT FOREIGN DIRECT TOTAL TOTAL SAVINGS AS TOTAL SAVINGS GDP INVESTMENT SAVINGS AS A % OF FOREIGN YEAR (=N=MILLIONS) (=N=MILLION) (=N=MILLION) A % OF GDP DIRECT INVESTMENT 1992 42,605.60 532,613.80 13,150.00 8.00 324.00 1993 61,082.20 683,869.80 34,176.00 8.93 178.73 14 1994 80,749.90 899,863.20 36,375.00 8.97 221.99 1995 105,371.50 1,933,211.60 51,662.00 5.45 203.96 1996 126,164.20 2,702,719.10 54,128.00 4.67 233.08 1997 157,202.80 2,801,972.60 56,532.00 5.61 278.08 1998 184,746.20 2,708,430.90 70,457.00 6.82 262.21 1999 287,947.70 3,194,023.60 73,555.00 9.02 391.47 2000 394,669.50 4,537,640.00 74,992.00 8.70 526.28 2001 531,282.30 5,178,150.00 78,848.00 10.26 673.81 Average 197,182.19 2,517,249.46 54,387.50 7.83 362.55 Soucrce: Central Bank of Nigeria Statistical Bulletin, Volume 14, December 2003 Jan./Mar . 2006 V olume 30No.1 TABLE 4 PERCENTAGE RATIO OF BANKING SYSTEM CREDIT(BSC) TO GROSS DOMESTIC PRODUCT(GDP) & TOTAL CREDIT IN THE ECONOMY (=N= MILLIONS) BSC TO THE GROSS BSC AS % OF TOTAL PRIVATE DOMESTIC TOTAL CREDIT IN BSC AS % CREDIT IN THE YEAR SECTOR PRODUCT THE ECONOMY OF GDP ECONOMY 1992 43,298 532,614 138,270 8.13 3 1.31 1993 52,150 683,870 241,609 7.63 2 1.58 15 1994 117,669 899,863 411,679 13.08 2 8.58 1995 175,788 1,933,212 445,204 9.09 3 9.48 1996 216,781 2,702,719 332,302 8.02 6 5.24 1997 272,024 2,801,973 321,317 9.71 8 4.66 1998 336,886 2,708,431 485,690 12.44 6 9.36 1999 452,411 3,194,024 632,010 14.16 7 1.58 2000 587,486 4,537,640 667,622 12.95 8 8.00 2001 827,123 5,178,150 848,993 15.97 9 7.42 Soucrce: Central Bank of Nigeria Statistical Bulletin, Volume 14, December 2003 Jan./Mar . 2006 V olume 30No.1 Table 5 MATURITY STRUCTURE OF COMMECIAL BANKS' LOANS AND ADVANCES (=N= MILLIONS) Maturing Within 6 Between 6-12 within 12 Between 1-3 Between 3-5 After 5 Year On Call % months % months % months % years % years % years % Total 1980 3,246.0 50.95 822.70 12.91 7 27.0 11.41 1 97.7 3.10 663.2 10.41 4 08.1 6.41 306.1 4.80 6,370.8 1981 4,369.5 50.85 911.70 10.61 1 ,066.6 12.41 3 52.7 4.10 731.1 8.51 6 45.1 7.51 516.1 6.01 8,592.8 1982 5,157.1 50.20 1,540.90 15.00 9 96.5 9.70 3 90.4 3.80 852.7 8.30 7 49.9 7.30 585.6 5.70 10,273.1 1983 5,126.4 46.20 2,052.80 18.50 1 ,020.8 9.20 8 32.2 7.50 898.8 8.10 9 43.2 8.50 221.9 2.00 11,096.1 1984 5,448.3 47.50 1,885.00 16.43 1 ,091.9 9.52 6 78.2 5.91 954.0 8.32 7 81.6 6.81 632.2 5.51 11,471.2 16 1985 6,142.1 50.55 2,189.30 18.02 1 ,204.1 9.91 4 37.9 3.60 960.8 7.91 6 08.1 5.00 608.1 5.00 12,150.4 1986 8,026.9 49.42 2,976.90 18.33 1 ,574.2 9.69 7 32.5 4.51 1,153.4 7.10 1 ,013.1 6.24 763.7 4.70 16,240.7 1987 8,677.9 49.45 2,506.90 14.29 2 ,068.7 11.79 9 29.2 5.29 1,490.2 8.49 1 ,034.3 5.89 841.5 4.80 17,548.7 1988 10,421.3 51.32 3,222.90 15.87 2 ,376.8 11.70 8 53.2 4.20 1,564.2 7.70 1 ,076.7 5.30 792.3 3.90 20,307.4 1989 10,710.8 29.92 2,979.90 8.32 2 ,354.7 6.58 7 50.2 2.10 16,562.9 46.27 1 ,604.5 4.48 833.5 2.33 35,796.5 1990 12,370.9 49.58 4,772.00 19.13 3 ,060.3 12.27 2 59.4 1.04 1,841.9 7.38 1 ,322.7 5.30 1,322.7 5.30 24,949.9 1991 15,989.5 50.30 6,130.40 19.28 3 ,634.0 11.43 4 10.8 1.29 2,401.6 7.55 1 ,674.8 5.27 1,548.4 4.87 31,789.5 1992 22,739.0 54.13 7,670.90 18.26 3 ,975.6 9.46 3 36.6 0.80 2,839.3 6.76 1 ,993.0 4.74 2,453.8 5.84 42,008.2 1993 28,799.0 50.35 11,817.80 20.66 5 ,635.1 9.85 1 ,276.3 2.23 3,500.0 6.12 3 ,117.5 5.45 3,048.2 5.33 57,193.9 1994 46,673.1 47.71 17,957.20 18.35 8 ,975.6 9.17 8 ,970.6 9.17 6,282.9 6.42 4 ,487.8 4.59 4,487.8 4.59 97,835.0 1995 71,439.7 49.06 27,476.80 18.87 1 3,738.4 9.43 9 ,616.9 6.60 9,616.9 6.60 6 ,869.2 4.72 6,869.2 4.72 145,627.1 1996 85,978.0 52.03 33,030.00 19.99 1 6,515.0 9.99 1 ,651.8 1.00 11,560.5 7.00 8 ,257.5 5.00 8,257.5 5.00 165,250.3 Soucrce: Central Bank of Nigeria Statistical Bulletin, Volume 14, December 2003 Jan./Mar . 2006 V olume 30No.1 TABLE 6 Central Bank Minimum Treasury Certificate Rediscount Treasury Bills One Year Two Years YEAR Rates Rate Maturity Maturity 1992 17.50 21.00 22.00 23.00 1993 26.00 26.90 2 7.40 27.80 1994 13.50 12.50 1 3.00 13.00 1995 13.50 12.50 1 3.00 13.50 17 1996 13.50 12.25 - - 1997 13.50 12.00 - - 1998 14.31 12.95 - - 1999 18.00 17.00 - - 2000 13.50 12.00 - - 2001 14.31 12.95 - - 2002 19.00 21.38 - - 2003 15.75 15.02 - - Average 16.03 15.70 1 8.85 19.33 Soucrce: Central Bank of Nigeria Statistical Bulletin, Volume 14, December 2003 Jan./Mar . 2006 V olume 30No.1 TABLE 7 WEIGHTED AVERAGE INTEREST RATE (PERCENT) Commercial Banks Deposit Rates 3 3 - 6 6 - 1 2 Over 12 Year Months Months Months Months Savings 1992 20.80 22.30 22.10 20.50 16.10 1993 23.60 23.26 23.99 28.02 16.66 1994 15.00 15.00 15.00 15.00 13.50 1995 13.62 13.65 13.96 14.27 12.61 18 1996 12.94 13.21 13.43 13.55 11.69 1997 7.04 7.49 7.46 7.43 4.80 1998 10.20 10.50 9.98 10.09 5.49 1999 12.68 12.75 12.59 14.30 5.33 2000 10.60 10.27 10.67 10.44 5.29 2001 10.20 10.50 9.98 10.09 5.49 2002 16.25 17.20 16.66 15.89 5.09 2003 13.82 12.24 12.04 11.15 4.15 Average 13.90 1 4.03 1 3.99 1 4.23 8.85 Soucrce: Central Bank of Nigeria Statistical Bulletin, Volume 14, December 2003 Jan./Mar . 2006 V olume 30No.1 TABLE 8 WEIGHTED AVERAGE INTEREST RATE (PERCENT) Commercial Banks Lending Rates Year Prime 1 Produce Advance 2 Maximum Federal Savings Bank 3 1992 29.80 30.80 31.20 16.10 1993 36.09 39.06 18.32 - 1994 21.00 - 21.00 - 1995 20.18 - 20.79 - 1996 19.74 - 20.86 - 19 1997 13.54 - 23.32 - 1998 18.29 - 21.34 - 1999 21.32 - 27.19 - 2000 17.98 - 21.55 - 2001 18.29 - 21.34 - 2002 24.40 - 29.95 - 2003 20.49 - 22.47 - Average 21.76 34.93 2 3.28 16.1 0 Soucrce: Central Bank of Nigeria Statistical Bulletin, Volume 14, December 2003 Jan./Mar . 2006 Volume 30 No. 1 Jan./Mar. 2006 LIFE INSURANCE AS A SOURCE OF LONG-TERM SAVINGS IN NIGERIA: REGULATOR'S PERSPECTIVE BY CHIEF O. E. CHUKWULOZIE COMMISSIONER FOR INSURANCE, NATIONAL INSURANCE COMMISSION, ABUJA insurance policies, is a legal contract mathematics (especially probability which specifies the terms and and statistics). Mortality tables are conditions of the risk assumed. statistically based tables showing Special provisions apply, including a average life expectancies. Normally, suicide clause which nullifies the m o r t a l i t y t a b l e s t a k e i n t o policy if the insured commits suicide consideration certain factors, which within a specified time from the policy include the insured's age, gender and date. Any misrepresentation by the lifestyles ( e.g. such habits as the owner or insured on the application is excessive use of alcohol and tobacco, CHIEF O. E. CHUKWULOZIE also a ground for nullification. The etc ). When an insurer collects the 1.0. INTRODUCTION face value of the policy is normally the premiums from the policy owner, he amount paid when the policy matures, invests the money using the time ife insurance is an insurance although policies can provide for value of money and compound return contract in which the insured greater or lesser amounts. A life principles to create a pool of money transfers, and the insurer L insurance policy matures when the from which to invest, pay claims and assumes, the risk of death for a insured dies or attains a specified age. finance the company's operations. specified period of time. As in other Most of the money made by an insurer insurance businesses, the insured The most common reason for the comes from direct premiums, while transfers the risk to the insurer, and purchase of a life insurance policy is to investment income supplements this. receives a life insurance policy, upon protect the financial interests of the Rates charged for life insurance are payment of a premium. Apart from the owner of the policy in the event of the sensitive to the insured's age because insured and the insurer, there is demise of the insured. The insurance statistically, an insured person is more usually a beneficiary who is the proceeds, apart from paying for the likely to pass away (and trigger a person (or persons) who is to receive funeral and other ensuing expenses, claim) as they get older. Since the policy proceeds if the insured could be invested to provide income in adverse selection can have a negative event (death) occurs within the policy replacement of the deceased's impact on the financial results of the period. One could also purchase a life wages. Other reasons for taking out a insurer, the insurer investigates each insurance policy on the life of life policy include real estate planning proposed insured beginning with the someone else. For instance, if a (mortgage protection) and planning application, which becomes part of the husband buys a life policy on behalf of for retirement. Since the death of the policy. Group life insurance policies his wife, he is the owner of the policy insured would be to the financial are however an exception. but she is the insured. It should be advantage of the policy owner, the noted that the beneficiary of a life policy owner must, by law, have an This investigation and the resultant policy is not a party to the contract. He insurable interest in the insured's life. r i s k e v a l u a t i o n a r e c a l l e d is only designated as such by the The “insurable interest” simply means underwriting. Health and life style owner of the policy. The owner could the legitimate reason for insuring the questions are asked, answered and even change the beneficiary other person's life. In fixing life dutifully recorded. Certain responses subsequently if he wishes, except for insurance premiums, the insurer aims by the insured will be given further policies that have irrevocable to cover claims to be paid, investigation. Life insurance beneficiary designations. In an administrative costs as well as make companies are never required by law irrevocable insurance contract, the some profits. Claims to be paid are to underwrite or provide cover for beneficiary must consent to changes determined by actuaries, using anyone. They should determine in beneficiary, policy assignment, or mortality tables. Actuaries are insurability and some people due to borrowing of cash value before such professionals who use actuarial their health or life style are changes can be effected. science, which is based on uninsurable. The proposal could be A life insurance policy, like all 20 Volume 30 No. 1 Jan./Mar. 2006 declined or the premium rate could be requires vis-à-vis what is on offer. what a regulator could do to facilitate loaded. Premium loading means This is to enable one obtain the right its development. The inherent increasing the premiums to provide cover for one's needs. benefits of life insurance could be for additional risks relative to that categorized into three, viz; benefits to particular insured discovered in the An aspect which some people find the individual, benefits to the underwriting process. confusing is the use of the terms government and impact on economic “insurance” and “assurance”. What is development. Upon the death of the insured, the the difference? The term “insurance” insurer will require acceptable proof of generally, refers to providing cover for 2.1. Benefits To The Individual death before paying the claims. The an event that may or may not Human history reveals a universal normal minimum proof is a Death happened while assurance is the desire for security. As we shall see Certificate and the completed Claims provision of cover for an event that is later, early societies relied exclusively Form of the insurer. Proceeds from bound to happen (e.g. death). In on family and tribe cohesiveness for the policy may be paid in a lump sum recent times, the distinction between their security. With industrial or in regular installments over the life the two terms has become blurred. development, migration to cities and of a specified person or over a This is principally due to many urbanization, this security service specified time period. companies offering both types of weakened and was augmented by policy and rather than refer to privately purchased and government- As has been pointed out, a life themselves using both insurance and provided security porgrammes. insurance policy provides cover for a assurance titles, they simply settle for Among the private programmes, life specified period of time. If the worst one. insurance has emerged as a universal were to happen within this period of response. The benefits of life time, then the insurance company There are five major lines of business insurance to the individual are would be required to pay out the in the life insurance industry enumerated as follows: agreed sum to the beneficiary. If the individual life, individual annuities, person outlives the term of the policy, group life, group annuities, accident (a) By guaranteeing to pay a stated then the insurance policy ceases and and health. sum to a family on the death of its no payment will be made. However, bread winner(s), life insurance the value of a policy could increase The most important lines of business provides families a measure of over time by combining an investment in terms of both revenues and profits protection against the adverse element along with the insured sum. a r e t h o s e i n v o l v i n g a s s e t financial consequences of If the life-insured were to die, then the accumulation products i.e. individual premature death, and gives insured sum would be paid out along life and individual and group individuals a greater sense of with the investment bonuses that annuities. Group life and accident economic security. This helps to have accrued. If it becomes and health insurance are mainly reduce worry and distress, and necessary to terminate the policy indemnity (rather than asset thereby increase initiative. No before the end of the specified term accumulation) products. The other privately purchased period, or death of life covered, then importance of asset accumulation financial instrument can perform once an investment bonus has been products is particularly noteworthy this function. added, the life assurance policy will because this is the market where have an encashment value. It is insurance faces the most vigorous (b) Life insurance cash value can therefore possible to cash a policy competition from banks and serve as a means through which earlier than its usual termination date, investment advisory firms. individuals save. Many people in order to collect the investment who might not otherwise save portion. Some insurance companies 2 . 0 . O B J E C T I V E S A N D consistently will, nonetheless, place penalties on early encashment MOTIVATION FOR THE TOPIC-THE pay their life insurance premiums of policies. The world of finance is INHERENT BENEFITS regularly. Thus life insurance extremely complicated and there are could constitute a form of quasi- many factors to consider when The motivation for the topic is to compulsory savings. choosing any financial protection outline the intrinsic benefits of life product. When looking for a policy, insurance, assess its performance in (c) Life insurance products, one should be clear about what one the Nigeria situation and examine especially annuities, provide a 21 Volume 30 No. 1 Jan./Mar. 2006 convenient and unique means by thereby serve as financial (a) It leads to specialization. If the which individuals can make intermediaries between investors and b a n k i n g s e c t o r m a k e s financial provisions for their economic agents that lack sufficient adjustments in order to reap the retirement financing. These economic agents benefits of its comparative may be households, businesses and advantage on short term (d) Life insurance can permit more in some cases even governments. products. This reduces the risk favourable credit terms to The emergence of life insurers as s t e m m i n g f r o m m a t u r i t y borrowers (both individuals and financial intermediaries, with features differentials between bank assets businesses) and can decrease different from those of banks as and liabilities. The stability of the risk of default. Life insurance regards the time frame of the banking sector is therefore can also minimize the financial investments, makes a major reinforced. disruption to businesses caused contribution to the development of the by the death of its key facilitators financial markets. In the advanced (b) It reduces the differentials or promoters. countries, insurance companies are between short-term and long- the largest institutional investors. term interest rates. This prompts 2.2. Benefits To The Government Specifically, life insurance impacts an improvement in the financial The benefits of life insurance to the p o s i t i v e l y o n s a v i n g s a n d structure of business enterprises government (in addition to facilitating development or investment financing which take advantage of lower economic development as discussed in the following ways: cost of long-term capital and a below) is mostly in the area of easing lessening of the risks of the burden of government social 2.3.1. Quantitative And Qualitative refinancing. welfare spending. Private life Impact On Savings insurance can supplement, if not Studies have shown that life (c ) It leads to, and facilitates, the substitute for, benefits provided by insurance (just like contributory development of the market for government. This is why there is a pension schemes) has a positive long term bonds. This greatly significant negative correlation effect on aggregate savings. Where expands the options for between social spending and life these contractual savings plans are government debt management. insurance premiums. The sharp rise instituted on compulsory basis (e.g. (d) It enhances the efficiency of in life premiums in the advanced the new pension scheme in Nigeria financial markets.It brings about a countries may be attributed in great will go along with compulsory group higher level of specialization and part to the mounting financial life assurance for employees), the professionalism on the part of difficulties of pension schemes. resultant rise in the level of aggregate financial market players, making Governments could concentrate their savings will be higher than the rate for it possible to finance projects that efforts on core social protection which households would have opted are bigger or riskier (thus more benefits, while allowing individuals to voluntarily. Secondly, unlike banks, lucrative), exploiting economies choose for themselves their desired most of which specialize in deposit of scale, trimming transaction level and type of additional protection. taking and short-term lending, contractual savings institutions such costs and encouraging financial 2.3. Impact Of Life Insurance On as life insurance companies usually innovation. Economic Development adopt a longer-term perspective. Considering these enormous Apart form the social role its plays by Their long-term commitments and the benefits, the objective of this paper as relieving government of some burden stability of their cash flow provide ideal stated earlier is therefore to evaluate of meeting financial security needs, source of long-term financing for the performance of life insurance in life insurance can assist economic government and businesses. mobilizing long-term savings in development generally and the 2.3.2. Impact On The Development Nigeria and determine what should be development of the capital market in Of The Financial Markets done at the level of a Regulator, to particular. Because they have In supplying long-term financial fast-tract its development and ensure thousands of policyholders, insurance products, life insurance triggers a that its great potentials are fully companies are able to amass a series of effects which facilitates the realized. But to put this in proper considerable quantum of funds that development and structure of the perspective, it is necessary to are important in supporting financial markets in the following understand how life insurance investment in an economy. They ways: evolved. 22 Volume 30 No. 1 Jan./Mar. 2006 3 . 0 . H I S T O R Y O F L I F E for relief of poor and distressed breadwinner died prematurely, INSURANCE widows and children of Presbyterian financial contributions would be levied In China, insurance as a way of Ministers in 1759 while the on the family members for the upkeep reducing the risk of traders began as Episcopalian Ministers organized a of his dependants. If necessary, his far back as 5000 B.C. while early similar fund in 1769. Between 1787 children could be distributed among methods of transferring or distributing and 1837 more than two dozen life his relatives. Similarly, where a risks by Babylonian traders began in insurance companies were started, material loss occurred as a result of the 2nd millennium B.C. The but less than half a dozen survived. such misfortunes as fire outbreak or Babylonians developed a system Prior to the American civil war, many robbery attack, relations and friends of which was recorded in the famous insurance companies in the United the victim provided some form of code of Hammurabi in 1750 B.C. and States insured the lives of slaves for succour through contributions, either practised by early Mediterranean their owners. Their trustees voted to in cash or kind. Depending on the sailing merchants. If a merchant end the sale of such policies 15 years peoples' culture, different approaches received a loan to fund his shipment, b e f o r e t h e E m a n c i p a t i o n were used in providing these covers. he would pay the lender an additional Proclamation. In the Eastern parts of Nigeria, the age sum in exchange for the lender's grade groupings were used. In the guarantee to cancel the loan should In Great Britain there was a snag in Western part, the tendency was more the ship be stolen. the evolution of life insurance when towards occupational groupings. gamblers developed the bad habit of There was also what is known as A thousand years later, the inhabitants betting on other peoples' lives. Hence “esusu” whereby individuals who of Rhodes invented the concept of in 1774, the life assurance Act was belonged to a group contributed “general average”. Merchants whose passed. This Act made it a crime for money into a common fund. The total goods were being shipped together anyone who had no interest in another collections in the fund are then would pay proportionally divided person's life or its existence, to effect a handed over to individuals in turns, premium which would be used to life insurance policy on such a life. The until “everyone” had collected. There reimburse any merchant whose life assurance companies Act 1870 in were groups where members goods were jettisoned during storm or Great Britain was further promulgated contributed a pool of funds to enable sinkage. The Greeks and the to introduce government control of life their dependants receive payments if, Romans originated health and life insurance companies. Since then and when any member of the group insurance in 600 AD when they there had been tremendous growth in died. These socio-cultural methods of organized guilds called “benevolent life assurance. Today in any modern insurance, though quite useful, had no s o c i e t i e s ” w h i c h h a d t h e nation insurance (including life proven scientific basis (such as responsibilities of taking care of the insurance) as a business is well mortality tables, actuarial valuation, families and funeral expenses of their developed and a vital arm of the medical reports, etc.), and often members upon death. Guilds in the financial service sector. resulted in some contributors Middle Ages served a similar purpose. benefiting more than others. In In ancient Rome “burial clubs” 4.0. THE SPREAD OF MODERN certain instances, some did not even provided monetary benefits to LIFE INSURANCE TO NIGERIA. benefit at all survivors and also bore the funeral The spread of modern life insurance expenses of members. to Nigeria and other African countries With the scramble for Africa, which was mostly through the former commenced in the early 20th Century, However, modern life insurance colonial powers. The aim was to the European merchants who came started in England in late 17th century, protect the interest of expatriates' into the continent through the West originally as insurance for traders. clients who had moved or established Coast of Africa brought along with Merchants, ship owners and businesses in the colonies. But prior them their ancient tradition, among underwriters would meet to discuss to this, it has been the African tradition which was modern insurance. The deals at Lloyd's coffee house, for the citizens to take care of each establishment of commercial firms by predecessor to the famous Lloyd's of other in times of adversity, through the the Europeans led to the opening in London. In the United States, the sale extended family system. It was the continent and Nigeria of branches of life insurance began in 1760. The common for members of the family of of insurance firms existing in England, Presbyterian synods in Philadelphia an adversely affected person to rally though as agents initially. Some of and New York created the corporation round and compensate the victim. If a these were later incorporated as 23 Volume 30 No. 1 Jan./Mar. 2006 independent offices or companies far exceeds that of Nigeria. It is before then, it is appropriate to firstly with the basic objective of obtaining worthy of note that the GDP of both consider the challenges or business for the parent bodies Kenya and Zimbabwe put together is constraints. overseas. about half of Nigeria's GDP. Yet each of these countries wrote more life 5.0. CULTURAL BARRIERS, 4.1. Life Insurance As A Source Of premiums than Nigeria. This goes to PUBLIC AWARENESS AND OTHER Long-Term Savings In Nigeria Vis- emphasize our continued lamentation INHERENT CHALLENGES À-Vis Other Countries about the low level of life insurance Factors militating against life One could start by stating ab initio that penetration and awareness in Nigeria. insurance in Nigeria and elsewhere life insurance has not made the include cultural and religious factors. required impact in the Nigerian A look at appendices II & III shows that A study carried out on insurance economy but the potentials are very whereas non-life insurance premiums demand in Nigeria revealed some great. Appendix I shows the direct life grew from N5.7 billion to N37.8 billion interesting features. Whereas some and non-life premiums written in some between 1993 and 2002, life top executives, captains of industry selected countries (including Nigeria) premiums only increased from N812 and wealthy entrepreneurs, although for the year 2003. Six developed million to N8.7 billion within the same had one form of insurance or another, countries of the world and eight period. Appendices IV and V examine they seemed to lack confidence in the African countries were selected. To the investment aspects of these local insurance industry. create a basis for proper comparison, funds. As at 2002, investment of life the population and GDP of these insurance funds in the various However, in all the groups, there was countries have been included. It instruments amounted to N18.8 religious bias. Some Muslims makes an interesting study. Firstly, it billion. This is out of a total insurance displayed bias against life insurance, indicates that in the more advanced industry investment of about N40 especially as Allah was the giver of countries, the role of insurance as a billion for the same year. However, life; He alone could take or preserve mobiliser of long-term funds (life when it is considered that the figure for life. Similarly, some Christians premiums) is very significant as life insurance investment in 1993 was believed that once covered by the compared to short-term funds (non- a paltry N2 billion, then it would be blood of Jesus, nothing really life premiums). Infact, in countries appreciated that even after making mattered anymore. For both groups, such as United Kingdom, Japan and allowance for inflation the growth had there was no need for insurance France, the direct life premiums commenced and only needed to be especially life assurance. Thus, the written in 2003 far outstrip the non-life sustained. The task before us then is religious inclination of a population premiums. The only African countries to create an enabling environment to may affect its risk aversion and its which exhibit this pattern, are South sustain the momentum. Appendix VI attitude towards the institutional Africa and Zimbabwe. The reason is shows the assets of both life and non- arrangement of insurance. Religious not far fetched. It is due to the life insurance companies also for the opposition against life insurance, presence of white settlers in those period 1993 - 2002. We did state at while stronger in European countries countries and their attitude towards the beginning of this segment that the before the 19th Century, still persists life insurance, which is akin to a potentials were great. Whereas life in several Islamic countries today. necessity. In the other African assurance companies' assets Muslims are known to disapprove of countries, the reverse is the case. It is amounted to only about N3 billion in life insurance because it is considered d i s h e a r t e n i n g t o n o t e t h e 1993, by 2002 it had jumped to over a hedge against the will of Allah. unimpressive performance of N34 billion. Hence, there is These notions of religious fatalism are Nigerian in terms of insurance covers, justification for optimism that the life inimical to the development of life as compared to other countries. In life aspect of insurance business in assurance with its attendant benefits. insurance, apart from South Africa Nigeria is picking up and with time, Assuming God or Allah had ordained and Zimbabwe, which we had would definitely get to the level where that a particular individual, Mr. X would explained earlier, other countries such it would play a role similar to what die at age 50. If he had a subsisting as Egypt with a population of 76 obtains in the advanced countries. life assurance policy and actually dies million, Morocco with a population of The reasons for such optimism are at age 50, the proceeds or benefits 32 million and Kenya (also 32 million stated in a section below with the sub- accruing from his life policy would persons) each generated long-term heading “WHAT NAICOM IS DOING certainly provide some succor to his funds or life insurance premiums that TO REDRESS THE SITUATION”. But immediate family or dependants; 24 Volume 30 No. 1 Jan./Mar. 2006 indeed anyone else depending on the The volume of premium income in life These include: wish and interest of the policy owner insurance is highly sensitive to high (a) Lack of Reliable Actuarial Data or initiator. Prejudice against life inflation. For instance, in Bulgaria, Insurance companies in assurance on grounds of religious when the rate of inflation jumped from emergent economies suffer from bigotry should be gradually overcome 123% in 1996 to 1100% in 1997, life lack of reliable data bases, on through vigorous education and insurance premiums fell significantly which to base their actuarial enlightenment on the subject. from US$42 million to US$13 million. calculations and tariffs. In This was at a time when the country's countries where statistical data 5.1. Low Level of Education And GDP grew from US$9.2 billion to on health problems and mortality Lack Of Insurance Awareness US$10.1 billion. or death are not recorded The level of one's education properly and in which ways of life determines his or her ability to 5.3. Low Level Of Income are undergoing rapid change, the understand the benefits of risk The low level of income and general use of life expectancy data management and savings. Hence poverty in emergent economies cannot provide a sufficient basis there is a positive correlation or militate against life insurance. Life for computing life premiums, relationship between people's life insurance consumption rises with the even if the most sophisticated insurance consumption and their level level of income. Steady rise in the actuarial methods were used. It of education. In an emerging income of an individual creates a is only by instituting a economy such as Nigeria with a greater demand for life insurance comprehensive and reliable relatively low level of education, most (mortality cover) to safeguard the system of data collection that this consumers know little or nothing income potential of the insured and problem can be overcome. To about the working of life insurance or the expected consumption of his or set up such a system is probably the formal financial markets. Aside her dependants. Life insurance a matter for the state, but private from bank deposits, consumers are belong to the category of products or insurance companies can help by not familiar with saving products or goods which Economists classify as constituting their own data bases precautionary cover. In the advanced “Superior goods” where the demand and pooling them. As long as countries, most consumers enjoy curve is positively correlated with the data are still insufficient, comprehensive cover, which income level. Rising income results in substantial margins of error will guarantee universal access to health increasing ability to direct a higher have to be factored in to ensure care, retirement benefits, annuities share of income towards retirement that pricing does not cause a etc. To this end, there is the need for and investment related life insurance deficit; some of the resultant enlightenment campaigns in products. Moreover, the overhead income should then be returned emerging economies to educate the costs associated with administering to the insured in the form of profit public on life insurance as well as and marketing insurance make bigger sharing. preparation of prospectuses that size policies less expensive per Naira explain the main features of life of insurance in force, which lower (b) Underdeveloped financial insurance products available. price of life insurance policies. markets Studies have shown that the positive In order to do business 5.2. High Rate of Inflation relationship between demand for life effectively, life insurance High inflation rate, which characterize insurance and income level is true companies need to be able to developing countries, is a definite irrespective of whether we use invest their assets in financial obstacle to the development of life aggregate national income data or markets that are sufficiently well insurance. As life insurance savings individual household income data. developed and efficient. In most products typically provide monetary emerging markets, financial benefits over the long-term, monetary 5.4. Challenges on the Supply Side markets still offer a choice of uncertainty has a substantial negative The other constraints facing the products such as bonds with a impact on these products' expected development of life insurance in variety of maturities and issuers, returns or yields. Moreover, when Nigeria as well as other emergent shares in companies and fluctuating interest rates cycles affect economies are problems or auxiliary services such as financial intermediation in the challenges facing the life insurance auditing firms and rating financial markets, it has a disruptive providers or companies. These are agencies, that are limited. effect on the life insurance industry. several but we shall just state a few. Where these are not well 25 Volume 30 No. 1 Jan./Mar. 2006 developed and efficient, they Life Insurance In Force To GDP is companies. NAICOM liaised with inhibit extensive life insurance the third measure of life insurance other regulatory agencies (e.g. operations. consumption, which is, the sum of SEC, CAC, NSE, FIRS, etc) and the face value plus dividend obtained some palliatives for the (c) Lack of experience and additions of life insurance policies companies to facilitate the insurance techniques. outstanding as a share of GDP. It recapitalization and consolidation In most emerging economies, life is a quantity measure of life process. The benefits of the insurance companies often lack insurance consumption, the exercise would include increased experienced and qualified staff, quantity being mortality risk domestic capacity, operational which makes it difficult to underwritten plus savings efficiency, sustainable earnings, estimate risks. Knowledge and accumulated. Life insurance in growth and increased returns to skills are still lacking in risk force thus contains both the cash stakeholders, elimination of management techniques, value of policies, associated with insider abuses and better actuarial methods, risk selection the savings component of life corporate governance. Others methodology, new products insurance policies and the net would include ability to engage design etc. This problem of lack amount of risk faced by life highly qualified and experienced of expertise is not peculiar to the insurers. professional staff, adoption of insurance industry alone and it is modern technology (including an issue that would be gradually As stated earlier, in all parameters, life ICT) etc. The exercise would resolved over time as more insurance in Nigeria is nothing to write yield a news insurance industry in professionals are turned out and home about, as the contribution of the Nigeria, which would be better more experience gained. entire insurance industry premiums to positioned to contribute its quota GDP is less than 1%. So what steps to the development of the national 6.0. WHAT NAICOM IS DOING TO are being taken, from the perspective economy. REDRESS THE SITUATION of the regulator, NAICOM, to redress Irrespective of which of the three the situation? (ii) The new pensions reforms makes standard measures of life insurance it compulsory for employers to are used, the verdict is the same life (a) Insurance Sector Reforms take out life insurance policies insurance in Nigeria falls far short of including group life and annuities expectation. The three standards (i) R e c a p i t a l i z a t i o n a n d for their workers. This will impact measures are life insurance Consolidation positively on the portfolios of life penetration, life insurance density and As a vital arm of the financial insurance companies and life insurance in force to GDP. services sector, the insurance enhance their ability to mobilize sector is currently undergoing a long-term funds. Some life Life Insurance Penetration is the r e - c a p i t a l i z a t i o n a n d insurance companies have ratio of premium volume to GDP. consolidation exercise, which is registered subsidiary companies It measures the importance of life being mid-wifed by NAICOM as Pension Fund Administrators insurance activity relative to the within the policy framework of (PFAs). size of the economy. Both government's reform agenda. numerator and denominator are Insurance companies are (iii) Even the National Health Scheme in local currency. expected to beef up their capital has a life insurance element and base to a minimum of N2 billion for the project cannot succeed Life Insurance Density is defined life insurance business, N3 billion without life insurance. as premiums per capita, for non-life business and N10 expressed in US dollars. It billion for reinsurance business (iv) NAICOM is set to implement indicates how much each not later than 28th February, Section 72 of the insurance Act inhabitant of the country spends 2007. With this increase, it is 2003, which provides for on the average on life insurance expected that there would be domestication of insurance in US dollars. To calculate this mergers and acquisitions (some businesses, including life ratio therefore, we firstly convert have notified NAICOM actually) insurance, emanating from the the aggregate premium volume to which would result in fewer but country. This is to stem the huge US dollars and divide by the bigger and more solid insurance outflow of funds by way of population size. 26 Volume 30 No. 1 Jan./Mar. 2006 insurance and reinsurance moreover, the commitments span certification by independent actuaries premiums on businesses ceded a long (if not a very long) period of and auditors etc. Regular field abroad. Under the provision, no time. inspections are carried out, while