POVERTY ALLEVIATION AS A MACHINERY FOR ECONOMIC RE-CONSTRUCTION IN NIGERIA

.   Introduction

Poverty alleviation is one of the most difficult challenges facing any country in the developing world where, on the average, majority of the population is considered poor. Evidences in Nigeria shows that the number of those in poverty has continued to increase. For example the number of those in poverty increased from 27% in 1980 to 46% in 1985 and to 67% in 1996, by 1999 it increased to more than 70% (Ogwumike, 2001). Poverty alleviation programmes in Nigeria are means through which the government aims to revamp and reconstruct the economy. The high incidence of poverty in the country has made poverty alleviation strategies important policy options over the years with varying results. Poverty alleviation strategies ranging from Operation Feed the Nation of 1978, the Green Revolution of 1982, the Directorate of Foods Roads and Rural Infrastructures DFFRI, the National Directorate for Employment NDE, poverty alleviation programme, PAP up to the National Poverty Eradication Programme, NAPEP were all attempts made by various governments in the country to curb the menace. 

This chapter is aimed at appraising the performance of poverty alleviation measures undertaken within the period 1999 – 2006, specifically the Poverty Alleviation Programme (PAP) and the National Poverty Eradication Progarmme (NAPEP). The next section contains the literature review and theoretical issues. Section three appraises the poverty reduction strategies in Nigeria from 1999 to 2006 and the last section contains concluding remarks.

The methodology employed is the use of secondary source of data. Information was gathered through reports, publications, the internet and other secondary sources of data. Specifically data were collected from the Central Bank of Nigeria and the National Poverty Eradication Council (NAPEC). The collected data were analyzed using simple content analysis. The choice of this technique of analysis was informed by the collected data and the objective of the research.

2.   Literature Review and Theoretical Issues

2.1 Concept of Poverty

There is no standard definition of poverty because of its multi-dimensional nature. Poverty is commonly defined as a situation of low income or low consumption. It can also be viewed as a situation in which individuals are unable to meet the basic necessities of life such as food, clothing, shelter, education, security and health. Ajakaiye and Adeyeye (2000) conceptualize poverty as a function of education, health, child mortality and other demographic variables. Poverty to them is the availability or otherwise of the above parameters. In a nut shell poverty can be seen as a situation in which an individual is unable because of economic, social, political and psychological incapacitation, to provide himself and his family the barest basic necessities of life.  

2.2   Classification of Poverty

Poverty can be classified, based on different criteria, as absolute poverty, relative poverty, rural poverty and urban poverty. Absolute poverty refers to lack of minimum physical requirements for existence; relative poverty on the other hand refers to a situation in which a persons’ or households’ provision of goods is lower than that of others. Rural poverty is characterized by poor material condition, low level of education, lack of infrastructures, poor health condition, underemployment, low investment and high out- migration. Urban poverty on the other hand is characterized by environmental degradation, overcrowded accommodation, low per capita income, and other problems associated with urban areas such as slums, ghettos and shanties (Galbraith, 1969; Rogers etal, 1988)   

2.3   Causes and Consequences of Poverty

Obadan (1997) identified some factors as the causes of poverty among which are; inadequate access to employment opportunities, inadequate physical assets, inadequate access to markets, destruction of natural resources, lack of power to participate in design of development programmes and inadequate access to assistance for those living at the margin. On the consequences of poverty, Aku etal (1997) opined that there is general loss of confidence in a society stricken by poverty and this renders government policies ineffective. Poverty also results in increasing the fragility and vulnerability of members of society to external influences. Furthermore, poverty makes production remain largely subsistence due to lack of capital needed for expansion. Labour becomes intensive and marginal productivity remains low.    

2.4    Approaches to Poverty Alleviation     

There are many approaches to poverty alleviation, some of which are;

Economic Growth Approach – Given the low labour absorption capacity of the industrial sector, broad based economic growth should be encouraged. This should focus on capital formation as it relates to capital stock, and human capital. Human capital formation has to do with education, health, nutrition and housing needs of labour. This is obvious from the fact that investment in these facets of human capital improves the quality of labour and thus its productivity. Thus to ensure growth that takes care of poverty, the share of human capital as a source of growth in output has to be accorded the rightful place.

 Basic Needs Approach – This calls for the provision of basic needs such as food, shelter, water, sanitation, health care, basic education, transportation etc. Unless there is proper targeting, this approach may not directly impact on the poor because of their inherent disadvantage in terms of political power and the ability to influence the choice and location of government programmes and projects.

