afrol News, 20 October - Nigeria has so far escaped the worse effects of the international financial crisis, much because of its economy being poorly integrated in the global economy. The banking sector was regulated four years ago, being fit for today's challenges, and only donor aid and low oil prices are of concern.

According to a new analysis by the German Konrad Adenauer Foundation (KAS), Nigeria is well placed to avoid being hit by the global financial crisis. The only danger seen by the KAS analysts is that Western donors may cut their transfers to Nigeria, thus affecting the country's ability to fight poverty. While it was seen as unsure whether development aid would be "frozen or even reduced strongly," KAS analysts held it was sure the stronger productivity demands would be tagged to development aid payments.

Also - but not discussed in the KAS report - halved oil prices have already had an impact on Nigeria, which has had to cut its revised 2009 budget. Some 95 percent of Nigeria's exports revenues stem from crude oil sales, while about 85 percent of the federal government's annual gains rely on business in oil and gas sector. International analysts now mostly expect that oil prices in 2009 will remain relatively low - around US$ 70-90 a barrel - contrasting 2008 prices.

But the German foundation holds that, in general terms, the Nigerian economy should have nothing to fear from the economic crisis. Even the presumptions in Nigeria's budget are seen as too negative, as oil prices are set at a very pessimistic US$ 59 a barrel. But KAS agrees that the 2009 budget will have to foresee less investments in education, electrification and infrastructure as previously hoped.

KAS holds that Nigerian ex-President Olusegum Obasanjo - "much criticised by Nigerians but highly appreciated abroad" - had made a very good job reforming the banking sector in 2004-05. While the reform was unpopular, it secured a concentration of Nigerian banks by increasing bank equity demands by a factor of 12 to US$ 1.2 billion. Out of 80 banks formerly, only 25 survived the fusions, and four out of these now are among Africa's 20 largest banks. One of these even is seen as Africa's leading banks.

Thus, according to FAS, Nigeria's financial sector was well prepared before the international crisis, and its banks are mainly seen as safe and secured.

Nigerian banks even have been strong enough to tackle another problem caused by the global crisis, the strong fall of stock markets. Also the Nigerian Stock Exchange, NSE, has experienced falls of up to 30 percent since March this year. Out of the 310 companies registered, six are banks. But in addition to government regulations, a consortium of six Nigerian banks reportedly is to inject niara 100 billion (€ 600 million) into the stock market to stabilise it by providing more liquidity.

But Nigeria's strongest asset, regarding the current crisis, is that the country is not too connected to the global financial market. KAS holds that Nigerians at large live in a cash society - also due to distrust caused by the large counterfeiting industry - not dealing with cheques, credit cards or credits. Most businesses demand costumers to advance their payment before delivering to protect them against non performing loans. "A cash society in practical terms is protected against a credit crunch," KAS concludes.

Also Nigeria's financial sector is mostly disconnected from the global financial market. In the lending sector, which caused a meltdown in the US, Nigeria has no ties at all. Nigerian banks have close to no foreign investors that may need to withdraw their cash, and there are few foreign speculators at the NSE in general. No major Nigerian investments in foreign high-risk markets are known.

Finally, KAS holds that the Nigerian state has a sound economy. Nigeria was the first African country to comply with its Paris Club debts stemming from its own resources - with ex-President Obasanjo defying public opinion when repaying state debt as quickly as possible. "Thus, the country is basically without debts and has a foreign exchange reserve of US$ 50-60 billion, enough to secure Nigerian imports for two years," according to KAS.

The report further concludes that "Nigeria's functional institutions and energetic government" will be able to ride off the storm. However, this is mostly contributed to the country's poor connection to global markets. KAS however warns that, if the country should slide into recession, Nigerians could call for "a strong but decent man" to save the economy, as under military ruler Muhammadu Buhari (1983-85).

By staff writer

© afrol News

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