one shall place a domestic principles of corporate governance insurance business with a foreign (ii) Ensure strict compliance with the and fit and proper criteria for company insurer or reinsurer, but where, in law especially investment e.g. life executives are strictly adhered to by exceptional circumstances it is insurance investment in property NAICOM. necessary to do so, prior approval is limited to 35% of such funds. of NAICOM must be obtained. (e) Insurance Education T h e g u i d e l i n e f o r t h e (iii) Check viability of investments to The low level of life insurance implementation of this, is ready avoid careless and frivolous penetration and life insurance density and shall soon be issued by the investments etc. in Nigeria is partly attributable to lack Commission. It is believed that of insurance education and about N50 billion could be saved awareness. To redress the situation, being the amount lost per annum (c) NAICOM Ensures A Level NAICOM has embarked on reform in respect of oil and gas insurance Playing Field measures that involve both formal and as past study has shown. This is To ensure that policy holders are informal education on the subject. an amount (N50 billion) that could given a high quality of service, The Commission is liaising with the be ploughed back to the local NAICOM, as the regulator, has laid relevant authorities in the education economy to grow more jobs and the foundations for a competitive sector to ensure the inclusion of create wealth for the country. This market by instituting a level playing insurance as a subject in the nation's will lead to increase in the field for life insurance service educational curriculum at the purchasing power of the work providers. All companies can now secondary school level. Informal force which has positive apply and vie for any risks without education on insurance is taking place correlation to ability to purchase restriction provided NAICOM through awareness creation more life insurance. approves it. Only within such campaigns. Besides, an appropriate framework can market forces ensure measure has been taken to further (b) NAICOM Guarantees The that insurers offer competitive prices deepen life insurance penetration Solvency Of Insurance Companies. and products that correspond to the through a grassroots pilot project in Apart from the comprehensive consumers' demands. All such the six geo-political zones. The reforms and consolidation of the practices which are detrimental to project involves the establishment of insurance sector, which is presently in healthy competition are drastically operational out station offices in each full gear, the first objective of NAICOM reduced through encouraging better of the zones which will ensure the as a Regulator is to protect the corporate governance, better s u c c e s s o f t h e g r a s s r o o t s consumer by: performance and more responsible development programme, post institutions and will apply appropriate consolidation. (i) Ensuring, through close sanctions to enforce compliance supervision, the solvency of the including cancellation of operating SUMMARY AND CONCLUSION insurance companies. This is license. This article has in simple, clear terms, necessary because a life explained what life insurance is all insurance policy represents a (d) NAICOM Exercises Effective about. It examined the benefits of life promise to pay a future benefit if Supervision on Life Insurers. insurance, its history in brief and its and when certain stipulated NAICOM exercises effective spread to Nigeria. It then considered events occur. The transaction is supervision on life insurers as the the performance of life insurance as therefore based on the complexity of life insurance contacts an instrument for long-term savings in customer's trust and confidence demands a special effort to ensure Nigeria in relation to some other that the chosen company will that the most salient features of countries by comparing their premium honour its commitment. This policies (as well as the so-called small income volumes for a particular year confidence is particularly prints) are conveyed clearly. The (2003) while taking cognizance of necessary with regard to life Commission ensures compliance of their population and GDP estimates insurance because the amount life insurance companies with for the same year. It was crystal clear involved may be very large and mandatory auditing procedures and that life insurance was not yet playing 27 Volume 30 No. 1 Jan./Mar. 2006 its expected role as a major source of grassroot insurance pilot scheme by have been registered. These mobilizing long-term savings in the NAICOM, which would cover the measures are also geared towards economy, but given the large various geo-political zones. e f f e c t i v e a n d a d e q u a t e population, the growing GDP, the implementation of the national health increasing level of education and Although the level of life penetration in insurance scheme. The necessary awareness, it was observed that the the country is still very low, NAICOM building blocks in this respect have sector has very great potentials, reform measures are strategically been put in place. NAICOM has which needed to be tapped. The aligned to ensure promotion of long engaged appropriate regulatory inherent problems or challenges were term sustained investments in the measures to ensure sustainability, outlined, culminating in some economy as against the current short effectiveness and transparency in measures NAICOM is taking, as a term investments which are largely pursuit of national policy objectives in Regulator, to redress the situation. contributory to the poor penetration of the life insurance sector. This will life insurance in the economy. culminate in adequate and It was observed that there is an on- NAICOM has continuously obtained appropriate domestic capacity g o i n g r e c a p i t a l i z a t i o n a n d and is still receiving inquiries and building and improved human capital consolidation programme which indications from tested foreign life in the sector. There is no iota of doubt would boost the paid up share capital insurance companies, which are that life insurance shall take its rightful of life insurance companies to a willing to go into partnership with local place as a major mobilizer of long- minimum of N2 billion and this is life insurance companies. This term funds for national development in expected to give rise to bigger and aspect is being critically examined Nigeria sooner than is being better companies. We noted that with a view to screening them envisaged. However, there a great other reforms that would enhance vigorously to ensure integration of our and urgent need for all to come to mobilization of long term funds by the local market with those with tested realization of the enormity of the life insurance companies include the capabilities. There is the need to challenges ahead so that all hands compulsory group life insurance improve the culture and practice of life shall be readily available on deck to policies for employees that come with insurance in the country. ensure the actualization of our dream the pension reforms and annuities. to bequeath to the nation a strong and The domestication of insurance The reform measures of NAICOM reliable insurance industry and pursuant to Section 72 of the proffer active support for health economy, the starting block of which is Insurance Act 2003 was noted to be of providers as well as (PFAs) in respect the adequate development of the life equal importance. Then there is the of which several life assurance offices assurance sector. REFERENCES Determinants of Life Insurance Consumption Across Countries. Thorsten Bect and Lenn Webb: 2002 Developing Life Insurance in the Economies in Transition. OECD Secretariat 2004 Imperatives of Insurance as an Engine of Growth and National Development. Chief O.E. Chukwulozie: 2002 Insurance: Wikipedia Encyclopedia: 2005 Economic, Demographic and Institutional Determinants of Life Insurance Consumption across Countries. World Bank Economic Review: 2005. 28 V olume 30No.1 APPENDIX I DIRECT LIFE AND NON-LIFE PREMIUMS WRITTEN FOR SOME SELECTED COUNTRIES IN YEAR 2003 Country Population GDP US $ Millions (Million Persons) (USD) Life Premiums Non-Life Premiums Total Premiums Written United Kingdom 60.3 1.666 trillion 154,842 91,891 246,733 United States 293 10.99 trillion 480,919 574,579 1,055,498 Japan 127.3 3.582 trillion 381,335 97,530 478,865 France 60.4 1.661trillion 105,436 58,244 163,679 Germany 82.4 2.271 trillion 76,738 94,073 170,811 29 Israel 6.2 120.9billion 3,052 3,840 6,892 AFRICAN COUNTRIES South Africa 42.7 456.7 billion 20,728 4,670 25,398 Nigeria 137.3 114.8 billion 77 345 422 Egypt 76.1 295.2 billion 179 386 566 Morocco 32.2 128.3 billion 361 927 1,288 Zimbabwe 12.7 24.03 billion 277 205 482 Algeria 32.1 196 billion 15 384 399 Ivory Coast 17.3 24.5 billion 53 109 162 Kenya 32 33 billion 107 304 411 Source: International Insurance Fact Book: 2005 Jan./Mar . 2006 Volume 30 No. 1 Jan./Mar. 2006 APPENDIX II INDUSTRY TOTAL GROSS PREMIUM INCOME 1993-2000 (N MILLION) YEAR GEN. BUS. LIFE BUS. TOTAL GPI 1993 5,729.23 812.06 6,541.29 1994 7,393.86 1,004.98 8,398.84 1995 16,137.10 1,000.85 17,137.95 1996 19,086.47 1,514.50 20,600.97 1997 20,418.71 1,361.54 21,780.25 1998 13,152.85 1,322.53 14,475.38 1999 18,537.57 4,649.89 23,187.46 2000 22,531.46 4,396.33 26,927.79 2001 28,808.12 6,460.47 35,268.59 2002 37,765.89 8,708.90 46,474.79 Source: Nigeria Insurance Statistics and Directory (NAICOM) APPENDIX III 40000 30000 GEN. BUS. 20000 LIFE BUS. 10000 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 30 V olume 30No.1 APPENDIX IV LIFE INSURANCE BUSINESS INVESTMENTS 1993 - 2002 (IN MILLION NAIRA) TYPE OF INVESTMEN19T9S3 1994 1995 1996 1997 1998 1999 2000 2001 2002 Govt Securities 545.98 450.54 415.89 731.03 1,045.01 2,241.71 607.59 981.88 967.49 763.35 Stocks & Bonds 752.1 895.81 1,510.91 2,237.68 2,123.25 1,952.68 2,233.73 2,532.18 3,491.45 4,319.33 Real Estate & Mortg. 284.62 583.15 1,203.87 1,184.25 1,204.81 84.85 168.56 145.83 222.97 627.68 Policy & Other Loans 138.53 188.65 335.11 511.55 540.67 1,459.18 3,021.55 2,913.78 4,652.91 6,307.20 Cash Deposits & Hand289.98 378.9 451.78 609.25 868.05 279.75 1,754.61 1,587.95 712.79 1,025.49 Bills of Exch 18.39 50.42 191.73 21.04 64.90 708/07 2,566.70 3,642.84 4,704.66 5,775.73 Total Life Investment2s029.6 2547.47 4109.29 5294.8 5,846.69 6,726.24 10,352.74 11,804.46 14,752.27 18,818.78 Source: Nigeria Insurane Statistics and Directory (NAICOM) APPENDIX V TOTAL INSURANCE BUSINESS INVESTMENTS 1993 - 2002 (IN MILLION NAIRA) Types Of Investments1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 31 Govt Securities 818.07 784.28 1,076.81 1,546.16 2,012.01 4,145.88 2,987.21 35,558.95 3,942.71 3,752.08 Stocks & Bonds 1,423.76 1,825.38 2,623.84 4,047.81 4,095.38 3,633.17 4,174.04 49,992.87 6,786.26 8,350.85 Real Estate & Mortg. 791.94 1,200.44 2,516.91 2,523.20 2,682.50 211.95 332.65 282.34 359.33 960.31 Policy & Other Loans 789.07 373.61 563.12 795.98 842.11 2,301.22 4,124.47 5,212.08 6,706.40 7,901.01 Cash Deposits & Ha1n,1d98.21 1,569.95 1,743.77 3,347.06 3,815.91 1,993.19 4,184.16 3,844.37 4,284.55 4,095.40 Bills of Exch 34.93 107.99 1,555.53 119.30 164.17 3,371.47 5,780.93 7,302.03 10,178.02 11,881.22 Total Investment 5055.98 5,861.65 10,079.98 12,379.51 13,613.08 15,656.88 21,583.46 25,192.64 32,257.27 36,940.87 Source: Nigeria Insurance Statistics and Directory (NAICOM) APPENDIX VI TOTAL ASSESTS OF INSURANCE COMPANIES 1993 - 2002 IN MILLION NAIRA 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 GENERAL BUSIN6E,4S5S7.66 8,215.72 14,389.13 21,332.84 29,312.50 30,847.77 34,616.78 41,493.52 51,674.03 57,549.47 LIFE 2,901.71 3,847.39 5,841.79 7,602.09 8,615.68 10,603.45 15,514.87 20,104.48 26,386.46 34,141.48 TOTAL 9359.37 12063.11 20230.92 28934.93 37928.18 41451.22 50131.65 61598 78060.49 60963.95 Source: Nigeria Insurance Statistics and Directory (NAICOM) Jan./Mar . 2006 Volume 30 No. 1 Jan./Mar. 2006 IMPERATIVE OF NATIONAL SAVINGS: A CASE FOR ADOPTION OF APPROPRIATE BENCHMARK PRICE FOR CRUDE OIL BY MOSES F. OTU1 Fluctuations in revenue invalidate It is the objective of this paper most of the basic assumptions and therefore to develop a simple projections usually made to facilitate framework for deriving an acceptable the budgeting processes. This bench mark price for crude oil for subsequently, creates challenges for budgeting purposes. It is hoped that policy makers, analysts and this would remove subjectivity in facilitators. budgeting process and promote understanding between all the Recently in Nigeria, a benchmark stakeholders in order to fast track the MOSES F. OTU price for crude oil was adopted for the process of passage of the INTRODUCTION purpose of estimating oil revenue to appropriation bill. Following this brief mitigate the unnecessary disruptions Budgeting involves the design of introduction, the next segment of the of the annual budgetary processes plans that aligns expected financial paper examines the need for national and stabilize the revenue. This resources and expenditure to saving fund and constitutional strategy was initially experimented for accomplish specific national goals provisions for national savings, while the appropriation bill of 2002 and and objectives. It is usually time section three focuses on the internalized in the subsequent years. bound and ensures judicious use of international experiences. Section The strategy of adopting benchmark resources for sustainable growth if the four presents the framework for price for crude oil below the market basic principles and discipline are deriving appropriate benchmark price price presupposes that there was a adhered to. Nigeria's annual budget for the national budget and the last consensus for compulsory national estimates are closely associated with section concludes the article. savings to build up a pool of funds the anticipated oil revenue flows which would cushion the effect of 2.0 The Need for National Savings dictated by oil prices and production shocks that could result from F u n d a n d C o n s t i t u t i o n a l targets as predetermined by unfavorable developments in the Provisions: Organization of Petroleum Exporting future as well as ensuring high quality 2.1 Stylized Facts on Savings Countries (OPEC). spending. Behavior: One of the naughty problems faced by The subject of savings has attracted However, method of arriving at the developing oil economy like Nigeria is many empirical research works and benchmark price for crude oil for the fluctuations of the nation's revenue comments in contemporary economic budget has been criticized as being resulting from volatile crude oil prices literature since the Keynesian era. In highly subjective and lacking in i n i n t e r n a t i o n a l m a r k e t . line with the presentation of Keynes transparency as it was not based on Consequently, sharp declines in oil most of the economic literature any acceptable and predetermined revenue are not uncommon and it agreed that there are many varied principle. This has often resulted in affects smooth implementation of the reasons why people save. Keynes heated debates and intensive budget. The oil sub-sector (1936) produced the following negotiations between the executives contribution to the gross domestic celebrated list. and the legislative arm of government product (GDP) is very significant in Precaution: To build up a reserve which often results in delayed release Nigeria (about 26.0 percent), as such against unforeseen contingencies; of the appropriation bill and the a shock in international price of crude Foresight: To provide for an attendant adverse impact on the oil would adversely affect total anticipated future relation between economy. revenue,(Nnanna and Masha,2003). income and the needs of the individual 1Moses Otu is an Assistant Director in the Research Department of the Central Bank of Nigeria. The views expressed in this paper are entirely those of the author and not of the organization. The author acknowledges the contributions of Dr. O. J. Nnanna who muted the idea that led to the development of this paper. 32 Volume 30 No. 1 Jan./Mar. 2006 or family different from that which meant to support and sustain long Given the Nigerian government's exists in the present; term growth initiatives and ambitious growth targets, and the Calculation: To enjoy interest and investments in the economy. Other need in the present global appreciation; efforts at establishing saving fund environment to generate investable Improvement: To enjoy gradually include the proposed national savings resources internally, the desire to i n c r e a s i n g e x p e n d i t u r e ; certificate. In the same mould as the establish sustainable pool of funds Independence: To enjoy a sense of stabilization fund, the proposed becomes paramount. It therefore, independence and a power to do national saving certificate has follows that contemporary policy things; remained on the drawing board till designs and research agenda Enterprise: To secure a masse de date. Currently, Nigeria is operating directed at enhancing saving should manoeuvre to carry out speculative or excess crude account, a semblance occupy the front burner in the scheme business projects; of the defunct stabilization fund with a of priorities. Pride: To bequeath a fortune; new name. Avarice: To satisfy pure miserliness, A saving fund is designed to create a i.e. unreasonable but insistent Stabilization fund was initiated during store of wealth for future generations inhibitions against acts of expenditure the military era without the by converting a deplorable revenue as such. appropriate enabling laws, and stream into a perpetual income flow therefore, the design of the scheme (Devlin and Titman, 2004). Nigeria as Corresponding to these reasons for lacked key success features that a political entity needs such income saving, Keynes provided a list of could have sustained the scheme, flows for more than one reason, motives for consumption: Enjoyment, such as a clear policy on perhaps the following may suffice: Shortsightedness, Generosity, determination of the appropriate Miscalculation, Ostentation, and benchmark price for the budget, and Recently, Nigeria went through horrific Extravagance. From the above, it is policy on withdrawal from the fund. experience in external debt clear that there are many reasons why Moreover, the schemes were management; ranging from debt an individual might save; and many established to address exigencies rescheduling; to debt repayment, and reasons he or she might not. Similarly, and meet urgent national concerns eventually securing debt forgiveness. for a nation as an entity, numerous after which the zeal to continue waned It should be underscored that during factors come to bear on their savings as the situation normalized. The the heydays of external debt burden, behavior, such as political and social operations of the funds were the political machineries as well as the considerations. For instance, in therefore, perceived to encourage treasury was fully stretched by Nigeria, several efforts had been corruption and fiscal indiscipline and accepting to pay a proportion of the made to establish national savings thus their operations were total indebtedness which was a funds in the past, which were suspended. Furthermore, it appears staggering lump sum to the foreign however, short lived with limited that establishment of national savings creditors, before the debt relief was impact on the economy. A brief contradicts the provisions of the 1999 secured. Following this bitter highlights on Nigeria's attempts to Nigerian constitution. Section 162 of experience, the appetite to acquire institutionalize national savings is the constitution stipulates that all foreign loans and advances as a given in the next section. r e v e n u e s c o l l e c t e d b y t h e nation in the nearest future would be Government of the Federation shall dampened, as any move in this 2.2 Nigeria's Experience in be paid into the Federation Account, direction to secure foreign loans National Savings and shared to the federating units, would be vehemently resisted by the Attempt at institutionalizing national except the independent revenue of citizenry, as well as the national savings crystallized in the the Federal Government. Probably, assembly and the labour union. This establishment of stabilization fund in the constitutional stance worked implies that there must be a well 1990s where proceeds of excess against the actualization of national structured mechanism to generate budgeted revenue were kept. The s a v i n g s w h i c h t h e F i s c a l fund internally; to cushion the effect of main objectives of the fund were to Responsibility Act would be expected shocks in the system, to enjoy provide buffer financial resources to to address. sustained increase in expenditure as the budgeted revenue in the case that well as a sense of independence and the oil prices fall below a specified 2.3 The Need for Sustainable empowerment to create wealth. level, and in addition, the scheme was Source of Funds In Nigeria: Savings funds would serve simply as 33 Volume 30 No. 1 Jan./Mar. 2006 a place to bank excess crude oil the excess funds derivable should be that the funds have a dampening revenues until they can be efficiently saved in the Central Bank on behalf of effect on government spending as a invested. Since our revenues are all the federating units. An extension percentage of the GDP. In the same largely generated from a commodity of this provisions barred access to the study, they maintained that the funds with a very volatile price, funds unless the price of the reference appear to raise fixed capital implementing an investment plan that commodity falls below the bench mark investment as a share of GDP by increases slowly and smoothly level for a period of three consecutive nearly three percentage points and overtime becomes much more months, and places the authority to that there is a positive relation challenging. An important role of release the fund on the national between the balances held in the fund savings funds is to allow the country to assembly. and fixed capital investment. s m o o t h e n o u t i n v e s t m e n t expenditures and this increases the Considering the deteriorating In his study of commodity stabilization efficiency of investment by minimizing infrastructure, poor welfare facilities funds, Fiess (2002) reported a cost adjustments. Fiscal surpluses and other social indicators, the favourable outcome in Chile, Norway tend to be more inefficient and create question that readily comes to mind is, and Oman. They indicated that the more distortions that are also more do we really need to save for the future fund moderated significant volatility in vulnerable to political economy in the face of these decaying lots? We government spending and delivered pressures evidenced by the wasting are aware that individuals as well as higher shares of gross fixed capital of the revenue windfall realized from economic units have optimum investment. Based on their result, crude oil sales during “Operation absorptive capacity, a situation where they concluded that country specific Desert Storm” the Iraqi invasion of there is too much money in the circumstances matter a lot, in Kuwait. economy chasing few goods and particular the use of fiscal rules and services results in inflation pressure. targets to guide spending decisions 2.3 Constitutional Efforts at Secondly, it has been established that over a longer time horizon. Establishing National Savings: too much resources in the hands of The quest for a sustained funding of government promotes recklessness Norway's success story could be the national budget was reechoed in as most of the funds would be linked to strong mechanisms that the National Assembly and diverted, embezzled and at best spent break the cord between oil price crystallized into the drafting of the on white elephant projects, which behaviour and fiscal expenditure, Fiscal Responsibility Bill. The bill usually are abandoned when the generally in a form of fiscal rule. The proposed a shift from annual sources of funding receded. The cost saving fund is treated as central budgeting to a medium term of completion of such projects on governments net cash flow and expenditure framework (MTEF) of resumption normally escalates due to transferred to the treasury to finance three financial years. MTEF is a inflationary factors resulting from cost the non oil deficit. Linking the fund rolling process repeated every year overrun. accumulation to fiscal surpluses and aims at reducing the imbalance would help to avoid the problem of an between what is demanded by 3.0 International Experiences overall deterioration in the ministries, departments and Saving funds has been practiced in government's net asset position. In agencies. many economies with different the case of Chile, withdrawals from variance and at different terms as the fund are subject to the fiscal rule The proposed Fiscal Responsibility dictated my economic environment. with the structured balance calculated Bill advocates for development of a The pioneers in this field are Alaska, by factoring out the cyclical macroeconomic framework for the Alberta and Papua New Guinea in the component of the copper price and economy which makes adequate 1960's and 1970's. Other countries other cyclical factors (Fiess, 2002). In provisions for national savings. It was that came into the scene in early both cases, transfers to and from the entrenched in the Bill that the 1990's are Algeria, Ecuador, Iran, fund require parliamentary approval. underlying assumptions as well as Norway and Venezuela. In an attempt evaluation and analysis of the macro to ascertain the effectiveness of Concerning the optimal size of funds economy should be clearly stated. saving funds, Davis and others to be accumulated, results of studies Furthermore, it was spelt out that (2001), using a pooled cross- conducted in this area appear to be where the reference commodity price sectional and time series data for 71 inconclusive. However, Crain and rises above the predetermined level, countries for 1970 2000, suggests Devlin (2002), indicated that larger 34 Volume 30 No. 1 Jan./Mar. 2006 funds created management problem derive a scheme for benchmarking culminated in sustained increase in especially if the design of saving funds crude oil prices for the annual demand or supply of crude oil in the is not transparent. In addition, they budgeting process and indirectly market. Permanent changes can arise maintained that political pressure on building up a pool of national savings because of longer-lasting changes in the government usually results in funds. This would reduce the rancor demand arising from emergence of mismanagement of the funds and that follows the annual ritual of fixing substitutes for fuel or stronger recommended that there must be an routinely this all important benchmark incentives for conservation of energy inbuilt mechanism for control price. leading to less consumption of fuel. reporting and evaluation of fund Other situations that could lead to resources and operations. In his 4.0 Factors that Determines sustained increased demand include contribution on the management of International Oil Prices and Trends technological changes and new the funds, Heilbrum (2002), stressed of Spot Price: discoveries that increase the supply of t h a t t h e f u n d s s h o u l d b e 4.1 Determinants of International oil (Devlin & Titman, 2004). In professionally managed with Oil Prices summary, crude oil prices depend on oversight by the Ministry of Finance or Temporary and permanent factors the interplay of demand and supply as Central Bank. Cited the example of have been identified to influence dictated by global politics, intricacies Norway, he indicated that the Ministry crude oil prices in the international and perhaps technological advances of Finance supervises the activities of market. Oil prices fluctuate and sometimes weather changes. the fund and sets guidelines or unpredictably because of temporary i n v e s t m e n t s a n d r e p o r t i n g changes in global economic and 4.2 Trends in Oil Prices requirements. political conditions that affect the Prices of crude oil fluctuate sometime supply and demand for oil. For with wide swings. For instance, the Economic literature seems to be silent instance, political crises in Nigeria, price of crude oil was as low as $10.0 about the appropriate formula applied Iran, or Iraq could lead to temporary per barrel in February 1997, however, to determine the level of savings disruption of oil supplies, and cause at end-December, the same year, the required. However, most studies prices to rise. In an attempt to price increased to $26.0 per barrel mentioned in the passing the basis for stabilize prices, OPEC would direct (Table 1). deriving funds for national savings their members to step up production funds accumulation of excess above quota in order to make up for the The low price was traceable to a target price as in the case of Chile's shortfall depending on the magnitude economic recession in the Asian Copper Stabilization Fund; revenue of the crises and the quantity of economy which resulted in contingent a set percentage of production involved in the trouble suppression of demand for oil in the commodity revenues, as in the case of spot. Prices subsequently fall again first of the year. While the extreme the Alaska's Permanent Fund; and a as the problem is resolved. Similarly cold weather condition during the third mixture of both, a set percentage of economic recession could lead to oil and the forth quarters of the year commodity revenue and a reference glut, a situation of over production increased demand for heating oil and price as in the case of Venezuela's resulting in a temporary oversupply thus the price of crude oil increased Stabilization Fund, are very common that generates price declines. sharply. in the literature. Permanent factors that influence oil This study adopts price contingent to price movement are development that 35 Volume 30 No. 1 Jan./Mar. 2006 Chart 1 Annual Average Spot Price of Crude Oil 60.00 50.00 ) $ S 40.00 U ( 30.00 Series1 e c i r 20.00 P 10.00 0.00 1997 1998 1999 2000 2001 2002 2003 2004 2005 year On average, the price of crude oil was fairly stable at $17.96, $13.08 and $17.96 in 1997, 1998 and 1999, respectively. Table 1 SPOT PRICE OF CRUDE PETROLEUM 1997-2005 (US$) Months 1997 1998 1999 2000 2001 2002 2003 2004 2005 January 11.35 15.29 11.35 25.62 25.09 19.64 31.86 31.77 44.83 February 10.22 14.14 10.22 28.06 27.53 20.26 32.9 30.99 45.69 March 12.53 13.10 12.53 27.97 24.57 23.54 31.09 34.13 53.42 April 15.47 13.63 15.47 23.05 25.74 25.78 29.54 34.40 51.90 May 15.24 14.56 15.24 27.9 28.45 25.26 26.1 38.32 49.11 June 15.99 12.93 15.99 29.78 28.03 24.01 27.94 35.55 54.99 July 18.57 12.35 18.57 28.52 24.89 25.92 28.52 38.42 58.54 August 20.73 12.24 20.73 29.48 25.94 26.9 30.05 43.53 66.42 September 22.48 13.4 22.48 33.15 25.93 28.38 27.49 43.71 65.32 October 22.36 12.77 22.36 30.81 20.51 27.97 30.01 50.39 60.43 November 24.76 12.15 24.76 32.63 18.99 24.5 29 42.8 56.74 December 25.81 10.4 25.81 25.95 18.65 28.38 29.85 40.7 57.76 Average 17.96 13.08 17.96 28.58 24.53 25.05 29.53 38.73 55.43 Source: CBN Statistical Bulletin and Reuters Similarly, in 2000, the average price member states and in the Russian appropriate benchmark price. In this increased to $28.55 per barrel from Federation. study, a simple descriptive scheme $17.96 in 1999, and edged upwards which makes use of historical trends gradually to $25.05 and $29.53 in 4.0 Derivation of Appropriate of prices of crude and the prevailing 2002 and 2003, respectively. The Benchmark Price for Crude Oil economic situation to arrive at the price of crude oil once again bounced The process of arriving at acceptable benchmark price. The strength of this back to $38.73 and $55.43 in 2004 price for crude oil is a contentious approach is that inflationary factor can and 2005 in the respective years. The issue shrouded by political intrigue easily be built into the system as recent increase in price of crude is and interest. Several countries such against the outdated incremental attributable to increase in demand as Chile and Russia have engaged in budgeting. The framework of the resulting from shortages precipitated prolonged discussions and disputes derivation is presented in the following by disruption of production in OPEC over methods of determining equations. 36 Volume 30 No. 1 Jan./Mar. 2006 (xi ...... x N ) Xmin = Lowest crude price in the same However, the drivers of the * SF...... (1) period international price of crude could be a N very reliable reference point for the (x ...... x ) SF = Saving factor whose value lies choice of saving factor. For instance, max min *SF...... (2) between zero and one. if the global random process that 2 determines the oil price in the This method assumes favourable preceding year is perceived to be Where price of crude oil in the international temporary, it is a signal that the prices Xi = Spot price of crude oil at month market and that the annual average of oil may probably remain higher. one, crude oil price remains above the The present value of future revenues predetermined benchmark. is not very sensitive to changes in spot XN = Spot price of crude oil at end- prices. A close watch of global December, 4.1 Saving Factor dynamics would enhance fixing an N = No of months, The choice of saving factor depends appropriate level of the saving factor on the fiscal stance and the level of for a fiscal year. Xmax = Highest crude price obtainable savings desired by the nation. in the period, and Table 2 Price 2005 2004 2003 2002 2001 2000 Lowest 44.83 30.99 26.10 19.64 18.65 23.05 Highest 66.42 50.39 31.86 28.38 28.45 33.15 Average 55.63 40.69 28.98 24.01 23.55 28.10 S/Factor 1 0.60 0.60 0.60 0.60 0.60 0.60 Result 1 33.38 24.41 17.39 14.41 14.13 16.86 S/Factor 2 0.65 0.65 0.65 0.65 0.65 0.65 Result 2 36.16 26.45 18.84 15.61 15.31 18.27 Note: S/Factor = Sacrificial Factor i.e the present benefit foregone for future gains Table 3 Price 2005 2004 2003 2002 2001 2000 Average Price 55.43 38.73 29.53 25.05 24.53 28.58 S/Factor 1 0.60 0.60 0.60 0.60 0.60 0.60 Result 3 33.26 23.24 17.72 15.03 14.72 17.15 S/Factor 2 0.65 0.65 0.65 0.65 0.65 0.65 Result 4 36.03 25.17 19.19 16.28 15.94 18.58 Chart 2: Bench mark scenario of crude oil price(2000- 2005) 50 ) $ 40 S U 30 ( Series1 e c 20 i r P 10 0 1 2 3 4 5 6 Year 37 Volume 30 No. 1 Jan./Mar. 2006 Application of the Derived Formula could be used for the purpose of It is evident that previous efforts at Application of the derived formula to deriving appropriate benchmark price institutionalizing national savings the spot prices of crude oil from 2000- of crude oil for budgeting. However, were not very successful because 2005, is presented in tables 2 and 3. formula one which incorporates the they were not backed by the enabling Results show that in 2000 using annual average price is more laws. It is apparent that constitutional equation 1 and assuming that a appealing in that a sharp increase in provision does not favour national saving factor of 65 percent was price in one period could result in a savings as such efforts should be adopted the benchmark price for the higher average price between the made to address this issue. Probably, budget should have been $16.86 per maximum and the minimum price the passage of the Fiscal barrel, while the $14.13 and $14.41 i m p l i c i t i n e q u a t i o n o n e . Responsibilities Act would address per barrel for 2001 and 2002 Notwithstanding the bottom-line is this and add value to this strategy as respectively. In 2005 benchmark adoption of a consistent framework well as accelerate its implementation. should be $33.38 per barrel in same which would reduce time wasting and scenario. However, a saving factor of rancor in the budgeting process. Concluding Remarks: 65 percent results in $36.16 per barrel The nation has passed through bitter in 2005 compare to the $35.0 which Recommendations: experience in the management and was eventually adopted for the 2005 Attempt has been made to present a servicing of its external debt burden, it appropriation bill. Similarly, scheme for deriving a benchmark for is about time we internalized national application of formula two (Table3) crude oil price for the appropriation savings as a culture. The current indicates a benchmark price of $36.03 bill. It is envisaged that this approach favourable crude oil price could be a per barrel. will facilitate budgeting process and good starting point to build up national enthroned transparency. This savings by setting aside a portion of Comparing results (1-4), show that strategy will lead to creation of a pool our proceeds from oil sales. However, the result of each scenario (Saving of funds that can absorb shock arising the method adopted to arrive at Factor, 60,65 %) are similar with no from unfavourable development in the appropriate savings formula, has to be significant difference. For instance, in international crude oil market. transparent and credible to earn 2005, the benchmark price using Adoption of this scheme will reduce acceptability by all the stakeholders. formula one is $33.38, while formula wasteful spending and instill fiscal two gives $33.28 per barrel. This discipline as well as smoothening implies that any of the two formula government revenue. 38 Volume 30 No. 1 Jan./Mar. 2006 BIBLIOGRAPHY: Crain, M. and Devlin, J. (2002). “Nonrenewable Resources Funds: A Red Herring for Fiscal Stability?” Draft Working paper. World Bank, Washington, D.C. Davis, J., Ossowski,R.; Daniel,J.; and Barnett, S.; (2001). “Stabilization and Savings Funds for Nonrenewable Resources: Experience and Fiscal Policy Implications.” IMF Occasional Paper 205. International Monetary Fund, Washington, D.C. Devlin, J. and Titman, S.(2004). Managing Oil Price Risk in Developing Countries. The World Bank Research Observer. Vol.19,no.1 Fiess, N.(2002).Chile's New Fiscal Rule.” Draft. World Bank, Washington, D.C. Hellbrunn, J. R. (2002). “Governance and Mineral Funds.” Working paper . Colorado School of Mines, Golden, Colo. Jenkins, G. (1989).Oil Economists Hanbook. 2 vols. 5th ed. New York: Elsevi Horioka ,C. Y. and Okui, M. (1999). 'A US-Japan comparison of the Importance of Determinants of Retirement Savings' Economic letters, Vol.65, No.3 (Dec) pp.365-371 Keynes, J. M. (1936). The General Theory of Employment, Interest, and Money. London: McMillan and Co Chapter 9. Maddision, A; (1992). A long Run Perspective on Savings, Scandinavian Journal of Economics 94:2, 181-196. Nnanna,O.J.and Masha,I.(2003). Oil Price Fluctuation, Macroeconomic Behaviour and Policy Response in Nigeria: A VAR Specification (A Memo) Shusaku Y. (2004). Why Do Some Countries Save More Than Others? Centre of Policy Studies, Monash University.General works.Paper No. G-142 February. 