The Impact of transnational corporations in the banking and other financial institutions on the economy of Nigeria

UNITED NATIONS

ECONOMIC AND SOCIAL COUNCIL

Distr. LIMITED E/ECA/UNCTC/53 30 Sept. 1986 Original; ENGLISH

ECONOMIC COMMISSION FOR AFRICA ECA/UNCTC Joint Unit on

Transnational Corporations

THE IMPACT OF TRANSNATIONAL CORPORATIONS IN THE BANKING AND OTHER FINANCIAL INSTITUTIONS ON THE

ECONOMY OF NIBERIA

The opinions expressed herein are those of the author and do not necessarily represent the views of the United Nations Economic Commission for Africa.

Table of Contents

Parag

1 1 5 13 96

107 10«

133 1 40

161

161

raphs

- 106 - k - 12 - 95 - 106

- 160 - 132 - 139 - 160

- 3*5 - 25*

I. THE ENVIRONMENTAL SETTING

A. Basic Features of the Economy B. Growth Trend

C. The Nigerian Financial System

D. Size of the Nigerian Financial System

II. HISTORICAL DEVELOPMENT OF EACH TYPE OF TRANS NATIONAL FINANCIAL INSTITUTION IK NIGERIA A. Commercial Banks

B. Merchant Banks

C. Insurance Companies

III. OPERATIONS OF TRANSNATIONAL BANKS AND INSURANCE COMPANIES IN NIGERIA

A. Operations of Commercial Banks - Sources and Uses of Funds

B. Operation of Merchant Banks - Sources and

Uses of Funds 255

C. Operations of Insurance Companies - Sources

and Uses of Funds 285

D. Re-insurance 33**

IV. TRANSNATIONAL BANKS AND INSURANCE COMPANIES AND

THE BALANCE OF PAYMENTS 3*6 - 3**l

V. PROFITABILITY OF TRANSNATIONAL BANKS AND INSURANCE

COMPANIES - USES OF PROFITS 3*2 - 390

VI. IMPACT OF THE TRANSNATIONAL BANKS AND OTHER

FINANCIAL INSTITUTIONS ON THE ECONOMY OF NIGERIA. 391 - 1*17

VII. HOST COUNTRY LEGISLATION AND CHANGES IN POLICIES

AND OPERATIONS OF TRANSNATIONAL BANKS AND OTHER

FINANCIAL INSTITUTIONS 41B - 1*33

VI 1 1 . CONCLUSIONS AND RECOMMENDATIONS *3*» - **37

LIST OF TABLES

1. Assets of the Main Financial Institutions and GNP for a few years between I960 and 1980.

2. Paid-up Capital of the 3 major Commercial Banks as at the end of March/September, 1976-1982.

3. Foreign Liabilities and Assets of Commercial Banks in Nigeria 1960-1981 .

4. Ownership of Demand, Time and Savings Deposits in Commercial

Banks in 1975, 1981 and 1982.

5. Certificates of Deposits Outstanding at the end of December during the years 1976-1981.

6. Other Liabilities and other Assets of Commercial Banks, 1960-82.

7. Break-down of other Liabilities and other Assets between Wholly Nigerian and Jointly-owned with Transnationa1s Commercial Banks, 1976-1982.

8. Prescribed Cash Reserve Ratios for Banks in Nigeria, 1976-1982.

9. Permissible Rates of Credit Expansion and Actuals by Banks, 1970-1982.

10. Sectoral Allocation of Loans and Advances - Analysis of Compliance by the 3 major TMB's in Nigeria, 1975-1980.

11. Prescribed Indigenous Borrowers Share of Bank Credit, 1977-1982.

12. Maturity Pattern of Commercial Banks' Loans and Advances 1975 and 1980.

13. Investments of Jointly-owned and wholly Indigenous Commercial Banks in Nigeria, 1976-1982.

14. Merchant Banks' Loans and Advances by Maturity as at December

1971* and December 1975.

15. Premium Income of Insurance Companies Registered in Nigeria 1978-1982.

16. Gross Premium Income of and the Retrocessions by the Nigeria Re,

1978-1982.

17. Flow of Foreign Exchange on Account of Insurance, 1970-1982.

18. Outflow of Foreign Exchange on Account of Interest on Loans from

Nigeria, 1970-1982.

19. Remittances of Non-Trade Insurance 197^-1982.

20. Sources and Uses of Medium and Long-term Funds of Merchant Banks

between 1977 and 1981.

<, I. THE ENVIRONMENTAL SETTING

A. Basic Features of the Economy

1. With an area of about 923.768 square kilometres, (including some 792

kilometres of coast line) a population of around 94 million, and endowed with enormous agricultural and mineral resources, Nigeria is the biggest country in Africa in terms of population and wealth.

2. Though crude petrpleum was discovered for the first time in 1957, it played

a secondary role to agriculture right up to t;he end of the 1960's. In the 1970's,

the production and export of crude oil increased several times; with the sudden increase in the prices of petroleum and petroleum products by the OPEC9 of which Nigeria is a member, the share of crude oil in the national income of the country increased tremendously - from nil in 1957 to about 25per cent in 1980 - and reduced all other sectors of the economy, including agriculture, to a minor role. The

sidd'en increase in wealth (and resources) affected adversely all the other sectors, including agriculture. Though nearly 65 per cent of the population is engaged in agriculture, almost self-sufficiency in food, which was the position till 1970, has become a food--shortage situation as of now. Export of cash crops, which used to contribute substantially to the foreign exchange requirements of the countrys has J

dwindled considerably. • : ;

3. ivs Ambitious plans and incentives were drawn to invest the vast surpluses generated by crude oil-; execution, however, was dismal. The sudden glut of crude, , oil in .'the world and the fall in prices in the early eighties was a serious blow i to Nigeria as it had to cut down its crude oil production from around 2.3 million barrels a day to just above a million. Whereas the country had geared itself ta ; substantial imports, for'consumption (as noted even in the case of agriculture), the sudden fall in the foreign exchange earnings has created severe problem for the economy. All these change in fortunes took place under the Civilian rule which was re-established by the Military from October 1, 1979. The Military have moved back into power from 31 December 1983 and are trying to put the economy on an even heel once again.

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4. The neglect of agriculture and export-oriented commodities and the undue

emphasis on imports and import-oriented industries were realised in i981 and 1982 and in the Fourth Development Plan that was being drawn up, the civilian government

was once again trying to lay more emphasis on agriculture specially with a view to

becoming self-sufficient in food. What importance will be given to food and agri

culture by the Military Government is yet to be seen.

B. Growth Trend

5. In terms of the Gross Domestic/National Products, the country has made substantial progress since its independence in 1960. The per capita income has grown from about US$200 in 1960 to over US$800 in mid-1980 making it one of the middle-income developing countries in the world.

6. Similarly, Gross Capital Formation increased from about N 109/2 million in 1958-59 to about■•» 845 million in 1970-71 and to nearnly N 11 billion in 1981. -

7. Agriculture constituted nearly 2/3 of the GNP in 1958-59; the proportion had come down to less than 25 per cent at the end of 1931 thanks to the increase in:; i contribution from petroleum and from distribution. Petroleum which contributed less than 1 per cent to the GNP in 1960-61 stood at nearly 25 per cent in 1981; distribution, which was about 10 per cent in 1958-59 increased to over 25 per cent in 1981;

8. Though oil, was. discovered in 1957 and began playing an important role in the economy in. the I960*s» the real impact was felt,only in 1970*s. The oil price boom, started in 1973, with a second boost in 1979S increased the importance of oil in the economy enormously. It also led to substantial increase in imports, due to the increase in available foreign exchange resources, and-distorted the structural balance

of the economy. ;

1/ « Report of the IBRD, August 1983.

