GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INVESTMENTS IN AFRICA – AGRICULTURE AND RURAL FINANCE: PERSPECTIVE OF THE CENTRAL BANK OF NIGERIA (CBN) - PowerPoint PPT Presentation

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GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INVESTMENTS IN AFRICA – AGRICULTURE AND RURAL FINANCE: PERSPECTIVE OF THE CENTRAL BANK OF NIGERIA (CBN)

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Title: GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INVESTMENTS IN AFRICA – AGRICULTURE AND RURAL FINANCE: PERSPECTIVE OF THE CENTRAL BANK OF NIGERIA (CBN)


1
GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON
INVESTMENTS IN AFRICA AGRICULTURE AND RURAL
FINANCE PERSPECTIVE OF THE CENTRAL BANK OF
NIGERIA (CBN)
  • Being a Presentation made at the 16th Technical
    Advisory General Assembly Meeting of the
    African Rural Agricultural Credit Association
    (AFRACA) at Dar es Salaam, Tanzania, November 24
    28, 2008.

2
Contents
  • Introduction
  • Causes of the Crisis
  • Implications for Investments in Africa
  • Depth of the Crisis in Nigeria
  • Government/CBN Initiatives to Mitigate Financial
    Meltdown
  • Conclusion

3
Introduction
  • First showed signs in the USA and soon started
    affecting global economies directly and
    indirectly.
  • Developed over time and has its roots in a
    banking practice problem referred to as sub-prime
    lending or sub-prime mortgage lending in the USA.
  • To avoid becoming a financial meltdown,
    governments of many countries have intervened,
    several central banks have slashed interest rates
    and injected liquidity to their financial
    systems, e. g. China, Canada, Sweden
    Switzerland Central Banks cut rates, governments
    of the Euro zone bought into banks and announced
    guarantees on deposits till 2009 end while the
    inter-bank lending activities froze. The British
    government took up majority stakes in its four
    biggest banks.
  • Africa though presently enjoys a relative
    stability, predictions are that the stability may
    not last. Poor nations world over are speculated
    to likely bear the brunt.
  • The concerns are broadening and deepening, e. g.
    the second largest world economy Japans GDP
    fell by unprecedented 0.5. The country has just
    cut its interest rate from 0.5 to 0.3.

4
Causes of the Crisis
  • They are varied, complex and are attributed to
    certain pervasive factors (both in the housing
    and credit markets), and they developed over an
    extended period of time. Some of them include
  • Inability of home owners to make their payments
  • High personal and corporate debts
  • Risky mortgage products
  • Poor judgements by borrower and/or the lenders
  • Speculation and overbuilding during the boom
    period and
  • Concealed default risks

5
Implications for Investments in Africa
  • Increased investment dis-incentive resulting from
    increased poverty, hunger, un-employment and
    health challenges - compared with other regions
    of the world, Africa faces the greatest challenge
    of meeting target 1 of the Millennium Development
    Goals (MDGs) and AIDS/HIV.
  • Inability to reverse some negative predictions on
    Africa
  • (i) Africas stability will not last - 119th
    Meeting of the International Conference Centre in
    Geneva (CIGC), Switzerland organized by
    Inter-Parliament Union (IPU)
  • (ii) 47 of the population of Africa is living
    below the international poverty line while 65
    derive their livelihood from agriculture
    United Nations Food Agricultural Organization
    (FAO) reports (iii) Effects of the crisis on
    Africa could manifest through drying up of
    liquidity and capital inflows, aids programmes
    and trade The World Bank.
  • Delicate balance for African economies, due to
    (i) Inability of African Banks to access funds
    from developed economies (ii) decline in revenue
    from exports (iii) Weakness of more African
    governments to fulfill their commitments under
    the MDGs and NEPAD initiatives (iv) Up scaled
    crisis of the four (4) Fs fuel, fertilizer,
    finance and food, e. g. In Togo and Liberia
    food inflation is still 25 while in Ethiopia
    it is 92.