39 Volume 30 No. 1 Jan./Mar. 2006 CONCEPTUAL ISSUES ON SAVINGS IN NIGERIA By AKPERAN JAMES ADAM, Ph.D Senior Lecturer and AKOMAYE VINCENT AGBA, Ph.D Senior Lecturer Dept. of Economics, University of Abuja, Abuja, FCT However, the domestic level of savings in some countries is so low that foreign borrowing must be resorted to. If the elasticity of substitution of foreign for domestic AKPERAN JAMES ADAM AKOMAYE VINCENT AGBA savings is high then such a country 1. INTRODUCTION suffers from a perpetual payments saving-consumption behaviour. deficit. The debt-service burden may It is often held that capital Consumption and saving have be such that the prospects for future accumulation is necessary and attracted wide range of theoretical and economic growth are limited. A lot of sufficient condition for growth and empirical research, nevertheless, the developing countries have fallen into capital accumulation is almost varied empirical tests on the impact of such financial crisis, they had to either synonymous with saving, hence the a number of economic factors have repudiate their external debt or route to growth is then one of raising turned up largely with different results. reschedule their debts at frequent savings and smoothing consumption This may be attributable to variety of intervals. (Deaton, 1991). Savings is one of the reasons, prominent among which is key relevant macroeconomic the multiplicity of methodological This paper is motivated by the variables in any economy. Its impact approaches adopted by different economic reform programmes on the rate of capital accumulation, researchers, different types of data Nigeria is carrying out at the moment, productivity and the degree of utilized, as well as country-specific which will have to be financed mostly dependency of a nation on foreign reasons. There is need to bridge the with domestic resources. The current capital and foreign ownership of huge gap in the geographical spread sharp drop in savings rates is also a domestic assets cannot be over- of reported research findings on the source of concern. Thus, the need for emphasised. High level of domestic behaviour of aggregate savings in increasing national savings is critical saving will accelerate the rate of Nigeria. This issue has, however, not and it will be more so in the future. investment, enhance productivity and received adequate research attention. Sustained growth will require a hence, economic growth. A country's Specific investigations into this area significant increase in capital level of savings or its saving rate are sketchy (Pinto, 1987; Afolabi and formation. Given the fact that the relative to other countries can be used Mamman, 1994; Ikhide, 1994; Nyong, availability of foreign capital is as a yardstick for measuring its growth 1997, Adam, 1998; and Odusola, dwindling and is likely to be scarce for prospect. As noted by Summer (1986) 1999) and incidentally there is an developing countries in the future, raising domestic savings rate is sin- inadequate understanding of the these economies will have to rely qua-non to enjoying rapid productivity issues. heavily on higher domestic savings to growth and success in international fund the needed increase in competition. It is no accident that For Nigeria to sustain its current investment in order for adjustment to Germany, France, United States and investment programmes and its' be followed by sustained growth Japan with savings rates three times associated import needs, priority must (Garvin, 1990). ours have enjoyed very high be given to the expansion of domestic productivity growth rates over the last savings and exports as some of the There is little doubt that one important fifteen years (Afolabi and Mamman, main instruments for growth. The main area a country needs to look into when 1994). question is, to what extent will it be faced with economic crisis is the possible to constrain consumption 40 Volume 30 No. 1 Jan./Mar. 2006 sufficiently, to reach the target level of has been characterized by 'stop and 2.1 Trends in National Savings domestic savings, giving that go' policies and increased in Nigeria consumption is also an important administrative interventions, loss of element for growth? What are the fiscal control, little commitment to In order to further enlighten the review, reasons for the weak saving reform efforts, etc. This has led to we present below statistical data on performance in Nigeria? This paper is fallen or marginal GDP growth, national savings in Nigeria. As can be limited to the consideration of intensified capital flight, reduced seen on table 2.1, the stock of savings conceptual issues on savings in foreign capital inflow and the rose steadily from N341.6 million in Nigeria. The specific objectives of the countries are yet to witness a revival 1970 to N1,815.2 million in 1975, by paper are stated below:- of satisfactory investment and saving 1980 the figure trebled to N5,769.9 To review conceptual issues on rates. million, again moved to N12,521.8 savings behaviour in Nigeria. million in 1985 and by 1990 it had During the past two decades, in order reached an all time high of N29,651.2 Analyse the factors that may have for Nigeria to maintain it consumption million. The upward trend continued led to weak saving performance, and investment levels, there has been with the figure reaching N108,490.3 a s w e l l a s m a k e s o m e rapid accumulation of external debt as million in 1995, moved to N379,528 suggestions about future imports exceeded exports. This has million in 2000 and climbed to behaviour of savings through a lead to the widening of the country's N592,094.0 million in 2002 by 2004, it review of the literature. external current account deficits and moved to N1,033, 400.0 million. exchange rate overvaluation. The Another way of looking at the national This paper is divided into four government introduced economic savings data is through an sections. Section one contains the stabilization Act in 1982 leading to ban examination of its rate of growth. From general introduction. Section two on imports and foreign exchange 1.0 per cent in 1971, the growth rate focuses on the background issues on rationing. The adoption of Structural reached an astronomical rate of 9.38 the economy and savings in Nigeria. Adjustment Programme (SAP) in per cent in 1974, which is incidentally S e c t i o n t h r e e c a p t u r e s 1986 was another response to the a period highest figure. The figure fell conceptual/theoretical issues and lingering economic crisis. Despite to 5.96 per cent the following year and literature review. The last section these measures government further to 3.86 per cent in 1980 (see contains the summary, conclusion expenditure kept rising beyond its table 2.1). The trend fluctuated and recommendations. revenue, the Naira exchange rate has continuously, reaching a low of 2.46 been depreciating, while output has per cent in 1990. An interesting point 2. The Nigerian Economy and been growing marginally. For to observe is that the negative figure Savings Profile instance, external debt rose from for 1995 notwithstanding, the growth US$4. 1 billion in 1980 to US$24.6 rate was positive during the period In the 1980s and 1990s, for many billion in 1986 and moved to $28 1995 1998 and averaged 1.15 per developing countries including billion in 1999. For most part of the late cent. The average growth rate from N i g e r i a , w e r e y e a r s o f 1980s and 1990s, real GDP growth 1999 2004 was 3.19 per cent. The macroeconomic upheavals. This was less than 3% on the average. For importance of this marginal m a n i f e s t e d i n t h e f o r m o f instance, between 1993 and 1999 performance is that as has been unprecedented debt crises, high GDP growth averaged 2.5% while observed by Romer (2001), saving is international interest rates, low overall fiscal deficit/GDP ratio moved future consumption. Thus a society external resource transfers, mass down from 15.4% in 1993 to 7.7% in that does not save will invariably be unemployment, persistent increasing 1994 and was 8.8% in 1999. In recent unable to raise its consumption as well inflation, exchange rate crises, times, savings ratio (savings-GDP as investment in the future, hence economic stagnation and so forth. ratio) has been single digit and has growth will suffer. Indeed, Romer The international financial institutions been on the decline. For example, (2001) posits that if individuals have have provided financial assistance to savings ratio fell from 23.5% in 1991 problem saving at present it will mean help cushion the impact of the to 13.7% in 1993 and was -15.2% in that their future consumption external shocks and to assist 1995, thus it averaged 0.7% between prospects will be further impaired. countries to restructure their 1995 and 1998. Moreover, economies to the path of sustained investment/GDP ratio has been single An analysis using national saving ratio growth. So far, the policy environment digit from 1996 to 2003. (saving/GDP ratio) in table 2.1 shows 41 Volume 30 No. 1 Jan./Mar. 2006 that between 1970 and 1975, national and appropriate macroeconomic increasing number of financial saving ratio averaged 6.3 per cent, policy framework and the existence of institutions in the system. For 1976-80 (9 per cent), 1981-85 (12.4 high quality institutions. The instance, between 1986 and 1990, per cent), 1986-90 (14.8 per cent), introduction of Structural Adjustment about 66 new commercial and 1991-95 (10.2 per cent), 1996-2000 Programme (SAP) in July 1986 was merchant banks were created, (7.8 per cent), 2001-2005 (13.7 per an effort to set the macroeconomic particularly between 1988 and 1990, cent). The result shows that savings policy framework right. One of the the number of banks increased from performance was more impressive components of SAP was the reform of 66 to 107, while the number of during the present reform era (1999- the financial sector, aimed at commercial banks branch offices 2004), other periods of good increasing its efficiency. increased from 1,665 to 1,939 (Adam, performance were the SAP era and 1998). The resulting competitive period just before the current reforms In Nigeria, SAP was introduced to pressure brought about by the reforms era. This fact tends to mask the rather alter and realign aggregate domestic while encouraging financial dismal performance in the period after expenditure and production patterns intermediation in the banking industry SAP as reflected by the low ratio of so as to minimise dependence on have also tended to raise risks, sharp savings to GDP for the period. It can imports; diversify the revenue base practices and hence, led to distress in be observed that the figures for 1995, away from oil export, increase the system (Afolabi and Mammam, 1996, 1997 and 1998 are single digit, efficiency of financial sector, among 1996). none up to 10 per cent. The figures others. The basic policies constituting were also low during the 1970-1978 the SAP programme included The period of deregulation witnessed periods under review. The 1980s were revenue expansion and public radical policy changes in banks better, particularly the SAP period expenditure stabilization financial o p e r a t i o n s a n d r e g u l a t o r y when there was an increase. The best sector deregulation, privatization and environment in Nigeria. Some of these performance has been recorded commercialization, among others. policy changes include liberalisation during the present democratic regime Part of the financial sector reform of the foreign exchange markets and (2000-2005). The findings support involves efforts aimed at setting the interest rates, the introduction of Soyibo's (1997) that national saving sector free from any repression, such prudential guidelines/accounting rate increased after the year of reform. as freeing the interest rates. The standards, increase in minimum paid- For example, from 1986 to 1991, the observed low level of savings may u p c a p i t a l , c r e a t i o n o f data show surplus savings which was have become endemic due to the regulatory/supervisory institutions, not invested. prevailing high level of financial relaxation of mandatory sectoral repression and low income. With allocation of credits, enhanced 2.2 Financial Sector Reform financial repression, a country will a u t o n o m y a n d s u p e r v i s o r y and Savings experience a gap between domestic responsibilities for the Central Bank of savings and the desired level of Nigeria (CBN) and so forth. In the last two decades after investments. Moreover, the higher the independence, Africa was faced with degree of financial repression, the The banking policy reforms were a myriad of economic problems. further away is that economy from introduced sequentially. With the Some of these were high inflation and attaining efficiency in resource creation of the Nigerian Deposit unemployment, increasing poverty, allocation and management Insurance Corporation (NDIC) in low economic growth rates, high fiscal (McKinnon, 1988). The regulatory 1988, bank depositors were assured deficits, huge balance of payments controls with its' fixed interest rates of immediate cash payments of up to a deficits, financial sector repression regime, inhibited growth, competition maximum of N50,000.00 in case of and worsening terms of trade. The and efficiency in the financial system. any bank failure. One important economic crises have been attributed This is because the real rates became development during this period was to two main factors, i.e., domestic negative in some instances. the promulgation of two banking laws policy failures and inadequate with effect from June 1991, the CBN institutional capacity (Afolabi and Therefore, the period of financial Act, No. 24 of 1991 and the Banks and Mamman, 1994). This implies that the deregulation (1986-94) in which the Other Financial Institutions Act necessary conditions for growth and government assigned an increasing (BOFIA), No.25 of 1991. This efficient economic management are role to the market forces in the repealed the CBN Act of 1959 and the the need for adoption of a consistent allocation of resources witnessed Banking Decree of 1969 respectively. 42 Volume 30 No. 1 Jan./Mar. 2006 Following a further amendment of Change increased from 52 in 1985 to the economy is in equilibrium when CBN Act of 1991, in 1998 and 1999, 293 in 2004 (table 2.2). investment is equal to saving. the Decree and amendments Furthermore, there is need to significantly enlarged the powers of Interest rate development in table 2.3 distinguish between saving and the CBN with regards to the shows that deposit rate on normal savings. Saving is a flow while savings maintenance of monetary stability and savings was single digit from 1970 to is a stock. This means that saving is a sound financial system. The 1984 and became double digits from the rate of change in savings per time amendments further granted 1985 to 1995, mostly during the SAP period. Savings, being a stock is autonomy to CBN in the formulation era, only to return to single digit from cumulative amount put aside over and implementation of monetary and 2000 to 2004. Lending rate as time. In symbolic terms if S is equal to financial policies. Furthermore, the represented by minimum rediscount savings, is change, while t is time, BOFID seeks to introduce changes in rate (MRR) shows that the rate then saving (s) is equal to: regulations that can promote the became double digit from 1985 to development of the financial sector in 2004, thus revealing a large spread Saving (s) = s/dt, a deregulated environment. between lending rate and saving rate since 2000 to 2004 (table 2.3). The There are many conceptual/ As a result, the number of commercial conclusion from this exercise is that theoretical approaches to savings banks which stood at 14 in 1970 there is a high positive correlation however; the important and common moved to 29 (107%) in 1986 and by between the interest rate and savings. ones are the absolute income 1993, it was 66 (128%), but dropped For example, 2000-2004 was a period hypothesis due to Keynes (1936) to 51 (-22.7%) in 1998 as a result of of high savings and moderate interest which assumes that saving is bank failures, only to climbed to 92 by rate stance. simultaneously determined with 2004. Merchant banks also grew from consumption, in the consumption 1 in 1970 to 6 in 1980, through to 12 3. Conceptual Issues and function framework. It posits a positive (100%) in 1986 and peaked at 54 Literature Review relationship between savings and (366.7%) in 1993 but dropped to 38 (- income through marginal propensity 26.6%) in 1998. Banks branches also The English Chambers Study to consume/save. The second known increased tremendously during this Dictionary define savings as money as the permanent income theory era. For instance, commercial bank set aside for future use, while Pan p o s t u l a t e s t h e v i e w t h a t branches increased from 273 in 1970 Dictionary of Economics and consumption/savings is a function of to 740 in 1980 (171.1%), and moved Commerce view savings as the permanent income (current income to 1367(84.7%) in 1986 and further to converse of consumption, that is an plus future income, wealth, etc.). 2258 (65.2%) in 1993 only to drop to individual may either consume or Another theoretical approach is the 2107(-6.7%) in 1998. The observation save his/her disposable income. life-cycle hypothesis which postulates indicates that financial variables Saving becomes available when an that every individual spends in relation under study radically changed during individual refrains from consumption. to what he conceives his normal deregulation era compared to the Thus, saving is a sacrifice of current income to be. In a particular year he regulation era; and accounted for the consumption for capital accumulation may regard his income as low, in the upward trend in savings explained in which leads to investment and good years he will save the excess section 2 above. subsequently additional output that and in the bad years he will run down can be used for consumption in future. his accumulated savings (Stiegeler The other financial institutions apart It is important to clarify that saving and Thomas, 1982). The second and from the banking sector also does not necessarily means making last approaches can be combined into increased in number and size, they deposits at banks or financial one because they are similar; jointly include: the insurance companies, the institutions. It is sufficient to increase referred to as the life cycle/permanent pension funds, discount houses, one's cash holding by refraining from income hypothesis finance companies, cooperative consumption. societies, among others. For Kuznets (1942) first documented the instance, in Nigeria, community banks Gross national savings is also defined stability of the saving/income ratio, rose from one in 1990 to 753 in 2004, as the residual of what is consumed and in particular, that the saving ratio stock brokerage firms rose from 10 in from gross domestic income. In a appeared to be independent of real 1980 to 162 in 1995 and Bureau de simple income-expenditure model, income. This stood in contrast to the 43 Volume 30 No. 1 Jan./Mar. 2006 rigid dependence implied by the simple permanent income hypothesis private sector's saving. simple Keynesian consumer (Zeldes, 1989). behaviour. Kuznet's conclusion Furthermore, Montiel (2000) observes implied that consumers may be According to the life-cycle theory, that saving/consumption booms have smoothing consumption and savings demographic focus play a role in been common in both industrialized in the face of fluctuations in real predicting saving, because saving is and developing countries and the income. After all, there emerged a high at middle age and low at young explanations for their occurrence number of rival hypotheses which and old ages. This proposition points include economy-wide wealth effects include the relative income to the concentration of growth in associated with favourable movement hypothesis (Duesenberry, 1949 and households with high saving rates like in the terms of trade, surges in capital Modigliani, 1949); the life cycle the rich or middle age household. The inflows, the implementation of market- hypothesis (Modigliani and higher saving rate may be induced by oriented structural reforms (especially Brumberg, 1954; Modigliani, 1957); the desire to leave bequests to heirs. trade and financial liberalization), etc. and the permanent income This framework points to the link Using a large cross-country study, he hypothesis (Friedman, 1957). These between savings and economic found that wealth effects linked to studies dwell on different theoretical growth. However, this view has been favourable movements in the terms of notions of income as the plausible challenged by other economists, for trade and anticipated improvements d e t e r m i n a n t o f a g g r e g a t e instance, according to Deaton and in macroeconomic performance seem consumption/saving behaviour. At Paxson (1994), and Poterba (1995) to have been more important another level, there are numerous elderly people save or at least do not empirically. On theoretical grounds, it empirical researches that extend the dissave as much as predicted by the is postulated that a relaxation of a r g u m e n t o f t h e b a s i c life-cycle hypothesis. Loayza, liquidity constraints will be associated consumption/saving model to make Schmidt-Hebbel and Serven (2000) with consumption boom and a decline the theory mirror the data set and provide supporting evidence for this in aggregate saving (Reinhart and some have included additional view. Tokalidis, 2000). Hence, no analysis e x p l a n a t o r y v a r i a b l e s o f of saving and consumption is consumption/saving behaviour such Empirical evidence suggests that complete without an assessment of as inflation, liquid assets and wealth inflation has positive influence on the pervasiveness of liquidity (see Zeller et al, Deaton, 1972; household's saving in physical assets. constraints. Davidson et al. 1978). For instance, Davidson et al., (1978) and Rutayisire (1980) assert that In Nigeria, there exists a few numbers The permanent income hypothesis individuals tend to substitute financial of studies in the area of aggregate and life-cycle hypothesis distinguish assets for physical assets in high saving-consumption behaviour. The between the consumption (and inflation economies, thus, inflation is studies on aggregate consumption- saving) effects of changes in inversely related to financial saving. saving behaviour are scanty (see permanent and temporary income While the motives to smooth Pinto, 1987; Afolabi and Mamman, using aggregate data. In its simple consumption may be strong, 1994; Ikhide, 1994; Nyong, 1997; and extreme form, permanent income households may be restricted to their Essien and Onwiodukit, 1998; Adam, shocks should be entirely consumed, ability to transfer resources across 1998; Obadan and Odusola, 1999). whereas temporary income shocks time; both by inability to borrow Recently, Afolabi and Mamman should be entirely saved. The against future earnings, by high debt- (1994), examine the determinants of permanent income hypothesis is burden and low international credit consumption and the effect of typically rejected by the evidence. ratings and by very low real returns on deregulation on saving in Nigeria by However, the evidence also shows current savings (Lehmussari, 1990). adopting cointegration and Error- that the positive impact on savings on The sharp drop in the household Correction Model (ECM) for both Pre the temporary increase in real per saving rates is attributable to the and Post-Structural Adjustment capita income is greater than that of a widening external current account Programme (SAP) periods (1970- permanent rise in income (Loayza, deficits of these countries. Deaton 1994). They estimated the equilibrium Schimidt-Hebbel, and Serven, 2000). (1989) attributes decline in national value of the marginal propensity to Uncertainty may help to explain why savings to falling real income, save (MPS) before deregulation at consumption/saving follows income negative public sector saving (fiscal 0.12 and 0.23 during the SAP period. so closely, thus contradicting the deficits) as well as small decline in They also generated long-run 44 Volume 30 No. 1 Jan./Mar. 2006 Marginal Propensity to Consume this study is that the author used findings are as follows: (MPC) which confirmed the observed aggregate data only for the SAP and (i) Savings is an important high consumption-income (low pre-SAP era which is too short for any macroeconomic variable which saving-income) ratio for a developing meaningful results between the two impacts on capital accumulation, country like Nigeria. They also found eras. This may explain the conflicting productivity, economic growth, that SAP policies relating to savings results obtained by the two studies. and the dependency or otherwise mobilization had positive effects on of a country on external resource the saving behaviour of individuals in Obadan and Odusola (1999) examine inflows; the economy. These results, apart the linkages between savings, from the limitation that the model investment and growth in developing (ii) The foreign debt that the country contains fewer explanatory variables, and developed countries with the aim accumulated in the 1980s and cannot be reconciled with the fact that of drawing important lessons and to 1990s are attributable to the low deregulation has led to declining real articulate policies for the future. d o m e s t i c s a v i n g s , h i g h disposal income of the average Nigeria is used as a developing consumption, among other Nigerian. Moreover, their results may country case study. The study based factors; be regarded as tentative because of on Granger causality model for the the use of approximate values of real period 1970 1998, finds support for (iii) Although a relatively large number disposable income and real consumer bi-directional relationship between of studies have been done on the expenditure. saving, investment and growth. It subject by other scholars, those however observed that the linkages by Nigerians on Nigeria are rather In an extension of Afolabi and will hold if, there is an increase in the few; and their results regarding Mamman (1994) work, Nyong (1997) volume of real savings, and a means the determinants of saving are re-examined if SAP and deregulation of collecting and channeling the contradictory; have led to increased savings in savings, for investment. Furthermore, Nigeria. He added additional there must be some effective means (iv) Though the savings figures for explanatory variables to the estimated of transforming savings into Nigeria are relatively low consumption function, i.e., productive capital. An important especially when viewed in regard demographic, liquidity constraints, lesson emerging from the study is that to international standards, the financial deepening and other the level of financial development and cumulative stock per year, the variables. Based on the multiple integration are crucial conditions for growth rate and the saving/GDP regression and ECM model used for saving, investment and growth ratio; the trend is nevertheless in the period 1970-94, the study correlations. The problem with this the upward posture; provides results in direct opposite to study is that, it is not a detailed those advanced by Afolabi and country-specific study and the model (v) The contending theories Mamman (1994). He found that used is very simple. Essien and ( h y p o t h e s e s ) o n s a v i n g consumption (or saving) was Onwioduokit (1998) examined (consumption) point to the responsive to changes in income but empirically the effects of financial tendency for the community to not to changes in interest rate. The liberalization on savings mobilization want to smooth out their MPC was higher during SAP era than in Nigeria and ascertain the existence consumption over the long-run, during the Pre-SAP period and that of a long-run equilibrium relationship h o w e v e r , s u b s i s t e n c e the long-run marginal propensity to between them, using co-integration considerations and liquidity save (MPS) fell during the SAP era technique. They found financial constraints still plays vital role. including deregulation, contrary to the liberalisation to be a significant factor empirical evidence presented by and that the long-run equilibrium (vi) Studies on Nigeria indicate that Afolabi and Mamman (1994). He relationship is non-existent. A the level of financial development concluded that consumption in summary of past related studies is and integration are crucial Nigeria is more related to subsistence presented in table 3.1 (see appendix). conditions for saving; thus, considerations and liquidity financial liberalisation enhances constraints than to intertemporal 4. Summary, Conclusion and domestic saving consumption smoothing. And that the Recommendations major determinant of savings is 4.1 C o n c l u s i o n a n d changes in income. The problem of With the review thus far, the main Recommendations 45 Volume 30 No. 1 Jan./Mar. 2006 The study found that even though the savings include financial liberalisation Relationship between saving, number of financial institutions has and removal of all distortion to investment and growth during increased, saving mobilisation has savings, savings enlightenment regulation and liberalisation not increased appreciably. The need programme and adopting positive to enhance investment and economic savings culture attitude, introduction B u i l d i n g r e l e v a n t l e g a l , growth potentials calls for measures of more savings instruments, institutional and human capacity to mobilise savings both in the short- development of the money and capital to ensure success of financial run and long-run. First, the constraints markets, reduction of fiscal deficits, liberalisation to mobilisation of savings has been macroeconomic stability, and identified to include financial continuation of democracy to ensure Promoting collaboration between repression, fiscal deficits, scanty stability. Consequently, the area of academic researchers and policy saving instruments, near non- future research interest can be makers in ensuring both parties monetisation of the economy, identified as follows have inputs into policy research externalities, negative deposit rates, Analysis of the financial sector among others. Consequently, interest rate structure and how to measures suggested to stimulate improve on it REFERENCES Adam, A. J. (1998), “Financial Intermediation and Economic Growth: Evidence from Nigeria,” Journal of Economic Management, Vol.5, No. 2. June------(2001), “Macroeconomic Implications of Oil Resources Availability and Exhaustibility: The Case of Nigeria” Selected Papers of the 42nd Annual Conference of the Nigerian Economic Society held from 28 1st September, 2001In Port-Harcourt, Nigeria. Afolabi, J. and H. Mamman (1994), “The Dynamics of Saving in a Deregulated Economy: The Case of Nigeria,” NDIC Quarterly, Vol. 4. No. 4, pg. 34-55 Akano (1998), Cointegration, Error Correction and Long-run Consumption-Income Relation in Lesotho, The Nigeria Journal Of Economics and Social Studies (NJESS), Vol. 40, No. 3 Agenor, P. and P. Montiel (1996), Development Macroeconomics, Princeton University press, New Jersey. Bandiera G. Caprio, P. Honohan, and Schiantarelli (2000), “Does Financial Reform Raise or Reduce Saving?” “Review of Economics and Statistics ,” May, 82 (2): 239-263 Bayoumi, T. (1993), Financial Deregulation and Household Saving, “Economic Journal, 103, November, 1432-1443 Christiano, L. J. (1987), “Why is Consumption Less Volatile, “Federal Reserve Bank of Minneapolis, Vol. 11, No. 4, Fall. Cutthberson, K.S. G. Hall and M. p. Taylor (1992), Applied Econometric Techniques, Harvesters Wheatsheaf, Hertfordsheaf, Herefordshire Davidson, J. E. H, D. F. Henry F. Srba and S. Yeo (1978), Economic modeling of the Aggregate Time Series Relationship Between Consumers' Expenditure and Income in the United Kingdom” Economic Journal , 88: 661-692 Deaton, A. and C. Paxson (1994) “Intertemporal Choice and Inequality,” Journal of Political Economy, 102 (3): 437-67 Deaton, A. (1991), “Saving and Liquidity Constraints”Econometricca, 39, No. 5, pg. 1221-1248______(1989) “Saving in Development Countries: Theory and Review” Proceeding of the World Bank Annual Conference on Development Economics, the World Bank. 46 Volume 30 No. 1 Jan./Mar. 2006 APPENDIX TABLE 2.1: Trends in National Savings, 1970 - 2004 Year Nat. Saving / Nat. Savings Growth Rate of GDP Ratio (NS) NBn NS 1970 0.07 0.34 - 1975 0.08 1.82 5.96 1980 0.11 5.77 3.86 1985 0.17 12.52 1.40 1990 0.11 29.65 2.46 1995 0.05 108.49 -2.2 1996 0.05 132.80 2.24 1997 0.06 177.65 3.38 1998 0.03 198.65 1.18 1999 0.12 272.01 3.70 2000 0.13 379.52 3.95 2001 0.11 488.04 2.86 2002 0.15 592.09 2.13 2003 0.14 840.4 4.19 2004 0.15 1033.4 2.31 2005 Na Na Na Source: CBN Statistical Bulletin(Various Issues) 47 Volume 30 No. 1 Jan./Mar. 2006 Table 2.2: Number of Financial Institutions in Nigeria(1970-2004) FIs 1970 1980 1985 1990 1995 1999 2000 2004 Com.Bks 14 20 28 58 64 54 54 92 M. Bks 1 6 12 49 51 38 38 Na C. Bks - - - 1 1355 1014 881 753 P. Bks - - - 169 278 Na 278 Na Mo. Bks 169 280 Na 194 83 St. Bro. - 10 19 80 162 Na Na Na Fin. Co. 45 276 280 280 107 Ins. Co. 43 70 88 103 145 104 57 Na Disc. H. 3 4 5 5 6 B.de Ch 52 92 223 260 na 293 Source: CBN Statistical Bulletin(Various Issues) Note: Com. Bks. - Commercial Bank, M. Bks - Merchant Banks, C. Bks - Community Banks P. - Peoples Banks, Mo. Bks - Mortgage Bank, St. Bro. Stock Brokerage firm, etc. Table 2.3: Deposit Interest rate Trend in Nigeria (1970 - 2 004) Year Deposit Rate Inflation Rate MRR 1970 3 13.8 4.5 1975 4 33.9 3.5 1980 6 9.9 6.0 1985 9.5 5.5 10.0 1990 18.8 7.5 18.5 1995 12.6 72.8 13.5 2000 5.29 6.9 14 2001 5.49 18.9 20.5 2002 4.2 12.9 16.5 2003 3.5 14 15 2004 4.4 15 15 Source: CBN Statistical Bulletin (Various Issues) Note: MRR - Minimum Rediscount Rate 48 Volume 30 No. 1 Jan./Mar. 2006 Table 3.1: Empirical Studies on Savings/Consumption Behaviour AUTHOR/YEAR OVERAGE/ OBJECTIVE/COM RESULT METHOD MENT (1970-98) / i) To analyze the The result shows that the financial Adam (1998) Econometrics efficiency and intermediation process is sub- effectiveness of optimal and caused by high lending the financial rate, high inflation, low per capita intermediation income, and inadequate bank process. branches. Ghosh and Ostry (1965-91)/ i) To test whether The precautionary motive has (1994) Econometrics precautionary significantly influenced saving saving is present behaviour and external balancing in developing of developing countries. This was countries that done through the institution of have uncertain stabilization funds, accumulating export earnings. foreign assets and so forth. The ii) To consider the precautionary saving effect is effect of export stronger for countries with an instability on the export base more heavily external balance. concentrated in a few commodities than for countries with a highly diversified export structure. Spatafora and (1965-89)/ i) To examine the They found that permanent terms - Warner (1996) Econometrics impact of long- of-trade shocks have no impact on term movement in savings, a strong positive impact external terms of on investment, and a negative trade on savings, impact on the current account. economic growth There is evidence of a long-run and effect on output, particularly of non- macroeconomic tradables. Real exchange -rate variables appreciation is a key mechanism in 49 Volume 30 No. 1 Jan./Mar. 2006 appreciation is a key mechanism in triggering the resource reallocation. Finally, the response of expenditure t o terms -of-trade shocks is not very sensitive to whether the expenditure comes from the public or private sector. Fuhrer (1992) (1960-91)/ co i) To examine if In the long-run, unlike in short-run, integration/Err consumers movements in consumption, or-correction behave as the life- income and wealth are roughly model cycle/permanent- consistent with the life- income theory of cycle/permanent income theories consumption of consumption, although predicts. consumption does not equal current resources period by period. Consumers who do not follow a rule of thumb appear to deviate from the life-cycle path because of adjustment in the short-run. Ikhide (1994) (1979-91)/ i) To examine the External shocks particularly oil macro effect of the price shocks have a major effect econometric external shocks on on domestic production, export, Model savings, saving, investment, government finances and credit sourcing. Afolabi and (1970-92)/ i) To examine the They found a high consumption - Mamman (1994) a ECM and determinants of income (low saving-income) radio Cointegation saving and for Nigeria. They also found that consumption in SAP had positive effects on saving Nigeria. behaviour of individuals in the ii) To investigate economy. the effect of SAP on savings mobilization 50 Volume 30 No. 1 Jan./Mar. 2006 A kano (1988) 1960- i) To explore the Inflation was not a significant factor 1994/ECM determinants of of long-run consumption long-run adjustments, but its short -run consumption impact on consumption is behaviour in significant. Per capita income Lesotho elasticity of consumption over the period was approximately unity. Consumption behaviour over the period was not significantly influenced by past income and consumption habits exceeding a one year period. 51 Volume 30 No. 1 Jan./Mar. 2006 FINANCIAL LIBERALIZATION AND SAVINGS MOBILISATION IN NIGERIA BY EMMANUEL ATING ONWIODUOKIT 1 West African Monetary Institute Accra, Ghana impact of financial reform on savings their current income level. includes a direct, short-term, and an indirect, long term, effect. The direct Financial liberalization, which leads to effect works through the price and large capital flows, can also have quantity channels. The price channel short term implications for savings. reflects the impact of reforms on Bandiera et al. (2000) have argued savings through changes in the real that the impact on savings of financial interest rates. Fry (1978, 1995) liberalization comes through the reports that, across a sample of related changes in the availability and EMMANUEL ATING ONWIODUOKIT fourteen Asian countries, the gross cost of credit, expected income national savings rate is positively growth, and increased wealth due to inancial liberalization involves affected higher real interest rates. higher property values. the elimination of credit However, the positive response is Fcontrols, deregulation of small and diminishes in later years. Stulz (1999) and Mishkin (2001) interest rates, easing of entry into the (Reynoso, 1989) finds that savings assert that financial liberalization financial services industry, increase rapidly as real interest rates promotes transparency and development of capital markets, move from sharply negative to just accountability, reducing adverse increased prudential regulation and below zero, but that the effect levels selection and moral hazard while supervision, and liberalization of off at low positive real interest rates alleviating liquidity problems in international capital flows. Reforms and becomes negative as interest rate financial markets. These authors are expected to increase competitive rises. This raises the possibility of a argue that international capital efficiency within the financial market nonlinear relationship between markets help to discipline policy in at least three ways. Number one, interest rates and savings, perhaps makers, who might be tempted to the elimination of regulations and involving threshold effects. exploit an otherwise confined price distortions allow savings to be domestic capital market. The prime directed into highest-yielding (risk- The quantity channel affects savings benefits that the literature associates adjusted) forms of investment by expanding the supply of credit to with liberalised financial system to the (improved allocative efficiency). credit-constrained consumers. A users of the financial services include; Number two, increased competition number of studies have argued that the reduction in the cost of services to reduces the cost of financial the high level of savings evident in the both savers and borrowers with the intermediation (higher operational East Asian countries and Japan can introduction of more competition and efficiency). Number three, the reform be attributed not to high interest rates improvements in services from more measures generate an improved but to bank expansion in rural areas efficient, customer friendly financial range of financial products and and the availability of low-yielding but institutions. Savers expect to receive services adaptable to changing safe deposit instruments (Loayza et higher rates of return, a broader c o n s u m e r n e e d s ( d y n a m i c al., 2000).They estimated that a one choice of saving instruments and efficiency). Although financial reforms percentage point increase in the ratio easier access to financial products. can increase the efficiency by of private credit flows to income Borrowers benefit from more accurate channeling resources into productive reduces the long-term private saving appraisal of risk; reduced waiting use, its impact on the quantity of rate.. This seems to indicate that the period and expanded access to funds savings is theoretically ambiguous. expansion of credit reduces private through more sophisticated lending savings as economic agents are able instruments available in a wider range From an analytical point of view, the to finance increased consumption at of maturities. The benefits of financial 1Emmanuel Onwioduokit is Chief Economist at the West African Monetary Institute, Accra. Ghana. Expressed views are personal to the author. 