Introduction

As one year elapses and another takes its place, people are wont to undertake an informed assessment or evaluation of major events that took place in the preceding year. Major government policies and their effects on society are often the m ain considerations. In this piece, an attempt is made to review some of these public policies and their impacts on the nation’s economy.

Economy

The year opened with the 2011 Appropriation Bill still under the consideration of the National Assembly.

Presented by President Goodluck Jonathan on December 15, 2010, the bill sought for a total expenditure of N4.2 trillion comprised mainly of N2.28 trillion recurrent expenditure and N1.01 trillion capital expenditure. It also made provisions for a N542 billion debt servicing fund, N196 billion statutory transfers and was based on $65 per barrel oil benchmark, 2.3 million barrels per day oil output, N150 per dollar foreign exchange rate and seven per cent Gross Domestic Product (GDP) target growth rate.

But by the time both chambers of the national legislature passed a harmonised budget on March 6, 2011, the total proposed expenditure had been padded up to N4.97 trillion. This consisted of N2.47 trillion for recurrent expenditure and N1.56 trillion for capital expenditure. Others were N445 billion for debt servicing and N497 billion for statutory transfers while benchmark oil price, daily oil output, forex rate and target GDP growth rate remained unchanged.

The harmonised budget suggested an increase of over N700 billion resulting partly from an adjustment in the National Assembly budget from N111.23 billion to N232.7 billion which almost led to a stand-off between the Executive and Legislative arms of government as President Jonathan refused to sign the bill into law until sometime in May, after a downward review of the budget to N4.48 trillion.

Public discourse on the 2011 budget centred essentially on the proposed expenditure of about 55 per cent of the total appropriations on recurrent expenditure which comprises mainly of salaries and allowances to political officeholders whereas a lower allocation was earmarked for the rebuilding of decadent infrastructure and investment in the real sectors of the economy.

The return of Nigerian-born former World Bank Managing Director and ex-Finance and Foreign Affairs Minister in the Olusegun Obasanjo administration, Dr Ngozi Okonjo-Iweala, to President Jonathan’s cabinet helped to pacify economic analysts after listening to her comment on tackling the high recurrent expenditure votes, perennial budget deficits and dwindling external reserve during her Senate screening prior to becoming Finance Minister and Coordinator of the Economic Management Team. In fact, the thinking was that her coming will add respectability to the administration and help to reassure foreigners wishing to invest in Nigeria.

Going by figures released by the National Bureau of Statistics, Nigeria’s real Gross Domestic Product GDP grew by 6.64 per cent in the first quarter of 2011, which fell below the projected growth rate of seven per cent. But by the last quarter, the country’s GDP had surpassed the budget benchmark rate by a marginal 0.2 per cent.

The marginal increase was largely attributed to the Federal Government’s slow but steady redirection of attention from massive food importation to investment in the local production of commodities, especially with its new focus on small and medium-scale enterprises (SMEs). Also, mention has to be made of the CBN’s monetary policy instruments with which the apex bank tried to rein in inflation.

Inflation figure for the year in question showed a 12.05 per cent opener for all items and 10.2 per cent for food items alone. This later reached a peak of 12.8 per cent in March for all items while a 12.2 per cent peak for food items was witnessed in February, March and May. The year made its exit with an inflation figure of 9.5 per cent and this comparatively low figure was attributed to the seasonal nature of most food crops whose harvest periods exact a downward pull on their market prices.

The banking sector remained as shaky as it had been in recent time. Particularly disturbing was the CBN governor’s announcement of the commencement of non-interest Islamic banking system in Nigeria. Whereas the Muslims saw it as most welcome, a good number of the Christian clerics saw it as a ploy to Islamise the country.

Also to cause jitters in the minds of the people was the sudden nationalization of three major Nigerian banks by the Asset Management Corporation of Nigeria (AMCON) well ahead of CBN’s September 30, deadline given to some distressed banks to recapitalise. The affected banks namely Afribank Plc, Bank PHB and Spring Bank Plc are now known as Mainstream Bank, Keystone Bank and Enterprise Bank, respectively.

AMCON injected N678 billion to shore up these banks, thereby dousing fears of retrenchments and other anxieties within the banking sector.

Capital Market

Equally characterised by unstable economic performances was the nation’s capital market. The Nigerian Stock Exchange (NSE) which at the beginning of the year still reeled from the effects of corruption allegations and a seemingly unresolved leadership tussle, had its All-Share Index (ASI) drop from 27,380 to 26,500 in January before peaking at 28,745 in early February with a sustained decline all through March and April.

The NSE index did witness an unsteady rise between the months of May and June before nose-diving once more, reaching its all-year lowest of 21,497.6 later in the year.

The CBN’s raise of its monetary policy rate (MPR) by 75 basis points to 8.75 per cent meant that the cost of bank credits went up, too. And for shareholders in quoted firms who had need for such bank loans but couldn’t afford them, the next resort was to sell off part of their holdings in order to raise money. There is no doubt that this affected the stock market.

Similarly, market capitalization started with N8.25 trillion in January before recording a sudden rise to N8.60 in February. But by June, it had started a steady decline, reaching its lowest point at N6.88 trillion in August.

There was also the establishment of a domestic bond market during the year. The Debt Management Office (DMO) said it established the market as an alternative source of borrowing for both government and the organised private sector (OPS).

“We took a decision to focus on developing the domestic debt market for a number of reasons; first of all was so that government could have an alternative source of funding if it must borrow, let it not be constrained to borrow from external sources only, let it have a choice.

The second is that we wanted also to develop the domestic market so that other stakeholders that are not government, particularly the corporate could also borrow long-term from the market for the purpose of developing the real sector of the economy and infrastructure,” said Abraham Nwankwo, during a visit by House of Reps. member, Chudi Uwazuruike.

Foreign Exchange Market

Even with the steady inflow of foreign exchange from oil sales, the Central Bank of Nigeria (CBN) was, for the most part of last year, unable to meet the public demand for US dollar via its official Wholesale Dutch Auction System (WDAS). This had resulted in a sustained public resort to the parallel market, causing a wide gap between the official N150 per dollar price and the parallel market rate of N165 per dollar.

In an attempt to bridge this N15.00 gap, the CBN announced an increase in the dollar sale to bureaux de change from $50,000 to $100,000 each per week and also, with the approval of its Monetary Policy Committee (MPC), increased interbank sales limit to the forex bureau from $250,000 to $500,000 each per week.

With this, the apex bank had hoped to curtail the incidence of arbitrage or round-tripping in the forex market and reduce pressure on the value of the local currency. For the uninitiated, arbitrage or round-tripping simply refers to a situation where market speculators indulge in buying foreign currencies at relatively low official rates and reselling same at high parallel market prices.

When in November the CBN observed that it still could not meet the official market’s dollar demand, it ceased the sale of dollars to international oil companies, advising instead that they utilize the dollar proceeds from their crude oil sales. Again, the apex bank announced a widening of the dollar exchange rate band to between N150 – N160 per dollar.

Conclusion

Barring distortions and distractions caused mainly by lapses in the national security, the year 2011 can be described as one in which Nigeria witnessed a relatively stable economy. In terms of real GDP, food and core inflation, the country was seen to have made favourable postings. And since the 2012 budget (which is part of the Medium-Term Fiscal Framework) is built on the gains of 2011, then the nation can look forward to a better economic future.

Ibelema Jumbo