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9. Agriculture, which forms the backbone of nearly 75 per cent of the popu lation, has had an almost continuous decline from 1975 onwards excepting for the year 1977. Whereas petroleum had its ups and downs9 manufacturing, building

construction and distribution had almost continous increases, though in different

percentages.

10. Value added by manufacturing has had a continuous increase from 1964; but the components of the increase - from base to end products or from imported inter

mediates to finished products - are not readily available.

11. The above increase was not purely due to market forces; it was partially due to the three development plans;- (i) First National Development Plan of 1962-68; (ii) Second National Development Plan of 1970-71; and, (iii) the Third

National Development Plan of 1975-30. Whereas the first two plans were modest -

First Plan with an outlay of H 1,183 million and second with an outlay of N 1,841.5

billion - the Third Plan, with the oil boom, envisaged an outlay of N 45 billion.

The First Plan was distorted due to the Civil War; the Second Plan was affected in

the middle due to the sudden;spurt in oil prices from 1973 onwards. The flush of funds during the Third Plan, due to the booming oil prices, upset the prevailing structure of the economy. In the Foutth National Development Plan of 1981-85, an

outlay of N 82 billion was envisaged; emphasis on agriculture and utilities was proposed to correct the imbalance.

12. The Third Plan could not make much headway due to the prevailing inflationary

situation and increasingly widespread corruption after the return to civilian rule

from October 1979. On December 31s 1983, in the midst of increasing chaos in the economy, .the military againr took;;ipyer the administration of the Government. Tne need .to re-orient the structure of t^ie economy, became self-reliaat in agriculture and increase local production ofrgoods and services, with a view to reduce dependence on external assistance, seems to have taken root.

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C. The Nigerian Financial Systern

13. The Nigerian financial system can be broadly classified into four categories:

1. The Central Bank of Nigeria ' ^ :

2. Intermediation Institution

3. Insurance companies .

4. The Money Market and the Capital Market.

1. The Central Bank of Nigeria

14. The need for a Central Bank for Nigeria was finally conceded by the British masters and the. Central Bank of Nigeria was started, before independence; the ope rations started from 1 July 1959. As in most of the countries, the Central Bank of Nigeria is fully owned by the Government of Nigeria.

15. The Central Bank of Nigeria has been given almost all the traditional functions of a central bank viz. issue of currency, maintenance and management of external

reserves, promotion of monetary stability, banker to the Government, control over other financial institutions in the country and general banking and financial adviser to the Government.

16. For nearly 25 years it has been functioning as the Central Bank of the country and has been mainly responsible for creation of the money and capital markets

(including a Stock Exchange) arid fbr regulating the various financial institutions arid their gradual development to the extent that is now existing. It is^ however,

difficult to make any assessment of its operations as, throughout, the Government has perhaps played a dominant; role in its furictidnirig. Though it is acting as a banker to the Governments it has been kept in the picture on external financing of

Government only marginally. Similarly an interest rate policy, legislation on financial institutions etc. it has been guided by Government rather than the other

way round.

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2. Intermediation Institutions

a) Coiaraercial Banks

17. The Commercial Banks, started by expatriate banks, and dominated by them directly till 1976 and indirectly thereafter, are the most important of all the

financial institutions in Nigeria. They mobilise more than 80 per cent of the

institutional savings in the country; the combined assets of all the commercial banks put together is almost double the assets of the Central Bank.

18. As at the eno"1of December 1983 there were'''25 commercial banks of which 12 had Transnational affiliations (5 of them started in the last 5 years). These l£ own

and operate nearly 70 per cent of the resources of all commercial banks. Of the

balance, excepting in one, in almost all the others the State Governments hold the

dominant, if not 100 per cent, shareholding - still they command just about 30 per cent of the total assets of the commercial banks.

19. Since the Transnational content and influence in the commercial banking sector

is predominant^ the working of the commercial banks'in Nigeria is dealt with in detail

in subsequent chapters. '"'■

b) Merchant Banks

20. As at the end of December 1983 ten merchant banfcs.were functioning; 2 more had been licensed (out of which one was purely Nigerian) but had not yet started

operations.

21. All the merchant banks operating had Transnational affiliation right from the beginning. Though they were expected to provide medium and long-term banking facilities, in addition to investment advice, security issues etc, actually they have concentrated on short-term financing and appear to be more interested in profit making than in

long-term financing of development.

22. The working of the merchant banks, all associated with Transnational banks, is

again dealt with in detail.

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<c> Federal Savings Bank (F. S. B.)

23. A post-office savings bank was started in 1935 by the colonial government.

Though.it had an extensive net-work, it mobilised very small savings, as the ; interest rates offered for deposits was lower than those offered by commercial banfcs

and the service, being a beauraucratic organisation, was very poor - in remote

areas, where no banking facilities existed, people with meagre resources used the

facility. , ,

24. "In an effort to mobilise more savings, the. Federal Government converted the,

institution to an autonomous Federal Savings, Ban£ and brought it under the control of the Central Bank in 1972." —' Deposit rates were brought at par with those of

the commercial banks and the bank was expected to, get out of the beauraucratic red-tape,

But it hag hardly been able to compete witli ottier banks or financial institutions.

In spite of various efforts by the Government and the bank, the cumulative savings

reached a maximum of N 8.1 million as at the end of December 1978. Since then it is coming ,4own and stood at approximately N 4.5 million at the end of December. 1982. For

all practical ipurposes this Government institution can be taken as non-effective - it is in no position to compete with the Transnational Banks or have any important impact on the economy.

(d) Development Banks and Development Financial Institutions

25. These can be divided ithto 3 broad categories :-

1) Wholly owned or controlled by the Federal Government:

(i) Nigerian Industrial Development Bank (NIDB) (ii) Nigerian Bank for Commerce and Industry (NBCl) ' (iii) Nigerian Agricultural and Co-operative Bank ; <NACB)

i (iv) "• Federal Mortgage Bank (FMB) ! t-

2) State Investment Institutions

3) Other Development Finance Institutions ,r

2/ Report of the Committee on the Nigerian Financial System, 1976.

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(1) Wholly Owned or Controlled by the Federal Government

■3 3

(i) Nigerian Industrial Development Bank

26. "Nigeria's experience in institutional development financing dates back to the colonial days in 1946 when the Nigerian Local Development Board (NLDB) was :

established with the objective of;

(a) making grants and loans to government and government financing

infrastructure, public utilities and land development; and

(b) aiding all fostering private Nigerian business activities

by granting loans to co-operatives, partnerships and

companies registered in Nigeria". —o/

This lasted till 1949 when it was split up into 4 Regional 3oards to correspond to the 4 administrative units to which the country was divided at that time. Loaning to individuals was also permitted and three Agricultural Development Boards were set up for development of agricultural production and processing - these agricultural

Boards also to be finaned by the Regional Boards. '■

27. In 1955, excepting for the Western Region, two others were merged; the Western Board was renamed as the Western Region Finance Corporation and allowed to participate in equity and loans both to public and public enterprises. The Federal Loans Board was created to look after the federal territory from 1956. But all these development Boards worked rather in differently due to various reasons.

