RESEARCH DEPARTMENT

CENTRAL BANK OF NIGERIA
Volume 4, Issue 3
September 2009
ECONOMIC REPORT FOR
THE THIRD QUARTER OF

CENTRAL BANK OF NIGERIA

QUARTERLY ECONOMIC REPORT


EDITORIAL BOARD

Editor-In-Chief
C.N.O. Mordi

Managing Editor
B. S. Adebusuyi

Editor
S. N. Ibeabuchi

Assistant Editor
S. A. Olih

Associate Editor
U. Kama

The Central Bank of Nigeria Quarterly Economic Report is designed for the dissemination of financial and economic information on the Nigerian economy on current
basis. The Report analyses developments in the financial, fiscal, real and external sectors
of the economy, as well as international economic issues of interest. The Report is directed at a wide spectrum of readers including economists and financial analysts in government and the private sector, as well as general readers.

Subscription to the Quarterly Economic Report is available without charge to institutions, corporations, embassies and development agencies. Individuals, on written request, can obtain any particular issue without a charge. Please direct all inquiries on the
publication to the Director of Research, Central Bank of Nigeria, P.M.B. 187, Garki,
Abuja, Nigeria.


i


TABLE OF CONTENTS


EDITORIAL BOARD ...


...

i

TABLE OF CONTENTS ...


...

1.0
SUMMARY


...


...

2.0
FINANCIAL SECTOR DEVELOPMENTS
...
...

2.1
Monetary and Credit Developments ... ...

2.2
Currency-in-Circulation and Deposits at the CBN
...
...

2.3
Money Market Developments


2.3.1 Interest Rate Developments


2.3.2
Commercial Papers (CPs)


2.3.3
Bankers Acceptances (Bas)


2.3.4
Open Market Operations


2.3.5
Primary Market


2.3.6
Bonds Market


2.3.7
CBN Standing Facilities ...


2.4.
Deposit Money Banks‘ Activities
...
...
...

2.5
Discount Houses‘ Activities
...
...

...

2.6
Capital Market Developments


2.6.1 Secondary Market


2.6.2
Over-The-Counter (OTC) Bonds Market
...
...
...

2.6.3
New Issues Market


2.6.4
Market Capitalization


2.6.5
NSE All-Share Index


3.0
FISCAL OPERATIONS
...

...

3.1
Federation Account Operations


3.2
The Fiscal Operations of the three tiers of Government
...

3.2.1
The Federal Government


3.2.2
Statutory Allocations to State Governments
...
...

3.2.3
Statutory Allocations to Local Government Councils ...
...

3.3
Consolidated Federal Government Debt
...
...
...

3.3.1
Domestic Debt


...
...
...

4.0
DOMESTIC ECONOMIC CONDITIONS
...
...

4.1
Agricultural Sector


4.2
Industrial Production


4.3
Petroleum Sector


Consumer Prices
...


...
... 10
5.0
EXTERNAL SECTOR DEVELOPMENTS
...
... 10
5.1
Foreign Exchange Flows ...


...
... 10


5.2
Non-Oil Export Proceeds by Exporters
...

...

5.3
Sectoral Utilisation of Foreign Exchange

Foreign Exchange Market Developments

...
...

6.0
GLOBAL ECONOMIC CONDITIONS
...
...

6.1
Global Inflation


6.2
Global Commodity Prices ...


6.3
International Financial Markets... ...
...
...
...

6.4
Other International Economic Developments and Meetings
...

F I G U R E S

1.
Aggregate Money Supply in Nigeria


...

2.
Aggregate Domestic Credit to the Economy

...

3.
Selected Bank Interest Rates


... 4
4. Treasury Bills‘ Holdings
...

5.
Volume and Value of Traded Securities


...

6.
Market Capitalization and Value Index


...

7.
Components of Federally Collected Revenue

...

8.
Trends in Oil and Non-Oil Share of GDP


...

9.
Index of Industrial Production


...

10.
Trends in Crude Oil Price


...

11.
Quarterly Consumer Price Indices in Nigeria

... 10
12.
Inflation Rate in Nigeria


... 10
13.
Foreign Exchange Flows through the CBN

... 11
14.
Sectoral Utilisation of Foreign Exchange


...

15.
Demand for and Supply of Foreign Exchange

...