6
Further Implications for Investments in Africa
  • Low interest income or yields on the investments
    of African governments Most African countries
    have their foreign reserves stashed out in
    Dollars and Pound Sterling in the United States
    and Western Europe.
  • Commodity price crash According to The World
    Bank, commodity prices world over will nosedive
    to between 20 25 per cent compared to the
    previous years.
  • Increased insecurity of food, poverty and
    mortality resulting from complacency by African
    governments The International Monetary Fund
    (IMF) in its recent report has stated that,
    financial institutions around the world are
    likely to incur combined loss of about
    1.4trillion from the global financial market
    crisis. It therefore has recommended that policy
    makers must urgently evolve comprehensive
    measures to address the crisis at national level
    to bring about a return to stability in the
    international financial system.

7
Depth of the Crisis in Nigeria
  • The effects of the crisis on Nigeria has been as
    follows
  • Meltdown of the countrys capital market (as from
    March, 2008, the market has lost 23 per cent or
    N2.9 trillion in market capitalization)
  • Inability of the Federal Government to fund its
    Joint Venture Commitments under the upstream Oil
    Gas sector agreements
  • Inability to drive Nigerias Oil Gas Projects
    by foreign direct investments. It may now take
    longer time to complete the projects and
  • Panic withdrawal of deposited funds from banks by
    entrepreneurs and industrialists due to fear of
    uncertainties.

8
Effects of the Crisis on Nigeria Contd.
  • Other effects of the crisis on Nigeria include
  • Poor implementation of development initiatives
    that are of national priority, e. g. the Seven
    Point Agenda of the current administration,
    Financial Sector Strategy (FSS) 2020, National
    Economic Empowerment Development Strategy
    (NEEDS) and the National Microfinance Policy,
    Regulatory and Supervisory Framework and
  • Threats (i) Food insecurity - the Federal
    Government plans that within the next four years,
    it would deploy N950billion to intervene in the
    agricultural sector (ii) Non-achievement of the
    mandates/realization of set targets of some
    national development programmes, e. g. National
    Poverty Eradication Programme (NAPEP) and the
    Small Medium Development Agency of Nigeria
    (SMEDAN)
  • (iii) increased decaying of infrastructures due
    to likely funding inadequacy..

9
Federal Government/CBN Initiatives to Mitigate
Financial Meltdown
  • The Federal Government set up a Presidential
    Committee comprised of the CBN, the Stock
    Exchange, etc. to study trends of the global
    crisis and suggest appropriate mitigation
    strategies that should be adopted
  • Capital market revamp Deposit Money Banks (DMBs)
    that has large portfolio of margin facilities
    were granted reprieve to re-structure for longer
    periods
  • Cash reserve and the minimum liquidity ratios
    (MLR) were reduced from 4 to 2 per cent, and from
    40 to 30 per cent respectively thus reflating the
    economy by N1.2 trillion
  • Credit window was extended to 365 days as opposed
    to overnight and DMBs were permitted to buy back
    their securities
  • Monetary policy rate was cut by 50 basis points
    from 10.25 to 9.75 per cent

10
Conclusion
  • Given that the world is a global village and that
    Central Banks world over, use different
    strategies to pursue financial and macro-economic
    stability as well as ensure efficient
    payment/settlement systems African governments
    should not be complacent in the face of the
    global financial crisis.
  • The crisis is has become contagious while its
    effects are deepening and the valuations of more
    banks are plummeting. Budgets of many African
    nations may therefore, in due course, be strained
    with their rate of inflation and cost of living
    escalating astronomically.
  • To contain the global crisis and promote
    agricultural and rural development in Africa,
    like the euro zone countries (Denmark, Greece,
    Ireland Germany) opted to guarantee bank
    deposits African nations should consider
    guaranteeing deposits, cutting interests,
    reducing their export demand and (where
    necessary) draw down on their reserves to
    finance sudden shortfalls in capital inflows to
    their economies.

11
Thanks for Your Attention
www.cenbank.org
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