52 Volume 30 No. 1 Jan./Mar. 2006 liberalization can therefore be that they increase the power of follows; part two dwells on theoretical grouped into increased access to bureaucrats, who can be less capable issues and brief review of literature. domestic and international capital than imperfect markets, to allocate Part three contains a brief analysis of markets, and increased efficiency of financial resources. The key financial sector reforms in Nigeria, capital allocation. argument is that the government is, to while part four assesses the impact of all intents and purposes, the insurer of the reforms on savings. Summary, However critics of financial the financial systems, and hence a conclusion and recommendations are liberalization policies have contended financial failure can have significant presented in part five. that the efficient markets concept is fiscal repercussions. fundamentally misleading when 2.0 Theoretical Issues and applied to capital flows. In the theory Overall, although financial reform Review of Literature of the second best, removing one promises immense benefits, it could distortion need not be welfare also set in motion a process of change One element of the Mackinnon-Shaw enhancing when other distortions are that imposes some costs, which if not thesis is that abolition of ceilings on present. If the capital account is covered carefully can result in a crisis. interest rates stimulates savings. liberalized while import competing The path toward greater efficiency in Increased interest rates, however, industries are still protected, for financial services, like the path toward may reduce rather than increase the example, or if there is a downwardly freer trade, implies the closure of volume of savings for a number of inflexible real wage, capital may flow those firms that remain unproductive reasons. First, the negative income into sectors in which the country has a and the gradual emergence of new effect of increased interest rates might comparative disadvantage, implying a practices. These new practices offset the positive substitution effect reduction in welfare. include modern supervision and between consumption and savings. regulation and the abandonment of Second, an increase in the real If information asymmetries are rife to the special relationships and poor interest rate may merely reallocate the financial markets and transactions, in lending practices that bear so much existing volume of savings in favour of particular in countries with poor responsibility for the dismal state of financial savings as opposed to other corporate governance and low legal financial sectors in most developing forms of savings and leave the total protections, there is no reason to think countries. Like trade in goods, volume of savings unchanged (Gupta that financial liberalization, either competition will bring net benefits, but 1984, Rangarajan 1997). Such a domestic or international, will be those who enjoyed protection will reallocation may also occur if reforms welfare improving (Stiglitz, 2000). suffer and will try to oppose change. provide a new range of financial Furthermore, in countries where the instruments such as shares, mutual capacity to honour contracts and to Since the 1980s many emerging funds, postal savings and pension assemble information relevant to economies, including Nigeria funds. financial transactions is least embraced financial sector reforms developed, there can be no and have had mixed results (Akyuz Third, at very low levels of income assumption that capital will flow into and Kotte, 1991). Starting in 1986, interest rates are unlikely to stimulate uses where its marginal product Nigeria's financial system began to be savings since the totality of incomes exceeds its opportunity cost. Stiglitz deregulated and by 1992 substantial would be devoted to consumption. (1994) argues in favour of certain changes had taken place. Consistent Statistical evidence on the issue forms of financial repression. He with trends in other developing suggests that a one percent increase claims that repression can have countries, institutions and markets are in the real interest rate raises the several positive effects such as: growing and developing, leading to an saving rate by only about one-tenth of improving the average quality of the increasing role being played by the one percentage point in the relatively pool of loan applicants by lowering financial system in the development of poor countries, where as this interest rates; increasing firm equity Nigeria's economy. coefficient is about two-thirds of one by lowering the price of capital; and percentage point in the relatively rich accelerating the rate of growth if credit The main objective of this paper is to countries (Ogaki et al 1996). Fourth, is targeted towards profitable sectors assess the impact of financial sector even at relatively high levels of such as exporters or sectors with high reforms on savings mobilization in income, financial reforms which ease technological spillovers. However, Nigeria. Accordingly, the remaining borrowing constraints may stimulate these claims can be doubtful given part of the paper is organized as consumption rather than savings (Hall 53 Volume 30 No. 1 Jan./Mar. 2006 1978, Jappelli and Pagano, 1989, increase) following an increase in real functioning capital markets, perfect 1994). interest rates. Hence, in this analysis information, an independent banking the magnitude of the increase in sector free of government imposed Finally, increased interest rates may saving following the higher real restrictions, none of which may hold in restrict the ability of the corporate interest rates associated with financial developing countries. In any case, sector to restructure production liberalization will depend on the level empirical evidence in support of the methods and hence its productivity of income. theorem is weak. Most studies detect and growth. And if the savings a very weak negative relationship propensity of the household sector is Financial reforms, however, may between public and private savings lower than that of the corporate sector stimulate financial savings in other (Edwards 1995, Corbo and Schmidt- total savings may decline (Singh, ways than through an increase in Hebbel 1991). Indeed, increased 1993). interest rates. A reduction in controls public savings may promote total on the financial system along with volume of savings. The experience of On theoretical grounds, it has been increased competition and improved the East Asian countries suggests as postulated that a relaxation of liquidity customer service may result in much. constraints will be associated with a increased savings. Access to savings consumption boom and a decline in instruments may not only enhance the M o s t s t u d i e s o n e c o n o m i c aggregate saving. More specifically, willingness to save but also result in liberalization analyze the impact of Campbell and Mankiw (1990) the substitution of financial savings for exports and foreign direct investment postulated that there are two types of investments in assets such as gold on growth, but not on savings households in the economy: the first and jewellery. One other aspect of (Greenaway et al 1997). It is likely that type of household, x, is liquidity financial reforms, which may relatively liberal foreign trade regimes constrained and their consumption is influence household savings, is promote savings. Typically, the entirely determined by the evolution of taxation. Reforms which reduce high savings rate tends to be high in current income, while the second type marginal income tax rates and relatively open economies such as the (1 -x), has free access to capital increase disposable incomes may not East Asian economies. Liberal foreign markets and can smooth their only serve to eliminate tax evasion but trade regimes may promote savings consumption inter-temporarily. Such also stimulate savings. Tax reforms for a number of reasons. Import a theoretical development led these designed to reduce tariffs on trade competition may serve to reduce the authors to challenge the implicit and excise duties, however, may prices of consumer durables, so too McKinnon-Shaw assumptions that encourage consumption and reduce would increase flows of foreign were based on a homogenous savings. investment in these industries. The household set in which it was resulting increase in real incomes may assumed that all relevant households Yet another issue which has aroused promote savings, provided both the had free access to capital markets considerable discussion relates to the income and substitution effects of a within the domestic economy. This impact of reforms on public savings growth in income work in favour of argument stemmed from the Stone- defined to include current surpluses of savings as opposed to consumption. Geary utility function where the inter- public administration and publicly Liberalization of the foreign trade temporal elasticity of substitution, owned enterprises. The seemingly regime may promote competition and which determines the sensitivity of obvious proposition here is that efficiency with a benign impact on consumption to real interest rates, is reforms which tend to reduce the growth and hence savings. Also, determined by permanent income and profligacy of the public sector would increased exports may result in subsistence consumption. Thus, increase public savings and hence increased savings if the propensity to increases in real interest rates will total savings. The much discussed save from export incomes is relatively affect consumption/saving decisions Ricardian equivalence theorem, high. Equally remittances from in varying degrees. In countries where however, argues that an increase in expatriates abroad may increase with the representative household is close public savings may be offset by an economic reforms, as has happened to subsistence consumption (and equivalent reduction in private in Nigeria, and promote savings. saving), they may not be sensitive to savings leaving the total volume of changes in the real rate of interest. savings unchanged. The Ricardian The empirical results, however, have Only in wealthier countries would equivalence theorem rests on a not been consistent across countries. consumption decline (and saving number of assumptions such as well- Hussain (1996) estimated that, in the 54 Volume 30 No. 1 Jan./Mar. 2006 three years following reforms, savings promote savings because of its Some distressed banks were in Egypt increased by about 6 percent impact on growth and not the other liquidated while the central bank took of GDP over the level that would have way round. Nigeria's experience over the management of others. occurred in the absence of financial provides an opportunity to test this Government share holdings in some liberalization. However, Bayoumi proposition. Unfortunately, not all of banks were also sold to the private (1993a) showed that financial the propositions in the literature on sector. (See Nnana, 2002 for the deregulation in the United Kingdom economic liberalization and savings details and the sequencing of the led to a decline in the personal can be empirically tested. Some of the reform measures) savings ratio of 2.3 percentage points variables cannot be quantified, and for over the 1980s. Chapple (1991) also some others data in the required form The Central Bank of Nigeria made reported a decline in both household are not available. This study utilizes attempts at restructuring the financial and corporate savings in New available data for Nigeria to assess system prior to the introduction of Zealand following liberalization. the impact of financial sector reforms open market operations in 1993. Bank Evidence from Turkey during the on savings mobilization. deposit and lending rates were 1970s and 1980s demonstrated that a deregulated at the beginning of the negative income effect from higher 3.0 Financial Sector Reforms structural adjustment programme in interest rates outweighed the positive in Nigeria2 1987. In 1991, the CBN in a reaction to substitution effect on the private rising nominal lending rates in the savings rate (Uygur, 1993). A t t h e c o m m e n c e m e n t o f market for loans prescribed a comprehensive financial sector maximum margin between the bank's Financial liberalization has also been reform in Nigeria in 1987, the sector average cost of funds and their shown to lead to consumption boom was highly repressed. Interest rate maximum lending rates as well as a and consumer lending in a number of controls, selective credit guidelines, minimum level for their savings countries, including, the United ceilings on credit expansion and use deposit rates. Interest rate Kingdom (Bayoumi, 1993b), Mexico, of reserve requirements and other determination was still supposed to be and Thailand. Using the overlapping direct monetary control instruments market-related through its link to the generation framework, Bayoumi were archetypal characteristics of the cost of funds. (1993b) has shown that a move from a financial system. Access into banking financially regulated to a deregulated b u s i n e s s w a s l i m i t e d a n d In order to promote competition in the system will make savings more government-owned banks dominated money market, the procedure for sensitive to changes in income, the industry. The reform of the foreign licensing new banks was streamlined wealth, demographics, and real exchange market which until then was and liberalised. Consequently, the interest rates. In addition, there will be also controlled began in 1986. Indeed number of banking institutions a transitional decline in savings the financial sector reform was a increased from 50 in 1987 to 120 in associated with higher real interest component of the comprehensive 1993, dropped to 115 in 1996. By rates and a larger current account economic reforms programme, 1998, the number of banks surged to deficit. While transitional, the duration Structural Adjustment Program (SAP) 155, however in 2004, the number of this effect depends upon which was adopted in 1986. plummeted to 89. An auction-based overlapping generations within the The main financial sector reform system for issuing treasury bills and economy. In summary, there is policies applied were deregulation of certificates (both government debt conflicting evidence in the literature interest rates, exchange rate and instruments) and the issue of these regarding the impact of financial access into banking business. Other instruments as Treasury bearer bonds l i b e r a l i z a t i o n a n d s a v i n g s reform measures included, to enhance tradability was introduced. mobilization. establishment of Nigeria Deposit This delinking of the treasury bill rate Insurance Corporation, strengthening from the MRR was aimed at improving In sum, there are no settled the regulatory and supervisory the efficiency of public debt conclusions on the impact of financial institutions, upward review of capital management and the conduct of liberalization on the savings rate. The adequacy standards, capital market monetary policy, enhancement of one proposition which seems to be deregulation and introduction of investor interest and involvement in robust is that liberalization is likely to indirect monetary policy instruments. the holding of government debt 2This section benefited immensely from Onwioduokit and Adamu (2005). 55 Volume 30 No. 1 Jan./Mar. 2006 instruments, promoting greater classification of banks by the nature of healthy by the CBN were lifted. A bank reliance on market forces in the their business that existed hitherto. was considered healthy if it met CBN determination of yields on the Again to ensure that banking guidelines on certain specified criteria instruments and encouraging the contribute to the real economy and not in the preceding three months. These development of the secondary market just serve as trading post, the Central criteria were; cash reserve, liquidity for government short-term debt bank of Nigeria increased the required ratio, prudential guidelines, statutory instruments. capital of banks to N25.00 billion minimum paid-up capital, capital effective December, 2005. adequacy ratio, and sound The CBN Decree No. 24 and The management. With the application of Banks and Other Financial Institutions In order to facilitate the development these criteria about 80 banks were Decree (BOFID) No. 25 were of a secondary market for government endorsed as healthy and exempted promulgated in 1991. The Decrees debt instruments so as to reducing from credit ceilings. These same enhanced the central Bank of government dependence on the CBN criteria were applied for determining Nigeria's independence in the financing of its deficit, three discount banks that qualify to participate in the conduct of monetary policy, houses were licensed in 1992. In official foreign exchange market. augmented the CBN's regulatory and addition to intermediating funds supervisory power over banks and among financial institutions, the An intriguing element of Nigeria's brought under the purview of the CBN discount houses were also expected foreign exchange market was the the licensing and supervision of other to promote primary and secondary irregularity in policy implementation. non-financial institutions like Discount markets for government securities. The reform of the foreign exchange and Finance Houses. The Decrees market for instance started in 1986 empowered the central bank to apply In 1990, the central bank in with the abrogation of exchange indirect monetary policy instruments conjunction with the Nigerian Deposit controls and establishment of a such as open market operations Insurance Corporation (NDIC) market-based autonomous foreign (OMO), reserve requirements, commenced the process of bank exchange market, including the stabilisation securities and special restructuring. At first, six insolvent licensing of Bureaux de change in deposits to achieve the objectives of banks were identified and were 1988. However, a fixed official monetary policy. allowed self-restructuring under the exchange rate existed alongside the close supervision of the two autonomous market. In 1993 the Furthermore, prudential guidelines supervisory authorities, the CBN and plodding market-based depreciation regarding ample provisions for bad NDIC. In late 1992, a joint committee in the official exchange rate was and doubtful debts and loan of the CBN and NDIC involving a abridged by a sharp devaluation in a classification, interest capitalisation, sector of the BOFID assumed greater bid to close the gap between the capital adequacy and limits on loan control over distressed banks. Banks official and the autonomous exchange concentration were put in place in thus taken over by the CBN had their rate. Discontented with the gap 1990. In order to mitigate the adverse board of directors dissolved and an between the official and autonomous effects of the implementation of the interim management board appointed exchange rates, government guidelines on banks' balance sheets, to exercise powers normally vested in prohibited the autonomous foreign the central bank later allowed banks to a board of directors of a bank and exchange market and reintroduced write off accumulated bad and some turn-around measures, exchange controls in 1994. But after a doubtful debts over a phased period of including the down-sizing of full year of exchange controls, the four years. Steps were also taken to operations through rationalisation of autonomous market was reintroduced strengthen the capital bases of banks. staff and branch-network. The Boards in 1995. A foreign exchange subsidy of The minimum paid-up capital of banks are also empowered to appoint about 300 per cent, representing the was increased from N20, 000,000 to independent firms of auditors to gap between the official and N50, 000,000 million in the case of ascertain the true financial condition autonomous market rates existed for commercial banks and N12, 000,000 of each of the banks. Thereafter, some government-preferred to N40, 000,000 million in the case of appropriate restructuring or consumption, including pilgrimage merchant banks with effect from June liquidation options were to be and sporting events. The continued 1992. In 2001, the central bank of adopted. operation of the official exchange rate Nigeria adopted the universal banking However, in September 1992, credit exerted distortions in the domestic policy, thereby abrogating the ceilings on banks that are adjudged allocation of resources in the public 56 Volume 30 No. 1 Jan./Mar. 2006 sector. Fiscal gains thus appear to be banks. Some of the issues highlighted used a set of measures, which he an incentive factor in retaining the above point to the disorderly manner called the 'financial interrelations current structure of the foreign in which the reform has been ratio', in tracing the close relationship exchange market. A similar pattern of implemented in Nigeria. Thus, between the financial sector and policy somersault was apparent in the Nigeria's financial sector reform has economic development. In many interest rate reforms policy. First not been a smooth sailing process. other studies, the ratio of the broad introduced in 1987, the market- This in itself could obscure the money (M2) to GDP is taken to determined interest rates operated appraisal as well as its outcome. observe the changes in the size of the until 1991 when interest rates were financial system relative to the size of capped. However, a year after, 4.0 IMPACT OF FINANCIAL the economy. deregulation of interest rates policy SECTOR REFORMS ON was once again re-introduced in 1992 SAVINGS IN NIGERIA. It is hard to find 'an indicator' that can and 1993. Although indirect monetary A fascinating exercise is to assess the directly measure the development of instruments (open market operations) effects of liberalization on the the financial sector. We therefore were initiated in 1993, some measures of financial development analyse the roles of the indicators that measures of controls such as sectoral that in turn are regarded as correlating are studied in the recent literature and credit allocation guidelines continued with economic growth. Development then choose ten indicators that to be applied in 1994. of the financial sector requires a set of encompass all the qualities of a well- Regarding bank licensing and indicators that can be used for developed financial sector. The six regulation, the reform commenced effective policy formulation, measures are explained as follows: with the deregulation of bank licensing implementation and evaluation. As Broad Money as a ratio of Gross in 1987. This resulted in the such, there is no precise definition in Domestic Product (GDP), Private establishment of many new banks. the literature of 'financial sector Credit as a ratio of GDP, Currency However, when prudential measures development'. However Fry (1978) Outside Bank as a ratio of Broad such as, the increase in the required observes that the key to financial Money (M2), Interest Rate Spread, banks paid up capital in 1989 and the sector development is the reduction, Real Interest Rate, and Gross reform of their accounting procedure and ultimately unification, of the Savings as a ratio of GDP. The data for (1990) appeared insufficient to fragmented financial markets. This the analysis were essentially sourced restrain the immoderation of the involves a complete set of indicators from the central bank of Nigeria. The sector, government placed total mainly covering credit intermediation, assessment period is broken into two embargo on bank licensing in 1991. liquidity management and the risk segments 1980-1986 representing Privatization of banks was suspended management characteristics of the the pre-reforms era, while 1987-2005 after applying the measure to a few financial system. Goldsmith (1969) represents the post reforms era. TABLE 1: FINANCIAL SECTOR REFORMS INDICATORS IN NIGERIA: 1980-2005 Pre-Reforms Post-Reforms 1980-1986 1987-2005 M2/GDP (%) 26.7 22.8 Private Sector Credit/GDP 16.8 14.4 Currency outside Bank/M2 23.0 25.7 Interest Rate Spread 1.8 10.7 Real Interest Rate -8.1 -15.5 Gross Savings/GDP 7.1 12.6 20 57 Volume 30 No. 1 Jan./Mar. 2006 One of the expected effects of to as nominal growth in the numbers in the post reform period than in the financial sector liberalisation of banks that did not affect the pre- reforms era. The prevalence of according to theory and some financial sector positively, much less very high lending rates and systematic empirical findings is what have been the economy. increase in the lending-deposit rate known in the liberalisation literature as margins in the post reforms period is Financial Deepening, usually This ratio measures cash intensity in essentially unacceptable. Under the measured as the ratio of broad money the economy. One of the expected reform programmes, an initial to the GDP. In Nigeria the ratio gains of the financial sector increase in the spread between worsened from 26.7 per cent in the liberalisation was the development of lending and deposit rates was pre-reform era to 22.8 per cent in the the financial system that would expected, as banks needed time to reform era. This clearly indicated that improve banking habits and by adjust their cost structures during the financial sector reforms in Nigeria did extension the development of the changing environment. The spread not achieve the purpose of financial payments system. The performance was expected to narrow as more deepening that is purported by theory. of the Nigeria's financial reforms efficient business practices were This outcome is consistent with the under this criterion indicated a embraced sequence to increasing findings of Nissanke and Aryeetey deteriorating trend. During the pre- competition and as credit demand (1998) who observed that expected reform period, this ratio was 23.04 per stabilised. But more than a decade positive effects from liberalisation, in cent. This performance was broadly in after reforms were started, the spread savings mobilisation and credit line with the Africa average of 23.5 per between the two continue to widen in allocation had been slow to emerge. cent by 1985. However, post Nigeria. The problem of continual The use of both the M2/GDP ratio and liberalisation ratio at 25.71 per cent in increases in lending rates and low the private credit/GDP ratio to 2003 did not only indicate a worsening deposit rates during the post reform measure financial deepening showed trend compared to the pre- period is one of the most attention- no clear upward trend in any of those liberalisation level but was also more grabbing effects of financial sector countries. In Nigeria, both indicators out of line with Africa's average of 22.5 reforms in Nigeria. For instance the worsened considerably in the reform per cent in 2003 than in 1985 (see spread widened by over 8.9 period. Indeed, in most countries, Lindgren and Odonye, 2003). Overall, percentage points on the average credit as a proportion of GDP declined the results showed that cash intensity from 1.8 per cent during the pre- in the reform years, even if the share in Nigeria in 2003 was more severe reforms period to 10.7 per cent in the of credit to the private sector rose. than in 1985. The worsening trend post reform period. could also be adduced to central bank The ratio of credit to the private sector of Nigeria's policy of introducing Real Interest Rate to GDP has been classified as a higher currency denominations measurement of financial sector supposedly to keep pace with Real interest rate is usually used to widening (De Gregorio and Guidotti inflation. Indeed between 1985 and proxy the efficiency of financial (1993). Thus, the higher the ratio the 2003, about four different higher naira intermediation. Financial liberalization more widened the financial sector is denominations ranging from N50 to is expected to deliver higher real assumed to be. The reasoning N500 were introduced. Furthermore interest rates, reflecting the allocation underpinning such assumption is that the absence of relevant legal of capital toward more productive, the private sector utilisation of credit is regulations to which issues such as higher return projects owing to a shift usually more efficient than the dud cheques, until very recently could to more productive uses of financial government sector. In the pre-reform have contributed to the observed resources and enhanced financial period, the ratio stood at 16.8 per cent. outcome. intermediation. However in Nigeria However the ratio deteriorated to 14.4 the average real interest rate per cent during the post reform era, The financial sector reforms and deteriorated from negative 8.1 per indicating relative narrowing of the liberalization was expected to narrow cent during the pre-liberalisation financial sector in Nigeria. This is very the spread between deposit and period to negative 15.5 per cent during instructive as it contradicts the much- lending rate as a result of competition the post liberalisation era. Thus during touted impact of Nigeria's financial that was expected to ensue in the both pre and post liberalisation era in sector in economic development. financial sector. The interest rate Nigeria, the real interest rate were Confirming what some researchers, spread (lending savings margins) negative, reflecting the high rate of including Onwioduokit, (2002) refers has been dramatically high in Nigeria inflation associated with fiscal 58 Volume 30 No. 1 Jan./Mar. 2006 prolificacy of the military government Real Interest Rate, and Gross abrupt financial liberalisation led to the that dominated most of the period of Savings as a ratio of the data for the development of opportunities for both pre and post liberalisation in analysis were essentially sourced speculative rent seeking that replaced Nigeria. However the post from the central bank of Nigeria. The traditional forms of rent-seeking that liberalisation era as noted earlier assessment period is broken into two are based on political patronage. In recorded a worsening trend than the segments 1980-1986 representing sum, the faulty design of the reform pre liberalisation period. the pre-reforms era, while 1987-2003 programme, with respect to timing, represents the post reforms era. The pace and sequencing led to instability. Gross Savings as a ratio of GDP assessment based on the chosen World Bank (1994) notes that indices showed that Nigeria's financial complete interest-rate deregulation Gross savings as a ratio of GDP is a sector reforms only impacted should only be attempted when d i r e c t m e a s u r e o f s a v i n g s positively on two out of the ten certain stern criteria are satisfied. mobilisation in an economy. It is indicators compared with the pre- Thus, in addition to stable expected that the ratio should improve reforms era. macroeconomic conditions and with improvement in financial adequate regulatory and supervisory intermediation activity of the financial A battery of explanations has been arrangement, it is important that more system. On the average the ratio was advanced for the obvious failure of sophisticated and solvent banking 7.12 per cent in the control period, but financial liberalisation programmes to institutions with positive net worth in improved to 12.62 per cent during the address the problems of Nigeria's contestable financial markets are deregulation era. This was one of the financial system. The most recurrent present. It is expected that interest few dividends of deregulation of the rationalization is the incompleteness rate deregulation will be ineffective financial system in Nigeria. of the reforms. It is argued that the where these conditions are not met. In persistent poor financial performance the absence of such an environment, 5 . 0 S U M M A R Y A N D was due to lack of progress on some interest rates may be managed in the CONCLUSSION of the reform measures. Blame was interim, moving to market-determined placed on the continued use of rates within a longer time frame. The main objective of this paper was financial systems to finance public to assess the impact of financial sector activities, which was made In conclusion it is obvious that the sector reforms in Nigeria, especially possible by the continuing public financial system will continue to on the development of the financial sector ownership of a large part of the flourish without adequately affecting sector. Accordingly, this paper dwells financial system (World Bank, 1994). the real economy even in the era of on theoretical issues and brief review deregulation if the banks in particular, of literature and presented a brief Soyibo (1996) opines that improper continue to trade in foreign exchange analysis of financial sector reforms in pace and sequencing in the initial and finance trading activities at the Nigeria. Attempt was also made to reform years led to the crisis and expense of the manufacturing sector. assess the impact of the reforms. The eventual collapse of the financial Again the fiscal operation of paper analyzed the roles of the system, necessitating several policy government that resulted in persistent indicators that are studied in the reversals in Nigeria. The crisis made deficits mainly financed by the central recent literature. Ten indicators that policy consistency and credibility bank in most of the liberalisation era encompass all the qualities of a well- critical issues. It is obvious that that resulted in very high inflation, developed financial sector were Nigeria's difficulty in sustaining a adversely affected macroeconomic selected to measure the impact of consistent policy stance was partly stability, setting in motion a vicious financial sector deregulation on the attributable to unstable general cycle of external and internal economy. The six measures included: economic and political conditions. imbalances. The consolidation of the Broad Money as a ratio of Gross Stein and Lewis (1996) have ascribed banking system currently embarked Domestic Product (GDP), Private the failure of financial liberalisation in upon by the central bank should be Credit as a ratio of GDP, Currency Nigeria largely to the political and pursued to a logical conclusion if the Outside Bank as a ratio of Broad institutional setting of reforms. The financial sector in Nigeria is to develop Money (M2), Interest Rate Spread, argument for this position is that the appropriately. 59 Volume 30 No. 1 Jan./Mar. 2006 REFERENCES Akyuz, Y. and D.J. Kotte 1991. “Financial Policies in Developing Countries: Issues and Experience,” UNCTAD Discussion Paper No. 40, Geneva. Alejandro, R. 1989. “Financial Repression, Financial Liberalisation, and the Interest Rate Elasticity on the Developing Countries,” PhD Thesis, Massachusetts Institute of Technology. Bandiera, G., P.Caprio, and H. Schiantarelli. 2000. “Does Financial Reform Raise or Reduce Saving? Review of Economics and Statistics, May, 82(2). Bayoumi, T. 1993. “Financial Deregulation and Household Saving,” Economic Journal, 103, November Bossone, B.1998. “Circuit Theory of Finance and the Role of Incentives in Financial Sector Reform”, World Bank. Bossone, B. 2000. “Circuit theory of banking and finance,” Journal of Banking & Finance, Vol. 25. Campbell, J. and N. Gregory Mankiw. 1990. “Permanent Income, Current Income and Consumption,” Journal of Business and Economic Statistics, 8(3). Caprio G. 1999. “Economic Forum: Financial Sector Liberalisation promises Benefits, but Appropriate sequencing of Reforms is Crucialln”, IMF Survey, International Monetary Fund, Chapple, S. 1991.” Financial Liberalisation in New Zealand, 1984-90ls UNCTAD Discussion Paper No. 35 De Gregorio, J. and P. Guidotti .1992. “Financial Development and Economic Growth”. IMF Working Paper No. 92/101 Demirguc-Kunt, A. and E. Detragiache. 1998. Financial Liberalisation and Financial Fragility, Development Research Group, World Bank and Research Development. Demirgúc-Kunt, A. and R. Levine.1994. “The Financial System and Public Enterprise Reform: Concepts and Cases. Policy Research Working Papers No. 1319, Washington DC. World Bank. Diaz-Alejandro, C. 1985. “Good-bye Financial Repression, Hello Financial Crash”, Journal of Development Economics, Vol. 19, June. Fry, M. J. 1978. “Money and Capital or Financial Deepening in Economic Development?” Journal of Money Credit and Banking, 10 (November). Fry, M. J. 1980. “Saving Investment and Growth and the Cost of Financial repression,” World Development, Fry, M.J. 1995. Money, Interest and Banking in Economic Development, Second Edition Baltimore: Johns Hopkins University Press. Galindo, A., F. Schiantarelli and A. Weiss. 2001. "Does Financial Liberalization Improve the Allocation of Investment? Micro Evidence from Developing Countries" Mimeo. IDB. Gelb, A. and P. Honohan.1991. "Financial Sector Reform" in Thomas, Vinod, Ajay Chhibber, Mansoor Dailami and Jaime de Melo (eds), Restructuring Economies in Distress, Oxford University Press Giovannini, A. 1983. “The Interest Rate Elasticity of Savings in Developing Countries: The Existing Evidence”, World 60 Volume 30 No. 1 Jan./Mar. 2006 Development, Vol.11, No. 7. Giovannini, A. 1985."Saving and the Rate of Interest in LDCs," Journal of Development Economics, Vol. 18. Goldsmith, R. “Financial Structure and Development” New Haven, CT: Yale University Press. Greenwood, J. and B.Jovanovic.1990. “Financial Development, Growth, and the Distribution of Income”, Journal of Political Economy, Vol. 98, No. 5. Hussain, N. 1996. “Financial Liberalisation, Currency Substitution and Investment: The Case of Egypt.” African Development Bank Research Papers No. 24. Keynes, J.M.1936.The General Theory of Employment, Interest and Money Macmillan, London. King, R. and R. Levine. 1993. “Finance, Entrepreneurship and Growth: Theory and Evidence”, Journal of Monetary Economics, 32 . Krugman, P. 1993. “International Finance and Economic Development”, in Finance and Development: Issues and Experience, edited by A. Giovannini. Cambridge University Press. Laeven, L. 2000. “Does Financial liberalization Reduce Financial Constraints? Mimeo, World Bank. Levine, R. and S. Zervos. 1998. “Stock Markets, Banks, and Economic Growth,” The American Economic Review, Vol. 88, No. 3. Lindgren, C. and J. Odonye. 2003. “Towards Common Banking Supervision in West African Monetary Zone: The Way Forward” Mimeo. Loayza N., K. Schmidt-Hebbel, and L. Serven .2000. “What Drives Private Saving Across the World? Review of Economics and Statistics, May 82(2) McKinnon, R.I. 1973. Money and Capital in Economic Development, Washington, D.C., Brookings Institution. Mishkin, F. 2001. “Financial Policies and the Prevention of Financial Crises in Emerging Market Countries.” NBER working paper No. 8087. Modigliani, F. and M.H. Miller. 1958. “The Cost of Capital, Corporate Finance and the Theory of Investment,” American Economic Review, 48. Ndebio, J. E. 2004. “Financial Deepening, Economic Growth and Development: Evidence from Selected Sub-Saharan African Countries” AERC Research Paper 142, Nairobi. Nissanke, M. and E. Aryeetey. 1998. “Financial Integration and Development: Liberalisation and Reform in Sub-Saharan Africa”. Routledge. Nnana, O. J. 2001.”Monetary Policy Framework in Africa: The Nigerian Experience”Proceedings of Conference on Monetary Policy Framework in Africa, Pretoria Obstfeld, M.1998. “The Global Capital Market: Benefactor or Manace?” Journal of Economic Perspectives, summer. Onwioduokit, E. A. 2001. “Options for a Common Monetary Policy Framework for the Second Monetary Zone in West Africa” Proceedings of Conference on Monetary Policy Framework in Africa, Pretoria 61 Volume 30 No. 1 Jan./Mar. 2006 Pagano, M. 1993. “Financial Markets and Growth: An Overview”. European Economic Review, Vol. 37. Rajan, R.G. and L. Zingales. 