3/ "Banking and Finance in Nigeria" - Ade T. Ojo and Wole Adewunmi, Graham Bum,

January 1982, p.112.

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28. In 1953 the Federal Government wanted to create a separate central industrial corporation to manage major industrial schemes and help non-governmental development by bringing investment opportunities, capital and management together. This was not pursued due to unsettled political conditions till 1958 when the Government• ireVived the proposal after attainment of internal rule. "Negotiations ensuedwi,th the (Comijiion-

wealth Development Corporation (CI)Cy in the U.K. and the .outcome was ^e

formation of the Investment Company of Nigeria (ICON)9 with an issued capital of

N 2 million"■■ s-J in 1959. The CDC took only N 0.2 million capital and the rest was

financed by various financial and other institutions, including those operating in Nigeria - the bulk of investment vras> ;however>f from abroad. The Federal Government also gave a loan of Ml million on very-favourable terms. The Investment Company of Nigeria (ICON) was expected to assist industrial, commercial and agricultural enterprises.

29. ICON functioned for 5 years. Of the 12 projects in which it participated in loans and equity, " 9 were controlled by foreign interests and 3 by Nigerian

interests". — It helped in the development of the Stock Exchange and on June 30,1962 formed 2 subsidiaries - "(i) ICON Securities Ltd. to carry out its new issues, stock-broking and stock-jobbing operations and (ii) ICON Nominees Ltd. to act as

a nominee company15. - -

kj G.O. Nwanko, The Nigerian Financial Systems, (MacMillan Press) 1980, p.99.

5/ p.99 IBID 6/ p.99 IBID

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30. In 1962 the new Federal Government felt that for such a development bank to have the full backing of the State Governments and for getting the full confidence of local and foreign investors, ICON would require to be re-organised. The Federal Government decided that the Central liaiik 6f ^±^±k should become the single major shareholder, the next feig shareholding to 'fre given to the International Finance Corporation - both together plus a small shareholding by Nigerians sliduld own 51 per cent of the shares and the balance to be given to leading financial institutions in

Europe, Japan and the United States of America. The Federal Government gave an

interest free loan of N 4 million to be repaid in 1980-84; the Bank was also authorized

to borrow up to 3 times the above resources of N 8.5 million (R1 4.5 million 6i paid 1 up capitaland « 4 million of interest free loan from the Government).

31. Though the ICON was re-organised, NIDB more or less continued the policies of ICON; in fact, with the participation of the IFC5 it began adopting the policies

of the World Bank in the appraisal of projects and participation.

32. "The combined operations 6i the ICON and the NIDB from 1959 to September 1966

showed that the two companies^ made a total of 52 loans and equity investment to

H 7.7 million of which ¥ 5.2 million or 67 per cent came from foreign sources. The

controlling interest in 33 of the 52 projects was in foreign hands", — while ICON

invested N 1.4 million in 12 projects during 5 years, NIDB invested N 6.3 million

in 40 projects. The proportion of foreign contribution in the loan and equity to

indigenous Nigerian was six to one through ICON, while through NIDB, it was two to one.

33.. Even in the years 1968 and 1969 the foreign controlled enterprises got the major share of the investment approved by the NIDB.

7/ p. 103. IBID.

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34. There was criticism that the "major-share of the NIDB's investment had been in foreign-owned enterprises and mpst of the projects made by the bank and the clients accrued to the foreigners inspite of the fact that most of the funds had been provided

by Government or through government patronage". & £n July 1970 the Federal Government

.issued a directive that the Bank should "henceforth grant not less than 80 per cent of its loans to indigenous enterprises, provided they were commercially viable." •?/

Realising that Nigerian enterprises may not be able to meet the existing minimum capitalisation requirements of N 20,000 before availing of the facilities from the NIDB, the Government further directed that the capital requirements should be reduced to tf 10,000. Government projects were also declared eligible for loan from the NIDB provided Banks investments in such projects did not exceed 25 per cent of its invest ment". By these means the Government hoped to divert the attention of the bank to smaller schemes and to development rather than safety and profitability.

35. Though the share of lending to Nigerians increased, it was soon realised that the foreign partners were not interested in bringing any capital or sponsoring foreign participating projects but were only interested in decision-making and profits - the bank being asked to raise funds either from the Government or foreign international financial institutions. It was also found that the Bank was interested in financing private-sector projects only and Government projects were supported only "If Government interest is not predominant or is only temporary, pending its being sold to private interest. In carrying outfits own procedures, the NIDB had to satisfy not only the Nigerian public authorities, but the overseas shareholders as well."

8/ Report of the Committee on the Nigerian Financial-System, 1976 9/ Ade T. Ojo and Wole Adewunmi, Banking and Finance in Nigeria

(Graham Burn, January 1982).

10/ Report of the Committee on the Nigerian Financial System, December 1976.

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36. In the wake of Nigerian Enterprises Promotion Decree 1972 and in the context of the above criticism, in 1976 the Federal Government decided and bought 1,619,702 ordinary shares held by foreign investors on that date. In 1977, it took over the

interest of the IFC also following the Nigerianisation decree. "The authorised

capital of the Bank at present stands at N 100 million subscribed by the Federal Government;,Aithe Central Bank of Nigeria and the Private Nigerians in the ratio 59.40 and 1 per cent respectively". —

37. It was only after 1975 that the sanctions and disbursements of Equity and Lorn increased considerably; till then it was generally less than N 10 - 15 million per year. As at the end of December 1982 it had total disbursements in equity and loan, right from its inception in 1964, to the extent of approximately N 380 million.

38. It can be seen that the "NIDB rely heavily on Government funds which are

'•• '■ 12/' ; "'r:" ■:^-r--;'.r;0j •" •■■ ■■" ■■-•:" ■ "'

relatively cheap but inadequate/5 —-or on international institutions. It has 1 tapped the local market for funds. ._....,_- ,... ■...,.,,,, ;■

39. NIDB inherited the two subsidiaries - (i) ICON Securities Ltd., an<3| s(ii) Nominees Ltd. - in 1964. These two subsidiaries continued with the stock-broking and stock-jobbing operation and as"a nominee company" respectively ^ill .^he;Nigerian • Enterprises Promotion Decree 1972, was passed. To meet the new requirements, con sequent on the Act, ICON nominees was renamed ICON stock-brokers, and all £h@ ;at^pck dealing functions and membership of the Lagos Stock Exchange of ICON Securities was transferred to the new institution.

11/ S.O. Asabia, Impact of Nigerian Enterprises Promotion Decrees on the

Banks and Other Financial Markets, 1982, p.10.

12/ p.11, IBID. v ; r

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40. In 1971 ICON Securities was constituted into ICON Merchants Banker's Ltd. to provide Merchant banking services as well as develop the existing new issues business and providevmanagement services to the.ICON Stock-brokers Ltd. In the new institution, NIDB re-tained only 45 per cent of the shareholding, offered 15 per cent to the National Insurance Co. and offered the balance o£ 40 per cent to two Transnational - 25 per cent to the Morgan Guarantee Trust Cd; of U.S.A. and 15 per cent to Banking Brokers Co. Ltd. of U.K. so that "the Merchant Bank would get the senior managerial support from experts." This position continues even now.