Rural Development Approach – This approach sees the rural sector as a unique sector in terms of poverty reduction. This is because majority of the poor in developing countries live in this sector. In addition, the level of paid employment in this sector is very low this means that, traditional measures of alleviating poverty may not easily work in the rural sector without radical changes in the assets ownership structure, credit structure, etc. Emphasis in this approach to development has focused on the Integrated Approach to rural development. This approach recognizes that poverty is multi – dimensional and

therefore, requires a multi – pronged approach. The approach aims at the provision of

basic necessities of life such as food, shelter, safe drinking water, education, health care,

employment and income generating opportunities to the rural dwellers in general and the

poor in particular. One basic problem with this approach to poverty reduction is that it is

difficult to focus attention on the real poor given that poverty in the rural area is pervasive. In other words it makes targeting of poverty reduction programmes very

difficult.

Target Approach – This approach favours directing poverty alleviation programmes at specific groups within the country. It includes such programmes as Social Safety Nets, Micro Credits, and School Meal programme.

2.5   Poverty Reduction Strategies in Nigeria

In Nigeria, the poverty alleviation measures implemented so far have focused more on

growth, basic needs and rural development approaches. They can be looked at from two perspectives; that is those in the pre SAP era and those in the SAP era

The Pre-SAP Era

During this era, poverty reduction was never the direct focus of development planning and management. Government only showed concern for poverty reduction indirectly. For example, the objectives of the first National Development Plan in Nigeria included the development of opportunities in health, employment and education as well as improvement of access to these opportunities. These objectives, if achieved could no doubt lead to poverty alleviation. Similarly, the Fourth National Development Plan, which appeared to be more precise in the specification of objectives that are associated

with poverty reduction, emphasized increase in real income of the average citizen as well

as reduction of income inequality, among other things (see Ogwumike, 1987 and 1998).

During this era’s national development plans, many of the programmes which were put in

place in Nigeria by the government (either wholly or in association with international

agencies) had positive effects on poverty reduction although the target population for

some of the programmes were not specified explicitly as poor people or communities

(Ogwumike, 1995 and 1998). Some of such programmes are, the River Basin Development Authorities

(RBDA), the Agricultural Development Programmes (ADP), the Agricultural Credit

Guarantee Scheme (ACGS), the Rural Electrification Scheme (RES), and the Rural

Banking Programme (RBP). Most of these programmes were designed to take care of

such objectives as employment generation, enhancing agricultural output and income,

and stemming the tide of rural – urban migration, which no doubt affected poverty

reduction. Despite some significant degree of success made by some of these programmes, most of them could not be sustained. In fact, with time, many of them failed as a result of diversion from the original focus. For instance, the Rural Banking and the Agricultural Credit Guarantee Scheme at many stages failed to deliver the desired

credit for agricultural and rural transformation because a lot of savings were mobilized in

the rural areas only to be diverted to urban areas in form of credits/investments. Other notable poverty reduction related programmes that were put in place in Nigeria before the advent of the Structural Adjustment Programme (SAP) include Operation Feed the Nation (OFN) set up in 1977, Free and Compulsory primary Education (FCPE) set up also in 1977, Green Revolution established in 1980, and Low-Cost Housing Scheme. Both OFN and Green Revolution were set up to boost agricultural production and improve the general performance of the agricultural sector among other things. These programmes made some laudable impacts; they enhanced the quality of life of many Nigerians. But the programmes could not be sustained due to lack of political will and commitment, policy instability and insufficient involvement of the beneficiaries in these programmes.

The SAP Era

Conscious policy effort by government towards poverty alleviation began in Nigeria during the era of the Structural Adjustment Programme (SAP). The severe economic crisis in Nigeria in the early 1980s worsened the quality of life of most Nigerians. The government made a determined effort to check the crisis through the adoption of SAP. However, the implementation of SAP further worsened the living conditions of many Nigerians especially the poor who were the most vulnerable group. This made the government to design and implement many poverty alleviation programmes between 1986 and 1993. Also, under the guided deregulation that spanned the period 1993 to 1998, more poverty reduction programmes were put in place by government. Oladeji and Abiola (1998) identified them as: The Directorate for Foods Roads and Rural Infrastructures (DFFRI), the National Directorate for Employment (NDE), Better Life Programme (BLP), People’s Bank of Nigeria (PBN), Community Banks (CB), Family Support Programme (FSP) and the Family Economic Advancement Programme (FEAP).

2.6  Theoretical issues

Most studies of poverty alleviation have adopted different theoretical underpinnings in order to find a workable solution to their subject matter. These theories include the underdevelopment/dependency theories, the vent for surplus theory, the theory of basic needs and the individual deficiencies theory. These theories were more concerned with alleviating poverty without giving due attention to its root cause. This work adopts the theory of cumulative and cyclical interdependencies as its framework because the theory looks at individuals and their community as caught in a spiral of opportunity and problems, hence individual and community resources are mutually dependent.