1998. “Financial Dependence and Growth,” The American Economic Review, Vol. 88, No. 3. Reinhart, C. and G. Kaminsky. 1996. “The Twin Crisis: The Cause of Banking and Balance of Payments Problems”. IMF Seminar Series No. 96/12 Reinhart, C. M. and I. Tokatlidis. 2001. “Financial Liberation: The African Experience” Journal of African Economics (12) Rousseau, P.L. and P.Wachtel. 2001. Inflation, financial development and growth. In: Negishi, T., Ramach-andran, R., Mino, K. (Eds.), Economic Theory, Dynamics and Markets: Essays in Honor of Ryuzo Sato. Kluwer Academic Publishers, Boston. Shaw, E.S. 1973. Financial Deepening in Economic Development, Oxford University Press, New York. Singh, A. 1993. “The Stock Market and Economic Development: Should Developing Countries encourage Stock Markets?” UNCTAD Review, No. 4. Singh, A. 1997. “Financial Liberalization, Stock Markets and Economic Development,” The Economic Journal, 107 (May). Soludo, C. C. (2004): “Consolidating the Nigerian Banking Industry to Meet the Development Challenges of the 21st century” Address at the Special Meeting of the Bankers' Committee, Abuja, July 6. Soyibo, A. 1996. 'Financial Linkage and Development in sub-Saharan Africa: the Role of Formal Financial Institutions in Nigeria', Working Paper 88, London: Overseas Development Institute. Stiglitz, J. 1994. "The Role of the State in Financial Markets", in Proceedings of the World Bank Annual Conference on Development Economics 1993. Stiglitz, J. 2000. “Liberalization, Moral Hazard in Banking and Prudential Regulation: Are Capital Requirements Enough?” American Economic Review, 90(1), March 2000. Stulz, R.M. 1999. “Globalization, corporate finance, and cost of capital,” Journal of Applied Corporate Finance, Vol. 12. Uygur, E. 1993. “Liberalisation and Economic Performance in Turkey.” UNCTAD Discission Papers No.65 World Bank.1994. “Adjustment in Africa: Reforms, Results, and Road Ahead” Policy Research Report, Oxford University Press, New York. 62 Volume 30 No. 1 Jan./Mar. 2006 A PRO POOR FRAMEWORK FOR ENHANCING MICRO-SAVINGS IN NIGERIA By ONONUGBO M. C. and NWOSU C. P. savings certificate and the pension scheme may not win the patronage of petty traders and artisans. Given the level of saving activities at the informal sector and among the low ONONUGBO M. C. income group, it is obvious that NWOSU C. P. Nigerians do not lack the culture to 1.0 INTRODUCTION save but need encouragement and 2.0 THEORETICAL ISSUES design of formal products that would enhance commitment to saving. The igerians generally do not seem kind of savings that take place in this Savings fundamentally is about to have what is usually sector is short term in nature and is choosing between current and future Nreferred to as “the saving targeted at events or certain consumption. Savings theories culture”. This ascertation may not purchases. These if pooled together traditionally predict that current entirely be true as it based on can form a good base for consumption is related not to current information from the formal banking development of the economy in income, but to a longer-term estimate system without recourse to the general and better the long-term of income. According to the theory savings activities at the informal welfare of individuals in particular. presented in 1936 by the great British sector of the economy. It is a fact that economist John Maynard Keynes, it is the informal sector of the economy is This paper, therefore, attempts to a 'psychological law' that when their large with unrecorded transactions. examine the fundamental issues in incomes increase, people increase The sector of the economy is large saving and thereafter design a formal their saving to such an extent that the with unrecorded transactions. The savings habit of the populace, saved share of their incomes sector consists of petty traders, especially the low income group. The increases. This putative law was artisans, market women e.t.c., a framework is designed to mobilise rooted in empirical observations of number of whom constitute the low micro-savings, hitherto kept with thrift saving in various income groups, and income group of the economy. collectors and roll it over gradually till Keynes concluded that, in a period of old age. The paper is divided into six economic growth, the share of Much effort at encouraging and sections. Following the introduction, national income that constitutes mobilizing savings is directed at the section two expounds theoretical aggregate saving steadily rises. formal sector. Though these efforts issues in savings and presents all Keynes' theory of saving was can be argued to be open to both the relevant theories on savings. Section g e n e r a l l y a c c e p t e d b y h i s formal and informal sectors, it is three describes the experience of contemporaries. But, in 1942, the pertinent to state that the design of other jurisdictions in encouraging and American economist Simon Kuznets savings products automatically locks mobilising micro savings. The need showed that Keynes' theory was out those in the informal sector. For for enhanced savings is analysed in contradicted by statistical data: in the instance, the various savings section four, while a framework for United States saving's share of products of commercial banks are not enhancing micro-savings among the national income had not undergone a attractive to informal sector operators low income group is proposed in long-term increase - despite an and the low income group because of section five. Section six concludes the enormous increase in personal excessive documentation. In addition, paper. incomes. This contradiction was seen government efforts like the National as a paradox, and it soon became the 63 Volume 30 No. 1 Jan./Mar. 2006 object of a number of studies. One of saving. Here, he has shown that the 3.0 OVERVIEW OF SAVINGS IN those studies resulted in a work, theory implies, among other things, NIGERIA published in 1954, in which Franco Modigliani and his assistant, Richard that saving is not determined, as High savings rates and a strong, Brumberg, presented an entirely new earlier theories have suggested, competitive financial sector are vital to theory of household saving: the life- by households' income level, but the success of any developing cycle hypothesis. rather by the rate of increase in economy, yet on both counts Nigeria that income level, lags far behind a lot of countries. The life-cycle hypothesis derives from Available Statistics shows that the simple idea that people save for that saving is affected by savings in Nigeria have been low and their own retirement and that they population growth as well as by inadequate to fund and sustain the therefore accumulate savings during population age structure, level of investment that is consistent their active years in order to be able to with the country's economic growth consume those savings during their that saving is affected by targets and potentials. The savings retirement. A stringent, mathematical households' aggregate wealth rate which was 7.0 per cent in 1975 formulation of this hypothesis led to a and hence also by the interest rose consistently to 19.0 per cent in number of conclusions that could not r a t e i n i t s c a p a c i t y o f 1986 because of the then prevailing be drawn from earlier theories, for capitalization factor, and finally economic climate as reflected by the example, that a person's saving is not growth of economic activities. determined only by his income, but that the multiplier effect of an Thereafter, the performance of the also by his wealth, his expected future autonomous expenditure savings rate has been very dismal. income, and his age. The hypothesis increase approaches the inverted During the period 1986 to 1989, also made possible a rational value of the marginal tax rate. domestic savings averaged 15.7 per explanation of the Keynes-Kuznets cent of GDP. However, with paradox. As Modigliani and Brumberg With the life-cycle hypothesis, emergence of financial sector distress showed, in the life-cycle model there Modigliani has created a wholly new in the 1990s the rate of aggregate is no unique correspondence theory of household saving - a theory savings declined significantly. The between the cross-section and the that has proved to be of major distress syndrome resulted in a t i m e - s e r i e s s a v i n g - i n c o m e significance to research into significant fall in domestic savings in relationships. consumption and saving. It has the period 1990 to 1999 as the constituted the basis of theoretical savings-GDP ratio dropped to 6.0 per In its original formulation, the life-cycle and empirical analyses of many cent and had continued to fall. By hypothesis was a theory of saving different types of problems - chiefly 2005, the savings-GDP ratio was behavior on the part of the individual. those involving the effects of approximately 4.0 percent which was But Modigliani has expanded the economic-political measures. Among relatively when compared to the perspective of the hypothesis and in a other things, it has been used for figures for some other countries like number of writings dealt with the issue analyses of the effects of various Canada (23.7 per cent), France (19.7 that is far more interesting from an social-insurance systems and the percent), Japan (27.5 per cent), UK economic-political standpoint: the consequences of budget deficits on (14.90 per cent), East Asia (24.3 per conclusions the theory provides the economic situations of various cent), China (43.2 per cent) Emerging regarding aggregate household generations. economies (6.1 per cent) and USA (12.6 per cent). 64 Volume 30 No. 1 Jan./Mar. 2006 Fig 1: Savings-GDP ratio in Nigeria 20 18 16 14 t 12 n e c 10 r e P 8 6 4 2 0 70 75 80 85 90 95 00 19 19 19 19 19 19 20 Years FIG 2: SAVINGS - GDP RATIO as at end 2005 25 20 15 10 5 0 l s ia a y e r A b m i e K o o tr ig S l n n U U G o u N c o E C g l n ia i tr rg s e u m d E In 3.1 COUNTRY EXPERIENCES In Malaysia, the Merdeka Savings then be based on the number of days Bond is used for mobilizing savings the bond is held. This feature gives Across the continent, getting those The bond is for retirees who are 55 investors the option and flexibility to informal sector savings out from years old and above, and who do not withdraw their savings at any time to under mattresses and into banks - have a full-time job. Armed Forces meet unanticipated expenses. where they can contribute to personnel who opted for mandatory economic growth - has long been retirement below the age of 55 are In Japan, a savings culture based on blocked because of the high fees also eligible to purchase the bonds. a virtue of thrift was developed. The banks charge and the extensive The Merdeka Savings Bond provides Japanese government had used the paperwork needed to open an investors with the benefit of early promotion of savings as a means of account. Convincing banks that they redemption without any penalty in achieving national goals. Savings can profit from serving the poor has terms of forgone profits. Investors can were viewed as an important funding required a change in mindset in an redeem the full amount of their initial source of new industries and the industry long comfortable with high investments at any time after the first power to support the government to profit margins and low competition. profit payment. Profit payments will catch-up with the growth rates of the 65 Volume 30 No. 1 Jan./Mar. 2006 most advanced economies of the In Bolivia, the FFP FIE is a private First State Community Loan Fund is a world. Savings were encouraged as a financing fund (fondo financiero non profit organization that manages means of rehabilitating the economy privado) that serves 7,262 clients in t h e m a t c h e s o f I n d i v i d u a l and eliminating high inflationary peri-urban and urban parts of Bolivia. Development Accounts (IDAs) in 3 levels. The establishment of the FIE conducted a market survey that counties of Delaware, USA, covering Central Council for Saving Promotion revealed an interest among their urban, tourist and agricultural areas. (CCSP) in 1952 intensified clients for a programmed savings The program has 450 IDA accounts promotional activities, which centred account. In 2000 they launched their allocated to them, of which 143 are on lectures and the distribution of first programmed savings account used to date. This IDA program started housekeeping account books to Pasanaku, which has witnessed a in November 2001 and witnessed a housewives throughout the nation. great decrease over the last year. The growth in accounts in June 2002. IDAs decrease in number of accounts is are savings accounts that are South Africa launched the Mzansi believed to stem from the product's matched 1:1 or 1.5:1, depending upon scheme to cut banking fees and delivery rather than lack of demand for the population served. They require paperwork. Mzansi, meaning 'south' the product. minimum monthly deposits of $25 to a in Nguni languages, is a collaboration maximum of $1,500 that will be between the big four banks (Absa, The SANASA Thrift and Credit matched. The minimum savings term First National Bank, Nedbank and Cooperative Societies is a federation is 6 months. Furthermore, IDA Standard Bank) and the Post Office's representing affiliated credit unions contracts are governed by restricted Postbank. Seven months after its that serve approximately 10 million use; savers must commit to save for a launch, a million people had opened clients in rural, periurban and urban specific goal, which has been defined new low-cost accounts, the first areas of Sri Lanka. Common savings by this program to be: access to formal banking for many. products offered by SANASA's The Banking Association says the affiliates include Passbook Savings post-secondary education accounts have brought an extra 4% of Term Deposits and Children's & Youth the population into the banking Savings. Deposit collectors are homeownership for first time system, placing the country at the available to all clients regardless of home-owners same level as Argentina and a step the type of savings product they have away from Malaysia. Mzansi accounts chosen. Term deposit accounts have small business start-up or have reduced fees and are available an additional commitment feature expansion to customers who have low incomes since this product is designed to or erratic incomes or are not in formal restrict the timing of withdrawals until IDA accounts are joint accounts employment. They can use the account has matured by imposing between the saver and First State automated teller machines at any of a fee to early withdrawals. Community Loan Fund. These the big four banks or Postbank to draw accounts are held in commercial money at a much lower cost than for Bangladesh uses Safesave which is banks. When the account matures a traditional accounts. The Banking a cooperative serving approximately check with the account's money is Association estimates that Mzansi 6,800 clients in urban Bangladesh. made out to the provider of one of the accounts are between 15% and 40% Central to Safesaves' Savings and three allowable savings goals. For cheaper to use than normal bank Loan Account is a daily door-to-door example, a check is made out to a post accounts. The association believes collection from clients. From the secondary educational institution. that most of the million Mzansi perspective of savings, the frequent customers were previously outside visits by deposit collectors can Banefe- Banco Santander is a the banking system, rather than facilitate clients to commit to saving commercial bank operating in Chile's switching from an older account, more today. In particular daily deposit urban areas serving approximately although they cannot at this stage be collection provides discipline without 750,000 total clients. Its Superahorros precise. Yet, even if they are all new the obligation and compulsion that account allows the client to save bank customers, Mzansi will have to goes with the established fixed without noticing due to its automatic continue growing at the same rate to instalment model. The Savings and transfer feature. The client can specify reach its target of attracting 8 million Loan Account is reported as their only a fixed monthly amount that is then new customers in three years. savings product. deducted from his/her credit card or checking account, wherever his/her 66 Volume 30 No. 1 Jan./Mar. 2006 salary is deposited. These monthly favoured products. The free lump sum be encouraged and sustained. deductions are placed in the in the pension is a very valuable Superahorros account. The benefit to a higher rate tax payer. The benefits of savings are not limited Superahorros account is one of However, the largest benefits accrue to the macroeconomy. In fact, saving Banefe's most popular accounts, to those who were higher rate tax accrues more benefit to the individual serving approximately 90,000 clients. payers in retirement. They receive five than to the overall economy. It is The product is targeted to micro times the amount for the lower income critical to households both in entrepreneurs and salaried group. developing and developed countries. employees but does include a This is because savings smoothens variation that is targeted to children, 4.0 THE NEED FOR consumption in the face of volatile which has a lower monthly deposit ENHANCED SAVINGS income. In addition, it supports requirement. Also in Chile household investments in human and Bandesarrollo Micro empresas is a Saving portends many benefits for the physical capital. Accumulated savings bank serving approximately 36,000 society and the individual. As can also buffer expected or clients in urban and rural areas of contained in the theoretical literature, unexpected spikes in household Chile. Its Cuenta de Educación offers the importance of savings to the expenses due to childbirth, school clients a long-term savings plan to economy can be positive or negative. fees, home repairs, life-cycle meet the future expenses of their This depends principally on the celebrations, etc. Savings may also children's educational fees. The condition of the economy. For a cushion familiar risks [due to illness, account has restricted withdrawals (a depressed economy savings can theft, or job loss] or structural risks maximum of 6 per year). It also assists exacerbate the harsh conditions of the [due to war, floods, or fire]. It may allow with devising an appropriate savings economy. This is because savings people to take advantage of plan for the client by calculating how would deprive such an economy of unexpected investment opportunities. much one has to save to meet the consumption expenditure needed to In summary, savings are often simply future educational expenses. revive the economy. This thinking is a hedge against uncertainty. better understood with the paradox of Other high performing economies in thrift propounded by John Maynard As stored resources, savings are Asia created a secure bank-based Keynes. The paradox states that if useful for wide range of purposes. financial system through storing everyone saves more money during Without it income shocks could leave financial regulation, good supervision times of recession, then aggregate permanent scares on households. and industrial reforms. Some demand will fall and will in turn lower Thus, it is prudent to sacrifice to some governments used a variety of total savings by the population. Its quantity of current consumption in interventionist mechanisms to argument is that if everyone saves, order guarantee some level of future increase savings. While Singapore then there is a decrease in consumption. There are some life- guaranteed high minimum private consumption which leads to a fall in events that require planning and savings rate through mandatory aggregate demand and thus leads to savings: retirement, home purchase, product fund contributions, countries a fall in economic growth. tertiary education, etc. While like Korea imposed stiff taxes on household savings are not only conspicuous consumption and The proponents of this idea, however, directed at these life-events, they are mortgages. The republic of Korea did not completely refute the the ones that can be predicted far encouraged voluntary savings of the importance of savings in an economy. enough in advance to warrant household sector by developing an Rather, they belief that it is virtuous planning and saving arrangements attractive long-term savings scheme only up to a point. It is laudable up to specific to the task. while increases in corporate savings the point businessmen in the also resulted from varied forms of economy wish to borrow for In Nigeria, like in many other incentives from the government. investment. A number of economists developing countries, owing to the [particularly the classical school of absence of efficient credit and In UK, the system of savings revolves economists] are of the view that since insurance markets, household around tax relief. There is generous what was saved was later invested, savings are a crucial determinant of tax relief for pension contribution there could not be excessive saving. welfare. Though there are many especially for high earners, and there Thus, savings would ensure benefits to savings Nigerians have is a large range of tax free or tax economic growth and its flow needs to been considered not to save enough. 67 Volume 30 No. 1 Jan./Mar. 2006 Individuals often do not seem to Conspicuous consumption accessible to those in the informal understand how or why they should sector and the low income group. save and this is particularly the case U n f a v o u r a b l e e c o n o m i c Operators at the informal sector for the less well-off members of the environment characterized by consider these efforts rather too society. A greater amount of low high unemployment and inflation. formal and too expensive. The income groups and those in the framework for enhancing savings is informal sector of the economy have Finding savings boring and discussed below in two folds: the no savings at all. Those of them that difficult [informal] micro-savings and the save maintain only short-term thrift lifetime savings framework. collection which can only be used to Not wanting to pay for financial finance day-to-day needs. It is advices 5.1 THE MICRO-SAVINGS pertinent to mention that poverty does FRAMEWORK explain the saving habit among the In order to improve the overall welfare low income group. The explanation of Nigerians there is the need to Micro-savings have always existed in lies in the lack of financial education in enhance savings. The government Nigeria but have usually been the society as a whole reinforced by might have to go beyond moral mobilised informally. Individuals use inadequate incentives to save. suasion in its attempt to promote this informal micro-savings structure savings and come out with a saving to smoothen consumption, prepare for 4.1 BARRIERS TO SAVINGS IN programme with adequate incentives. emergencies and fund large NIGERIA There may also be the need to purchases. The existence of this develop a credible framework which mechanism suggests the willingness Given the many benefits (both to the would enable people save all through of Nigerians to save. Households and individual and to society as a whole) their lifetime. A sustainable savings individual use the financial services to that savings can bring there must be culture would go a long way in giving turn small, frequent cash flows [such serious reasons why people do not people assurances about their future. as daily proceeds from food vending] save enough. Some of the factors This could ensure that life expectancy into usefully large sums [perhaps to accounting for the low level of savings is elongated and would improve the buy a deep freezer]. Research on in Nigeria include: good of the overall economy. informal savings mechanisms suggest that participants accede to it Many people feel that the risks 5.0 A FRAMEWORK FOR because they want low transaction and difficulties of saving outweigh ENCOURAGING SAVINGS costs and assistance with deposit the risks and difficulties of not IN NIGERIA discipline. saving. According to Nnanna (2003), savings Transaction costs are non-price costs People often do not seem to culture can be influenced by of financial services. It may include understand how or why they institutions and regulatory agencies waiting time [opportunity cost of time should save when their income that direct the decisions of to make deposit or withdrawal], barely solve their problems. households, firms and governments. transportation, etc. For the poor, these In line with this assertion, the Nigerian costs, which are usually indirect and Lack of confidence in the financial government have made efforts to incalculable, may offset all other institutions promote savings in the country. These factors in the choice of savings include the introduction of the mechanism. Deposit discipline Possessing the necessary National Savings Certificate (NSC), comes with the social obligation to identification required to open an floatation of the Federal Government save a stipulated amount over a given account may also be a hindrance. bond, the introduction of the new period. Cash at hand or at home is contributory pension scheme, among easier to “withdraw” and spend than High Incidence of poverty and low others. In addition to these, financial cash at a “bank”. To maintain this nominal disposable income institutions within the country have savings people would have to resist designed formal savings products to short-term wants and consumption Underdeveloped capital markets sooth the perceived needs of their pressures. These pressures weigh clients. Some of these products, less if cash is out-of-sight and out-of- Financial sector distress though available to all, are not reach. 68 Volume 30 No. 1 Jan./Mar. 2006 The major forms of informal micro- member gets the pool. Technically, the formal system, it nonetheless has savings mechanisms currently those who are yet to receive the pool its own disadvantages. For instance, existing in Nigeria are: door-to-door are savers, while members who have formal savings services offer greater thrift collection, rotating savings, and already collected the pool are debtors. safety, higher rates of return, savings clubs. These are discussed Like in thrift collection, rotating anonymity, etc. It may be useful to below. savings offer low transaction costs combine the strength of the informal and the pressure to save regularly. with the strength of the formal to a. D o o r - t o - d o o r t h r i f t Transaction costs are low because ensure enlarged micro-savings. If this collection members constitute people who know suggested hybrid version of savings is and trust each other and who already adopted it would go a long way in Under this arrangement, poor people meet regularly or live or work close to enhancing savings in Nigeria. often pay others to collect and to keep each other. There is always the their savings. Deposit collectors visit pressure to save [contribute] because One attempt to combine the merit of their clients often at their doorstep, failure to do so reduces the pool for formal and informal savings market stalls, workshops, etc., to pick other members. mechanism is the SafeSave concept up a small but fixed amount. The introduced in Dhakar, Bangladesh. practice is that the clients make daily c. Savings Clubs The central innovation was to hire deposits for a month [usually for 30 door-to-door collectors to visit clients days]. At the end of the month, the This arrangement could be described daily. This keeps transactions costs collector retains two days deposit [as as a large-scale rotating savings or low but adds the safety and positive his charges] and returns the balance small scale credit unions. It is usually returns of a formal savings institution. to the contributor. The process starts run by religious groups, social clubs, Clients may make deposits of any size off again immediately and continues or trade unions. It has low transaction [including no deposits] or request a cyclically until either party gets tired or cost because members make withdrawal, to be delivered next day. loses interest in the transactions for deposits at regular meetings. The SafeSave as operated in Bangladesh any reason. public nature of the deposits imposes does not provide much social external pressure to save. This assistance with savings discipline nor These transactions are usually arrangement is more flexible than the are its savers hidden from public view. attractive to the low income group and rotating savings because each operators in the informal sector member chooses the amount to In Nigeria, this could be modified to because it is almost devoid of deposit and the interest might be paid suit the needed purpose. It could transaction costs. Exchanges take a on deposit balance. The cycle usually begin with the monetary authorities few seconds and occur where savers starts and ends near major events enacting a regulation which would live or work. Furthermore, the [such as Christmas or harvest] that make financial institution mobilise presence of the collector may prompt require or produce large cash flows. [compulsorily] a certain amount of the saver to find a way to save The contributions are usually invested micro-savings from the informal something, even when it is not or kept in banks by the custodian for sector. These financial institutions convenient. The saver willingly the funds to earn returns pending the might then deploy its staff to go door- submits to this pressure because end of the cycle. At the end of the to-door collecting thrift or they might taking the easy way out in the short- cycle, each member collects the total outrightly contract a known and term might be detrimental in the long- amount deposited sometimes with established deposit collector to term. interest. undertake the task on their behalf. The thrift collectors or officials of the b. Rotating Savings 5.1.1 Formalising micro-savings financial institutions, in order to win mobilisation in Nigeria the unflinching trust of savers, would In Nigeria, small groups could come need to relate with the contributors in a together and make fixed contributions T h o u g h i n f o r m a l s a v i n g s very informal way. To ensure the at intervals. The membership of these mechanisms are useful, they, entrenchment of savings discipline, groups on the average usually ranges however, do not remove the need for mild penalties might be introduced for from four to twelve. The contribution is formal services. It is true that the withdrawal outside the scheduled gathered into a pool which is then mechanisms has a few advantages time. collected by a member. In turns, each [especially low transaction cost] over 69 Volume 30 No. 1 Jan./Mar. 2006 The proposed framework has many proceeds of the harvest are received. matching donation. This is where the sides and features and should target By incorporating the commitment to impact of the government is required. the low income group, artisans and save with the payment, even if the Financial institutions can not be made operators at the informal market of the commitment is not totally binding, to reward micro-savings depositors economy, who would need assistance savings might eventually be found to from their coffers. They should bear with their savings. One feature is that increase. This could be applied to all the operating cost of collecting the its benefits and contributions are low income professionals or artisans. deposits while the government pays defined in order to ensure depositors' the reward. The announcement of a commitment. The objective of the For this micro-savings framework to matching donation of a certain amount scheme is to enhance the long-term be successful there must be of naira for every, say one thousand welfare of the low income group. unwavering commitment. Perhaps naira, contributed fortnightly would go Given the fact that most people want the most common and straightforward a long way in enhancing the micro- to save more than they currently are commitment savings feature is the savings mobilisation. doing, but would typically leave the restriction on the use of funds. savings till tomorrow, there is the need Savings could be purpose specific 5.2 A f r a m e w o r k f o r to introduce deadlines. Deadlines are and withdrawals tied to expected establishing a lifetime sometimes needed in order to inspire future needs such as education, savings Culture the savings to occur. The threat of health care, and old age. It is believed losing the benefit must be sincere and that money saved for a particular It is becoming increasingly necessary the consequence to missing the purpose is likely to be spent on that to encourage long-term savings and deadline must be significant enough purpose and hence will affect savings ensure sustained welfare of people to inspire depositors to make the and consumption decisions. This is to throughout their lifetime, especially in savings payment. Without deadlines, the extent that individuals want to old age. In order to get more people [of an individual might prefer to postpone save for particular purposes but have all income group] to save for more saving in hope of saving more later to difficulty doing so with their normal years it is necessary to change the make up for the immediate shortfall. savings account. A special account for social attitude and establish a The deadline ensures that savings is that purpose in fact could inspire framework that would ensure a life regular; this regularity arguably leads increased savings towards that time savings culture. Individuals to higher overall savings. purpose. Ensuring the success of should be encouraged to save in target savings might require more various forms including the formal In this framework, deposits could be than moral suasion. The programme m i c r o - s a v i n g s f r a m e w o r k , designed to coincide with periods of should, in fact, try to enforce the direct government bonds, NSC, and expected rise in income. Individuals use of funds. Releases of funds to patronage of the new pension who expect a windfall or wage vendor [e.g. schools or hospital] scheme. A form of lifetime savings increase in future could commit now to should be monitored and verified in which, though already existing in save a certain proportion of that order to encourage savers to utilise Nigeria, suffers low patronage increase. The idea is simply that if the the funds as planned. [especially from the low income group] individual waits until the increase is is life insurance. Individuals realised to form a new savings plan, Withdrawal of savings outside sometimes do not want to [or are not then the immediate urge to consume targeted periods should be able to] take the perceived risk of that increase will dominate and no discouraged as much as possible and locking their money for many years. additional savings will occur. This could be allowed based on its merit This notwithstanding, they may be mechanism can target a group [e.g. and should also be on a case-by-case advised and encouraged to save in farmers, traders, etc.] and the basis. The target group of this scheme other vehicles. If individuals are expected cyclical rise in income [e.g. needs to be given financial scared to put their money in a “locked harvest, festive seasons, etc.]. enlightenment in order to understand box” [away from their access] they Farmers, for instance, might be willing its importance to them. In order for this could be encouraged to save in to save a certain percentage of micro-savings mobilisation scheme to medium term or shorter term vehicles income from increased proceeds from be successful, there is need for first, and later transfer to longer term harvest season crop sales. Unless the external support and rewards which savings [with saving for old age as the transaction is prearranged, it could be might be in the form of higher and ultimate terminus]. There is the need difficult to get the farmer to save when tangible interest rate or even a to make savings easier to understand, 70 Volume 30 No. 1 Jan./Mar. 2006 with better incentives and a more among low income groups owing insurance and the pension's scheme. integrated coherent system. largely to lack of awareness This framework if well managed would reinforced by low incentive. Thus, ensure continuous and sustainable A lifetime savings system can address financial education, fair incentive and savings especially for the low income this. It could be designed as a one- cooperation of the banks are integral group who are constantly in need of stop shop for lifetime financial needs for the success of the framework. guarantee for old age welfare. The of both the low, medium and high matching donation could be adopted income groups. The starting point of After establishing the individual in the first phase and increased in this framework would be the opening savings there is the need for medium subsequent stages to encourage an individual savings account. For the term savings such as purchases of further saving. low income group this could be in form medium-term government bonds, of the formal micro-savings account subscription to the NSC, the National The figure below shows a complete described in the preceding section. In Health Insurance Scheme (NHIS), the picture of the framework for mobilising addition, special target savings National Housing Fund (NHF), etc. and encouraging lifetime savings, account [e.g. education, health, An important feature of this phase is especially for the low income group. children, etc.] could also be operated. that individuals should be able to This framework could be used to Currently in Nigeria many deposit borrow short-term against the funds ensure smoothening of consumption money banks operate these special especially in cases of emergency. The in the face of volatile income flows and savings products. Patronage has, last stage of the framework would also to enhance the welfare especially however, not been optimal especially include the incorporation of life later in life. Fig 3: The Framework for Encouraging Sustained Lifetime Savings Micro-Savings Education Accounts Children Account Individual Savings Account Mobilisation Medium-Term Savings Medium-Term NHF Micro-Savings NSC NHIS Long-Term Savings Pension Scheme Life Insurance 71 Volume 30 No. 1 Jan./Mar. 2006 6.0 CONCLUSION a fact that most people, in the absence term. For this framework to be of any pressure to save today, would successful there is need for a credible The informal sector of the economy postpone saving until later, leading to system of reward and incentives for consists mainly of low income group a viscous trend of savings saving. Thus, the paper presents a who desire to save for different procrastination. Informal savings lifetime framework to show how micro- reasons. These could include saving mobilisation in its current form has its savings could be integrated with other to finance a specific project, to ensure disadvantages. The merits of the existing products and government smoothened consumption, or to informal savings scheme could be initiated programmes [e.g. NSC, NHF, guarantee quality welfare at old age. combined with that of the formal NHIS, etc.]