16.
Average Exchange Rate Movements
...
...
...

17.
WDAS-BDC Exchange Rate Premium
...
...
...

17.
Selected Macroeconomic Indicators Tables

...

iii


1.0 Summary

Provisional data from the National Bureau of Statistics
(NBS) estimated GDP growth in the third quarter of 2009
at 7.6 per cent, compared with 7.2 per cent in the preceding
quarter. The projected growth was driven mainly by the non
-oil sector which contributed 83.6 per cent of total GDP.
Broad money (M2) grew by 4.2 per cent, relative to the preceding quarter. The increase in M2 was attributed largely to
the rise in aggregate banking system credit to the domestic
economy (net). Narrow money (M1), however, declined by
3.4 per cent from the level in the preceding quarter.

Available data indicated a general increase in banks’ deposit rates, while lending rates declined. The spread between the weighted average term deposit and maximum
lending rates narrowed from 11.00 percentage points in the
preceding quarter to 10.49 percentage points. The margin
between the average savings deposit and maximum lending
rates, however, widened from 19.96 to 20.02 percentage
points during the period. The weighted average inter-bank
call rate fell to 12.66 per cent from 14.76 per cent in the
preceding quarter, reflecting the liquidity condition in the
inter-bank funds market.

The value of money market assets outstanding rose by 13.5
per cent over the level in the preceding quarter to
=N=3,515.9 billion. The increase was attributed largely to
the rise in outstanding Nigerian Treasury Bills (NTBs).
Activities on the Nigerian Stock Exchange were mixed during the review quarter.

Total federally-collected revenue in the third quarter, 2009
stood at =N=1,218.30 billion, representing a decline of 8.1
per cent from the proportionate budget estimate but an increase of 16.6 per cent over the preceding quarter’s level.
At =N=716.81 billion, oil receipts constituted 58.8 per cent
of the total revenue, and was lower than the proportionate
budget estimate. The fall in oil receipts relative to the proportionate budget estimate was attributed to the decline in
crude oil production occasioned by the attacks on oil facilities. Non-oil receipts, at =N=501.49 billion or 41.2 per
cent of the total, was lower than the proportionate budget
estimate but higher than the receipts in the preceding quarter. The decline in non-oil receipts relative to the budget
estimate was attributed largely to the fall in customs and
excise duties, Value-Added-Tax (VAT) and independent
revenue of the Federal Government. Federal Government
retained revenue for the third quarter 2009 was
=N=817.28
billion,
while
total
expenditure
was
=N=1,011.22 billion. Thus, the fiscal operations of the
Federal Government resulted in an estimated overall deficit of =N=193.94 billion, compared with =N=382.23 billion in the preceding quarter and the budgeted deficit of
=N=209.15 billion.

The major agricultural activities in the review quarter
included harvesting of root crops such as yams, irish and
sweet potatoes and groundnuts.
In addition, farmers commenced the preparation of land
and nurseries for the cultivation of tomatoes, pepper, carrots, cabbage and other vegetables.

Nigeria’s crude oil production, including condensates and
natural gas liquids, was estimated at 1.73 million barrels
per day (mbd) or 159.16 million barrels for the quarter.
Crude oil export was estimated at 1.33 mbd or 122.36 million barrels for the quarter, while deliveries to the refineries for domestic consumption remained at 0.445 mbd or
40.94 million barrels. The average price of Nigeria’s reference crude, the Bonny Light (370 API), estimated at
US$70.05 per barrel, rose by 14.6 per cent over the level in
the preceding quarter. The end-period inflation rate for the
third quarter, 2009, on a year-on-year basis, was 10.4 per
cent, compared with 11.2 and 13.0 per cent recorded at the
end of the preceding quarter and the corresponding quarter
of 2008, respectively. Inflation rate on a twelve-month moving average basis for the third quarter, was 13.1 per cent,
compared with 13.7 and 9.2 per cent recorded in the preceding quarter and the corresponding quarter, 2008, respectively.

Foreign exchange inflow and outflow through the Central
Bank of Nigeria (CBN) amounted to US$5.67 billion and
US$9.01 billion, respectively, resulting in a net outflow of
US$3.34 billion during the quarter. Foreign exchange sales
by the CBN to the authorized dealers amounted to US$7.34
billion in the review quarter. The weighted average exchange rate of the Naira vis-à-vis the US dollar, depreciated by 2.1 per cent to =N=150.92 per dollar at the WDAS.
In the bureaux de change segment of the market, the naira
also depreciated from =N=175.68 per dollar to =N=157.36
per dollar. Non-oil export earnings by Nigerian exporters
declined by 11.4 per cent from the level in the preceding
quarter to US$335.84 million. . The development was attributed largely to the fall in the prices of all the commodities traded at the international commodities market during
the period.