41. Though the parent company has no transnational shareholding since 1976, the part shareholding that was offered to the Transnationals in one of its subsidiaries, the ICM Merchant Bankers Ltd. still continues.

(ii) Nigerian Bank for Commerce and Industry (NBCI)

42. The Nigerian. Enterprises Promotion Decree 1972 envisaged sale of a number of commercial and industrial enterprises or part ownership by expatriate firms to Nigerians. It was feared by the Government that Nigerian entrepreneurs may not be

able to get finances from the foreign-controlled banking system.. The Federal Government, therefore, decided to create an institution that would provide funds for such

Nigerianisationi Since this was by itself not a sufficient justification for the establishment of a new institution and since it considered a catalyst bank desirable for indigenisation and development, it set up the NBCI to;

a) engage in all aspects of merchant banking, particularly confirmation of bills and financing obligations of third parties, and acceptance and discounting of bills;

b) underwrite such stocks, shares and debentures as are issued

in furtherance of the policy of the Government;

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c) purchase and sell stocks and shares quoted in the Lagos stock exchange;

d) provide guarantees, including,guarantees in respect of export credit and letters of credit, issued by licensed

■ banks; ■■•-...-:,■ -, : ■ ■ ■ m .■ • :

e) accept term deposits from the public, financial institutions, trust funds, the post office and such other bodies as the Board may direct; and

f) provide cheque facilities for its customers." -—

In short, it would appear that the Government wanted the NBCI not only to provide funds for Nigerianisation but also become a catalyst for development of Nigerian commerce and industry and become a full-pledged Government merchant bank. It was

established in May 1973 with an authorized capital of N 50 million and paid up of

N 10 million (60 per cent by Federal Government and 40 per cent by Central Bank) but it began its operations just 6 months before the promotion decree was due to expire.

43. Contrary to the expectations, the expatriate banks provided the necessary funds to the Nigerians. In fact, certain cases appraised by the NBCI were taken over by expatriate banks and financed. The'Nigerian private sector preferred to deal with the foreign enterprises through the, Government institution. The basic fear with which the institution was created with Government ^and central bank capital proved baseless. The bank, therefore, began appraising investment proposalstand agreeing for participation in new financing (equity and loan) both in the public and in the private sector. It also did not press forward in fulfilling the other objectives of a merchant bank.

/, CO^Nwanko, Nigerian Financial System, MaCMillan Press, 1980, p. 109.

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44. The Nigerian Enterprises Decree 1977 gave a further stimulus and the Bank

has tried to expand its activities by participating in equities and also in loans.

45. As at the end of June 1982 the total assets/liabilities amounted to

N 252.2 million. Loans and advances stood at N 107.4 million and investments at N 26.1 million. Out of the total investment, Government securities accounted for

$ 6 .^m?B:^e N 14»3 were in equities; the balance of N 5.8 million was in private

sector investments.

46. Initially it depended on the Federal Government and the Central Bank for

resources. It has now begun accepting "time deposits" and has also begun raising other liabilities also. Similarly it keeps surplus funds at call or other deposits

"and also in other assets.

47. Though it was initially intended to help replace expatriates, over years it

has become a pure development bank, participating in equity and loans of enterprises incorporated in Nigeria. It has depended so far on local resources for financing -

there is no affiliation with any Transnational Bank or obtaining any funds from abroad.

It has not become a full-fledged merchant bank either.

(iii) Nigerian Agricultural and Co-operative Bank Ltd. (NACB)

48. Although agriculture was the backbone of the country prior to petroleum and

<<more than 70 per cent of the population is still engaged in agriculture, sufficient attention has not been paid to development in that sector. Prior to independence and even afterwards the Regional Boards under the Government were expected to provide the necessary credit for agricultural development.

49. In the national development plan of 1962-68, only a small amount had been

provided for development of agriculture, the emphasis in the plan being on small and <.

large-scale industries. Even this small amount was not spent. The civil war disrupted

agriculture further.

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50. It was only after the civil war that it was realised that agriculture needed development as the methods of operation were outmoded and even traditional agriculture had suffered due to lack of investment specially during the period 1960-70.

51. Since Regional boards had hot functioned successfully and since the commercial

banks had paid very little attention to investment, t&e Government considered it

necessary to start an Agricultural Bank in the second development plan 1970-74. The World Bank also recommended the creation of such a bank.v It was therefore, decided by the Federal Government in March 1973 to set up the "Nigerian Agricultural and Co-operative Bank (NACB)" to enhance the level and quality of agricultural production including horticultures poultry farming, pig breeding* fisheries, forestry and timber production, animal husbandry and any other "type of fanning as well*as storage,

distribution and marketing, connected with such production in the country. -—

14/

The bank started functioning from August 1973 with an initial capital of N 1 million fully subscribed by the Government and a loan of N 11 million from the Federal Government.

52. > The following short-term and long-term objectives were laid downs- Short-term; Create a viable agricultural banking institution that

will assist in implementing its long-term objective.

Long-term objective; Enhance the level and quality of ^agricultural

' production including horticulture, poultry farming, pig-breeding, fisheries, forestry and timber production, animal husbandry and other type of farming, as well as storage and marketing of such v production in Nigeria, within the framework of the approved n plans of the Federal and State/Government* • = •■ r,,..-

14/ Annual Report and Statements of Accounts, 1973, Central Bank of Nigeria.

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53. ' Within the above over all policy, the NAC3 was to:-

" 1. grant loans for agricultural product^OQ including horticultures poultry farming, pig-breeding and for purposes of storage, distribution and marketing connected with such production to

any stored grbiip of sto<res>or any institution for on lending to any farmervgroujj> of-' farmers, or body corporate, subject to the state, or grou^-'of states or state institutions guaranteeing

repayment of the loaiif

: 2. grant direct loans to individual farmers, co-operative societies or other bodies (corporate and unincorporated) in appropriate cases provided that the Bank is satisfied that the schemes for which the loans are requested are viable and there is adequate

security to cover such loans;

3. do all' such other things as may be deemed incidental or conducive to the attainment of the above objectives." —

54. With the atjove objectives, the Bank began lending to projects. By end December 1982,^ it hadtcommitted funds on 510 projects, "as at the end of June

1982, total loans,and advances, of the NACB totalled N 231.1 million". —^ Companies,

co-operatives, and individuals continued to maintain dominance in Bank1s disbursement qfwJLpans and advances. "The Bank's total investment outstanding which were solely

in, equities§, stagnated at its December ri981 level of N 1.00 million shared among 3 projects". —- "'"'• r

55. Here again the Bank has depended on Government resources for its operation.

It has hardly any financial investments or resources of its own. There is no direct

relationship between the Bank and the Transnationals.

/ G.O. Nwanko, Nigerian Financial System, MacMillan Press 1980, p. 112.

JL6/ Annual Report and Statement of Accounts, 1982 - Central Bank of Nigeria, p.64.

17/ p. 64 IBID.