. This integration, if Most of these individuals, however, savings system to produce a successful, would ensure that the low- make only very short-term informal somewhat hybrid savings framework income group maintains smoothened savings either with deposit/thrift which could serve the needs of low consumption and also have assured collectors or through rotational income and poor groups. There is also welfare in old age. This could have a savings. This is basically due to low the need to provide a framework that positive effect of elongated life transaction cost and the pressure would ensure that micro-savings expectancy and would improve the which ensures deposit discipline. It is mobilisation is projected into a longer- overall good of the economy. BIBLIOGRAPHY Alex Usher (2004), “Encouraging Savings for Education: An Overview of an Emerging Policy Field” www. cmec. ca/ stats/ quebec2004/ Usher. en.pdf Althmann R. (2003), “Encouraging Savings through the Life Cycle” [email protected]. Anyanwu C.M (2004), “Microfinance Institutions in Nigeria: Policy, Practice and Potentials” Paper Presentation at the G24 Workshop. Attanasio O.P. & Szekely M. (2000) “ Household Saving in Developing Countries-Inequality, Demographics and All That: How Different are Latin American and South East Asia?” Inter-American Development Bank, Research Department, Working Paper no.427. Aylit T.R (2003), “The Relationship between Savings and Growth in South Africa:An Empirical Study” University of the Witwatersrand, Johannesburg, South Africa Braimoh L.A (2003) “Determinants of Financial Savings in Lesotho” National University of Lesotho, Department of Economics. Fajingbesi et al (1999), “Resource Mobilization and Management for Development” National Centre for Economic Management and Administration (NCEMA), Ibadan, Nigeria. Hamilton K. & Clemens M. (1999), “Genuine Savings Rates in Developing Countries” The World Bank Economic Review, Vol 13, no.2. Hatice J. (2000), “Commercial Bank Behaviour in Micro and Small Enterprise Finance” Development Discussion Paper No.741. Ipumbu W.S. & Gerson K. (1999) “Savings and Investment in Namibia” BON Occasional Paper No.2. Johannes J. & Morrisson C. (2005), “Culture, Gender and Growth” Policy Insights No. 15. WWW.oecd.org/dev/insights. 72 Volume 30 No. 1 Jan./Mar. 2006 Klaus et al (1992), “Household Saving in Developing Countries: First Cross-Country” The World Bank Economic Review” The World Bank Group. Kristin L.West (2005), “Determinants of aggregate savings: evidence from Australia” School of Policy, University of New Castle, Australia Masson P.R, Bayoumi T. & Samiei H.(1998), “International Evidence on the Determinants of Private Saving” The World Bank Economic Review, Vol. 12. No.3: 483-501 Muradoglu G. & Taskin F. (1996), “Differences in Household Savings Behavoiur: Evidence from Industrial and developing Countries” Journal of The Developing Economies, XXXIV-2 (June 1996). Nava A. et al (2003), “A Review of Commitment Savings Products in Developing Countries” Wesley Yin Princeton University, Princeton, New Jersey. Nnanna O.J (2003), “Promoting Savings and Investment Culture for National Development” Central Bank of Nigeria Economic and Financial Review, vol 41, No. 3. Norman et al (2000), “Saving in Developing Countries: An Overview” The World Bank Economic Review vol. 14, no. 31. Obadan M.I. & Odusola A.F (2001), “Savings, Investment and Growth Patterns in Development and Developing Countries” National Centre for Economic Management and Administration (NCEMA) Monograph series, No 1. Roger K. & George M. (2003), “Savings and Financial Sector Development: Panel Cointegration Evidence from Africa” World Institute for Development Economics Research (WIDER) Discussion Paper no. 2003/12 Thirlwall A.P (2000),“The Mobilisation of Savings for Growth and Development Countries” University of Kent at Canterbury, U.K. Vonderlack R. M. & Schreiner M. (2001), “Women, Microfinance, and Savings: Lessons and Proposal” Centre for Social Development, Washington University. Zeti A.A. (2004), “Encouraging Savings in a dynamic Economy” Bank of International Settlement (BIS) Review 2/2004 73 Volume 30 No. 1 Jan./Mar. 2006 NIGERIA'S EXTERNAL TRADE AND THE NEW PERSPECTIVES FOR ITS ENHANCEMENT BY GANIYU KAYODE SANNI Principal Economist Research and Statistics Department during the 1960's and 1970's following embarked upon as an integral the influential thought of Prebisch and component of SAP, and was aimed at Singer in the 1950;s, which encouraging exports and liberalizes propagated protection as a means to imports. The SAP was also intended industrial development. However, ISI to achieve the realistic value of naira was criticized on the ground that exchange rate through liberalization excessive protection of local of foreign exchange market. It was industries stifled productivity growth, hoped that this will enhance the e n c o u r a g e d i n e f f i c i e n t competitiveness of exports and GANIYU KAYODE SANNI industrialization at the expense of facilitate the diversification of the agriculture and exports (Ndulu and economic base away from oil exports 1.0 INTRODUCTION Ndungu 1997). In the early 1970's for the largest foreign exchange earner instance, Nigeria adopted ISI policy for the Nigerian economy. In spite of rade has been universally in line with the global trend with the the adoption of trade liberalization a c k n o w l e d g e d a s belief that, in due course, imports policy as canvassed by the Bretton Tindispensable tool to rapid would be substantially reduced as Wood Institutions and the World Trade economic growth and development. they were expected to metamorphose Organization (WTO), the problem of This is because increased to exports through the positive impact unsatisfactory performance of non-oil participation in trade is associated of the attendant technology exports in the global market still with higher inflows of foreign associated with the ISI policy. Thus, persists, thus exports of crude-oil investment and new technologies many companies, both foreign and continued to be dominant. This implies which can be adopted to transform the indigenous, sprang up. However, due that Nigeria will not be able to avail economy through appropriate policy. partly to harsh macroeconomic itself of the opportunities provided by This view is corroborated by the environment, most of the companies trade unless a refocus of Nigeria's recent development in China, the went under, perpetuating the trade policy is carried out. The issues fastest growing economy in the world, dependence of the Nigerian economy therefore are what can be done to where trade potentials have been on imports. This situation culminated arrest this trend and optimize gains effectively harnessed to achieve in huge trade deficit as well as chronic from global trade. higher growth rate of gross domestic balance of payments problem. product (GDP) as well as increase the Consequently, the Structural The objective of this paper is general welfare of the populace. Adjustment Programme (SAP) was therefore, to analyze Nigeria's foreign H o w e v e r, m o s t d e v e l o p i n g introduced in July, 1986 to correct trade with a view to examining the economies such as Nigeria have not structural distortions in the economy composition and direction as well as benefited much from trade owing and ensure rapid growth and the impediments to the growth of partly to policy inconsistency and lack development through trade. It was trade, and to proffer suggestions for of access to global markets also aimed at diversifying the export enhancing Nigeria's foreign trade. The occasioned largely by inadequate and base of the economy and reduce the paper is divided into five sections. low quality of exportable. over dependence on crude oil. To Following the introduction are the date, this objective has not been theoretical issues. This is followed by T h e I m p o r t S u b s t i t u t i o n achieved the analysis in section three of the Industrialization policy (ISI) policy was trend, composition, and direction of embraced by developing countries Trade liberalization policy was Nigeria's foreign trade. Section four The views expressed in this paper do not represent the views of the Management of the Central Bank of Nigeria (CBN). The authour wish to acknowledge the immense contributions of Messers A.S. F Atoloye and O.O.Ogunlana of the Research and Statistics Department of CBN, Abuja 74 Volume 30 No. 1 Jan./Mar. 2006 examines the problems confronting The theoretical basis of trade dates factor intensity can be reversed external trade, while section five back to the time of Adam Smith (1776) through the criss-crossing effect of discusses the policy issues for and David Ricardo (1817), when they trade such that imports of a country strengthening Nigeria's foreign trade. propounded the principles of absolute can through application of modern Section six is on recommendations and comparative advantages that a technology and development of and it concludes the paper. country stands to gain from trade if it human capital become an export. The specializes in the production of goods experience of newly industrializing 2.0 C o n c e p t u a l a n d and services in which they have an countries such as China, Malaysia, Theoretical issues economic advantage. Economic Taiwan and South Korea has advantage/disadvantage may arise supported this assertion and shown Conceptually, international trade can from differences in greater and quality that trade can be beneficial to a be defined as exchange of goods and of resource endowments such as country. services between the residents of one labor, capital, technology or economy and another. Trade has entrepreneurship. Thus, subsequent The factor proportion theory for been recognized by both the classical classical trade theories expanded instance, provides explanation for and neo-classical economists as an these theories to justify need for trade. differences in competitive advantages “engine of growth”. This is because exhibited by trading countries. trade promotes growth and The neo-classical trade theory According to this theory, countries will development through technology and represented by the works of Heckster tend to generate and export goods foreign investment flows and other Ohlin (1933) and Paul Samuelson and services that harness large benefits associated with global capital gave reasons for the varying amounts of abundant production movements. Trade can be divided into comparative advantages among factors that they possess, while they visible trade and invisible trade. The countries. To them, the differences in import goods and services that require visible trade is trade in tangible items competitive advantage among large amount of factors which may be such as capital gods, manufactures, countries are due to differences in relatively scarce. The product Life machinery and equipment and raw factor endowment and factor returns Cycle theory explains how a product materials. The invisible trade relates in the domestic economy, but factor (intermediate product) may emerge to trade in intangible items such as mobility among countries will in the as a country's import and work communication services, financial long-run cause the varying factor through the life cycle to become an s e r v i c e s , p o s t a l s e r v i c e s , returns among trading countries to export (Ukeje 2000). The essence of transportation services, insurance equalize. They argue that a country this theory is that technological services and other business services stands to gain from trade if it innovation and market expansion are that enhance the production and specializes in the production of goods critical issues in explaining patterns of exchange of physical goods. that use more intensely, a cheaper international trade. That is, Krugman and Obsfeld (1999) posit factor relative to other factors of technology is a key factor in creating that countries engage in trade for two production and import from other and developing new products, while basic reasons, each of which countries those goods that can be market size and structure are determines the extent to which a produced more cheaply by another influential in determining the extent country gains from trade. First, country. However, in the long-run the and type of international trade. countries trade because they have return to all factors will equalize and different resource endowment and both countries would gain from trade. The benefits derivable from trade are can benefit from trade by making an This theory has been used by modern well documented in the literature and arrangement in which each country trade theorists to lend credence to these benefits can be static, or specializes in those activities it does trade liberalization as a means of dynamic. Static gains are benefits relatively well. Second, countries increasing market share in the global arising mainly from international trade to achieve economies of scale of trade. specialization or the effect of production. That is each country can comparative advantage in which a produce more efficiently if it The neo-classical trade theory was country expands its export due to the specializes in the production of those based on the assumption of factor comparative minimum cost of goods it has relative advantage, intensity non-reversal, but the issue is production (Robert and David 1999, rather than producing all the products whether factor intensity is irreversible. Oputa 2000). On the other hand, it needs. Empirical studies have shown that dynamic benefits are benefits 75 Volume 30 No. 1 Jan./Mar. 2006 associated with trade flows among chemicals, drugs, laboratory Analysis of imports from 1981 through countries such as the acquisition of equipment among others. 2004 showed that Nigeria incurred the raw materials for industrial highest import bills of US$19.2 billion development, acquisition of new skills Available data showed that the ratio of in 1981 and the lowest of US$3.9 and technology and the attraction of the foreign trade (Visible items) to the billion in 1986. From 1986, total foreign direct and portfolio gross domestic product (GDP), which imports depicted upward trend. For investments. These benefits usually described the extent to which Nigerian instance, it increased from US$3.9 have a lasting effect on the economy. economy is open or integrated to the billion in 1986 to US$7.76, US$8.85, global economy, depicted an irregular US$9.21 and US$11.05 billion, Trade among countries enhances the pattern from 1981 through 2004. The respectively in 1991, 1993, 1998 and welfare gains thereby increasing the ratio of trade to GDP which was 44.0 2004. The upward trend in total standard of living of the citizenry. This per cent of GDP in 1981 declined to imports particularly from 1999 to 2004 is because trade makes it possible for 38.3, 26.4, and 24.7 per cent, was influenced largely by the countries to access new technologies respectively, in 1981, 1982, 1983, and deregulation of the communication that increase the overall productivity. 1984. The declining trend was and downstream oil sub-sectors as However, the benefit of trade is being traceable to the harsh domestic well as the current efforts of the three constrained in developing countries economic environment as well as tiers of government to tackle the due to lack of openness to trade. global economic crisis occasioned by decaying infrastructure. Although, Sachs and Warner (1995) observed the oil glut of early 1980's. However, total import is dominated by the non- that lack of openness to trade among the ratio rose from 25.3 per cent of oil sector component owing to surge in African countries constrained them to GDP in 1985 to 27.7, 42.0, 53.2 and aggregate demand, the increasing exploring opportunities to trade, and 60.3 per cent in 1986, 1987, 1990 and activities in both the upstream and the stifles efficiency and technological 1991, respectively owing to the downstream oil sector have made oil progress associated with engaging in adoption of the SAP in 1986 which sector imports significant trade openness. Trade liberalization is ensured the liberalization of both the thus seen by many trade theorists and current account and the foreign Further analysis showed that foreign international organizations as means exchange market. Consequently, the trade recorded trade surpluses for to encourage developing nations to naira depreciated against the major most part of the period under review participate and increase gains from trading currencies. Trade however, with the exception of 1981, 1982, global trade. nosedived to 17.6, 18.6, 14.3 and 7.1 1983 and 1998 when the surpluses per cent in 1996, 1997, 1998 and were reversed to deficits of US$1.2, 3.0 Analysis of Nigeria's 2001, respectively. Although the ratio US$4.0, US$1.7 and US$0.2 million, Foreign Trade (1981-2004) of trade to GDP increased to 55.3 per respectively. The weak performance cent from the level in 2001, it declined of crude oil export as reflected in its Trade comprising imports and further to 52.7 per cent in 2004. average realized price dropping from exports, ensures that a country US$19.4 in 1997 to a low of US$12.9 secures the required goods and The total value of trade was highest at per barrel in 1998, coupled with services for increased domestic US$37.36 million in 1981, but sustained high level of imports, were output, as well as for consumption, declined to US$22.7, US$10.3, responsible for the deficit recorded in while earning income from the rest of US$11.7 and US$11.6 million in 1983, 1998 (Table 1). the world in the form of export 1986, 1987, and 1989, respectively. receipts. This was due to the crash in oil prices Conversely, the international trade in which adversely affected earnings s e r v i c e s , w h i c h i n c l u d e Nigeria's foreign trade is dominated from oil exports as well as the slow transportation, communication, postal by oil export for which she is the 6th growth in the non-oil sector and courier, construction, as well as largest exporter in the world. occasioned largely by high cost of c o m p u t e r a n d i n f o r m a t i o n , However, other products in her export production resulting from decaying operational leasing and technical list include cocoa, cotton, rubber, fish infrastructure and high cost of funds. services, had continued to record shrimps, timber etc. In contrast she Trade however increased to US$20.0, deficits during the period under imports both capital and consumer US$27.9, US$32.4, and US$33.7 review. Available data showed that goods. These include machinery and million in 1991, 2000, 2003 and 2004, Nigeria has continued to record transport equipment, beverages, respectively (see table 1). deficits in her services account though 76 Volume 30 No. 1 Jan./Mar. 2006 declining. For instance, She recorded million in 1984 US$444.3, US$538.0, years. deficits of US$4,094.3 US$3,925.3 and US$612.7 million, respectively in US$2,496.2 and US$2,968.5 million, 1985, 1987, and 1988. This trend was 3.1 A Brief Review of Nigeria's respectively, in 1996, 1997, 1999, and reversed as the value fell below the Trade Policy 2001. It further declined to level in 1987 to US$227.8, US$285.7, US$2,390.12 U S$2,239.19 and US$211.2 US$244.2 million in 1993, In order to enhance the performance US$1,625.19 million in 2002, 2003 1995, 1999, and 2000. From 2001, of exports and earn higher foreign and 2004 respectively (see table 2). the value of non-oil exports has exchange from the global market, the These deficits reflected in most cases maintained upward trend. government regularly reviewed the huge out-payments in respect of country's trade policies. These travels and freight charges. The However, in terms of contributions to policies could be discussed under two continued deficits in trade in services total exports, oil exports have broad regimes. These are the period were largely traceable to low contributed over 96.0 per cent of before the introduction of Structural participation of Nigerians in foreign exchange earnings for most Adjustment Programme (SAP), and international services. part of the period under review while the period after the SAP. Generally, the non-oil exports contributed less the major objectives of Nigeria's trade Traditionally, non-oil exports than 4.0 per cent. The relative poor policies included among others: compromised mainly of agricultural performance of non-oil exports to oil increase in domestic production products, namely cocoa, cocoa exports was attributable to a number through the use of local raw materials, products, palm produce, rubber, wood of factors which included the high cost protection of local industries against products, hides and skin, coffee and of production occasioned by weak stiff competition, promotion of exports cotton as well as some slid minerals infrastructure, high inflation and t h r o u g h f o r m u l a t i o n a n d such as cassiterite ( tin ore), coal and interest rates, fuel price hike and implementation of sound export precious stones The performance of power outages as well as the slow policies, attraction of foreign the non-oil exports from 1980 to 2004 pace of diversifying non-oil export investment as well as enhancing the is shown in table 3 b a s e f r o m c o m m o d i t i e s t o competitiveness of domestic products manufactures and low international through the creation of conducive Analysis of exports statistics as demand for primary products. It is macroeconomic environment. shown in table 3 showed that the however pertinent to note that in value of oil exports in total exports recent times some commodities The Pre-SAP policies were aimed at have maintained an upward trend especially cassava have started accelerating development of the while the value of non-oil exports in making in-road into the global market economy through expansion in the total exports depicted irregular pattern On regional basis, imports from nation's industrial base. The idea was from 1980 to 2004. The value of oil industrial countries constituted more to make the country self sufficient in exports increased from US$ 7,448.7 than 60.0 per cent of total imports with the production of consumables and in million in 1980 to US$8,003.2 and the United Kingdom accounting for effect reduce dependence on external US$10,031.7 million, respectively in the bulk of total imports to Nigeria. sources for the supply of such items. A 1982 and 1985 but fell to US$5,977.4 This was followed by imports from major objective then was to protect the million in 1986. It however, increased United States of America. The local industries against foreign from the level in 1986 to US$7,469.8 Americas has been the major buyer of competition. This prompted adoption U S $ 1 3 , 2 6 5 . 6 U S $ 1 5 , 8 2 9 . 8 Nigeria's oil with United States of of discriminatory tariff structure and US$18897.2 US$21,869.5 and America accounting for the highest stringent exchange control measures US$22,697.1 million, respectively in share. Withn Africa, exports to were put in place while foreign 1987, 1990, 1996, 2000, 2003 and ECOWAS as a group dominated the exchange budgeting was introduced 2004 owing to positive of terms of region's share arising mainly from to regulate aggregate foreign trade shock. Conversely, the value of bilateral agreements aimed at exchange expenditure (Analogbe nonoil exports which stood at promoting trade within the sub-region. 2000). US$302.9 million in 1980 declined to Imports from industrialized countries US$209.1, US$203.2 and US$189.2 such as China, USA, Germany, and However, the introduction of SAP in million in 1981, 1982 and 1984, Malaysia constituted the highest i986 commenced the liberalization of respectively. The value of non-oil share of imports. Imports from African external trade and the deregulation of exports however rose from US$189.2 countries have remained low over the the foreign exchange market. The 77 Volume 30 No. 1 Jan./Mar. 2006 liberalization of trade and exchange product. The Duty Draw Back were in place between 1995 and 2001 procedures effectively commenced Scheme ensures automatic refunds of were amended and simplified to make with the abolition of import licensing 60.0 per cent on screening by the Duty them conform to the international best and the introduction of foreign Drawback Committee and upon the practices. Thus, the new tariff regime currency domiciliary account in which presentation of a Bond from a reduced average nominal protection exporters could retain their export recognized bank, Insurance rate from 33.0 per cent in 1994 to 24.3 proceeds and use them to finance Company or any other financial per cent, while the tariff peak dropped eligible imports. institution. The Export Expansion from 300.0 per cent in 1994 to 150.0 Grant Scheme was meant to stimulate per cent in 1995/1996 and further to The Second- tier - Foreign Exchange exporters to expand the volume of 100.0 per cent thereafter. Market (SFEM) was introduced in their exports and diversify export September 1986 for managing the product and market coverage. Customs and excise tariffs system exchange rate and allocating foreign Exporters of duly processed products has remained an instrument for exchange resources under a market- are entitled to 4.0 per cent grant on promoting economic growth and based system. The commodity their total annual export turnover development. For instance in 2001, boards were also abolished and subject to the receipt of confirmation the duty rates were reduced on major exporters were free to market their of repatriation of export proceeds from raw material inputs for the products directly. The list of banned the Central Bank of Nigeria and m a n u f a c t u r i n g , a g r i c u l t u r a l imports was reduced from 25 to 13 subject to a performance Bond from production and animal husbandry items as at the end of 1995. In the any of the recognized Banks imposed while higher duty rates were same period, only 4 items of exports Insurance Company, NEXIM or imposed on some finished goods. were banned. The tariff structure was financial institution. Also, zero duty rates applied to streamlined and other restrictions on essential machinery and spare parts imports were dismantled. The In the 1990's, the Nigeria's economy for the productive sectors of the Nigerian Export Promotion Council was deregulated, new incentives economy. (NEPC) and Nigerian Export and were provided to enhance the Import Bank (NEXIM) were earnings from exports. The Dutch From 1999, trade and investment established in 1987 and 1990, Auction System was introduced to policies were geared towards respectively, to encourage production achieve stable exchange rate for the enhancing the de-regulation of the for export and ensure effective n a i r a a n d e n h a n c e t h e major sectors of the economy. Thus, administration of export incentives. competitiveness of exports. In spite of the current and capital accounts were The export free zones (EPZ) were all these measures, the export further liberalized and inefficient established to encourage production policies and the institutional government parastatals were for exports. It was hope the arrangements for administering the privatized. The tariff structure was establishment of EPZ would attract policies have failed to achieve the reviewed to encourage domestic inflows of foreign capital into the goal of diversification given that the oil production of some banned items. On export sub-sector, Other measures sector still accounts for the bulk of March 10, 2004 the federal introduced included provision of the foreign exchange earnings. The share government announced the list of Export Adjustment Scheme Fund, of non-oil exports in total export has banned items and a grace period of 90 meant to serve as supplementary remained insignificant. The non- days was allowed to enable all export subsidy to offset the high cost diversification of the economy is a importers who must have entered into of production arising mainly from serious impediment to the growth of irrevocable trade agreements before infrastructural deficiencies, the Duty the non-oil exports sub-sector. the release of banned items to allow Drawback Scheme, and the them process and clear the goods at Manufacture -in -Bond Scheme and As a member of WTO, Nigeria is the prevailing duty rates. Such Export Expansion Scheme. The Duty expected to embrace measures that banned items included textiles fabrics Drawback Scheme provides for would promote free trade among of all types but excluding nylon tyre, refunds of duties/surcharges on raw nations using tariffs only when mattress tickings, fishing nets etc., materials including packing and necessary to check domestic soap and detergents, fresh fruits, packaging materials used for the consumption of goods that could be tooth pastes, pork and pork products manufacture of products upon competitively produced locally. as well as vegetable oils, corrugated effective exportation of the final Specifically, the tariff regimes that boards, and live or dead birds. Other 78 Volume 30 No. 1 Jan./Mar. 2006 measures introduced included high cost of production, and weak traders is a commendable one. More destination policy and pre-shipment industrial base, etc. The external of these products if developed can inspection. The pre-shipment factors determine the extent to which penetrate several overseas markets if inspection was introduced following the Nigerian economy is susceptible an aggressive market strategy is cases of importation of banned goods to external shocks. Some of these embarked upon by individuals and and malpractices in the declaration of factors include Nigeria's membership agencies responsible for managing the value of imports, because of rent- of Organization of Oil Producing foreign trade and investment. Nigeria seeking activities. The exporters were Countries (OPEC) and World Trade can also use the advantage of its size allowed to open a domiciliary account Organization (WTO), adverse terms to create more trade in Africa and the and to be paid in the same currency in of trade, stiff competition from West Africa sub-region which the deposit was made. This industrialized countries and policy ensures easy access to foreign globalization. The macroeconomic conditions are exchange. The Pre-shipment unfavorable to domestic production in Inspection policy with the main The first and major constrain to the view of the high level of inflation and objective of controlling the influx of growth of Nigeria's foreign trade is the interest rates, while access to finance banned products is also aimed at nature of the Nigerian economy. The by investors from the banking sector increasing government revenue from Nigerian economy is dominated by has been very difficult and costly. exports and imports. Consequently, the activities in the oil sector. The oil Where funds are available, they are the Nigerian Custom Service (NCS) export contributes the highest share given at high rates of interest. All these was reorganized to meet the of total trade. The neglect of the non- have tended to undermine the challenges of the new policy. oil export sub-sector has contributed competitiveness of domestic exports to the lower share of Nigeria's trade in in global market. To further increase the gains of global trade. The narrow productive several trade and investment policy base of the economy and the slow In addition, Nigeria's exports are reforms, the government introduced a pace of diversification of the economy subjected to the vagaries of external broad reform agenda under the aegis away from oil have resulted in low market conditions because the o f t h e N a t i o n a l E c o n o m i c p r o d u c t i v i t y a n d e x p o r t s . demand and prices of export Empowerment and Development Consequently, Nigeria could not commodities are exogenously Strategy (NEEDS). The strategy is a maximize enough gains from trade determined. This means that Nigeria holistic home grown economic which impedes trade expansion to the does not have any control over the programme which touches every other countries. prices of its export commodities, but aspect of the economy including the accepts whatever price that was trade and investment sub-sector. In Nigeria is endowed with many solid dictated by foreign consumers. This this regard, the Nigerian Customs minerals, which are scattered across implies that Nigeria is basically a price Service (NCS) and the Nigerian Ports the country but only crude-oil and gas taker for both her exports and imports. Authorities (NPA) were reorganized to are being developed thereby limiting More so the value received per unit of meet the challenges of NEEDS. Some the number of tradable products that her agricultural exports such as cocoa other measures were undertaken can be traded in the global market. and cotton were lower than the value under NEEDS and directed at Consequently, the share of Nigerian paid per unit of imports of finished enhancing Nigeria's foreign trade. exports in the global market, which is goods owing to worsening terms of Specifically, the ports were privatized. determined by the number of trade. Consequently, the foreign tradeables, remained low compared exchange earnings from foreign trade 4.0 PROBLEMS OF NIGERIA'S with the varieties of products from her have continued to fluctuate, with the EXTERNAL TRADE trading partners. This implies that resultant significant impact on The problems confronting Nigeria's Nigeria is not optimizing the full g o v e r n m e n t f i n a n c e s f o r external trade can be traced to potentials of trade. There is no doubt developmental programmes as well internal and external factors. The that Nigeria can gain competitive as the resources going to local internal factors are those factors that advantage in the world market if producers. The instability of earnings are peculiar to the Nigerian economy, resources and foreign direct from foreign trade is partly responsible which include structural rigidity, weak investments are mobilized towards for low participation of Nigerians in infrastructure, inconsistent policies, the development of a few of them. The international trade. poor implementation of incentives, recent in road made by cassava 79 Volume 30 No. 1 Jan./Mar. 2006 The nature of bilateral and multilateral the objectives of encouraging the Nigeria external trade sub-sector. trade agreements between Nigeria domestic production, raising revenue It is a well known fact that most of and trading partners and the extent to and discouraging imports. Sharer these debts are private-sector debts which these agreements have been (1997) noted that the fiscal impact of contracted through trading activities in implemented combine to hinder the liberalizing the trade system could be the 1970's and early1980's. Moreover, growth of Nigeria's foreign trade. positive, negative, or neutral, the subsequent repayments of these Multilateral trading arrangements depending on the reforms introduced debts created undue pressure on the have tended to create environments and the specific circumstances of the available financial resources and in which the most competitive country concerned. Scholars have crowded out resources meant for countries gain the benefits of also argued that excessive building productive capacity as well as openness and globalization. Thus, tariffication and protection have been development of infrastructure in the without technical and financial the major factors limiting the growth of economy. Thus output growth both for supports to upgrade the productive exports from developing countries. domestic use and exports were capacities and strengthen the They canvassed for more trade greatly impaired. competitiveness of Nigeria's exports, openness. Therefore, inappropriate access to foreign markets would fiscal policy could be counter The low participation of Nigerians in continue to be a problem. productive to trade expansion for the international trade in services countries that have liberalized their affected the volume of trade. Such Related to the above is the issue of capital and current accounts. s e r v i c e s i n c l u d e s h i p p i n g , trade negotiating capacity. This telecommunication, air transportation, relates to say whether Nigeria's trade The Nigerian capital market has not computing and financial services. negotiators have the requisite been fully integrated into the E x p e r i e n c e f r o m e m e r g i n g capacity to negotiate and achieve international financial market. economies such as China and India favorable and workable trade Although, the capital market was has shown that the services sub- agreements for the country. These recently internationalized, its impact sector possesses the potential for include capacity for interpreting and has not been felt. For instance, how growth. India for instance has made implementing WTO rules and many foreign companies are quoted an impressive landmark in software regulations. Capacity building in these on the Nigerian Stock exchange? development and the foreign areas would enhance the quality of How many Nigerian companies are exchange earned from it has been trade policy reforms and the impact on listed on overseas financial markets? utilized to transform Indian economy. the economy. This implies that the number of China has also used the e-commerce financial instruments tradable on the facility to make more inroads into External trade is also undermined by stock exchange are limited, thus many economies. the fiscal policy regimes of successive affecting the total volume of trade as governments in the country. In most well as gains that could accrue from The emergence of globalization with instances, fiscal policy concerns are globalization of capital market. In the attendant hi-technology has frequently cited for delay in trade most developed and emerging revolutionized all facets of economic reforms in Nigeria. There is often a markets, trading on financial activities including foreign trade. The conflict between using the fiscal policy instruments and financial derivatives emergence of e-commerce for to achieve balanced growth on one account for a substantial proportion of instance, has rapidly changed the hand, and higher revenue on the other their trade and gross domestic economic fortunes of Japan, China, hand. The choice has always tilted product. Nigerian capital market is Malaysia, and Taiwan. Nigerian towards increased tarrification at the not fully internationalized to allow traders are yet to change in line with expense of overall growth of the real trading in such financial instruments, the global trend. They have not sector. This is because some which means the benefit of greater appreciated need to move away from category of imports which should capital and trade flows associated orthodox trading pattern to the use of have been banned to encourage with such internalization of financial e-commerce, which is the trend domestic production of such products markets would continue to elude the worldwide. They have also not for exports were allowed into the country. devised strategy to partake in the e- country through payment of high commerce warfare that has been on in tariffs. In addition, the tariff systems External debt service payments have the last decade. are also not well structured to achieve also contributed to the slow growth of 80 Volume 30 No. 1 Jan./Mar. 2006 Nigeria has consistently maintained the international market (CBN/NEXIM liberalization. These issues are clearly trading relationship with some 2003). addressed by the endogenous growth countries such as Britain and United theories. States of America but these age-long There is also lack of data to enable relationships have not transformed researchers assess the impact of the Endogenous growth theory predicts into growth in her market share as various policies on foreign trade. positive externalities and spill-over well as domestic productivity. In this Exporters of all categories require effects from development of a high respect, there is the need to accurate and timely information on valued-added knowledge based strengthen bilateral relationship with markets, prices, quality standards and economy which is able to develop and the fast growing emerging markets export procedures in making maintain a competitive advantage in such as China, learn from them, and investment decisions. This growth industries in the global adapt those technologies that are information is often not readily economy. The theory further suitable to our environment. This will available to most exporters in Nigeria. emphasizes that private investment in impact positively on tradeables and in Other problems include policy research and development (R&D) and turn enhance gains from