108 – Nigeria Nigeria NIGERIA M 2006 At a Glance T É G A O G R E Tahoua M A R D Tillaberi A D E NIGER A N ig G Mao e Population (mn) 134.4 r N A Zinder M m a Niamey Ri be Lac� Bol u Yo Maradi Diffa ug ad Tchad m o Dosso Sokoto Katsina K Kaura� Population Growth (annual %) 2.1 M a Namoda ra d S G i na Birnin Kebbi o a e a a g r G d k e a ot r a gu d o e u a N'Djamena ejia m d g ad a a H J N Gusau m Diapaga o o m t FASO K a o Kano r k Dutse e o Damaturu s BURKINA� d S e Maiduguri TCHAD Y A Potiskum Official Language R English i O r C o b a A li g T A n u a 'A Zaria ol u B L riga g o a on E r M G A D k R L é E A o g N M D I o N Maroua n A e H A C Lac� M a Kaduna s n Mubi t du Zaranda Hill� Bauchi a M Currency Naira (NGN) Kainji K 1454 m Gombe Bongor BENIN Deba Natitingou Jos Kumo K a b 549 m PLATEAU� ia N é a Minna Sara Peak� n Jimeta m i g u 1690 m é Parakou JOS e d r a B O u K é no Kishi Yola Garoua ué GDP (Current US$ bn) 116.4 Bida Abuja Keffi o Igboho Jalingo r a Shaki Lafiagi F A Dimlang� K Lafia I a 2042 m T ad N Hoséré� Llorin A M Mts SHEBSHI L Vokré� ue A 2049 m Ogbomosho Ikirun Ben s TOGO Ila t Oyo Inisa M Llora Lokoja GDP Growth (annual %) Oshogbo na 5.3 i Ede V Ado-Ekiti o é Firditi r r Makurdi Tchabal� é Iwo Ikare 1500 m a Llesha F b Ife Mbabo� M IkerreOka Okene D Ikire K o 2460 m É Abeokuta at A O U A r M Akure sin n Mts� D A Ngaoundéré D Ibadan e a g 'A Abomey a L A Owo g Idah A GOTEL D E Ijebu-IgboOndo i la M f Y Lokossa Shagamu N U Ijebu-Ode 2019 m D Uromi IF Mushin Epe Eha-Amufu Ngol-Kedju� S GDP Per Capita (US$) 866 Porto Novo Ikorodu Hill� S Enugu 2000 m A Cotonou Lagos M Benin City�Asaba Abakaliki bam Awka M D C LA Onitsha j ES ES V ES Bamenda é D � r Bouar O TE Sapele e C Ihiala Ugep m 2679 m Warri AfikpoCOLLINES� m Owerri OBAN Lo BafoussamN BAIE DU BENIN Umuahia REPUBLIQUE� FDI, net inflows (US$ mn) (2005) 3,403 o u B B n o u O Calabar CENTRAFRICAINE m ï Aba e B b U Uyo d o é u a a m g K CAMEROUN I b C a I Port Harcourt Oron San é H Opobo Mont� Bertoua I E S Cameroun � Douala D N IG ER 4100 m External Debt (US$ mn) U U BIA FR A 4,800 D BA IE Buea Yaoundé Malabo g Pico de� N yo n GOLFE DE GUINEE Santa Isabel� 3008 m Ile de Bioko� Guinée Equatoriale D ja External Debt/GDP (%) 3.5 Ebolowa O C E A N � Pointe Epote N tem K om ATLANTIQUE GUINEE� GABON CONGO CPI Inflation (annual %) 8.6 SovereignEQUATORIALE Ratings GEOATLAS - Copyright1998 Graphi-Ogre Exports of goods and services (% of GDP) 53.7 Long Local0 km 100 200 300 400 km Foreign Term Currency Currency Gross Official Reserves (US$ bn) 37 Fitch BB BB – Gross Official Reserves (in months of imports) 11.7 UNDP HDI RANKing 159 S&P BB BB – Source: AfDB, IMF, UNCTAD, UNDP, UN Population Division 1. Overview of Financial System which had been set at 13%. The MRR has now been The Central Bank of Nigeria (CBN) is the country’s replaced with the Monetary Policy Rate (MPR) set at autonomous monetary authority. Established in 1958, 10%. the CBN is the banker and financial adviser to the All financial sector regulatory agencies in Nigeria Federal Government, acts as the lender of last resort are part of the Financial Services Regulation to banks, is responsible for setting monetary policy, Coordinating Committee (FSRCC), which and ensures the smooth functioning of the financial coordinates supervisory activities across the various system. The central bank is guided by various financial sectors. regulations, including the Central Bank of Nigeria Act of 1958 as amended in a series of Decrees, Non-Bank Financial Sector the last one in 1999 being the CBN Decree 1999 The banking and insurance sectors each have a Amendment. separate regulatory authority and supervisory body, N For over 20 years, the aim of monetary policy has the Central Bank of Nigeria and the National Insurance been to develop a market-oriented financial system for Commission (NAICOM) respectively. effective mobilisation of financial savings and efficient Since 2005, these regulators have implemented resource allocation. The main instrument of the sweeping reforms of these financial sectors, aimed market-based framework is Open Market Operations. at restoring the health of the financial system. The This is complemented by reserve requirements and CBN enforced a new regulation for banks to increase discount window operations. their minimum capital base