E/ECA/UNCTC/53 Page 17

(iv) Federal Mortgage Bank (FMB) - Mortgage Finance

56. Mortgage Finance, meant specially for house-building, is another very important intermediation that is required in a country like Nigeria where urbani zation is taking place very fast and economic development has started. But

these institutions are still at an early stage. These consist mainly of:

•f 1. State Housing Corporation

2. Federal Mortgage Bank (formerly the Nigeria Housing Development ; ?

Society Ltd. - Nigeria Building Society) , fT

3. City Building Society ( incorporated as City Housing Society) 4. Lagos Building Society., and

5. Co-operative building society. ;

The Government, also advances funds to its employees for house-building. Besides, the Commercial Banks, Merchant Banks and Insurance companies are also encouraged to give advances £or house-building .against Mortgages; in fact since 1970 the credit guidelines issued -by the Central Bank of Nigeria to commercial banks and merchant banks provide for such advances. The Revised Insurance Act of 1976 also provides for, mortgage finance loans being provided by insurance companies to co-operative building societies and investment in real property by'non-life insurance companies up to 10 per cent of their assets and of life companies up to 25 per cent of their assets. Thpugh all these provisions exist the flow of resources through these organisations on real estate has been very small.

57. . Most of the^organisations, other: than the Federal Mortgage Bank, ate small mainly because of inability to mobilise funds. The Nigerian Building Society, which

started as a society in 1957, was converted as the Federal Mortgage Bank in 1977 ' owned 60 per cent by the Federal Government and 40 per cent by the Central Bank.

Though it is allowed to raise deposits, its success has been very modest. It has relied mostly qn subsidised loans from the Federal Government; its assets stood at around N 330 million at the end of 1980.

E/ECA/UNCTC/53 Page 18

58. A few foreign building investment institutions are also existing - but their activities are quite small and are mostly directed towards making profits on cons truction! Their contributions have been modest and impact on the Motifgag!e market ?

negligible. i^

59. Attitude of the transnational commercial banks, merchant foanks and insurance companies on construction only are relevant for the study. This is covered in the paragraphs dealing with the relevant institutions. ^ :

2. State Investment Institutions

60. As stated in para. 26 above, regional financing was attempted prior to the formation of the ICON/NIDB; with limited resources and with the usual bureaucractic

approach these institutions continued to perate even After inde,p€iri$§fieje * When

country was converted from Regions to Statess a number of states or groups of states

continued to operate or establish state investment institutions, some to invest and manage the parastatals as subsidiaries and some to lend or participate in equity of other institutions launched either by the State or by entrepreneurs. ; . r r

61. Most of these institutions appear to be financed from State Government resources.

They would not appear to have gone to the capital market or obtained any substantial resources from the Transnational affiliates. In a number of cases, the transnational affiliates appear to be bankers to these investment institutions and their subsidiaries - they appear to be providing the normal banking:.facilities,,, may-be.-with guarantees

from the State Government. ; ; ; ■ ?,, r

62. No ready information is available on the extent of operation of these; institu tions, tfieir; exact sources of funds* their impact on the economy or their relationship

with the Transnational Banks/other financial institutions. :. *

E/ECA/UNCTC/53 Pape 19

3. Other Development Finance Institutions .,.-.,

63. According to the Committee on the Nigerian Financial System, there are two other institutions in Nigeria by type of ownerships

(i) Mixed Government and private ownership; and (ii) Foreign ownership.

Mixed Government and private ownership ;

There are only 2 such institutions: ; , , ; ■ - (i) Development Finance Company Ltd. (DFC): former

(a) Eastern Nigerian"Government (50%) and (b) the Commonwealth Development Corporation (50%)

(ii) Northern Nigeria Investment Limited (NNIL); (55%) and Commonwealth Development Corporation (45%).

Foreign ownership

The Committee reported the following: .:.^:.; v '.:

1) Bridge5and Viaduct Company Lt"4. r- r;

;;.-, ; 2) :CoramQnwealth Development Corporation (CDC) ;

■•V. 3) Commonwealth Development finance Company (CDFC) 4) John Holt, Investment Company Ltd.

64. As noted by the Committee "The mixed ownership and private investment

companies" now.fall under Schedule III of the Nigerian Enterprises Promotion Decree, These companies are limited in the selection of enterprises they can promote or in which they can participate: they cannot invest in Schedule I* enterprises and can invest only to the extent of 40 per cent and 60 per cent in enterprises in Schedule II* and III* respectively. Even in doing so, they find that the foreign

* Schedule I - Enterprises exclusively reserved for Nigerians.

** Schedule II - Enterprises in respect of which Nigerians must have majority interest.

*** Schedule III - Enterprises in which foreign investors may have majority interest.

E/ECA/UNCTC/53 Page ?o

technical partners for these enterprises sometimes wish to reserve the whole of this participation for themselves". —-18/ The Committee further observed that even within the limits prescribed by the decree, these companies have ample scope for making significant contribution to the development of industry in Nigeria and may, -

therefore, be allowed to operate within the general framework.

65. All these institutions are, therefore, operating. There is, however no ready information available either on the extent of their operation or on their influence on the various individual types of biisiness in which they are operating. During

discussions the Central Bank authorities clarified that they have not attempted either to collect information on these types of financial institutions or regulate them, as their operations9 in the field of financial institutions, are in any case minor.

66. In the absence of details it is difficult to assess their direct or indirect influence either on the inflow or outflow of resources or on the operations in the fields in which they are involved.

(e) Hire-Purchase and Leasing Companies

67. When independent rule was allowed in 1951 and the sterling accummulations began to be used for imports, some hire purchase companies started. The most

important were (a) BenfcworthFinance IrtaV (BFNXsu'b'si-'efla^yof & U-K. based Company,

which was incorporated in 1959S (b) the United Dominican Corporation of U.K. and (c) Independence Finance (affiliation not known); besides some others also started, may be with local participation and it appears that in 1973 when a survey was

conducted by the Central Bank, nearly 22 of them were providing Eire-Purchase

facilities, though, according to the Central Bank, only 3 of the above mentioned could

be considered as true finance-houses.

18/ Report of the Committee on the Nigerian Financial System - 1976, p.57.

E/ECA/UNCTC/53 Page 21

68. Till about 1965 when imports were fairly liberal,1 it appears the Hire-Purchase

facilities (both instalment and non-instalment credit) had reached a figure of nearly

N 3tf million. r ^u& £b the civil war and due to restrictions on imports, the operations dwindled. Just like in the case of the other financial institutions, a hire-purchase Act, 1965, began to be enforced from 1968-69 and restrictions began to be imposed.

On account of legal restrictions as well as lesser availability of goods, hire-purchase began dwindling. United Dominions Corporation merged with the U.b.T. Merchant Bank

in 1973,Independence Finance wourid up its business leaving Eentworth finance

tni only major financial institution, throughout the functioning, these hire-purchase companies used to get finance from the Transnationals for their operations. Credit restrictions imposed by the Central Bank on the Commercial Bank lending was another of the constraints that began to be felt by these finance companies and which led to

their re-organisation or discontinuance of business gradually.

69. With the Nigerianisation move, Bentworth also turned public and offered shares to Nigerians. It became practically the only registered big finance house. BFN t specialised in transport and allied industries; it appears that a few others like Niger Motor Ltd., JAO Finance Ltd., Nigeria Sewing Machine Manufacturing, Co. Ltd. were also providing hire-purchase facilites - the extent of their operations are not known as they were not registered as hire-purchase companies; only Bentworth Finance

continued to be registered and operating as such.