The modest growth in the global economy experienced in
the second quarter continued in the third quarter, following
the strong performance of Asian economies. In the advanced economies, unprecedented public intervention has
stabilised activity and has even fostered a return to modest
growth in several economies. Emerging and developing
economies were generally further ahead on the road to recovery, led by rebound in Asia. The recent rebound in commodity prices and supportive policies are helping many of
these economies. World crude oil output in the third quarter
of 2009, was estimated at 84.32 million barrels per day
(mbd), while demand was estimated at 83.13 mbd, compared with 83.62 and 83.17 mbd supplied and demanded in
the preceding quarter, respectively. The increase in demand
was due to renewed optimism of a global economic recovery. Crude oil prices in particular have hovered between
$70 and $80 per barrel during the quarter. Price developments will partly depend on how strongly supply responds
to recovering demand.


Other major international economic developments of relevance to the domestic economy during the quarter included: the 9th meeting of the Special Implementation
Committee (SIC) of the Nigeria-South Africa Bi-National
Commission (BNC) held in Abuja from July 22- 23, 2009.
The meeting had six working groups on Foreign Affairs
and Cooperation; Agriculture, Water Resources and Environment; Social and Technical; Trade, Industry and Finance; Minerals and Energy; and Defence and Security
(see July 2009 Report).

Also, the Committee of Ten African Ministers of Finance
and Governors of Central Bank (Committee of Ten) held
their third session in Abuja on July 14, 2009 under the
auspices of the African Development Bank, the Economic
Commission for Africa and the African Union Commission. The objective of the meeting was to review the latest
information pertaining to the impact of the global financial crisis on Africa; take stock of recent internal and international developments; and agree on African perspectives to be fed into the global discussions, in particular
during the G20 Leaders Summit in Pittsburgh on September 26, 2009 (see July Report).
In a related development, the International Monetary
Fund (IMF) concluded its Article IV Consultation Mission
with the Nigerian authorities on July 29, 2009 and noted
that Nigeria entered the global financial crisis from a position of strong macroeconomic stability. The reforms of
recent years paid off, with oil savings, high international
reserves, and a well-capitalized banking system preventing
the type of economic crisis Nigeria witnessed during the
oil price cycles of the early 1980s (see July Report). In
another development, the 33rd Ordinary Meetings of the
Association of African Central Banks (AACB) was held in
Kinshasa, Democratic Republic of Congo (DRC) from
August 17—21 2009. The theme for the 2009 AACB Annual Meetings was ―The Formulation of Monetary Policy
in Africa: The Relevance of Inflation Targeting‖ (see August Report).

The International Monetary Fund (IMF) on August 28,
2009 bolstered its members’ reserves through an allocation of Special Drawing Rights (SDRs) worth US$250 billion, followed by an additional allocation of $33.0 billion
on September 9, 2009. With the two allocations totaling
$283.0 billion, the outstanding stock of SDRs would increase nearly ten-fold to about $316 billion (see August
Report).

In another development, the 8th African Growth and Opportunity Act (AGOA) Forum was convened by the Government of the Republic of Kenya in conjunction with the
United States (US) Government in Kenya from August 1 –
6, 2009 on the theme ―Realizing the Full Potential of
AGOA through Expansion of Trade and Investment‖. The
objective of the forum was to create a platform on which
both the US and the sub-Saharan African countries could
articulate their views and concerns in order to foster
closer economic ties for mutual benefit (see August Report). Also, the summit of the Group of twenty (G-20) industrialized and emerging market economies was held
from September 24 – 25, 2009 in Pittsburgh, USA. The
leaders noted that the forceful policy response to the crisis
had helped to stop a dangerous, sharp decline in global
activity and stabilized financial markets. Industrial output
was now rising in nearly all economies and international
trade was starting to recover, while IMF analysis indicated that the global economy is expected to grow at
nearly 3 per cent by 2010.

Lastly, the African Development Bank (AfDB) approved a
grant of US$1 million to AB Microfinance Bank Of Nigeria
(ABN) from the Fund for Africa Private Sector Assistance
(FAPA) on September 7, 2009. The Technical Assistance
(TA) contribution from FAPA, which accounted for 7.7
percent of the overall TA package, will be used to cofinance the provision of technical assisted to ABN to build
the capacity of the institution during its first few years of
operation.