Cumulative and cyclical interdependencies theory originated from the works of Myrdal (1957) who coined it as “interlocking, circular, interdependence within a process of cumulative causation” Myrdal argued that personal and community well being are closely linked in a cascade of negative consequences, and that closure of a factory or other crises can lead to a cascade of personal and community problems including migration of people from a community. Thus the interdependence of factors creating poverty actually accelerates once a cycle of decline starts. For example, at the community level, a lack of employment opportunities leads to out migration, closing retail stores and declining local tax revenue which lead to deterioration of schools and lead to poorly trained workers, resulting in firms not being able to utilize technology fully, which in turn leads back to a greater lack of employment. This cycle also repeats itself at the individual level. The lack of employment leads to lack of consumption and spending due to inadequate incomes, and to in adequate savings, which means that individuals can not invest in training, and individuals also lacks the ability to invest in businesses, or to start their own businesses, which leads to lack of expansion, erosion of market and disinvestment, all of which feed back to inadequate opportunities. Health problems and the inability to afford preventive medicine, a good diet, and a healthy living environments become reasons the poor fall further behind.

The complexity of the cycle of poverty means that anti-poverty progarmmes or solutions need to be equally complex, since poverty is not just from one cause but many. There is the need to follow steps in order to break the cycle. The following programmes were identified by Brandshaw (2006) as cycle-breaking efforts for alleviating poverty:

(a)Income and economic assets.

(b)Education and skills.

(c)Housing and surrounding (safe, attractive)

(d)Access to health care and other needed services.

(e)Close personal ties, as well as network to others.

(f)Personal resourcefulness and leadership abilities.

  

A key piece of this comprehensive approach to helping individuals from poverty is that there is no way the government can do all of this for every person without first increasing social capital among communities or subcultures of the poor. Strong interpersonal ties as in villages or organized groups can provide shared assistance that professionals can not. The key is helping groups of poor people build supportive communities with shared trust and mutuality. This program consciously seeks the benefits of building social capital (following Putman 2000) based on ‘affinity groups’ where people share common interests from their ethnicity, religion, family history, living area, or other sources of friendship.

Poverty alleviation programmes should structure their efforts around three focal points for breaking the cycle of poverty. These programme structures, like the cyclical theory itself, combine strategies and tools from response to the other theories of poverty.

1. Comprehensiveness. The first strategy to breaking the cycle of poverty is to develop comprehensive programmes. Comprehensive programmes are ones that include a variety of services and that try to bridge the individual and community needs.

2. Collaboration. The key to executing extensive programmes without becoming too uncontrolled is collaboration among different organizations to provide complementary services so that by their combination of efforts, the output is greater than could be done by each one alone. Collaboration involves networks among participants, though the coordination can vary from formal to informal.

3. Community Organizing. Finally, community organizing is a tool by which local people can participate to understand how their personal lives and the community well being are intertwined. Breaking the cycle of poverty must include individuals to participate as a community in the process, just like individuals create the spiral downward when they and their community interact in a cycle of failure. For the poor, empowerment is central to this issue.

It is interesting that this is the approach to poverty alleviation that is the least commonly described in the poverty literature, but community based examples are what are brought out whenever successes are discussed. There are no comprehensive community based self-sufficiency programmes from the federal government or most states.

3.  Appraisal of the Poverty Alleviation Programmes (1999 – 2006)

In 1999 when the Obasanjo administration came to power, it was estimated that more than 70% of Nigerians lived in poverty. That was why, in November 1999, the N470 billion Budget for year 2000 was to relieve poverty. Before the National Assembly even passed the 2000 Budget the government got an approval to commit N10 billion to poverty alleviation programme (Ogwumike, 2001). Poverty alleviation was seen as a means through which the government could reconstruct the economy and rebuild self esteem in majority of Nigerians. Among the poverty alleviation programmes were; the launching of Universal Basic Education (UBE) Programme, the Poverty Alleviation Programme (PAP) and the National Poverty Eradication Programme (NAPEP).

3.1   The Poverty Alleviation Programme (PAP)

This programme was introduced in 2000 to address the problems of rising unemployment and crime rates especially among the youth. The primary objectives of PAP, are as follows;

(a) Reduce the problem of unemployment and hence raise effective demand in the economy.

(b) Increase the productiveness of the economy and

(c)  Drastically reduce the embarrassing crime wave in the society.

The targets/components of PAP as identified by Obadan (2001) include the followings;

-          Provide jobs for 200,000 unemployed,

-          Create a credit delivery system from which farmers will have access to credit facilities

-          Increase the adult literacy rate from 51% to 70% by 2003

-          Shoot up health care delivery system from its present 40% to 70% by year 2003

-          Increase the immunization of children from 40% to 100%

-          Raise rural water supply from 30% to 60% and same for rural electrification.