70. With the second development plan, large scale investment . industries began and with the boom both imports, and investments. Equipment leasing began as a big

business, specially after the merchant, banks bepan taking interest in it. It appears Bentworth Finance also, after getting Nigerian participation, began equipment leasing

in addition. "Two of the five merchant banks plus BFNvLtd, have between them a

significant, proportion of leasing business in Nigeria'5, —^ BFN Ltd., in addition, are still specialising in Transport Hire-purchase finance.. r

Ade T. Ojo and Wolde Adewunmi, Bankinp, and Finance in Nigeria, (Graham Burn, 1982, p. 216.

E/ECA/UNCTC/53 PaSe 2 2 r ^

71. Though they are the biggest finance house in the true sense, it is not clear whether other mixed finance houses also exist and indulging in hire-purchase as well as equipment leasing. It appears that some of the expatriate associated manufacturing and trading companies are providing such facilities though not registered.

72. The financial review committee and the Goverment considered it desirable for the Central Bank to oversee and regulate these finance houses also - it was; clarified

by the Central Bank of Nigeria that not^in8 is being done by the Central Bank and

they do not; have any information on t^eir operations. But Bentworth Finance (BFN) ?•■

appears, to be a major finance house^providing both hire-purchase and equipment leasing facilities, with a parent abroad;. It appears to be borrowing from commercial/merctiant banks and operating. The foreign exchange inflow or outflow through this finance house

is not available. ..

(f) Provident Funds, anjd Pension Funds

73. Provident Funds and Pension Funds come mainly under two categoriesi

1. National Provident Fund

2. Pension Funds; .

(a) Public; and

(b) Private. ''''

1* ^National Provident Fund

the launching by the Government in October 1961 of the National Provident Fund (NPF) Act, to provide retirement benefits to non-pensionable Government servants and private institutions employing more than 10 persons, there were hardly any

provident fund schemes. Under this Act, contribution by employees and employers

was envisaged. Gradually, through various enactments/ the National Provident Furc* has been extended to almost all organized establishments. From a modest accumulation of

N 1.1 million at the end of 1962, the accumulation at the end of December 1982 amounted

F./ECA/UNCTC/53 Page 23

to approximately N 411.5 million.—20/ The fund is wholly invested in Government

2"> .'

securities in accordance with section 2(5) of the National Provident Fund Act 196A.~•"•"■' The NPF was an arm of the Ministry of Labour since its establishment in 1961S but with effect from 1974, the Fund became autonomous under an Act and is now administered by the "National Provident Fund Management Board." This major institutional saving organisation is, therefore, purely local and practically an organ of Government - there is no transnational involvement.

(2) Pension Funds; ,

75. (a) Public - All Government servants, whether they are in Government or in Government-owned autonomous institutions, are eligible for non-contributory pension and granted a retirement pension on specified scales and all payments are charged to the consolidated fund of the Government. '

76. (b) Private - Some private employers have set up their own pension schemes to supplement the NPF as NPF is considered inadequate, specially for those with higher incomes. This is provided either through a company pension fund, created and admi nistered by the company itself (maybe through company trustees) or through insurance, which saves the employer of administration of the fund. At the end of September 197°

there were 393 approved pension schemes in Nigeria. ™' 330 insured and 63 uninsured.

On uninsured schemes no statistics is available;, in case of insured als^p no authentic data is available - some non-comprehensive data, for 1978, puts a Yearly Renewable pre mium income of N 2.1 million and sum assured of N 45.94 million. —

20/ Annual Report and Statement of Accounts, 1982, Central Bank of Nigeria, p.41, 21/ Ade T. Ojo and Wole Adewunmi, Banking and Finance in Nigeria,.(Graham Burn^

1982), p. 191 ...?• af

22/ P. 199 IBID. ,,-.-. ;- vi

23/ P. 199 IBID.

E/ECA/UNCTC/53 Page 2 4

77. It appears that for the administration of these private pension funds, a few transnational insurance companies have advisory companies registered in Nigeria. A few of the prominent ones ares-

; 1. Glanville Enthoven & Co. (Nigeria) - Life and pension

: consultants belonging to the Glanville Enthpyen Group of U.K., who in turn belong to the Charterhouse grou^ Ltd. of U.K.

2. The United Provident Insurance who belong to the Commercial Union Assurance Co. Ltd. of U.K.

3. Ark Stewart Wrightson, Nigeria Ltd., who belong to ther Stewart Wrightson Holding of U.K.

4. Nigerian Life and Pension Company (who advised about 200

corporate clients in 1978) and the Nigerian universities , ...

Pension Management Company (Exact affiliation not clear),

78. In the absence of statistics on the extent of these funds and their operations it is not clear how these Transnational broking and

consultancy services are influencing the use of savings arising out of these

funds. ... ■ ;.,., ... . ,.,. : ,.., ■ . .-,. ■ . .... . ; .. ,

(3) Insurance Companies

79. Insurance is another of the non-banking financial institutions that provide

unique services in an economy - they provide coverage to risks both for individuals is basically on their lives and by its very nature spread over a number of years.

On the other hand, in the case of non-life, a policy is generally underwritten every

year.

80. Continuous accumulations in capital and reserves and life fund, in the case

of life companies, also contribute to savings in an economy and could be usefully

invested for development of the economy.

F/FCA/UFCTC/53 Page 25

81. In this area again the expatriate Transnationals had virtual monopoly till 1949 from which time a few Nigerian companies also began. But the expatriate

companies continued to dominate in their premium income, profits etc. right up till

the Nigeria Enterprises Pomorfcion Decrees of 1972 and 1977.

82. When localization efforts began to be made by the Government, transnationals moved from direct insurance to re-insurance. The Government has tried to control the outflow of resources due to insurance or re-insurance by creation of the National Insurance Corporation, owned by the Government, and the Nigerian Re-insurance Cor poration - still outflows on insurance and re-insurance continue as all risks cannot

be covered locally.

83. Out of 85 insurance companies operating in Nigeria as at the end of 1982, 16 of them had Transnational affiliations. Over and above, Transnationals operated through brokers in the country to get re-insurance if not simple insurance.

84. Since the insurance companies are one of the most important types of financial institutions and since the influence of Transnational Insurance and re-insurance companies still exist, a detailed study on the operation of insurance companies is

covered in the subsequent chapters.

The Nigerian Money Market ^r

85. "One of the main objectives of setting up the local money market facilities in Nigeria was to stem the outflow of supply funds into investment outlets in the London money and 'capital market and hence Nigerianize the credit base. Other major reasons included the enhancement of'an effective' monetary manag^^t which, a.

well developed money market vdtild provide the monetary authorities $ ciid • .^^ ^^iq&Lon of

commenrcial banks' management of their portfolio of assets and liabilities". —/

.24/ "Twenty Years of Central Banking in Nigeria", 1959-1979, Central Bank of

Nigeria, p. 132.

e/eca/onctc/53

Page 26

86. Starting with Treasury bills, the Central Bank has tried and suspended/abandoned/

revived other instruments like Call Money deposits, Treasury Certificates, Certificates of Deposit, Banker's Unit Funds Stabilization Securities, etc. A Bill Finance Scheme was also started in 1962 and is operating under modified condition. Sometimes it persuaded the Government to issue treasury bills, even in excess of its requirements

"in the overall interest of encouraging the growth of the market and the repatriation and ooirtralisation pf overseas assets which the financial intermediaries had maintained in the absence of an organised domestic money market". Moreover, this course of

action enabled the Government itself to conserve its foreign exchange" «■—• at the beginning. With foreign exchange control, the outflow of resources by banks has now been stemmed.