2.0 FINANCIAL SECTOR DEVELOPMENTS

2.1 Monetary and Credit Developments
Provisional data indicated growth in monetary aggregate
in the third quarter, 2009. Broad money (M2) rose by 4.2
per cent to =N=9,458.5 billion, compared with the increase of 0.9 per cent in the preceding quarter. Narrow
money (M1), however, fell by 3.4 per cent to
=N=4,333.5 billion from the level in the preceding quarter. The rise in M2 was accounted for largely by the 23.1
per cent increase in aggregate banking system credit to
the domestic economy (net) (fig. 1 and table 1).

At =N=6,991.2 billion, aggregate banking system credit
(net) to the domestic economy increased by 23.1 per
cent in the third quarter of 2009, compared with the rise
of 17.8 per cent in the preceding quarter. The development reflected largely the 14.7 per cent rise in claims on
the private sector, reinforced by the 2.1 per cent increase
in claims on the Federal Government.

Banking system‘s credit (net) to the Federal Government increased by 2.1 per cent to negative =N=2,820.2
billion, compared with the increase of 15.4 per cent in
the preceding quarter. The rise was accounted for
wholly by the increase in CBN‘s holding of Federal
Government securities.

Banking system‘s credit to the private sector increased
by 14.7 per cent to =N=9,811.4 billion, compared with
the increase of 4.0 per cent in the preceding quarter. The
rise reflected largely the 13.9 per cent increase in CBN‘s
claims on the sector (fig 2).

At =N=6,886.9 billion, foreign assets (net) of the banking system fell by 9.9 per cent, compared with the decline of 5.7 per cent in the preceding quarter. The development was attributed largely to the 11.8 per cent decline in the CBN‘s holdings.

Quasi money increased by 11.6 per cent to =N=5,125.0
billion, compared with the increase of 6.0 per cent in the
preceding quarter. The development was attributed to
the rise in all the components namely, time, savings and
foreign currency deposits of the (DMBs).


Other assets (net) of the banking system, however,
declined by 4.1 per cent to =N=4,419.6 billion, compared with the decline of 8.0 per cent in the preceding
quarter. The fall reflected largely the decline in unclassified assets of the CBN during the quarter.


2.2 Currency-in-circulation and Deposits at
the CBN

At =N=1,031.9 billion, currency in circulation rose by
2.6 per cent in September 2009 over the level in the
second quarter, 2009. The increase was attributed
wholly to the 4.3 per cent rise in currency outside the
banking system during the period.

Total deposits at the CBN amounted to =N=4,949.2
billion, indicating a decline of 7.0 per cent from the
level in the preceding quarter. The development was
attributed wholly to the fall in Federal Government
deposits. The shares of the Federal Government,
banks and ―others‖ in total deposits at the CBN were
86.2, 9.1 and 4.7 per cent, respectively, compared
with the shares of 89.3, 5.3 and 5.4 per cent, in the
second quarter, 2009.


M ajor monetary aggregate rose, while
banks’ deposit and lending rates indicated mixed developments in the third quarter of 2009. The value of
money market assets increased, following largely the
rise in outstanding Nigerian Treasury Bills (NTBs) and
Bankers Acceptances (BAs). Transactions on the Nigerian Stock Exchange (NSE) recorded mixed developments during the review quarter.
4th Qtr

1st Qtr

2nd
Qtr 08
3rd Qtr

4th Qtr

1st Qtr

2nd
Qtr 09
3rd Qtr

QCP


14.7
QCG

QAC

CCP
90.8


CCG

CAC


Per cent
Figure 2: Aggregate Domestic Credit to the Economy (Quarterly and
Cummulative Growth Rate)

2.3
Money Market Developments

Activities in the money market were influenced by the
various policy actions taken by the monetary authority
to inject liquidity into the economy during the review
period. These included the reduction in Monetary Policy Rate, suspension of transactions at the Expanded
Discount Window, the injection of N420.0 billion into
five (5) Deposit Money Banks, the re-introduction of
the interest rate corridor as well as the Bank‘s guarantee
of unsecured inter-bank market transactions. The actions moderated risk expectations among market participants as the spread between the unsecured and secured
transactions at the inter-bank market narrowed, while
the volume of transactions increased significantly.

Provisional data indicated that the value of money market assets outstanding as at end–September 2009 was
=N=3,515.9 billion, representing an increase of 13.5 per
cent over the level at end-June 2009. The increase during the period was attributed mainly to the 17.4, 29.5
and 27.6 per cent increase in Nigerian Treasury Bills
(NTB), Bankers Acceptances (BAs) and Commercial
Papers (CPs).