-          Embark on training and  attainment of at least 60% of tertiary institutions’ graduates and

-          Development of simple processes and small scale industries.

Several measures were put forward in order to achieve the above objectives and they include among others; increase in the salary of public workers, rationalization of organizations and methods within the system, particularly that of the existing poverty alleviation institutions, encouraging and rewarding all deserving Nigerians for industry and enterprise, substantial reduction of avenues for easy and illegitimate acquisition of wealth and the launching of the Universal Basic Education Programme.

3.2    Appraisal of Poverty Alleviation Programme (PAP)

Looking carefully at the objectives of PAP, one can deduce that it was designed to touch almost all aspect of poverty ranging from absolute to regional poverty. It was however more specific in curbing unemployment hence raising the income of individuals so that their spending would increase and hence their needs be satisfied. However like in most programmes, PAP was hindered by poor implementation and being short term in nature it lacked continuity. The aim of the programme was defeated as credits given to finance micro enterprises were not utilized by the beneficiaries in such enterprises meaning that the target for employment generation was missed. PAP was also perceived as initiative of the ruling party’s programme and therefore was not given much attention and, in some cases, resisted by chief executives of states controlled by the opposition parties. For example, Obadan (2001) observed that in the year 2000, “there were reports that the Alliance for Democracy (AD) governors of south west zone of the country were apprehensive that the peoples Democratic Party (PDP) at the centre might have conceived of the PAP for strategic political gains. Indeed there were allegations of AD governors working against the PAP in order to frustrate the PDP federal government. Despite the problems encountered in the course of implementation of PAP, Oyiza (2003) noted that it has succeeded in providing 82,000 jobs to different kinds of people across the country.

3.3   National Poverty Eradication Programme (NAPEP) 

The programme was introduced in 2001. It was aimed at the provision of “strategies for the eradication of absolute poverty in Nigeria” (FRN, 2001) It was complemented by the National Poverty Eradication Council (NAPEC) which was to coordinate the poverty reduction related activities of all the relevant Ministries, Parastatals and Agencies. The council had the mandate to ensure that the wide range of activities were centrally planned, coordinated and complement one another so that the objectives of policy continuity and sustainability were achieved. The poverty reduction related activities of the relevant institutions under NAPEP have been classified into four, namely;

-          Youth Empowerment Scheme (YES) which deals with capacity acquisition, mandatory attachment, productivity improvement, credit delivery, technology and development and enterprise promotion.

-          Rural Infrastructure Development Scheme (RIDS) this deals with the provision of potable and irrigation water, transport (rural and urban), rural energy and power support

-          Social Welfare Service Scheme (SOWESS) this deals with special education, primary healthcare services, establishment and maintenance of recreational centers , public awareness facilities, youth and students hostels development, environmental protection facilities, food security provisions, micro and macro credits delivery, rural telecommunications facilities, provision of mass transit, and maintenance culture.

-          Natural Resource Development and Conservation Scheme (NRDCS) this deals with harnessing of agricultural, water, solid mineral resources, conservation of land and space particularly for convenient and effective utilization by small scale operators and the immediate community.

3.4   Appraisal of the National Poverty Eradication Programme (NAPEP)

NAPEP was centered on youth empowerment, provision of infrastructures, social welfare scheme and natural resource development/conservation. It was however broad based and encompassing. It tried to adopt the participatory, bottom-up approach in programme implementation and monitoring. However, a critical assessment of NAPEP revealed that it concentrated more on the youth empowerment scheme (YES) neglecting the other mandates; even the YES itself  focused more on the disbursement and administration of NAPEP’s vehicle popularly called “KEKE NAPEP” On the issue of natural resource development and conservation scheme, Abdu (2005) observed that less than 20% of the target beneficiaries have benefited through this scheme. This means that NAPEP has not made much impact in harnessing agricultural, water and solid minerals resources and conservation efforts especially in the rural areas where the main occupation is agriculture.

It has also been observed that most of the poor people have not participated in  NAPEP’s programmes due to lack of access to social and economic infrastructures provided to improve human capital. By and large the local people were not included in the identification of projects meaning that the ones identified were in most cases, inappropriate and unsustainable. It was also observed by Abdu (2005) that in most localities, the credit facilities and other infrastructures provided by NAPEP were enjoyed by members of the ruling party while those identified as opposition were denied access and did not benefit from the programme thereby remaining in poverty. To crown it all, even where the ruling party loyalist were given the credit facilities, the funds were in many cases utilized for other purposes the result of which was that, in the long run the intended beneficiaries remained poor.