trade. inconsistencies, bad weather human capital development are the conditions, political instability and key issues in the transformation of any In addition, the activities of some decaying social values. economy. industrialized countries contravene the agreements and rules of World 5.0 P o l i c y I s s u e s f o r Rodrick (2001) also argued that no Trade Organisation (WTO) and these Strengthening Nigeria's country has developed simply by activities impact negatively on the Foreign Trade opening itself up to foreign trade and performance of both primary and investment but the trick has been to manufactured exports of developing It is universally acknowledged that combine the opportunities offered by countries. Some of the anti-WTO trade is an important instrument for the world markets with a domestic activities of include the scrapping of achieving rapid growth and investment and institution building subsidies to farmers, dumping and development. However, in order to strategy to stimulate local media campaign against exports from benefit adequately from trade there is entrepreneurship. What is required to the developing countries the need to address factors achieve sustainable growth and constraining output growth and development and higher share in Another problem confronting the increased domestic supply of exports. global trade include support for growth of non-oil exports is With a positive supply effect that research and development, inadequate funding. Due to long enhances the competitiveness of international marketing assistance gestation of agricultural produce, exports, Nigeria will experience an and most importantly improving deposit money banks have been increase in demand for its exports that educational system. In the long-run reluctant to lend to the real sector. will fully offset increase in demand for productivity of labor and human This is because banks by their nature imports thus trade will be able to capital will increase and this will are interested in the areas where they meaningfully contribute to growth and translate to increased output and can easily recoup their invested development of the Nigerian higher exports. capital. Access to funding is also economy. This is because the supply compounded by the documentation factors emanating largely from weak The participation of Nigerians in requirements which could not be met infrastructure and low technology are international trade in services sub- by most prospective exporters. the bane of real sector development in sector is very low, whereas these are Nigeria. Given the current conditions, the means by which a country can Effective marketing strategies have Nigeria cannot realistically expect increase its market share from the been recognized as indispensable to rapid economic growth unless there is trading system (Owolabi 2004). The increased productivity. The abolition high productivity of domestic factors. world trade statistics showed that of commodity boards in 1980's has This implies that factors like international trade in services created a vacuum which is yet to be qualitative technological education, constitute more than 70.0 per cent of filled in the marketing arrangement for good infrastructures, and credible, the gross domestic product (GDP) of exports. The absence of appropriate reliable and secured legal and political developed countries, 50.0 per cent of marketing institutions has resulted in institutions are factors that should be middle-income countries and it is less under pricing of Nigerian products in given equal priority as trade than 35.0 per cent for developing 81 Volume 30 No. 1 Jan./Mar. 2006 countries. For Nigerians to actively physical and human) is important in capacity gaps required for sound involve in the international trade in reducing barriers to trade and the high policy and fill these gaps through services there is the need to invest in costs of marketing, especially for appropriate training. Besides, trade human capital and research and small producers such as Nigerian officers should be allowed to development (R&D). farmers. Some of the most critical participate in both local and investments necessary to achieve international seminars to acquaint Nigeria has abundant resources. She effective trade policy reform include them on contemporary trade and should be able to identify her trade-related infrastructure and issues. This would enable them to potentialities and attract foreign institutions. Development of real offer useful policy advice to the investment for their development. sectors particularly the agricultural Government.. In addition government This will increase productivity, and industrial sectors and effective can mobilize financial resources from encourage specialization and marketing infrastructure are essential local and international donor agencies facilitate the diversification of the for trade expansion to the rest of the for the funding of skill acquisition export base away from oil. world. It is also important to consider programmes. the imperativeness of adding value to Government should urgently address primary exports by converting the The tariff on imports should be well the problem of supply bottlenecks. p r i m a r y p r o d u c t s t o s e m i - structured to prevent trade diversion This will involve fast tracking the manufactures. This will enable such to other countries in the sub-region. r e h a b i l i t a t i o n o f t h e w e a k products to gain access into other This has the advantage of enhancing infrastructure, and ensuring access to markets thereby increasing gains revenue from tariff on imports as more export financing. It is in this regard that from trade. Tariff reduction is needed goods will come into the Nigerian the on-going consolidation in the to improve market access for ports. Moreover, a good tariff system b a n k i n g s e c t o r s h o u l d b e products. will impact positively on the foreign commended. The consolidation exchange market as importers are exercise should be extended to other In the same vein huge investments likely to conduct their businesses segments of the financial system such are needed to build networks of trade through the official window. It is as insurance, and offshore financial support institutions that are capable of therefore essential that the tariff centres to enable them effectively providing key services to both should be in line with international carry out their functions in the exporters and importers in the areas best practices. Soludo (1997) noted economy. The consolidation exercise of trade policy formulation and that the emerging consensus on trade would help to reduce the cost of funds- commercial intelligence, export reform favors a more graduated a development that would encourage promotion and marketing, product approach to liberalization, which many entrepreneurs to go into development and financial services, usually starts with a tarrification of all productive ventures. and training. These should also trade restrictions, and then followed include developing national by simplification of tariffs. He argues Empirical studies have shown that institutional capacity for international that the speed of liberalization should foreign trade cannot grow under a negotiation through adequate funding be consistent with the learning and serious external debt crisis as of such institutions as well as adjustment cost that are required, and resources meant for development encouraging public private sector tariffication should be determined by would be use to service debt. It is in dialogue. There is the need for the speed of response of the export this regard that the recent debt collaboration between the public and sub-sector to the existing conditions in forgiveness of US$18.0 billion by the the private sectors for the the economy. Paris Club of creditors is a welcome development of the educational development. Government should sector to enhance the productivity of There is also the need to take a closer therefore ensure that the expected human capital. look at the factors inhibiting the full savings from the debt forgiveness is integration of Nigerian capital market channeled to the development of It has been identified from the into the global financial market, and infrastructure in the country as these preceding section that the existence appropriate steps should be taken to would in turn positively impact on of trade capacity gap hinders trade address these factors, otherwise the productivity. policy reforms as well as the ultimate benefits of global capital market will benefit of such reforms. In this regard, continue to elude the country. Investment in infrastructure (both it is essential to identify the various Integration into the global financial 82 Volume 30 No. 1 Jan./Mar. 2006 market will provide opportunity to regard, there is an urgent need to Nigeria should take a lead to ensure raise medium and long term funds for embark on massive disarmament of the realization of a formidable the financing of rehabilitation of warring groups within the continent to integration in the sub-region and decaying economic and social limit the risks associated with trading Africa. infrastructures. Consequently, in free zones. domestic productivity will be African countries have been enhanced and this will in turn increase Regional initiatives can be an confronted with incessant conflicts. the number of goods available for effective additional instrument to Economic integration would not be exports. accelerate economic growth and achieved under this situation. Tackling facilitate the integration of Nigerian governance and conflicts issues Nigeria can use the advantage of its economy into the world economy. But t h r o u g h g o o d g o v e r n a n c e , biggest market size in the West to play this role, regional transparency, democracy and rule of African sub-region to create more arrangements must emphasis broad law should precede economic trade for those products which are not liberalization of domestic policies, integration. In this respect, there is the being tapped, such as extractive solid promote the transmission of good need for sound legal framework that minerals. There are tremendous policies through peer pressures, and would promote good neighborliness opportunities in this area. Outstanding nurture efficient domestic and and unity among member states. among them are coal, gypsum, regional institutions. Francois and Such rules and regulation must evolve barites, kaolin and talc. Nigeria has Subermanian (1997) enumerated the through democratic process by one of the best quality coal deposits in following danger paths that must be involving member countries. the world. There is therefore the need surmounted to effectively utilize African countries should be cautious f o r p u b l i c - p r i v a t e s e c t o r s regional integration to achieve faster in opening their economies to the collaborations for the development of trade growth and development. These outside world because they did not these solid minerals as well as are overambitious goals, over possess competitive advantage that attracting more foreign investors into bureaucratization, multiplicity of would make them to benefit from the sectors. In order to achieve this overlapping initiatives, and weak globalization. They should think of government should continue to political will and vision. These trading among themselves before guarantee conducive macroeconomic problems have been the hiccups to exporting to other countries. If they are environment to attract more foreign the realization of the objectives of able to capture the markets within the capital inflows into the economy. West African Monetary Zone (WAMZ) sub-region, they would have However, there is the need to prioritize since its conceptualization in 2000. succeeded in increasing their market projects and ensure foreign capital is Thus, a sound and coherent regional share of global trade. Nigerian attracted to areas where the country trade policy and the reforming of trade exporters should therefore explore the has competitive advantage. impeding zone wide distributional/ opportunities of the markets within the allocation arrangements are sine qua sub-region before expanding to other Trade statistics is an important non to trade expansion by WAMZ regions. instrument for monitoring trade flows member countries. The experience of and also serves as a guide to Association South East Asian Nations Trade issues have gone beyond mere formulation of trade policy. There is (ASEAN) deserved mentioning. The physical exports and imports of goods the need therefore for adequate ASEAN, which was not deliberately and services to include business funding of all agencies responsible for designed to create trade, increased practices, transparency, creativity and the collection of trade data. In the trade in its region by 98.0 per cent international politicking. Nigeria same vein, there is the need for between 1980 and 1984 owing to should therefore use its long standing regular collaboration among these consistent and coordinated exchange relationship with major economic agencies to ensure harmonious and rate policy. In addition, the ASEAN blocs to strengthen her trade reliable data. members have established strong relationship. She should also court internal networks for business new friends especially with the new The existence of free trade zone c o n s u l t a t i o n a n d s o f t w a r e emerging markets from whom new within the West African sub-region cooperation without surrendering techniques in international trade has continued to expose member national sovereignty with respect to warfare can be learnt. There is countries to different crimes such as major economic policies. Given the increasing evidence that those smuggling, robbery, arson etc. In this experiences of the ASEAN countries, countries that have been most 83 Volume 30 No. 1 Jan./Mar. 2006 successful in achieving and review Nigeria's trade policy during In this respect, efforts should be sustaining high growth are the ones the period of study and highlights directed towards harnessing and t h a t a v a i l t h e m s e l v e s t h e major problems confronting the greater utilization of the vast human opportunities provided by trade. growth of trade as well as providing and material resources in order to There is therefore the need to refocus some policy measures for tackling derive greater benefits from them. In Nigeria trade strategy towards them. addition, the current efforts to increasing its global share of the world rehabilitate socio-economic trade. In conclusion, the ability of Nigeria to infrastructure in the country should be enhance and optimize gains from sustained for enhanced productivity Summary and Concluding Remarks foreign trade depends on the extent to and competitiveness of Nigeria The paper x-rays the importance of which she is able to increase her level products in the global market. trade to growth and development, of production of goods and services. Table 1 NIGERIA'S FOREIGN TRADE 1981 - 2004 ($MILLION) TOT. TRADE T. YEAR EXPORT IMPORT TRADE BAL. EXPORT/ GDP EXPORT/ IMPORT/ TRADE/ IMPORT GDP GDP GDP - 1981 18,070.98 19,224.26 37,295.24 1,153.28 94.00 84806.2 21.31 22.67 43.98 - 1982 12,962.55 16,993.02 29,955.57 4,030.47 76.28 78256.7 16.56 21.71 38.28 - 1983 10,512.77 12,218.62 22,731.39 1,705.85 86.04 80048.8 13.13 15.26 28.40 1984 11,881.29 8,874.62 20,755.91 3,006.67 133.88 84097.7 14.13 10.55 24.68 1985 12,547.33 8,266.84 20,814.17 4,280.49 151.78 82280.2 15.25 10.05 25.30 1986 6,371.80 3,911.90 10,283.70 2,459.90 162.88 37071.3 17.19 10.55 27.74 1987 7,590.10 4,098.10 11,688.20 3,492.00 185.21 27853.6 27.25 14.71 41.96 1988 7,364.00 5,064.60 12,428.60 2,299.40 145.40 32609.9 22.58 15.53 38.11 1989 7,870.90 3,693.10 11,564.00 4,177.80 213.12 30636.3 25.69 12.05 37.75 1990 13,671.10 4,948.00 18,619.10 8,723.10 276.30 35028.3 39.03 14.13 53.15 1991 12,264.30 7,755.70 20,020.00 4,508.60 158.13 33207.6 36.93 23.36 60.29 1992 11,886.10 7,203.70 19,089.80 4,682.40 165.00 32109.6 37.02 22.43 59.45 1993 9,924.40 6,655.90 16,580.30 3,268.50 149.11 32435.7 30.60 20.52 51.12 1994 9,415.10 6,612.60 16,027.70 2,802.50 142.38 43203.5 21.79 15.31 37.10 1995 11,734.40 8,221.50 19,955.90 3,512.90 142.73 91408.0 12.84 8.99 21.83 1996 16,116.90 6,438.40 22,555.30 9,678.50 250.32 127891.0 12.60 5.03 17.64 1997 15,207.30 9,501.30 24,708.60 5,706.00 160.05 132806.9 11.45 7.15 18.60 - 1998 8,971.20 9,211.40 18,182.60 240.20 97.39 128684.7 6.97 7.16 14.13 1999 12,876.00 8,587.80 21,463.80 4,288.20 149.93 35733.3 36.03 24.03 60.07 2000 19,141.40 8,721.30 27,862.70 10,420.10 219.48 46200.7 41.43 18.88 60.31 2001 17,884.10 11,030.10 28,914.20 6,854.00 162.14 407217.3 4.39 2.71 7.10 2002 14,777.40 10,840.56 25,617.96 3,936.84 136.32 46313.6 31.91 23.41 55.31 2003 21,869.53 10,487.64 32,357.17 11,381.89 208.53 55590.9 39.34 18.87 58.21 2004 22,697.12 11,045.08 33,742.20 11,652.04 205.50 64067.7 35.43 17.24 52.67 Source: Central Bank of Nigeria Annual Report/Statistical Bulletin and National Bureau of Statistics 84 Volume 30 No. 1 Jan./Mar. 2006 Table 2 Value of T rade in Interna tional Services (US$ Million) Services Services Year (net) (credit) Services (debit) 1996 -4,094.30 732.60 -4,826.90 1997 -3,925.30 786.50 -4,711.80 1998 -3,282.20 883.70 -4,165.90 1999 -2,496.20 979.60 -3,475.80 2000 -1,468.00 1,833.80 -3,301.80 2001 -2,968.50 1,643.40 -4,611.90 2002 -2,390.12 2,515.60 -4,905.72 2003 -2,239.19 3,469.42 -5,708.61 2004 -1,625.19 3,320.71 -4,945.90 Source: CBN Annual Report/Statistical Bulletin Table 3 Performance of Non - Exports (1980 -2004) (US$ Million) Year Oil Non-Oil Total % of oil in % of non-oil in total exports exports exports exports total exports 1980 7,448.7 302.9 7,751.6 96.09 3.91 1981 6,515.1 209.1 6,724.2 96.89 3.11 1982 8,003.2 203.2 8,206.4 97.52 2.48 1983 5,214.4 218.2 5,432.6 95.98 4.02 1984 6,762.2 189.2 6,951.4 97.28 2.72 1985 10,031.7 444.3 10,476.0 95.76 4.24 1986 5,977.4 394.4 6,371.8 93.81 6.19 1987 7,052.1 538.0 7,590.1 92.91 7.09 1988 6,319.0 612.7 6,931.7 91.16 8.84 1989 7,469.8 401.1 7,870.9 94.90 5.10 1990 13,265.6 405.5 13,671.1 97.03 2.97 1991 11,792.4 472.0 12,264.4 96.15 3.85 1992 11,641.7 244.4 11,886.1 97.94 2.06 1993 9,696.6 227.8 9,924.4 97.70 2.30 1994 9,170.7 244.4 9,415.1 97.40 2.60 1995 11,448.7 285.7 11,734.4 97.57 2.43 1996 15,829.8 287.2 16,117.0 98.22 1.78 1997 14,850.1 357.2 15,207.3 97.65 2.35 1998 8,564.7 406.5 8,971.2 95.47 4.53 1999 12,637.1 211.1 12,848.2 98.36 1.64 2000 18,897.2 244.2 19,141.4 98.72 1.28 2001 17,633.8 250.3 17,884.1 98.60 1.40 2002 14,777.4 785.7 15,563.1 94.95 5.05 2003 21,869.5 735.1 22,604.6 96.75 3.25 2004 22,697.1 852.0 23,549.1 96.38 3.62 Source:CBN Annual Report/Statistical Bulletin 85 Volume 30 No. 1 Jan./Mar. 2006 REFERENCES Adam Smith (1776): The Wealth of Nations: An Inquiry into the Nature and Causes. Akinlo A. k and Odusola A.F (1995) Trade Growth and Causality in Nigeria: Paper presented at the Nigeria Economic Society conference Central Bank of Nigeria/Nigeria Export and Import Bank (1995): A Diagnostic Study of Nigeria's Non-oil Export Sub sector Central Bank of Nigeria (2000): The Changing Structure of the Nigerian Economy and Implications for Development. David. Ricardo (1817). The Principles of Political Economy and Taxation Eva Pans, Nola Reinhardt and Michael Robinson (2003):Trade liberalization and Productivity. Growth in Latin American Manufacturing (1970-1998) Francois A. Christian and Sabramanian Arvind (1997): Beyond Trade: Regional Arrangements as a Window on Globalisation - Paper presented at the IMF African Economic Research Consortium on Trade Reform and Regional Integration in Africa December 1-3, 1997 Frankel J and D Pomer (1996): Trade and growth: An Empirical Investigation. NBER Working Paper. Series No 5476 Krugman P.R and Obstfeld M: International Economic theory and practice. Addson Wesley Longman Inc. 3rd Edition Oputa N.C (2002): Trends in Nigeria's External trade: Problems and Prospects. Paper delivered at the seminar on Management of the Economy. April 22-25 2002 Owolabi E. A (2004): The World Trade Organisation: The Rationale for Nigeria's Membership Rodrik A (2001): The Global Development of trade as if development really mattered. Background paper for United Development Programme (UNDP) Rodrick D. (1999): “Where did all the Growth go? External Stocks, social conflict and Growth collapses” Journal of Economic Growth. Samuelson Paul (1964): 'Theoretical notes on Trade Problems' A Review of Economics and Statistics Sharer Robert (1997): Trade Liberalisation in Sub-Saharan Africa - Paper presented at the IMF African Economic Research Consortium on Trade Reform and Regional Integration in Africa December 1-3, 1997 Soludo Charles Chukwuma (1997): Africa: Industrialisation Strategy in the Context of Globalisation - . Paper presented at the IMF African Economic Research Consortium on Trade Reform and Regional Integration in Africa December 1-3, 1997 Ukeje E.I.U (2000): Comparative Advantage in Production and Trade in the Country - CBN Bullion July/September 86 Volume 30 No. 1 Jan./Mar. 2006 IS THE NIGERIAN CURRICULA IN ECONOMICS RELEVANT FOR THE NIGERIAN ECONOMY OF THE 21ST CENTURY? BY ACHILIKE J. A.1 u n e m p l o y m e n t , s u s t a i n a b l e examine the efforts of NUC and economic growth and external sector the Ministry of Education in viability have remained. This is meeting the challenges of explained by the fact that some economics education in Nigeria. economic policy makers in the past have pursued conflicting economic The paper is structured into five policies a resultant inadequacy of our sections; following the introduction is economics education curricula. section two, which discusses the historical developments in the Economics as a discipline has economics curricula in Nigeria. ACHILIKE J. A. become a pre-requisite for successful Section three focuses on country growth and development, thus, studies on the subject. Section four 1.0 INTRODUCTION economics curricula are designed to appraises the economics curricula. meet the challenges of changing The paper is concluded in section five. he loopholes in Nigeria's times. Consequently, there has been educational system have a reawakened consciousness in 2.0 Historical Developments in Tcreated a death of capacity in almost all countries concerning the the Economics Curricula the Nigerian economy. No nation can improvement of economics curricula. develop without qualitative education. This notion has been echoed by the 2.1 Foundation of Economics, This is because qualitative education World Bank and United Nations D e g r e e i n N i g e r i a n stimulates economic growth by through their various educational Universities. increasing efficiency of labour, programs. improving health standard, increasing The foundation of university education the standard of living, and more The study of economics is very in Nigeria was laid in January 1948, importantly, education is a essential in understanding, when 104 students of the prestigious background for good governance, forecasting, and formulating policies Government Higher College, Yaba (Gylfason, 2001). Qualitative n e c e s s a r y f o r s u s t a i n a b l e moved to form the pioneer students of e d u c a t i o n t r i g g e r s a n development. the University College, Ibadan, now intergenerational process of poverty known as University of Ibadan. This reduction, because educated people In view of the above, it is necessary to was in line with the recommendations are more likely to ensure the examine the Economics curricula in of the Asquit and Elliot commission education of their children. Thus, the Nigerian tertiary institutions and the which was set up by the British impact of education on income focus of growth and development in government. The University College distribution and social equity cannot Nigeria. The main objectives of this was affiliated to the University of be over emphasized. study therefore are: London, and prepared its students for London Degrees. According to the Since independence in 1960, the To examine the relevance of the university's 1965-66 academic Nigerian economy has pursued economics curricula in Nigeria's calendar, Economics was one of the economic growth policies with various tertiary institutions in meeting the earliest faculties of the University up to economic reform programs, yet the challenges of 21st century. 1963. Economics discipline was problems of price stability, high known as the Faculty of Economics Highlight its problems and and Social Studies (now Social 1The author is an NYSC staff member of Research and Statistics Department. He acknowledges the research guidance of the Director of Research and Statistics, Dr. O. J. Nnanna, Mr. C. N. O. Mordi, Head, Economic Modeling and Statistics Division (EMSD), and Mr. E. A. Essien, Head, Modeling and Forecasting Office. He also appreciates the useful comments of Messrs A. O. Adenuga, S. Bawa, R. O. Olaitan, A. A. Oguntade, M. C. Ononugbo, N. O. Imhandebhor and Miss P. N. Omanukwe,; all of EMSD and Mrs. B. J. A. Achilike of Educational Foundations Department, Ebonyi State University. The views expressed in this paper are entirely those of the author. 87 Volume 30 No. 1 Jan./Mar. 2006 Sciences). The relevance of the curricula fashioned after that of the 1960s. The economics curricula at E c o n o m i c s d i s c i p l i n e i n Michigan State University, USA. the University of Nigeria were very understanding macro and micro Economics was one of its major elaborate. See Appendix I economic analysis for a developing courses. However it is pertinent to say country like ours, informed its being that all first tier, second tier and state 2.4 The purpose of Economics carved out as a discipline for greater universities that have emerged since teaching then? attention by the then senate of the the inception of university education in University. Nigeria had economics department as The purpose of economics teaching one of their core departments. was to raise skilled manpower to man The commencement of economics the administration in the public sector department at the University College, 2.2 Co u rs e Co n t e n t s o f and enhance economic development Ibadan was saddled with a lot of Economics Curricula in the private sector. Consequently, issues, particularly the content of the then? the World Bank economic mission, curricula of the discipline. which visited Nigeria in 1952, Consequently the World Bank At inception the Economics course recommended that the University economist who visited Nigeria to find contents at the University College, College, Ibadan should fashion its out possible ways of developing the Ibadan, in 1965-66 academic economics curricula so that Nigeria economy advised the Nigerian calendars, were the following could have enough manpower to drive government to develop economics the wheels of economic progress. The curricula that can explain economic Economics Theory mission recommended the addition of issues in Nigeria. However, as an Applied Economics in Economics affiliate of the University of London, (1) Applied Economics department as many of the economics the academic standard of the graduates would become economic (2) Economic History University College, Ibadan, came policy makers and administrators. under the eye of the University of (3) History of Economic Thought They recommended that the purpose London through a scheme of special of Economics teaching was to (4) Economic development relation. Under the scheme, the produce better equipped graduates college was encouraged to develop in (5) Economic History of Nigeria who can deal with practical problems various subjects, while special 1830 - 1960 in the macro economic environment. syllabus was initiated to suit the local They maintained that some (6) Public finance environment. The college teachers knowledge of accounting and did not only prepare the first drafts of (7) Monetary Economics economics was very essential for all examination papers, but also gave economic analysis as Nigerian (8) International trade a first marking of all the students' economic problems required a special scripts; the University of London (9) Elementary statistical body to advice on economic policy examiners retained full responsibility method and theory and co-ordinate public investment for guaranteeing the standard of programs. The mission proposed that (10) Economic and social degrees and had final word on any an economic committee of the council statistics and sources decision. The University of London did of ministers be set up to be charged, not consider it expedient to step down (11) Agricultural Economics particularly, with the responsibility of its economics curricula which was administering financial and economic (12) Industrial economics developed and focused on the British issues of the Federal government economic environment. Thus, the (13) B u s i n e s s a n d s o c i a l Contrarily, at the university college, senate of the University College Accounting Ibadan the purpose of Nigerian inherited to an extent foreign economics teaching was not (14) Statistical theory and method economics curricula and was advised adequately captured in the curricula, to complement the curricula with the reason being that students There was a different Economics issues in the Nigerian local preferred to go to University of London curricula at the University of Nigeria environment as it was more prestigious to have a Nsukka which started in 1960 as the degree in University of London, in second Nigerian University. This was The University of Nigeria Nsukka other to induce students to patronize attributable to the growth in the study which was established in 1960 had its the University college, the economics of Economics all over the world during 88 Volume 30 No. 1 Jan./Mar. 2006 curricula of the University of London External Challenges (TRIPs), which give companies a was partly merged with the economics monopoly on knowledge beyond Globalization, curricula of the of the University the useful life of most new college thus the curricula mirrored a Financial contagion technologies. This widens the western economy. Consequently the knowledge gap between richer Trade liberalization University of Nigeria, Nsukka, and poorer countries, undermines Ahmadu Bello University Zaria and technology transfer and limits the Globalization puts the world's University of Lagos developed availability of cheap, essential vulnerable, hungry and hurting poor at economics curricula that were rooted drugs to tackle pandemics such my doorstep. The curricula must not in western culture. It is pertinent to as HIV/AIDS. ignore their cries. point out that despite the western We need to understand certain global curricula taught in the Nigerian forces in order to ensure they work to Universities, the purpose of A lack of confidence in an benefit the lives of people living in economics teaching was not strictly economy can mean that investors poverty. Globalization and especially adhered to. move their money out of an the promotion of trade liberalisation, economy (capital flight), leading remains a 'hot topic' internationally, 2.6 C u r r e n t E c o n o m i c s to the collapse of that economy. due to its sheer size, speed and Curricula and Economic This crisis of confidence can impact on billions of people's lives. policies in Nigeria. spread to other countries or regions, a process known as Positive effects of Globalization The Nigerian Economics curricula are contagion. For example there is trade Liberalization and Financial orthodox and static and deeply linked concern that the current Contagion with neoclassical economics, as it is Argentinean economic crisis will silent on the critical policy moves of spill over into Brazil and other Allows countries to gain from the government. The curricula are Latin America countries. trading those goods and services more theoretical than practical. which they produce most Research shows that Nigerian Domestic Challenges efficiently and have 'comparative economics curricula are based on old advantage' relative to other Price Stability, western curricula. The Nigerian countries. economics curricula, which was first Unemployment, introduced in the University College, Competition stimulates efficiency Poverty Reduction Ibadan, started on a wrong premise and productivity. Mass production though it was fashionable as at that Corruption can bring the price of goods time, the economic challenges of the down, making them affordable to Due process, 21st century have uncovered many more people and therefore loopholes in the economics curricula.. Monetization, increasing their real incomes and These western curricula have been improving their quality of life. Bank Consolidation, modernized over the years but Nigeria has failed to develop with the Wealth creation boosts the More importantly our home grown universities which it earlier borrowed economy and may create 'ripple' National Economic Empowerment from. Appendix (II) below contains list or 'trickle down' effects that and Development Strategy (NEEDS) of the current economics courses benefit the poor. and MILLENNIUM DEVELOPMENT recommended by NUC. An Economist GOALS (MDGS) in the above who graduates from these curricula is Negative effects of Globalization curricular. It is pertinent to assert that not yet an economist because trade Liberalization and Financial NEEDS would achieve its desired employers of labour will have to invest goal if left in the hands of capable and on him by way of in-service training to Contagion vibrant economists. bring him up to acceptable standards. There is no mention of some critical U n f a i r t r a d e p r a c t i c e s According to Nnanna (2004), the 21st century external and domestic discriminate against the poor. For structure of the Nigerian Economy in challenges in the curricula such as example, the richer countries s e c u r e d Tr a d e R e l a t e d particular and the global economy in Intellectual Property Rights general has changed and will continue 89 Volume 30 No. 1 Jan./Mar. 2006 to change ad-infinitum. Consequently, Nigerian economics curricular lack policy questions. economics syllabus should not the capacity to support and sustain remain static. The curricula have the economic policies of government. (c) To provide the basis for further remained relatively unchanged over Thus, the present curricular have study of applied economic and the years. At the introduction of rendered economics graduate policy issues as well as to economics curricular in University marginally unproductive and lazy undertake more technical theory College, government policy was that because they do not meet the demand courses. people should go to school and of the labour market. Students can become enlightened so as to fill the reproduce nothing but their handouts At the end of the course students vacuum created by the exit of the when confronted with economic should be able to expatriates. The course curricula at challenges but entirely lacking with this point did not matter. However appropriate and real life economics. (a) Discuss economic issues there has been a massive Very little interest has also been applying the analytic framework advancement in the world's economy shown on environmental degradation developed in the course. today, our economics curricula should and the decline in the quality of life and not remain underdeveloped. To economic activities in the rural (b) Read the economic policy mention but a few, Nigeria has been communities of the oil producing literature and follow current indebted for decades, we have moved states. economic debates. from an agrarian economy to an oil driven economy, we have millions of 3.0 COUNTRY EXPERIENCES 3.2 I N D E X O F TA U G H T poor Nigerians of which thousands die U N D E R G R A D U A T E daily. It is alarming that the curricular This section would examine ECONOMICS COURSES IN has no mention of these areas. More economics curricula of four HARVARD UNIVERSITY than half of the labour force is universities, selected from both unemployed; the entrepreneurial developing and developed countries. See Appendix IV economics thought in the universities The challenges of these universities cannot support the challenges of the will be discussed under developing 3.3 I N D E X O F TA U G H T 21 century. The curricula are devoid of countries economics curricula and U N D E R G R A D U A T E the millennium development goals western countries economics ECONOMICS COURSES IN with little mention of privatization and curricula. A brief analysis of the UNIVERSITY OF CAPE commercialization. Harvard University Economics TOWN. Curricula would be made and lessons Government economic policies and for Nigeria and other developing See Appendix V economics curricula have no countries would be pointed out. relationship, a situation which tends to 3.4 I N D E X O F TA U G H T point out the irrelevance of our 3.1 I N D E X O F TA U G H T U N D E R G R A D U A T E economics curricula in meeting the U N D E R G R A D U A T E ECONOMICS CURRICULA economic challenges of the 21st ECONOMICS COURSES AT IN TUNISIA century. Before the current THE LONDON SCHOOL OF Common Core Courses administration of Chief Olusegun E C O N O M I C S A N D Obasanjo, government polices rely POLITICAL SCIENCE. See Appendix VI more on federal character rather than Economic research findings. Thus, See Appendix III. The challenges faced by these curriculum planners are discouraged Universities in their economics to offer the desired economics The aim of the LSE economics education will be discussed under curricula needed for policy. However Curricula is to; western and developing countries capacity build up has not been Economics curricula. achieved because of the federal (a) Provide a course in basic character. The issue stands that economic theory and techniques 3.5 T H E W E S T E R N economic policies have followed ECONOMICS CURRICULA federal character at the expense of (b) To show the application of the economics research. At present the above to practical examples and The western economics curricula 90 Volume 30 No. 1 Jan./Mar. 2006 have undergone dramatic changes to mathematics becoming an end economists of the western countries since early 1990s. It has expanded in itself. Unfortunately this is graduate as job creators. from teaching a few thousand frequently the case as cute students annually to teaching tens of models are cut off from real world In Africa, education Funding is still thousands in 2004. The reason is concerns and taught as an very low. The poor infrastructural that their governments consider independent view. facilities in the universities do not economics education as playing a key make the course attractive to the role in their economies. The Another challenge in the economics students, as most students prefer to economics curricula of the western curricula of the western countries is cope with the poor teaching and countries were centered on a market that, there is no room left for learning environment with related economy which is devoid of central theoretical and methodological courses other than economics. There planning. This accounts for the quality pluralism. This becomes questionable is little or no improvement in of economists in the developed when one considers the many knowledge as research for new ideas countries. In spite of the high controversies that occur in economics is entirely lacking. This leaves academic standard of economics and their social and political developing countries in a circle of education in the western countries, importance. distorted economics knowledge. they have a lot of challenges facing their curricula formation. A Student The picture described above might 3.7 A CRITICAL ANALYSIS OF movement for the reform of seem exaggerated; it is true that T H E D E V E L O P E D economics teaching started in France situations might vary across different COUNTRIES ECONOMICS in May 2000, Iona (2001) and has universities and countries. The CURRICULA, USING THE since spread throughout the world problems raised above are present to HARVARD UNIVERSITY particularly the western countries some extent in almost all universities A N D