2.3.1
Interest Rate Developments

Available data indicated a general increase in banks‘
deposit rates, while lending rates declined in the third
quarter, 2009. With the exception of the average savings deposit rate, which declined by 0.13 percentage
points to 2.80 per cent, all other rates on deposits of
various maturities increased from a range of 6.74 –
13.14 per cent in the preceding quarter to 6.81 – 13.84
per cent. Similarly, at 12.33 per cent, average term deposit rate rose by 44 basis points from the level in the
preceding quarter. On the other hand, the average prime
and maximum lending rates declined by 63 and 07 basis
points to 18.38 and 22.82 per cent, respectively. Consequently, the spread between the weighted average term
deposit and maximum lending rates narrowed from
11.00 percentage points in the preceding quarter to
10.49 percentage points. The margin between the average savings deposit and maximum lending rates, however, widened from 19.96 percentage points in the preceding quarter to 20.02 percentage points. With headline inflation rate at 10.4 per cent at end-September, all
deposit rates, with the exception of savings and 7-day
rates, were positive in real terms.

At the inter-bank call segment, the weighted average
rate, which stood at 14.76 per cent in the preceding
quarter, fell to 12.66 per cent, reflecting the liquidity
condition in the inter-bank funds market. Similarly,
weighted average rate at the Open Buy Back (OBB) fell
from 7.32 per cent in June to 6.89 per cent at the end of
third quarter.
In tandem with activities at the inter-bank market, Nigeria Inter-bank Offered Rate (NIBOR) for the 7 and the
30-day tenors declined to 14.15 and 16.14 per cent at
the end of the third quarter from 15.81 and 17.00 per
cent respectively, in the second quarter 2009.

2.3.2 Commercial Papers (CPs)

Investment in Commercial Papers (CPs) as a supplement to bank credit to the private sector rose in the review period. The value of CPs held by DMBs rose by
=N=166.23 billion to =N=768.7 billion at endSeptember 2009, as against a decline of =N=145.83
billion at end-June 2009. Thus, CPs constituted 21.9 per
cent of the total value of money market assets outstanding as at end-September 2009, compared with 25.9
per cent at the end of the preceding quarter.

2.3.3 Bankers’ Acceptances (BAs)

Holdings of BAs by DMBs rose by 21.9 per cent to
=N=96.1 billion as at end-September 2009, as against
the decline of 3.3 per cent in the preceding quarter. The
rise reflected the increase in investments by DMBs and
discount houses. Consequently, BAs accounted for 2.7
per cent of the total value of money market assets outstanding at the end of the third quarter, compared with
2.6 per cent in the preceding quarter.


3rd
Qtr

4th
Qtr

1st
Qtr

2nd
Qtr

3rd
Qtr

4th
Qtr

1st
Qtr

2nd
Qtr

3rd
Qtr

Avg. Term Deposits
8.99
8.69
9.35 10.78 11.06 11.67 12.27 11.89 12.33
Prime
16.46 16.9 16.05 15.86 15.97 16.03 18.34 19.01 18.38
Inter-bank
8.13
8.25 10.21 10.4 12.83 14.01 15.79 14.76 12.66
Maximum
18.27 18.24 18.17 17.9
18.1 19.79 22.24 22.89 22.82

Per cent
Figure 3: Selected Bank Interest Rates (Per cent
Average)

2.3.4 Open Market Operations

Aggressive mop–up of excess liquidity remained suspended and there was no direct auction at the open
market. In the same vein, there was no purchase or sale
of government securities through the two-way quote
platform due to the unattractiveness of the offer rates
quoted at the trading sessions.

2.3.5 Primary Market

At the primary market, Nigerian Treasury Bills of 91,
182 and 364-day tenors were offered fortnightly during
the review period in line with the issue program. Total
NTBs issued and allotted was =N=322.22 billion
apiece, compared with the =N=341.60 billion apiece
issued and allotted in the second quarter. Public subscriptions stood at =N=513.13 billion, compared with
=N=560.30 billion in the second quarter. The range of
issue rates for the 91-182- and 364-day NTBs was
from 2.80-6.75 per cent, compared with the range of
2.00-6.50 per cent for the same tenors in the preceding
quarter. All the auctions were oversubscribed as market players showed stronger preference for risk-free
government securities.