One of the greatest achievements of both PAP and NAPEP was the success of the programmes in providing jobs to a number of youth across the country. Through NAPEP’s Youth Empowerment Scheme, a lot of unemployed youth acquired entrepreneurial and business skills in many areas resulting in the relative increase in their income levels. The Universal Basic Education which is a strategy employed by PAP in increasing literacy rate also made an impact in many communities where classrooms were constructed and learning materials provided for the benefit of the citizens.

However a lot of problems have been encountered in the process of implementing the programmes. These problems includes: lack of involvement (in most cases) of the local people in the identification of projects, administrative and operational problems and above all, the failure in the selection of the target beneficiaries due to political reasons.   

3.5   Conclusion and Recommendations

Considering the current poverty incidence in the country, one can conclude that the past poverty alleviation programmes have not achieved much. This is perhaps due to the problems identified as hindering the effective implementation of the programmes. The objectives and mandate of both PAP and NAPEP were aimed at provision of employment and income generation through various activities; however lack of involvement of the target beneficiaries in identifying the right projects coupled with administrative and operational failures were among the problems identified as hindering the achievement of the objectives of the programmes.

There is thus the need for involvement of the local people in the identification and design of projects so that sufficient participation can be achieved. Poverty alleviation programmes should also be designed I such a way as to be sustainable and should be geared towards provision of sustainable employment so that in the long run, their impacts trickle down to the grassroots. In addition, to alleviate poverty effectively, there is the need for the government to supply necessary inputs that can improve people’s livelihood, productivity and increase in their wealth (income). These inputs can be in form of fertilizers, farming machines, seeds, training programmes, skill acquisition programmes, credit facilities and others.     

References

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                       Coordination and Monitoring” NAPEP Abuja.

Bradshaw, T.K. (2006), “Theories of Poverty and Anti- Poverty Programs in

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                                7^th  Annual Conference of the Zonal Research Unit of CBN

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THE GLOBAL ECONOMIC DOWNTURN – OUTLOOK FOR THE NIGERIAN CAPITAL MARKET

by
Mustapha Muktar, Ph.D
Department of Economics
Bayero University, Kano-Nigeria
Introduction

The reign bearing of the ‘bull’ and ‘bear’ that is the alternating expectations of stock price rise or drop is a common feature of any capital market throughout the world. In Nigeria in the past couple of years, the bullish trend has persisted so much so that normal swings in price movements that should characterize a stock market is discounted. The Nigerian stock market has blossomed so much these past few years that it was being rated globally as among the bourses that offer the highest return on investment. The number of quoted companies and share holder size has grown exponentially including all manner of persons: speculators, jobber’s ordinary traders and money grubbers. By the second quarter of 2008 some investors took the easiest route out off-loading their stock holdings as speculations of the global economic down turn and policy signals were unleashed on the market. This paper will examine the factors that are behind the crises in the Nigerian capital Market under the current economic downturn; however emphasis will be made on the domestic factors that have contributed to the crises in the market.

Some long-standing market players, having been hit by enormous losses in recent times are already considering alternative investment options, much less those who only discovered the goldmine in stock investment, at the outset of the banking sector consolidation.

This first major bear season since the consolidation in the banking sector saw the market capitalisation of the Nigerian Stock Exchange, which represents the aggregate value of companies or stocks, dipping from N13tn in March to N10.87tn on Friday.

Although it is normal for stock prices to go up or down with the interplay of the forces of demand supply, investors were alarmed by the persistent decline in the prices of stocks, which has lasted for over three months.

The causes of the economic downturn in 2008

• Falling House prices.
• Credit crunch.
• Contraction of Credit following demise of Lehman Brothers and other Financial Giants.
• Fall in Confidence affecting consumer spending and investment.
• Global downturn in economic growth.
• Cost Push inflation of early 2008, causing a squeeze in living standards.

·         Massive job loss due to problems in the financial sector.

·         Global rise in the price of Foodstuffs and other goods.

·         excessively loose monetary policy which lead to crash in the global capital markets

·         Downward fall in the world Price of crude oil.

Causes of the Crises in the Nigerian Capital market

·         Significant disinvestment by foreign investors

·         Lingering liquidity tightness; waning public confidence;

·         Panic selling by domestic investors;

·         Possible second round effects on the balance sheet of banks through increased provisioning for bad debts and lower profitability.

·         Huge Margin Trading Losses

·         Lagged Contagion from the Global Financial Crisis

Domestic Factors that Lead to the Crash of Nigerian Capital Market

Commercial Banks’ Margin Loans,   It is a practice in all markets of the world, be it New York or London; players take margin loans from their banks to trade. There are rules (relating to this loan), basically, the person, who approaches the bank to a margin loan, will be instructed by the bank to deposit cash or shares equivalent to about 30 or 40 per cent of the loan he wants to take. For example, if you want to take N100 loan, the bank will ask you to bring N30 in cash or equivalent, in the credit process of the bank, the bank is saying that because the market is liquid and shares quoted on the stock market are near cash, I am willing to accept that as additional security.