87. Though the market was started by the Central Bank of Nigeria even as early as 1962, it cannot be stated that the market has well developed. Very few non-government instruments have appeared in the market; excepting for a small amount of certificates of deposit issued by merchant banks, none of the other financial institutions have issued any other instrument. Even now the bulk of the money market instruments are

government securities. .

The Nigerian Capital Market

88. In broad terms, a capital market consists of all the institutions and facilities which ensure free flow of long-term (capital funds) from.savers to users. Participants in this sense include development banks, corporations, investment trusts, mutual funds

(including co-operative banks, mutual insurance companies and savings and loans

associations) and commercial and merchant banks. To encourage free flow of long-term funds into and through the above institutions, a stock exchange was considered

essential and the Nigeria Stock Exchange was sponsored by the Central Bank in 1960.

Though the main trading floor is in Lagos, there are subsidiary trading floors at Kaduna and Port Harcourt.

25/ p. 132, IBID.

E/ECA/UNCTC/53

Page 27

89. Until 1972, Federal Government Development bonds dominated the Nigeria stock exchange - out of 65 securities issued in the exchange as at the end of 1972, 34

were Government bonds and only 31 were industrial securities (22 equity shares and

9 bonds and preference shares). With the Nigeria Enterprises Promotion Decrees of 1972 and 1977, a number of expatriate firms, who were allowed to retain some share

holdings, issued shares and bonds in the market and thus diluted their shareholdings;

in some cases where they were not allowed to exist, Nigerian firms were encouraged to issue shares in the market. By the end of 1980 some 154 securities were quoted on the Kigeria Stock Exchange (NSE) consisting of 53 Government stocks, 89 equity

securities and 12 industrial bonds and prefarenaa shares. Tha quoted companies were distributed as follows:-

Financial institutions 6

Manufacturing firms - 49 :

Commercial firms - 25 ;

Service firms - 9

Total 89"^/

90. But the operations on the Nigeria Stock Exchange are, however, sluggish, mainly because the typical Nigerian buys securities to hold - nor operate on the stock exchaitge. Even in value terms the operations on the exchange are quite modest when one looks at the size of the economy.

91. When the exchange was incorporated on September 15, 1960 only three firms got themselves registered as brokers:-

1. Nigerian Stock Brokers Ltd. - an associate of Nigerian Acceptance Ltd. which had been working as an acceptance/discount house, which in turn was a subsidiary of the John Holt Group of U.K.

2. ICON Securities Ltd. - a subsidiary of the Investment. Corporation of Nigeria (ICON), a private industrial development finance institution, set up by a group of foreign and Nigerian investors in 1959, and

26/ F.O. Okafor, Transnational Banks in the Nigerian Economy, (Unpublished paper to the UNCTC) p.10.

E/ECA/UNCTC/53

Page 28

3. C.T. Bowring & Co. - Associates of C.T. Bowring & Co. of London.

■ ■ ' -.-■■■• %

§2f Of;■ the above, 2 brokers;-got re-organised from time to time. - Nigerian

Stockbrokers becoming a part of, Financial Holdings (Nig) Ltd. - the holding company for Nigeria Acceptance Ltd., Phillip Hill Nominee Ltd. and N.A.L. Security Ltd. in 1969. Similarly, ICON securities became a subsidiary of ICON, which was re-organized in 1964, on the formation of the NIDB - ICON itself having two transnational affiliates, Baring Brothers of U.K. and Morgan Guarantee Trust Co. of U.S.A.-

93. By 1976-77 three more had been added;

1. City Securities Nigeria Ltd.

2. Financial Trust Co. Nigeria Ltd.

3. Nigeria Acceptances who had become a merchant bank.

94. According to the Annual Report of the Central Bank of Nigeria 1982, "one brokerage firm, Prudential Securities Ltd. was admitted as a dealing member of the Nigeria Stock Exchange during the last quarter of 1982. This brought the number of brokerage firms operat:in^7,in, the Exchange to 13."

95. It would appear that some of the brokers operating on the Exchange are also affiliated to Transnational banks and other institutions. In the absence of further

details it is difficult to assess the impact of transnationals on the development of the Stock Exchange in Nigeria. .... ..,,,..

D. .. Size of. the Nigerian Financial System

96. The following table gives an idea of the size of the financial system

vis-a-vis the Gross National IVoduct of Nigeria.

e/eca/unctc/53

Page 29

1.

2.

3.

4.

5.

6.

7.

8.

9.

Table Assets of the Main Financial

Institutions

Central Bank Commercial Banks

Merchant Banks ; Federal Savings Bank — Mortgage, Institutions—2/

Insurance Companies —

3/

National Provident Fund —4 Hire-Purchase Companies — Dev. .Banks ..$-Investment

Companies —

Total Gross National Product (GNP) Assets of Financial Insti

tutions as % of GNP

few Years 1960 and

I

Institutions and GNP between

1980 J

(N million)

•■Dec.

1960

82.5 235.8

■■•■"■ • - 7.2 3.2 3.9

• NA

• NA

NA

332.6 1192.7

27.88

Dec.

1965

119.5 492.8

■■■ = .->-•,■ .

6uO 11.1 25.6 15.6 NA

7.0

677,6 1605.0

42.22

• ■-

1969-70

392;34 844.66 6.21 4.99 11.05 53.20 73.23 2.26

40.28

1428.22 3936.00

36.3

for a

1974-75

4,078.21 3,222.33 76.13 5.32 42.03 187.27 170.78 8.54

124.29

79X4.90 14387.60

55.01

1980

9,357.42 16,340.SO 1,008.20 7.30

-

532.24 338.00

NA

990.30

28574.86 43571.00

65.5!'

NA - Not Available :• ■ -■••:-■-<;=--■} ' .-.' •

Notes; Vf Post-office savings Bank till 1974. -2/ Nigerian building Society till July

TSTTjf became federal Mortgage Bank (FMB) from that month. Statistics only, of the FMTi as that of others is not available. Figure of FNB for end Dec. '80 included in Dev.

Banks and Investment conpanies. J3/ Only investments of insurance companies iaacat end

Dec. 80. 4/ Only the balance in the fund as at ^ec. 1980. 5/ Only of Bentworth Finance

( i itit^i

y

Co. _7^/Data for non-bonkc (Mortgage institutions,

poixcion inctitu^-ionc-^y hire-purchase companies & investment compares; being not as comprehensive ac-..others, cv higher than amounts shown.

Sources: 1. Central Bank of Nigeria: (i) Economic and Financial Review-Various Issues*

Annual Report & Statement of Accounts - Various Issues. 2. Second & Third National*

Insurance Registry, Lagos; Nigerian Insurance Year Book, 1982.

5. Majority of figures for Development Plan.

(ii)

3.

4- Various Annual Reports of the NIDB, NBCI, NACB & FME.

1969-70 and 74-75 taken from p. 17 -"Banking and Finance in Nigeria" - Ade T.Ojo and

Wole Adewunmi - Graham "Rum, 19*2.

e/eca/ukctc/53

Page 30

97. The money-market accounted for N 5,375.6 million as at the end of December 1980 distributed as follows:

1. Treasury Bills outstanding » 2,119.0 million

2. Treasury Certificates outstanding N 3,027.6 million 3. Other Money Market Institutions N 229.0 million Total (Money Market) N 5,375.6 million

Source: Annual Report and Statement of Accounts for the period ending 30 December 1980. - Central Bank of ..Nigeria.