2.3.6 Bonds Market

FGN Bonds of 3, 5 and 20-year tenors were re-opened
(in line with the restructuring of the domestic debt
profile to longer tenors) and offered to the public in the
period under review. Total issue and allotment during
the third quarter, 2009 stood at =N=180.0 billion, compared with =N=170.0 billion, in the preceding quarter.
Total subscriptions stood at =N=356.26 billion. A
breakdown of the total issues and allotments showed
that
=N=60.00
billion,
=N=54.00
billion
and
=N=66.00 billion, were issued for the 3-, 5- and 20year tenors, while the total subscriptions were
=N=116.71 billion, =N=110.09 billion and =N=129.46
billion, respectively. In the preceding quarter, issue
and allotment for the respective tenors were =N=75.00
billion 3-year, =N=55.00 billion 5-year and =N=40.00
billion 20-year. The FGN Bonds were offered and allotted at marginal rates ranging between 7.88-11.00
per cent, as against the issue rate range of 10.10-12.79
per cent, in the preceding quarter. The impressive subscription, especially for the 20-year tenor, reflected
market players‘ confidence in the Nigerian economy
and perceived stable and attractive yields on the instruments.

2.3.7 CBN Standing Facilities

The re-introduction of remuneration on standing deposit facility by the Bank increased activities at that
segment.


Consequently, cumulative lending facility granted to
DMBs
at
end-September

stood
at
=N=10,659.29
billion,
compared
with
=N=10,299.22 billion in the second quarter of 2009.
Total deposits stood at =N=2,387.28 billion. The
lending and deposit rates were fixed at 8.00 and 4.0
per cent, respectively, (plus and minus 2 per cent
above and below the Monetary Policy Rate).

2.4
Deposit Money Banks’ Activities

Available data indicated that total assets/liabilities
of the DMBs amounted to =N=16,731.5 billion,
representing an increase of 7.8 per cent over the
level in the preceding quarter. The development was
attributed largely to the 13.8 per cent increase in
claims on the private sector, reinforced by the 15.6
per cent rise in unclassified assets.

Funds, which were sourced mainly from accumulation of time, savings and foreign currency deposits
and capital accounts were used mainly for the extension of credit to the private sector.

At =N=10,516.3 billion, credit to the domestic economy rose by 8.5 per cent over the level in the preceding quarter. The development was attributed
wholly to the 13.9 per cent increase in claims on the
private sector.

Central Bank‘s credit to the DMBs rose by 133.8
per cent to =N=387.7 billion in the review quarter,
reflecting largely the increase in CBN‘s loan & advances to the DMBs.

Total specified liquid assets of the DMBs stood at
=N=2,287.4 billion, representing 25.0 per cent of
their total current liabilities. At that level, the liquidity ratio fell by 6.9 percentage points from the preceding quarter‘s level, but the same as the stipulated
minimum ratio of 25.0 per cent. The loans-todeposit ratio rose by 3.3 percentage points to 89.0
per cent over the level in the preceding quarter, and
exceeded the prescribed minimum target of 80.0 per
cent by 9.0 percentage points.

2.5
Discount Houses’ Activities

Total assets/liabilities of the discount houses stood
at =N=329.3 billion in the third quarter of 2009,
indicating a decline of 29.3 and 21.1 per cent from
the levels in the preceding quarter and the corresponding period of 2008, respectively. The fall in
assets was accounted for largely by the 53.1 per
cent decline in claims on others, reinforced by the
fall in claims on banks during the quarter. Correspondingly, the fall in total liabilities was attributed
largely to the 41.9 per cent decline in other amount
owing during the period.

Discount houses‘ investments in Federal Government
securities of less than 91 days maturity rose by 106.3
per cent to =N=62.5 billion, representing 23.3 per cent
of their total deposit liabilities. At this level, discount
houses‘ investments rose by 15.6 per cent over the
level in the preceding quarter. This level of investment
was 36.7 percentage points below the prescribed minimum level of 60.0 per cent for fiscal 2009.
Total borrowing by the discount houses was
=N=104.2 billion, while their capital and reserves
amounted to =N=41.8 billion. Thus, resulting in a
gearing ratio of 2.5:1, compared with the stipulated
maximum target of 50:1 for fiscal 2009.

2.6
Capital Market Developments

2.6.1
Secondary Market

Available data indicated that the volume and value of
traded securities rose by 6.3 and 3.9 per cent to 28.9
billion shares and =N=207.1 billion, respectively,
compared with 27.2 billion shares and =N=199.4 billion in the second quarter. In the first nine months of
the year, total turnover volume and value stood at 75.3
billion shares and =N=508.7 billion, respectively. The
banking sub-sector was the most active on the Exchange with traded volume of 15.4 billion shares valued at =N=135.4 billion exchanged in 246,837 deals.
Transactions during the period included 100 units of
Lagos State Fixed Rate Bond worth =N=119,530.