The reality that happens in Nigeria is that the banks themselves scavenge for people to come and collect margin loans at cheaper rate some investors even got the loan without depositing the 30% or 40% and indirectly it is not the performance of some companies that determines the marketability of their shares but rather some arrangement have taken place giving the public a false impression on the performance some companies.

Anywhere in the world, margin loans are used for stock market and that is what makes the market grow. Like has been explained, every kobo that the bank has given to a broker was used to pay for shares bought on behalf of the bank. When you have a margin account, it is a joint venture business (but) it is the broker that takes the maximum risk. You are saying, 'I am willing to loss up to 30 per cent' and when it goes down, the bank immediately realises the shares. If you look at all the documentations signed in the banks, they would put the clause there that the bank would sell without recourse to you. Most of them chose not to sell at that time (when the meltdown started), hoping that this was a minor correction, unfortunately, it wasn't, it had become a major depression in the market.

Performance, changes in government or regulators, bad publicity, is some contributors to price fluctuations. In the recent stock market scenario, the relative ease for accessing these margin loans created a huge demand on just about any quoted company, with the result of prolonged periods of upward price movements. This unnatural push led to several shares trading at prices way beyond levels justified by market fundamentals calibrated by the company’s historical and near term performance. The immediate jumbo profits from these transactions dulled the sensitivity to the prevailing risks of a reverse trend.

The banks were said to be owed more than 388 billion naira margin debt by stock broking firms who have found it difficult to pay back the loan. In order to minimize loss, banks went ahead to aggressively dispose of the equities held by the broking firms. This singular action led to the massive offloading of shares by other investors who saw the banks action as loss of confidence in the market. The public has grown confidence in the strong capital base of the banks since post consolidation. Seeing the banks exiting the market was a signal of doom to other investors who have continued to mount pressure on their brokers to sell off their shares. Confidence is now at its lowest ebb. No one really knows when the bulls will return. However, one thing is sure- the lessons learnt from the price crash cannot be forgotten in a hurry.

Nigerian financial institutions found themselves overexposed in non-performing loans, which leads to liquidity crunch. The institution may find it really difficult to meet regular day-to-day transactions. This forced some of them to borrow from other banks at exorbitant rates which worsened the already bad situation.

Loss of customer confidence and patronage, unhealthy competition for rapid growth leads to focus away from core customers to stock market and investment analysts who are constantly watching out for year-end profit numbers which become pivots for share price appreciation and public demonstration of profitability. Consequently, the risk management system of some Nigerian financial institutions that should be based on sound governance, stability, customer relations, transparent finances, security of customer and shareholder funds become eroded. This further reduces the chances of attracting potential future investors and new customers. Customers will naturally keep faith with a stable, customer friendly bank with moderate profits than a high risk institution with astronomical profits.

Another cause is the faults in  domestic monetary and financial policies such as the untimely reversal of the margin trading policy which halted the fuelling of the bull market as well as the consequent increased pressure on banks a few months from the halt of the policy to start recalling their funds; the increase in MPR from 9.50% to 10.5% in a bid to curb the seeming excess liquidity which was also part of the underlying reason for halting the margin facility; the rumours of a CBN policy on the harmonization of banks' year end which triggered a desperation in the industry for fund mobilization which equally bid up the interest rates and made the money market even more attractive. The response of the international investment community to the developments within the domestic financial market environment their reaction to developments in their own financial landscape is another causes that is worthy of mentioning. When the global economy started to operate at the borderline of recession, investors and entrepreneurs generally scouted in desperate panic for alternative investment outlets and opportunities for better returns and minimization of losses.

The Nigerian market which at the time was being driven by excessive bank credits following heavily engineered recapitalization became the coveted bride. For many of the banks with heavily skewed ownership structure the battle for maintenance of the existing ownership structure resulted in shades of financial engineering through the use of re-labelled customer funds and credits from colluding banks to finance the acquisition of trillions of shares. And through a second level of share price engineering at the stock market, ballooned and manipulated prices created enough funds to repay creditors. And to further cover the trail, there was need for second and third rounds of capital raising exercises. Prices of equities continued to soar as if it would never recede. The capital world hailed the Nigerian market as one with the highest returns in the world; and one which equally offers huge opportunities for portfolio diversification in the face of the imminent depression in their markets. As a result, there were massive inflows of portfolio investments into the Nigerian stock market.