L E S S O N S F O R where the issue raised by the students in the western countries. However, the NIGERIA AND OTHER include; different student movements for D E V E L O P I N G improvement of economics curricula COUNTRIES. Irrelevance of undergraduate and have contributed to the improvement graduate economics teaching for of western economics education as a One remarkable issue is the understanding real life economics model for developing economies. methodology of teaching and the problems. The open letter response of economics to social and launched on the OECD observer 3.6 DEVELOPING COUNTRIES political needs of the people. website on June 2000 shows how ECONOMIES CURRICULA imaginary worlds are imposed on UNIVERSITY OF CAPE Western economists believe that a students. This they called TOWN. wide variety of social issues can best “autism”, and it has led to the be understood by using the tools of creation of the post- autistic Economics curricula in developing constrained optimization. Some movement. The gap between countries have a major loophole, the applications of this technique are well what students wants to be taught need to march the government know. Consumers maximize welfare and what the universities have to policies with school curriculum. subject to a budget constraint, while teach has almost become a hard Developing countries economics firms maximize profit given price and nut to crack. The students argued curricula is actually lacking in modern wages. Yet economists have recently that the western economics economics. The curricula are begun to analyze a larger set of issues curricula are usually devoid of any orthodox and not flexible. There is yet within the context of incentives and empirical data, be it statistics, to be clearer understanding of the maximization. New areas of study c a s e s t u d i e s , h i s t o r i c a l concept of modern economics include the decision to marry, divorce illustrations or institutional discipline among developing or have children, the effect of considerations. The core of the countries. More importantly, the democracy and inequality on course is made up of purely curricula are not research based economic outcomes, the importance mathematical models. The unlike the western economics of self control in saving for the future, students do not criticize the use of curricula. Economists of the the effect of potential education mathematics as a tool for developing countries graduate from reforms. understanding, but they do object the universities as job seekers while 91 Volume 30 No. 1 Jan./Mar. 2006 Thus, the economics department of statistical and quantitative analysis. In Application of economics theories the Harvard University aims to bring Harvard University many economics should be carefully dealt with, its concentration to a point where they concentrators have chosen to write emphasis on how economic can use their understanding of senior theses which usually spring up theories can affect political and maximization and incentive to think interest raised in the field of study. economic policies should be about a larger number of important Thus, the four year study of sustained. social phenomena that are crucial to economics is research based on the well being of society. d i f f e r e n t i s s u e s ; h o w e v e r, The curricula should include more concentrators may still graduate with descriptive economics such as Students' concentration in economics honors in economics without writing a economic history, economic begin ordinarily in their freshman year thesis by participating in the advanced geography, and the study of with social analysis 10, a full year course work. The methodology of national and international introductory course in economics, teaching and learning of economics is institutions. concentrators ordinarily take four or based on research, seminar and five half courses in economics in their tutorial. The curricula are heavily The history of economic theories and sophomore year. Two half courses centered on core economics courses a course in moral and political make up the intermediate theory with relevant borrowed courses. p h i l o s o p h y w o u l d f o s t e r sequence viz one of 1010a or 1011a, understanding of modern economic microeconomics and one of 1010b or Lessons for Nigeria and other problems. Economics curricula 1011b, microeconomics. These developing Countries. should emphasize on today's global courses teach the analytical tools that problems of unemployment, economists use. The 1011 sequence It is pertinent to state here that African migration, poverty and price stability assumes a more advanced leaders should note that, Good etc, to achieve these objectives the background in mathematics than the education is a sinequanon for following courses prevalent in the 1010 sequence sophomore also take economic development. Therefore economics curricula of Harvard an introduction to statistics: the ability Economics curricula should not only University which facilitate an to interpret quantitative data and to be seen as a process of education by understanding of the society should understand statistical arguments is Government but as an important be introduced into the Nigerian essential to understanding the element of government economic economics curricula. Viz: economy. The fourth half course taken policies. To develop the study of Psychology and Economics here is economics 970, the spring economics and maintain an efficient term sophomore tutorial taught in economic environment, economic Applications of psychology and small groups of about eight students. policies must be consistent with Economics The sophomore tutorial is an intensive economics research findings. Africa Economics 1330 one way or experience aimed at helping needs to relate economic theories many concentrators develop the ability to with the realities of our time. To present economic arguments both achieve this objective there is need to Economics of Crime M o r a l orally and in writing. ensure that students acquire the perspectives on Economics relevant analytical skills to enable growth Beyond these foundational courses, them cope with the demands of the Macro economics and politics all concentrators are required to take work place upon graduation. The at least three additional half- courses economics curricula should be American economics policy in economics. Honors concentrators reviewed to accommodate the International financial Macro can choose either to write a senior following; economic policy thesis or take advanced course work and these course works reflect Courses in economic theory Economics of E-commerce various sectors of the American should be organized around real Environmental and Recourse economy and various government problem like development and not economics and policy actions. The additional courses must merely based on Macro and Micro be chosen to build on the intermediate models that are largely taught for Capital Markets theory courses and further develop their own sake. To p i c s i n I n v e s t m e n t the students writing skills and skills in management 92 Volume 30 No. 1 Jan./Mar. 2006 Economics of the Indebted (c) The prospects of employment for Additional Courses Suggested in the Society Nigerian university graduates New Economics Curricula Benchmark were bleak and would worsen include Social problems of the American with the passage of time. Economy (i) I n t r o d u c t i o n t o S o c i a l Economics of Discontinuous In view of this report, in 2001, the Accounting Change National University Commission (ii) Introduction to Environmental hosted the stakeholders' conference Economics of Education Economics on curricula review for university 3.8 EFFORTS BY NUC AND education in other to reposition the (iii) Principles of Accounting curricula to respond to current and MINISTRY OF EDUCATION (iv) Economics of Public Institutions TOWARDS IMPROVING future requirements of Nigerian T H E E C O N O M I C S economy. The communiqué of the (v) Computer Applications for CURRICULA curricula workshop recommended the Economics inclusion of entrepreneurial (vi) Economics of Marketing education, practical skills and other T h e N a t i o n a l U n i v e r s i t i e s critical skills in university curricula of (vii) Health Economics. Commission (NUC) as the regulatory which economics curricula is the agency of Nigerian Universities is centre of focus. 4.1 THE WEAKNESSES OF empowered to among other things T H E N E W C O U R S E establish minimum academic In 2004 the NUC carried out a C O N T E N T S T O T H E standards (MAS) for Nigerian research on the labour expectation of NIGERIAN ECONOMY OF Universities as well as accredit their economics graduate. This survey was THE 21ST CENTURY degrees. In 1989, the commission to identify the skills gap, in the existing produced MAS for all undergraduate curriculum and fulfill expectations. Policy makers, businessmen, and program including economics ordinary citizens generally rely on curricula. Finally the 2005 Benchmark minimum economic forecasts and advice form academic standard for economics is a economists in order to minimize and Since the development of the 1989 great attempt towards improving the downsize risks associated with policy MAS, there had been other studies, economics curricula by the NUC. i m p l e m e n t a t i o n and business workshops conferences and operations. Economics is generally comments on the university curricula 4.0 PROPOSED COURSE defined as the “Social science which of which economics curricula is at C O N T E N T S O F T H E studies human behavior as a centre focus. In 2000 the World Bank NIGERIAN ECONOMICS relationship between ends and scarce commissioned a study on labour CURRICULA BY THE NUC means which have alterative uses” market expectations of Nigerian Robbins (1932) graduates, to assess the effect of The National University Commission, Universities curricula on the (NUC) recently reviewed the Nigerian From this Definition, we can readily performance of Nigerian graduates. Educational Curricula, which was infer that economics is a dynamic and This research was done by the NUC tagged “Benchmark Minimum an indispensable social science as one of its efforts to advance Academic Standards. In the although, it is not every economic knowledge in the discipline. The major Benchmark Minimum Academic forecast or advise from economists conclusions of that report were Standards for economics curricula, that humanity should take seriously. has 5 credits including English and Indeed some Nigerian economic (a) The supply of University graduate Mathematics at 0-level and forecasts and prescriptions are continues to increase in the face acceptable passes in Joint sometimes better ignored, or taken of declining absorptive capacity Matriculation Examination (JAMB) as with a pinch of salt of the economy's labour force. entry requirements for the discipline. The four year duration of the course The answer to the question above lies (b) The production of graduates with did not change. on the quality of economics graduates critical skills had not been met that had been produced in the past with the required needs of the See Appendix VII and the quality of the university Staff economy. 93 Volume 30 No. 1 Jan./Mar. 2006 (including academic and non the Nigerian economics curricula two systems also differ. In academic staff, infrastructural static and underdeveloped are N i g e r i a , t h e t e a c h i n g facilities and the teaching and still prominent. The Economics methodology is focused on learning environment. curricula are not research based, lecture and hand-outs and pass and are undersized, and the your exam, without preparing the These variables are very essential for thesis supervision is not effective student to become a problem effective teaching and learning, because there too many students solver in the society but certificate following Jean Jockos Russo's for one supervisor or professor to carrier. In the American system, assertion that “where a child appears supervise. The problem of linking the methodology of teaching is a not to be learning more often than not theory and real world problems combination of Lecture, seminar the fault is that of the teacher and not has continually created a tutorials, and research work. the child” Russo (1972). widening gap in the Nigerian Students are exposed to current economics. These deficiencies and standard textbooks. However, a comparative analysis of show up in the long run by the the US economics curricula stated in quality of economics teachers It is lacking in Modern section 3.2 above with the new teaching various economics Economics of 21st century Benchmark minimum academic programs, as graduating Trend standard for economics in Nigeria, will students carry along this In the 21st century of information give us an explanation on the deficiency to the work force. technology, where most of today's weakness of the economics curricula business transactions are based to the Nigerian economy. There is a wide gap between on IT, for Nigerian Economics the Economic Policy makers curricula to remain lost in courses Too many Electives and Curricula Planners like, Economics of E-commerce, On the average an economics Another striking weakness of the Energy Economics, Economics of graduate in Nigeria is required to curricula is the gap between Social Problems, Economics of accumulate between 120-140 economic policy makers and Indebted Society, Economics of credit units of which 40 units or 33 curriculum planners; the teaching Education, Economics of Asset percent represent are core of macro economics in Nigerian Pricing elective courses, while a universities is grossly inadequate Economics of Aggregate significant proportion of 70 to meet the needs of public sector Implication of household and firm percent of the credit units are free e m p l o y e r s . T h e t y p i c a l behaviors, Mortgage Economics, electives. In the sample of curriculum covers topics and Economic Analysis of Harvard University, the mix is incorporating national income Pension Funds almost makes the biased in favour of core accounting, consumption and curricula irrelevant in meeting the economics courses and required investment theories, classical challenges of the 21st century. electives. The selection of liberal and Keynesian models of arts subjects and free electives employment, monetary and fiscal a r e g e n e r a l l y f e w e r i n policies including issues on It is silent on Environmental c o m p a r i s o n t o N i g e r i a n stabilization and structural problems and natural hazards universities. reforms. In American curricula, in The orthodox curriculum addition to these topics, the associated with the Nigerian Under Developed typical university curriculum universities, have over the years The Benchmark Minimum covers topics on “Market ignored environmental problems Academic Standards for oriented” economy, based on the inherent in industrialization and economics by the NUC, is a slight dynamic mundell-flemming oil exploration. Nigeria has been upgrade from the economics model. Less emphasis is also an indebted country for over 40 curricula of University of Nigeria placed on partial equilibrium years, yet the curricula does not Nsukka in 1965. Although the analysis. consider it necessary to study the curricula have been reviewed in variables of an indebted 2005, the same issues such as The Teaching Methodology is economy; more importantly, the poor research, poor funding, too Grossly Inadequate value of education to the growth many electives, that have made The methods of teaching in the of the economy is not a priority to 94 Volume 30 No. 1 Jan./Mar. 2006 Nigerian economics curricula government policy makers and the programs, in other to meet the even in the 21st century, thus the economics curriculum planners have challenges of their work places massive illiteracy in the country. not created a level playing ground for The curricula have never these research findings to go into There have been several dimensions considered the efforts of the policy consideration. In economic as to find out if Nigerian economists household in reality, to the day-to- matters politicians prefer to use their can really move the economy to the day economic activities of the discretions, or listen to economists in expected economic boom. Some country. The issue is clear; the the developed countries for advice people believe that there is nothing curricula should not remain silent rather than Nigerian Economists. That wrong with the economy and that the on these critical issues that can is why most of western assumption of Nigerian economist has what it takes improve the life of the citizens. the classical and Keynesian f o r e c o n o m i c g r o w t h a n d economists will not work in most development given the various 4.2 H A V E E C O N O M I C developing countries until a level achievements since 1960. However in POLICIES IN NIGERIA playing environment is enabled for my own view economics curricula was BEEN CONSISTENT WITH such policies to function. There is a very fashionable when it was first ECONOMIC RESEARCH big gap between Economics research introduced in Nigerian Universities. F I N D I N G S O F findings and Economic policies, for However, Nigerian economic ECONOMISTS? examples in the Research and behavior today has shown that the Statistics department of the Central discipline started on a wrong premise, The Nigerian factor has not allowed Bank, the best of the seminars and the graduates were tailored as gap economic policies to follow the part of research work, are contained in the fillers and not policy makers as the research findings. The reason being Economic and Financial Review curricula was shallow and the that the absence of rule of law in our (EFR), if half of the economic government needed people urgently polity has not encouraged economics research findings in the EFR can go to fill up the gaps left by the departing research work. The 30 years of into policy, Nigeria will become a expatriates. military role in Nigeria, to some is better place. Though the EFR is a referred to as a dark period, in the public document its circulation is Research has shown that the current Nigerian history. It was an era, greatly limited thus most students and curricula is still shallow and may not government economic policies were some policy makers are left in produce economists that would have subject to the whims and caprecies of ignorant of the research findings solutions to the economic woes of dictatorship. During this period, the contained in the document. Nigeria. The curricula does not reflect voices of some seasoned Nigerian the policy and life of the people, the economists could not be heard as 4.3 D O E S N I G E R I A N curricula and economic policies have such economic polices were made by ECONOMIST HAVE AN not worked together and therefore, people who did not understand how ANSWER TO ECONOMIC most economists are limited in the economy worked. A situation PROBLEMS OF NIGERIA? proffering the necessary economic where a historian could be a central forecast that can lead the country to a bank governor, while an engineer is The orthodox economics assumption safe haven. This is buttressed by the minister of finance could not by Adam's smith of “all things being fact that there is no accurate data encourage economics research. equal” has always being an escape base available for the Nigerian route for economists on critical economists to work with, thus an However, with the advent of economic issues. Since all things economist cannot perform or forecast Democracy there have been a cannot be equal, the question is what without accurate statistical data as dramatic change; some government do we do? such the Nigerian economist is lost in policies have become fairly consistent his economy. Nigerian economist will with economic research finding of The Nigerian economy is moving only have a solution to the economic economists. The evidence at hand is faster than the economics curricula; a problems of the country if they make not enough to say that economic few Nigerian economists who are their economics curricula to meet policies in Nigeria have been aware of this situation have aligned international standards and also consistent with economic research themselves to international standards reflect the Nigerian polity. finding. Even under democracy the in economics knowledge, through d i s a g r e e m e n t b e t w e e n t h e various training and retraining 95 Volume 30 No. 1 Jan./Mar. 2006 5.0 RECOMMENDATIONS contribution to knowledge should In other to increase knowledge of also be considered as this is a economics, inter-university Economics curricula should be motivating factor to work harder. economics competitions should restructured to mirror the be encouraged and same should economic policies and targets of Stakeholders like the Nigerian be sponsored by stakeholders, the Nigerian economy. Economic Society should expand NES and the government. This their responsibilities to supervise will inculcate reading and Curriculum formation should not and evaluate periodically research habits in both lecturers be left in the hands of NUC rather activities of economics lecturers and students. it should be a team work of and students in Nigerian stakeholders, government Universities. The Nigerian Government should encourage agencies like the CBN, Ministry of Economic Society is the only university exchange programs as Finance and other financial recognized economics body this gives the students exposure, institutions not excluding therefore, it should be seen alive and will enable them to evaluate stakeholders in the private sector. in undergraduate economics t h e m s e l v e s . D e v e l o p e d This is to enable the planners education. economics have encouraged know priority areas that are exchange programs and this has relevant for an economist to be For economics to remain relevant g r e a t l y e n h a n c e d t h e gainfully employed. This will in Nigerian economic policy, development of economics reduce the orthodox nature of our Government should finance knowledge. curricula. economic researches and should listen to and implement such There is need to ensure that Economics curricula should be research findings. students acquire the relevant enhanced with modern day analytical skills to enable them trends in economic development. The Research and Statistics cope with the demands of the This will add value to knowledge Department of Central Bank in work place upon graduation. and make Nigerian economists conjunction with other economic v i b r a n t i n n a t i o n a l a n d and financial institution should Lecturers must refrain from international issues. develop theories and economic indoctrination and must extend models of the Nigerian Economy the theoretical frontiers The methodology of economics and this should be included into developed in the late nineteenth teaching should be reviewed in the economics curricular. century to the ones of the 21st accordance with the lessons century. learnt from the developed Research on economics curricula countries economics curricula should cover public finance Nigerian economics curricula above. Economics is not history; it especially Nigeria's Fiscal should address the problems of is a participatory discipline, which Federalism and its implications p o v e r t y , D e b t , Y o u t h needs regular active student's on National Unity and the ability of e m p o w e r m e n t , r u r a l participation through research the three tiers of government to development, millennium work on key economic issues that d e l i v e r t h e m i l l e n n i u m development goals and lots more boarder the policy. development goals. as these factors are militate African development. There should be regular tutorials, I n o t h e r t o d e v e l o p seminars and workshops to undergraduate economics, Finally economics curricula will be enable students showcase what economics lecturers need to be very relevant in the Nigerian economy they have discovered in their retrained, to equip them with of the 21st century if key elements of research work. modern trends in the teaching of our homegrown economic policy economics. Nigerian lecturers NEEDS are addressed in the The assessment of students pioneer handouts and discourage curricula. This is because Nigerian should not only be based on 70 textbook because of economic economists have so much to do to percent class attendance and g a i n . T h i s s h o u l d b e sustain the success of NEEDS. examination, but the student's deemphasized. 96 Volume 30 No. 1 Jan./Mar. 2006 CONCLUSIONS Commission, Central Bank of Nigeria, reliable data for students' research on private sector stakeholders and the economic issues. We need to relate economic theories Nigerian Economic Society. This will with the realities of our time be a roadmap to strategic, practical Finally the Nigerian Economics particularly as it affects our country and realistic economics curricula curricular is critically under developed Nigeria. Economics Curricula Plan which can reflect a true Nigerian and does not follow government should not be left only in the hands of economic environment. The economic policies, but if all the National University Commission Research and statistics department of recommendations are adopted the (NUC) rather it should be a collective the CBN should actively participate in Nigerian economics curricula will responsibility of Government financial the growth of the discipline through develop to acceptable international economic agencies such as Federal adequate communication of its standards and will be very relevant in Ministry of Finance, National Planning research findings to the government meeting the Nigerian economic Commission, Security and Exchange and universities. This will supply challenges of the 21st century. REFRENCES London School of Economics:2005. Department of economics, index of undergraduate courses: http://econ.lse.ac.uk/study/index of courses Harvard University, 2005. Faculty of the department of economics. http://www.registrar.fas.harvard.edu/courses/economics.html Nnanna O, J. 2004. The teaching of economics in Nigerian universities. Nigeria Economic Society 2002.The Teaching of economics: the cutting edge. Gglfason T. 2001. Natural recourses, education and economic development. Abdullahi H. 2000. University management in Nigeria National university commission, 2002. Nigerian universities inaugural lecture series. National university Commission, 2004. Labour market expectations of Nigerian graduates. National university Commission 1989. Approved minimum academic standards in social Sciences for all Nigerian universities. Russo J.J, 1972. Effective teaching and learning: Foundations of education. University of Ibadan, 1956-66. Academic calendar University of Lagos, 1996-2000. Academic calendar. University of Nigeria Nsukka, 1965-66. Academic calendar. University of Ilorin, 1997-2002. Academic calendar. Hopkins publishers, 1955. The development of Nigeria: Report of the mission organized by the International Bank for Reconstruction and development Robins L.1932. Essay on the nature and significance of economic science 2nd edition. 97 Volume 30 No. 1 Jan./Mar. 2006 APPENDIX I First Year Credits GS.101 Use of English 9 GS 103 Social Science 15 Math 101 Pure Mathematics 12 Econ 101 Introduction to Economics 6 An Elective 9 Total 51 Second Year GS 105 Natural Science 12 GS 207 Humanities 12 Econ 201 Principles of Economics 9 Econ 231 Comparative Economic History 12 Sta 201 Introduction to Statistics 6 Geo 341 Economic Geography or Geo 361 Geography of population and settlement 6 Total 57 Third Year Econ 321 Intermediate Economic Analysis 9 Econ 301 Applied Economics 12 Econ 331 Economic History of West Africa 9 Econ 332 Principles of Public Finance 6 Econ 351 Monetary Economics 6 Econ 341 History of Economic thought-1 9 Econ 352 International Trade or 9 Pol.sc. 301 political Theory -1 or 9 French 100 Elementary foreign language or 9 Law 101 Introduction to Nigerian law or 6 Soc. 101 Introduction to sociology or 9 Sta. 346 Elements of probability and Statistics 12 Total 63 Fourth Year Econ 470 Advanced Economic Analysis 9 Econ 471 Comparative Economic Systems 6 Econ 472 Economic Development 12 Econ 473 A Research paper on a selected topic in the special area of study selected by the student and Two courses from one of the following groups of subjects: Group 1 Economics Analytical and Descriptive Econ 474 Introduction to Econometrics 12 Econ 451 History of Economic thought II 9 French 100 Elementary French 9 B.A 405 Nigerian Trade and Commerce 9 Phil 202 Logic 9 Total 48 Econ 474 is compulsory in this group 98 Volume 30 No. 1 Jan./Mar. 2006 Group II Economic History Econ 441 Advanced Economic History 12 Econ 451 History of Economics thought II 9 Hist 301 History of Nigeria 9 B.A 405 Nigeria Trade and Commerce 9 French 100 Elementary French 9 Total 48 Econ 441 is compulsory in this group Group III Public Finance and Monetary Economics Econ 421 Advanced Public Finance 12 Econ 422 Comparative Banking and Financial Institutions 12 B.A 425 Industrial Management 9 B.A 405 Nigerian Trade and Commerce 9 Econ 451 History of Economic thought II 9 Total 48 Econ 421 or 422 is compulsory in this group Group IV Labour Economics Econ 461 Labour Economics and Industrial Relations 12 B.A 421 Industrial Management 9 PSY 370 Industrial Psychology 9 Soc 101 Introduction to Sociology 9 Total 48 Econ 461 is compulsory in this group Group V International Economics Econ 475 Advanced International Trade theory and problems 12 B.A 405 Nigerian Trade and Commerce 9 Pol. Sc. 331 International Relations 1 9 Law 404 Public International Law 9 Law 301 Mercantile Law 9 Total 48 Econ 475 is compulsory in this group. 99 Volume 30 No. 1 Jan./Mar. 2006 APPENDIX II. 1989 National University recommended courses for economics department shows: Fist Year S/N 100 Level Credit Unit Total 1st 2nd 1 Economic theory/ principles 2 2 4 2 Introduction to statistics 2 2 4 3 Introductions to mathematics for 2 2 2 Economics 4 Introduction to Accounting - 2 2 5 General Studies 6 4 10 Elective courses 6 Introduction to Management 2 2 4 Two elective courses from the 17 17 34 departments in the faculty and one out side the faculty. Second year: 1 Micro Economics 2 2 4 2 Macro Economics 2 2 4 3 Structure of the Nigerian economy 1 2 2 4 &11 4 History of Economic thought 1 - 3 3 5 Introductory statistics 2 2 4 6 Mathematics of or Economics 2 - 2 7 Principles of finance 2 - 2 8 Total General Studies 4 2 6 Electives: Two Electives from any of the following (4units) Theories of human resources labour economics, basic accounting, Urban and Regional Economics Monetary Economics One elective from any other department 2 - 2 18 17 35 Third year Compulsory 1 Micro Economics 4 - 4 2 Macro Economics - 4 4 3 History of economics thought 11 2 - 2 4 Introductory Econometrics - 2 2 5 Applied statistics 2 2 4 100 Volume 30 No. 1 Jan./Mar. 2006 6 Developmental economics 2 - 2 7 Public - 2 2 8 Public Finance 2 - 2 9 General Electives Any 4 of the Following 1 International trade 2 Operations Research 4 4 8 3 Political Economy 4 Applied Monetary Economics 5 Management Accounting 6 Mathematical Accounting 7 Financial Institutions Fourth Year 1 Advanced Micro Economics 2 2 4 2 Advanced Macro Economics 2 2 4 3 Project Evaluations 2 2 4 4 Comparative Economics system 2 - 2 5 Economics Planning 2 2 4 6 Problems and Policies of development 2 - 2 7 Taxation and fiscal policy 2 - 2 8 Economics of production - 2 2 9 Applied statistics 11 2 - 2 10 Research project/original essay - 6 6 Electives Three Electives from below 1 Industrial Relations and personnel management 2 Petroleum economics 4 2 6 3 Advanced Mathematical Economics 4 Banking finance 5 Econometrics 2 18 38 1 17 17 34 2 18 17 35 3 18 17 34 4 20 18 38 73 68 141 101 Volume 30 No. 1 Jan./Mar. 2006 APPENDIX III. Index of Taught Undergraduate Economics Courses in the London School of Economics and Political Science. Economics Curricula EC 100 Economics A EC 102 Economics B EC 200 Economics of Social Polity EC 201 Micro Economic Principles I EC 202 Macro Economic Principles II EC 210 Introductions to Principles EC 220 Principles of Econometrics EC 221 Principles of Econometrics EC 230 European Economics Policy EC 301 Advance Economic analysis EC 303 Economic Analysis of the Eu EC 305 Comparative Economic Systems EC 307 Development Economics EC 309 Econometric Theories EC 311 History of Economics How theories change EC 313 Industrial Economics EC 315 International Economics EC 317 Labour Economics EC 319 Mathematical Economics EC 325 Public Economics EC 331 Quantitative Economics Project EC 333 Problem of Applied Econometrics APPENDIX IV Index of Taught Undergraduate Economics courses in Harvard University Primarily for Undergraduates Social Analysis 10 Principles of Economics, Economics 910 Supervised Reading and Research Economics 970 Tutorial-Sophomore Year Economics 980 Tutorial Junior Year General Economics; Economic Theory; History of Economics Economics 1010a Micro Economic Theory Economics 1010b Macro Economic Theory Economics 1011a Micro Economic Theory Economics 1011b Macro Economic Theory Economics 1017a Libertarian Perspective on Economics and Social Policy Economics 1025 Theory of Capital and Income Economics 1030 Psychology and Economics Economics 1035 Policy Application of Psychology and Economics Economics 1051 Game Theory in Economics Economics 1052 Introduction to Game Theory 102 Volume 30 No. 1 Jan./Mar. 2006 Econometrics and Quantitative Methods Economics 1123 Introduction to Econometrics Economics 1126 Quantitative Methods in Economics Economic History/ Development Economics Economic History; Development Economics Economics 1315 Economic Development in East Asia Economics 1320 The Latin American Economy Economics 1320 One way or Many Economics 1335 Private Enterprise in the Developing World Economics 1340 Globalization and History Economics 1357 Historical Perspectives on the American Economics Ascendancy Economics 1375 Gender Issues in Economic dev. Economics 1385 Introduction to Global Health and Population Economics 1386 Health, Education and Development Economics 1393 Poverty and Development Monetary and Fiscal Theory and Policy Public Sector Economics Economics 1410 Public Sector Economics Economics 1420 American Economic Policy Economics 1430 Macro Economics and Politics Economics 1471 Economics of Crime Economics 1480 Moral Perspectives on Economic Growth. International Economics Economics 1530 International Monetary Economics Economics 1535 International Trade and Investment Economics 1540 Topics in International Trade Economics 1542 International trade Policy Economics 1545 International financial and Macro Economic Policy Industrial Organization and Regulation Environmental Economics Economics 1625 Economics of E- Commerce Economics 1640 Industrial Organization: Theory and Application Economics 1661 Environmental and Resource Economics and policy Financial Economics Economics 1723 Capital Markets Economics 1733 Topics in Investment Management Economics 1745 corporate Finance Economics 1750 Canadian Financial History Economics 1760 topics in financial Economics Labour, Human resources, and Income Distribution, Urban economics Economics 1812 the US Labor Market Economics 1813 the Indebted Society 103 Volume 30 No. 1 Jan./Mar. 2006 Economics 1815 Social Problems of the American Economy. Economics 1818 Economics of Discontinuous Change Economics 1822 Economics of Education Economics 3000 Research Paper APPENDIX V Index of Taught Undergraduate Economics Courses in University of Cape Town. Eco 106F Economics for non Specialists Eco 110F Micro Economics Eco 10H Micro Economics Eco 110S Micro Economics Eco 111F Macro Economics Eco 111S Macro Economics Eco 203F Intermediate Micro Economics Eco 204S Macro Economics Eco 207S Cooperation and Competition Eco 208S Development and Trade Eco 309F Natural Resources Economics Eco 320F Advanced Macro Economics and Micro Economics Eco 321S Quantitative Methods in Economics Eco 322S Advanced Labour Economics Eco 323S Public Sector Economics Eco 324F International Trade and Finance Eco 325S Applied International Trade Bargaining 104 Volume 30 No. 1 Jan./Mar. 2006 APPENDIX VI Index of Taught Undergraduate Economics Curricula in Tunisia Common Core Courses See Appendix VII 1st year Term Course No Title Credit ECO 1120 Microeconomics 3 MTH 1131 Mathematics for Business1 3 ACC 1101 Intermediate Accounting 1 3 1st LAW 1101 Principles of Law 1 3 Semester MGT 1121 Fundamentals of management 3 COM 1101 English composition 1 3 BIS 1101 Business information Systems 1 3 Total 21 ECO 1210 Macroeconomics 3 QAN 1211 Business Statistics 3 BIS 1201 Business Information systems 3 2nd COM 1203 English composition 3 Semester MTH 1205 Mathematics for Business 3 ACC 1209 Intermediate accounting 11 3 LAW 1210 Business Law 3 Total 21 105 Volume 30 No. 1 Jan./Mar. 2006 2nd year Term Course No Title Credit MKG 2130 Introduction to Marketing 3 ACC 2131 Cost and Management accounting 3 FIN 2111 Financial Management 1 3 1st ACC 2111 Income Tax 1 3 Semester MGT 2140 Production and Operation 3 Management MGT 2200 Management 3 Total 18 MKG 2220 Human Resource Management 3 LAW 2201 Business Law 3 ACC 2212 Income Tax 11 3 2nd LAW 2216 Corporate Law 3 Semester ACC 2230 Corporation Accounting 3 ECO 2215 Monetary economics 3 FIN 2235 Financial Management 11 3 Total 21 Department of Economics Concentration in Operational Research 3 rd year Term Course No Title Credit STT 3110 Quantitative Analysis Decision Making 3 STT 3120 Date Analysis 3 1st STT 3130 Operations Research 1 3 Semester ECO 3140 Econometrics 3 STT 3150 Modeling and Optimizations 3 Total 15 106 Volume 30 No. 1 Jan./Mar. 2006 4th year Term Course No Title Credit ECO 4100 Econometrics 2 3 ECO 4110 Managerial Fore Casting 3 1st MKG 4120 Marketing Management 3 Semester ECO 4130 Advanced Topic in Economics 3 MGT 4140 Managerial control 3 Total 15 APPENDIX VII Proposed Course Contents of the Nigerian Economics Curricula S/N 100 Level. 1st 2nd Total semester semester Compulsory 1 Economic Principle 2 2 4 2 Introduction to statistics 2 2 4 3 Introductory Mathematics for Economists 2 2 4 4 Introduction to Accounting - 2 2 5 Total General Studies 6 4 10 Required Elective course Introduction to 6 Management 2 2 4 Two Electives Courses from chosen Department in the faculty and one outside. 3 3 6 17 17 34 200 Level Compulsory 1st 2nd Total 1 Introduction to Micro- economics 2 2 4 2 Introduction to Macro Economics 2 2 4 3 History and Structure the Nigerian Economy 1&11 2 2 4 4 Applied Statistics 2 2 4 5 Mathematic for Economics 2 2 4 6 Principles of Finance 2 - 2 7 Total General Studies Electives 4 2 6 Two Electives from any of the following (4Unit) 1 Theories of Human Resources 107 Volume 30 No. 1 Jan./Mar. 2006 2 Labour Economics 2 2 4 3 Financial Accounting 4 Urban and Regional - 2 2 One Elective from any other Department 18 16 34 300 Level. 1st 2nd Total S/N semester semester Compulsory 1 Intermediate Micro-Economics 2 2 4 2 Intermediate Macro-Economics 2 2 4 3 History of Economic Thought. I and II 2 2 4 4 Introductory Economics 2 2 2 5 Economics of Development 2 2 2 6 International Economics I & II 2 2 2 7 Public Studies 2 2 4 8 General Studies Electives. At least any 4 Units from the following 1 Operations Research - 2 2 2 Political Economy 2 - 2 3 Applied Monetary Economics 4 Management Accounting 4 4 8 5 Economics of Public Sector Economics 6 Mathematical Economics 1 7 Financial Institutions 8 Monetary Economics 1 & 11 20 20 40 400 Level Courses 1st 2nd Total Compulsory 1 Advanced Micro- Economics 2 2 4 108 Volume 30 No. 1 Jan./Mar. 2006 2 Advanced Macro-Economics 2 2 4 3 Project Evaluation 2 2 4 4 Comparative Economic system 2 - 2 5 Economics Planning 2 2 4 6 Problems and Policies of Dev. 2 - 2 7 Taxation and fiscal Policy 2 - 2 8 Economics of Production - 2 2 9 Applied Statistics II 2 - 2 10 Research Project/Original Essay 3 3 6 Electives Three Electives from below 1 Industrial Relations and Personnel Management 4 2 6 2 Petroleum economics 3 Advanced Mathematical Economics 4 Banking and Finance 5 Econometrics 109