Most of it was held either by the Central Bank or the Commercial Banks.

98. Similarly the capital-market accounted for approximately N 3,744.80 million W worth of instruments available for trading:-

1. Government Development Stocks N 2,084.12

2. Equity Shares -» N 1,564.27

3. Industrial Banks and Preference

Shares •=•' N 96.41

Total (Capital Market N3,744.80

Note: 1/ Market capitalization as at September 15, 1980, derived by

multiplying the number of each type of security outstanding by the market price of the security.

jtourcejP.14 -"Transnational Banks in the Nigerian Economy" By F.O. Okafor

(Unpublished paper prepared for the UNCTC).

Here again the bulk of the Government Development Stocks were held either by the Central Bank of Nigeria or the Commercial Banks.

99. The market value of the private sector shares and bonds was a very small portion of the total value of investment in manufacturing and other industries in

the country. - ^ r ;

E/eCA/UNCTC/53

Page 31

100. It is apparent from the above that the role of the financial institutions has,increased tremendously in the 1970's. This is apparently due to the flush of oil wealth that, has swept the country during the period. The monetized sector has, there

fore, made great strides.

101. A second apparent position is the tremendous resources oommanded Ifr the banking sector and specially by the commercial and merchant banks. As shown in tne sub

sequent chapters, the commercial banks with transnational affiliations cotnmand nearly 70 per cent of the resources; most of the other commercial banks, owned mostly by Federal/State Government are still in a minority. All the merchant banks have

transnational affiliation.

102. In:the non-banking sector,;the. Federal Government mostly operates the deve lopment banks and financial institutions (including the National Provident Fund) - their share in the total resources of the country cannot be considered very big. In fact,most of the development banks have got most of their resources only from the Government - they have hardly mobilised savings from the community.

103. The other big institution that commands a lot of financial resources is

insurance; the investments show only the accumulated surplus - npt the income or

expenses, as premium income constitute the bulk of the resource every year. In 1983 the premium income underwritten in Nigeria itself was expected to be in the region of SI billion* How much of this- was re-insured with the Transnational bbroad is not clear. As shown in subsequent, chapters, not only the Transnational affiliates

still undertake a substantial,local business but, along with transnational brokers

and agents, are agents in outward re-insurance. . t

E. Transnational Banks and other Financial Institutions not Directly :. . .r|

Represented in Nigeria

104. The above covers the domestic financial structure and the representation

of the Transnational Banks and other financial institutions, in such a structure.

The Transnationals, which are not directly represented have also influence on the

E/ECA/UNCTC/53

Page 32

economy of Nigeria either by their association with private sector trade and industry or by their association with the Government and the public sector. Whereas there is little information on such association with the private sector, their influence on the public sector has increased specially after the Government began borrowing from the Eurodollar market in 1978. Such associations have a direct bearing on the balance of payments .position, of Nigeria. Suitable additions are, therefore, made in the

various chapters on banks and insurance companies though the information is not exhaustive. ,rv • . ■ ^ , .. ;..,

F* Conclusions

105. The Nigerian Financial System, on the face of its looks well developed^and capable of meeting the diverse requirements of the economy. Most of the institutions were started by Transnationals and over years, with nationalist spirit increasing

specially after independence, have been citing forced to become purely national

institutions or have only partial ownership with transnatibnals. The Central Bank of Nigeria, entrusted with the function of regulating the entire financial structure has concentrated only on commercial' Boiks end the Merchant Banks and loft ones to evolve themselves in their own ways; they are neither controlling nor collecting information on non-banking financial intermediaries. Hardly any information is, therefore

available on non-banking institutions excepting to an extent on the Insurance Companies, where again Transnational affiliation persists.

106. From Table 1, however, it is apparent that the Commercial Banks, Merchant Banks and the Insurance Companies, all of whom are having transnational affiliations, dominate the financial market. In the following chapters, the various aspects of the opinion of the above 3 types of instituions, who have got transnational affiliations and on whom information is available, are therefore, covered with a view tc assess their

influence on the economy of Nigeria. . . f .-'j : '.:.;. .1 :::.•■•.;.... 1: : 'i :

e/eca/unctc/53

Page 33

II. Historical Development of Each Type of Transnational Financial Institutions in Nigeria

107. It is clear from the section on the Nigerian Financial System that Trans

national presence exists mainly in the fields of (i) Commercial Banking, (ii) Merchant Banking and (iii) Insurance, in Nigeria, at the moment. The Historical-Development of each of these three types of: institutions is given in this chapter before going over to their operations.

A. Commercial Banks

108. "The African Banking Corporation (a British Company), which had been the sole distributor of British silver coins in Lagos and also the sole repatriating agent

since 1:872, was the first institution to start commercial banking business in Nigeria

in 1892". £U27/ This institution was asked by the British Government to register itself as a joint stock company; on May 31s 1894, the business was registered as the "Bank of British West Africa (BBWA)" in England and became the first commercial bank to operate in Nigeria. The Government of Nigeria, which had transferred its business to the Africa Banking Corporation in 1892 continued its account with the BBWA.;

109. Soon After, in'1899, another group of expatriate traders began a rival organi

sation -r the Bank of Nigeria - and continued operation by extending credit to traders.

110.: Though these two banks, under the charter, were allowed to issue currency notes, neither of them exercised their rights. In 1912 the West African Currency Board was established by the Government of Great Britain to issue currency. In the same year BBWA absorbed the Bank of Nigeria and became the sole commercial bank till the year 1917 when the Barclays (Dominion, Colonial and Overseas Ltd.) opened a branch in Nigeria.

27/ R. Olufemi Edundare, "An Economic History of Nigeria'8 1860-1960, p. 87.

e/ECA/uNCTC/53

Page 34

111. Till the early thirties these were the only two commercial banks that were operating in Nigeria. In the early thirties 3 Nigerian banks started but only the National Bank of Nigeria, started in 1933 survived* Till 1945 when another local bank, the Agbanmagbe bank joined. In 1947 another 2 local banks started - the African

Commercial Bank and the Nigerian Farmers and Commercial Bank; a third expatriate Bank, the British and the French Bank was also established in 1948 and started functioning from 1949.

112. In 1948 the Government appointed a Committee (PATON Committee) to give its recommendations on the development of Commercial Banks. Though the Committee gave its report the same year, the government did not take any decision till 1952 when it passed for the first time, a Banking Ordinance. In the meantime a large number of banks had registered and quite a few had started commercial banking business with slender

resources.

113. The banking ordinance was mainly intended to safeguard the interests of the depositors. It laid down that for carrying on banking business, a company must obtain

"a banking license from the Finance Secretary after paying in cash N 25,000 out of an authorized capital of N 50,000 for indigenous banks and N 200,000 for expatriate

banks", — i.e. those incorporated outside Nigeria but transacting business in Nigeria28/

In addition, it laid down requirements on reserves, writing off of capital expenditure before declaring dividends9 limiting advances to directors etc. "To ensure compliance the ordinance provided for bank examination and supervision." —- . The enactment was29/

applicable to new banHs. immediately and the existing ones were, to comply with all conditions of the ordinance within a period of 3 years, though they liad to apply for a license immediately.

28J G.O. Nwanko, The Nigerian Financial System, MacMillan Press, 1980, p. 48.

29/ p. 48 IBID. .... r . v