Many foreign investment banks promptly set up offices in Nigeria in order to closely monitor and take advantage of the opportunities which the market offered. Earlier in 2006, following the central bank's appointment of 14 local banks to manage the country's foreign reserve, robust relationships developed between the foreign asset managers with which local banks were then mandatorily expected to work with. This relationship further created opportunities for entry into the Nigerian financial market. There was however a series of domestic financial policy faux passes which invariably initiated a reversal of these inflows. The first was the Central Bank of Nigeria's decision to stop the then massive credit expansions which took place via bank lending for equities. The implication of this pronouncement was far-reaching as the hitherto seemingly endless upward price movement of Nigerian stocks, particularly the equities of the banks which were driven by the banks' credit-backed demand pressure, halted. Banks had sustained the equity market boom by using a combination of tactics - direct interventions through lending to stock broking firms primarily to buy their (the bank's) shares  to sustain demand pressure on their stocks such that its prices continued to rise without corresponding appreciation on the underlying values. Shares particularly by these foreign investors who reckoned that the Nigerian market was indeed headed to experience exactly what other global markets were facing. True to that perception, the price slide which started since then has not stopped. The loss of confidence in the market was further strengthened when the Nigerian Stock Exchange declared that one week was going to be a week of price increases only.  

This foreclosed two categories of investors: those who have correctly anticipated the market correction and are awaiting prices to adjust to their correct underlying values before they purchase and those who have large volumes of shares but discover that they cannot easily dispose of them because of these rigidities. For the former group, who would buy at some low prices and wait for a rebound, they are deprived of that opportunity. Furthermore tolerance of such clear violation of fundamental market rules means that indeed they could wake up any day and be confronted by yet another measure that can possibly wipe off their profits. This anti-market decision was a prompt warning to foreign investors who heightened the pace of their fund withdrawals from the Nigerian market.  Another reason for fund withdrawal by these foreign investment banks was the economic crises in their home country too which resulted in tremendous losses and required that they seek funds from wherever they could to service debts created by that situation. Withdrawals for this reason was however given fillip because of the already declining and un-cheery local market which could not correctly provide the required diversification for their weakening portfolio. If the stock market was not initially hurt by Nigeria's own monetary policies, lax bank supervision, anti-(equity)market regulations, it is most unlikely that the massive withdrawal of funds as was being alluded to would have taken place at the level at which it occurred.

Conclusion

The persistent bear run being witnessed in the Nigerian capital market, which has led to huge losses for individual and institutional investors in the past few months, has generated heated debates on the viability of continuous investment in the market.Investors when faced with risks of outright losses would be more interested in loss minimization or profit maximization where it is still possible. Thus if the Nigerian market had provided better real alternatives that would help diversify foreign investment portfolios which could equally result in substantial loss minimizations, the funds pull-out would not have been a large-scale affair. On the contrary, the Nigerian market would have served as a buffer under such emerging circumstances. However there were remedies from Securities and Exchange Commission, the Nigerian Stock Exchange, the Central Bank and even the federal government have all come up with varying measures aimed at stemming the tide in the market place. The earliest reactions came from the Nigerian Stock Exchange who imposed a one-week fixed floor on price drop such that while it was possible for the prices of stocks to go up, it was not possible for them to come down.

THE NEED FOR EFFECTIVE RECORD KEEPING AND ACCOUNTING SYSTEM AT LOCAL GOVERNMENT LEVEL

THE NEED FOR  EFFECTIVE RECORD KEEPING AND ACCOUNTING SYSTEM AT LOCAL GOVERNMENT LEVEL

By

Dr. Muktar Mustapha Kurawa

(mmuktar75@yahoo.com)

Department of Economics

Bayero University, Kano-Nigeria

Introduction

Book keeping is the act of recording transactions in a set of books, while accounting is the summary of all the book keeping entries such that a complete record keeping system is established. Accounting is also considered as the process in which the financial transactions and events of an organization are recorded for the purpose of accumulating and providing financial information. Accounting thus involves; measuring, recording, classifying, summarizing and communicating financial information that is used in making informed judgement and decisions by users of the information.

The information provided by accounting system is useful as tool for making decisions on how to allocate resources effectively among alternative needs. For example local government chairmen, treasurers, financial secretaries and other staff need the information provided by the accounting system in order to plan and organize their activities. Similarly the information is needed to make budgets and forecasts.

Legal Framework of Government Accounting

Government accounting is governed by the constitution of the federal republic of Nigeria 1979 as amended (1989 and 1999), the finance (control and management) act of 1958, the audit ordinance of 1956 and the Financial Regulation and Revenue Allocation Laws. By implication therefore, the management of Local Governments shall be in a way charged with the general control and management of policies, finances and properties of its council. It is therefore desirable for each local government to produce annual financial reports (a statement of the income and expenditure and assets/liabilities as at the year ended for the consumption and usage of various stake holders.