2.6.2 Over-the-Counter (OTC) Bonds Market


Transactions on the over-the-counter (OTC) bond
segment of the market indicated that a turnover of 4.7
billion units worth =N=5.3 trillion in 38,418 deals was
recorded in the review quarter, compared with a total
of 4.4 billion units valued at =N=4.2 trillion recorded
during the preceding quarter. The most active bond
measured by turnover volume was the 4th FGN Bond
2014 Series 3 with traded volume of 349.0 billion
units valued at =N=401.0 billion in 3,245 deals.
Cumulatively, total transactions on FGN Bonds
through the OTC were 13.31 billion valued at
=N=14.02 trillion in 91,884 deals, compared with 6.81
billion shares worth =N=6.82 trillion in 54,985 deals
recorded in the corresponding period of 2008.

2.6.3 New Issues Market

In the new issues market, 4.2 billion shares in favour of
eTranzact International Plc were admitted on the Daily
Official list by way of introduction at the price of
=N=4.80 per share. The Company was listed in the
Information Communication and Telecommunication
sub-sector. Similarly, 400 million shares in favor of
Portland Paints & Products Nigeria Plc were admitted
at a price of =N=10.00 per share in the Chemical &
Paints sub-sector. Also, 16.7 billion shares in favour of
African Alliance Insurance Company Plc were admitted on the Daily Official List at a price of N3.50 per
share. The Company was listed in the Insurance subsector. By this action, the number of listed companies
increased to 211. Similarly, the =N=18.5 billion Imo
State Government of Nigeria 15.5% Fixed Rate Bond
2009/2016 Series 1 was admitted on the Daily Official
List. By this action, the number of listed State Government Bonds and securities increased to 7 and 294, respectively. During the review quarter, there were
twenty-one (21) supplementary listings, compared with
eight (8) in the preceding quarter.

In another development, five FGN bonds - the FGN
Bond 2009 (Special Pension), 3rd FGN Bond 2009 series 4, 6, and 11 were delisted from the Daily Official
list on maturity during the review period.

2.6.4 Market Capitalization

The total market capitalization of the 294 listed securities declined by 11.4 per cent to =N=7.8 trillion from
the preceding quarter‘s level. The fall in market capitalization was attributed to the price losses recorded by
the highly capitalized stocks. The 211 listed equities
accounted for =N=5.1 trillion or 65.8 per cent of the
total market capitalization.

2.6.5 NSE All-Share Index

The NSE All-Share Index, which opened at 26, 861.55,
closed at 22,065.00, representing a decline of 17.9 per
cent from the level in the preceding quarter. Relative to
the closing value of 31,450.78 on December 31, 2008,
the year-to-date decline in the NSE All-Share-Index
stood at 29.8 per cent. Also, the NSE-30 Index declined
by 7.5 per cent to 835.68. The NSE Insurance Index
fell by 15.1 per cent to close at 312.16, while the NSE
Food/Beverage Index also declined by 10.4 per cent to
close at 451.46. The NSE Banking Index and NSE Oil/
Gas Index fell by 22.0 and 31.4 per cent to close, respectively, at 358.24 and 287.67.

Figure 5: Volume and value of traded securities

3rd
Qtr
'07
4th
Qtr
'07
1st
Qtr

2nd
Qtr
'08
3rd
Qtr
'08
4th
Qtr
'08
1st
Qtr

2nd
Qtr

3rd
Qtr

No.

N'billion
Volume of traded securities
Value of securities


3.0
FISCAL OPERATIONS

3.1
Federation Account Operations

Available data showed that total federally-collected
revenue during the third quarter of 2009 stood at
=N=1,218.30 billion, representing a decline of 8.1 per
cent from the proportionate budget estimate, but an
increase of 16.6 per cent over the receipts in the preceding quarter. At =N=716.81 billion, oil receipts,
which constituted 58.8 per cent of the total, was lower
than the proportionate budget estimate by 7.9 per cent
but exceeded the receipts in the preceding quarter by
2.9 per cent. The fall in oil receipts relative to the proportionate budget estimate was due to the significant
decline in oil production occasioned by the attacks on
oil facilities in the Niger Delta region. However, the
increase in oil revenue compared with the preceding
quarter gives an indication of a positive impact of the
Federal Government‘s amnesty initiative in the region.

Non-oil receipts, at =N=501.49 billion or 41.2 per cent
of the total, was lower than the budget estimate by 8.4
per cent but exceeded the receipts in the preceding
quarter by 44.0 per cent. The decline relative to the
budget estimate was attributed largely to the fall in
customs and excise duties occasioned by declining
trade volumes, Value-Added Tax (VAT) and Independent Revenue of the Federal Government (fig 7).