to NGN 25 bn (USD The Apex authority, in late 2006, abolished its 190 mn), from a previous NGN 2 bn (USD 16 mn). prime rate, the Minimum Rediscount Rate (MRR), This sparked a series of mergers and acquisitions as Nigeria – 109 banks sought to consolidate their market positions, continent, behind South-Africa and Egypt. Banking reducing the number of banks from 89 to 25 more and conglomerate stocks have historically been the healthy institutions. These 25 private banks form most active on the NSE. There is also a commodity the largest component of the financial system, with exchange, the Abuja Commodities Exchange, which the 10 largest of them accounting for over 60% of was established in 2006. the aggregate assets and 72% of liabilities. It is Nigeria’s bond market has for many years been expected that with the increase in market share and overshadowed by its equity market. There have been shareholders value, a second wave of market-driven recent efforts by the regulatory authorities to develop banking consolidation will occur. a thriving bond market in the country. The market Subsequently, in October 2006, the Government, offers bonds issued by the Federal Government and through the CBN, allocated USD 7 bn of its growing sub-national State issuers. Government debt issues foreign exchange reserves (USD 45 bn as at January re-emerged in 2003, and the Federal Government, 2007) to be jointly managed by domestic and through the Debt Management Office (DMO), now international fund managers. 14 of the 25 commercial frequently issues bonds. Total government bonds banks were allocated USD 500 mn each to manage outstanding stood at NGN 750 bn (USD 6 bn) at the with foreign partners. These alliances aim to transfer end of the first quarter of 2007. technical expertise from the foreign institutions to the Recent developments in the financial system have domestic firms, in order to enhance overall operational been positive, specifically the strengthening of capabilities of the sector. financial institutions, and also the improvements in The insurance sector in Nigeria just emerged from capital markets. Banks are increasingly developing an 18-month consolidation phase in February 2007 that investment banking capabilities, as opposed to enforced a minimum capital base of NGN 3 bn for general strictly only retail banking, which is evidence of an insurance and NGN 2 bn for life insurance. There are evolving financial market. There is now a great deal now 71 firms, down from 104 that had been in operation, of international interest, and indeed participation, which have brought the industry capitalisation to over in the Nigerian financial system, from investments NGN 200 bn from a pre-consolidation level of NGN in stocks and treasury bonds to private equity 30 bn. Demand for insurance services in the country investments. This trend is expected to continue has historically been low due to a lack of capacity and as economic and political fundamentals, such as low insurance awareness. The recapitalisation exercise reduced inflation, improving growth rates, fiscal aims to increase the sectors underwriting and retention accountability, and transparency, are expected to capacity to encourage growth, thereby improving the be maintained. industry’s health and profitability. 2. Fixed Income Markets Capital Markets Government Securities Regulated by the Securities and Exchange Government securities are the sole debt instrument Commission (SEC), the Nigerian capital market is issued frequently in the bond market. These securities centered on one stock exchange, the Nigerian Stock are issued by the Debt Management Office, a semi- Exchange (NSE). Established in 1961, with a total of autonomous body established in 2001. The DMO is 19 securities listed for trading, there are 289 listed charged with the responsibility of managing Nigeria’s securities, with a stock market capitalisation of some external and domestic debt and also to carry out a USD 46 bn as at January 2007. number of reforms to make the government bond The country boasts the third-largest stock market more liquid through increased issuance of exchange by market capitalisation in the African government securities. 110 – Nigeria Primary market bills are issued in 91-, 182-, and 365- with a set issuance calendar). Government bonds day tenors.