Records Keeping and Accounting System

Financial transactions are events that involve inflow and outflow of economic resources; and therefore require recognition by way of measuring and recording in a set of books of accounts. Transactions are external when an organization gives and receives something in return, for example purchase of a material by a local government in cash requires the giving of cash in exchange of the material in question. On the other hand internal transactions are said to occur when the transaction takes place within an organization itself. For example the use of materials by a department in the discharge of its duties within a particular local government.

The Accounting System

Accounting consists of two main components; records keeping and reporting. Record keeping entails recording every activity/transaction in a book of account, as soon as the transaction takes place. It includes recording financial transactions on handwritten records, or records produced by mechanical and electronic devices (Computer machines etc). Reporting function on the other hand consists of classifying and summarizing accounting data into statements as well as preparing any other interpretive disclosures necessary to make the data comprehensive.  

Accounting system therefore, is the sum of all techniques and procedures for accumulating and recording information in an organization. Before the effects of financial transaction can be recorded, they must be measured and expressed in monetary terms, so that they can be combined and recorded in proper books of accounts, classified and summarized into reports and financial statements, which are then provided for use to both internal and external users of accounting information. Reports prepared by accounting records are thus called financial statements. It should be noted that financial reports usually cover a year though it may be interim (if it is prepared before the end of the annual period).

Accounting Documents to be Maintained at Local Governments        

The followings are some of the accounting documents that are to be maintained by local governments, while they may not be exhaustive; it is believed that they are among the basic ones which need to be properly maintained;

1.      Voucher: A voucher is a document showing evidence of receipt and payment of money. Vouches are classified into;

a.       Payment Voucher: this shows particulars of all payments made.

b.      Receipt Voucher: this shows particulars of all payments received.

c.       Stores Receipt Voucher: this is used to document all stock of items received.

d.      Stores Issue Voucher: this is used to document all stock of items issued out.

e.        Stores Receipt Note: this is issued to the supplier by central stores to enable the supplier make claim for payment.

f.       Adjustment Voucher: this is used in making amendment by way of transfer of funds from one account of another without actual receipt of cash.

2.       Main Cash Book: Cash book records all receipts and payments of money (in cash and by cheque).

3.      Petty Cash Book: this record all small cash payments from a given sum of money set aside for that purpose.

4.      Receipt Analysis Book: this is a memorandum book used to analyze all cash receipts according to appropriate codes.

5.      Payment Analysis Book: this is another memorandum book used to analyze all cash payments according to appropriate codes.

6.      Store Ledger Accounts: this is used to record the quantity of materials received in and issued out of store.

7.      General Ledger: this is the main book of accounts which record the summary of all transactions contained in subsidiary books. It is used for the extraction of trial balance.

8.      Subsidiary Ledgers: these record detailed transactions of each account code, summary of which is posted into the general ledger periodically.

9.      Memorandum Books: these books do not form part of the double entry system, they are maintained for effective internal controls. They includes;

a.       Journal Books

b.      Local Purchase Order Register

c.       Cheques Register

d.      Cheques Sent for Collection Register

e.       Fixed Asset Register

f.       Staff Arrival/left Register    

The Accounting Cycle

During each fiscal period, an accounting cycle is completed; this involves a sequence of accounting procedures. The occurrence of financial transaction is the initial stage in the accounting cycle. An accounting cycle is expected to consist of four steps as below;

Step 1: Transaction occurred and information collected through invoices, receipts, vouchers, bills and etc.

Step 2: Transactions are analyzed and recorded either through the journal to the ledger accounts or directly in the ledger.

Step 3: A trial balance is prepared from the account balances in the ledger to test the accuracy of the entries.

Step 4: Adjusting and preparing financial statements such as income statements, statements of assets/liabilities and etc.

Functions of Effective Accounting Records Keeping 

At this point it is crucial to highlight some of the functions of maintaining proper accounting books and records at local government level. The followings functions are identified;

a.       To provide financial information to all users (both internal and external)

b.      To ensure effective internal control

c.       To prevent and detect fraud.

d.      To ensure proper accountability, transparency and probity

e.       To bestow credibility and confidence on the officials of local governments.

Conclusion

The paper has discussed the justification for an effective and efficient records keeping and accounting system at local government level. The various ways in which records are to be kept and maintained have also been highlighted. Thus there is the need for maintenance of adequate books and records for effective functioning of an accounting system of local governments.

The success of an accounting system at local government is therefore partly dependent on the skill and experience of those operating the system and partly their ability to comply with the appropriate procedures of managing records.  It is therefore recommended that; there is the need for adequate training and re-training of personnel at Local government level on the records management so that the accounting system can be professionally and effectively managed and that periodic financial reports can be prepared.

   

    

DOES RE-DENOMINATION OF CURRENCY MATTERS:AN APPRAISAL OF THE PROPOSED REDENOMINATION OF NIGERIAN NAIRA

 NIGERIA