As a percentage of GDP, oil revenue was 10.6 per cent,
while non-oil revenue stood at 7.4 per cent in the third
quarter of 2009.

Of the total federally-collected revenue during the review quarter, the sum of =N=717.54 billion was transferred to the Federation Account for distribution among
the three tiers of government and the 13.0 per cent derivation fund. The Federal Government received
=N=346.26 billion, while the State and Local Governments received =N=175.63 billion and =N=135.40
billion, respectively.
The balance of =N=60.25 billion went to the 13.0 per
cent derivation fund for distribution by the oil producing
states. To bridge the shortfall in revenue for the period,
the sum of =N=197.36 billion was drawn from the excess
crude account and shared as follows: Federal Government (=N=90.45 billion), State Governments (=N=45.88
billion), Local Governments (=N=35.37 billion) and oil
producing states (=N=25.66 billion).

3.2
The Fiscal Operations of the Three Tiers
of Government

3.2.1
The Federal Government

At =N=817.28 billion, Federal Government retained
revenue for the third quarter 2009, was higher than the
proportionate budget estimate and the receipts in the preceding quarter by 36.1 and 57.4 per cent, respectively.

At =N=1,011.22 billion, total estimated expenditure for
the review quarter rose by 24.9 and 12.2 per cent over
the proportionate budget estimate and the level in the
preceding quarter, respectively. The rise in total expenditure relative to the budget estimate and the preceding
quarter was attributed largely to the estimated increase in
capital releases and domestic interest payments during
the quarter. A breakdown of total expenditure showed
that the recurrent component accounted for 46.6 per cent,
capital component 49.7 per cent, while statutory transfers
accounted for the balance of 3.7 per cent. As a percentage of GDP, recurrent expenditure was 7.0 per cent,
while capital expenditure and transfers stood at 7.4 and
0.5 per cent, respectively.

The fiscal operations of the Federal Government in the
third quarter, 2009, resulted in an overall deficit of
=N=193.94 billion, compared with the deficits of
=N=382.23 billion in the preceding quarter and the budgeted sum of =N=209.15 billion.

As a percentage of GDP, the fiscal deficit was 2.9 per
cent in the review quarter. The fiscal deficit was financed
from additional issuance of FGN Bonds, privatization
proceeds and signature bonus.

Figure 7: Components of Federally Collected Revenue(=N= Billion)

OIL
NON OIL


3.2.2 Statutory Allocations to State Governments

During the review quarter, total receipts, including the
13.0 per cent Derivation Fund and share of VAT by the
State Governments from the Federation Account stood
at =N=354.81 billion. This represented a decline of
10.7 and 25.6 per cent from the levels in the preceding
quarter and the corresponding period of 2008, respectively.

Further breakdown showed that at =N=61.01 billion,
receipts from the VAT Pool Account rose by 9.5 per
cent over the level in the preceding quarter, while receipts
from
the
Federation
Account
stood
at
=N=293.80 billion. On monthly basis, the sum of
=N=110.56 billion, =N=125.04 billion and =N=119.20
billion were allocated to the 36 state governments in
July, August and September 2009, respectively.

3.2.3 Statutory Allocations to Local Government Councils


Total receipts by the Local Governments from the Federation and VAT Pool Accounts during the third quarter of 2009, stood at =N=213.48 billion. This was lower
than the level in the preceding quarter and the corresponding quarter of 2008 by 1.7 and 61.5 per cent, respectively. Of this amount, allocation from the Federation Account was =N=170.77 billion or 80.0 per cent of
the total, while VAT Pool Account accounted for
=N=42.71 billion or 20.0 per cent. On monthly basis,
the sums of =N=67.09 billion, =N=75.50 billion and
=N=70.89 billion were allocated to the 774 local governments in July, August and September 2009, respectively.

3.3
Consolidated Federal Government Debt

At =N=3,635.88 billion or 13.5 per cent of GDP, the
total Federal Government debt as at end-September
2009, rose by 8.1 per cent over the level at end-June
2009. The breakdown comprised of domestic debt of
=N=3,058.19 billion and external debt of =N=577.70
billion (US$3.86 billion).

3.3.1
Domestic Debt

The domestic debt stock of the Federal Government
outstanding at the end of the third quarter, 2009 was
=N=3,058.19 billion, representing an increase of 8.7
per cent over the level at the end of the preceding quarter. As a percentage of GDP, total domestic debt was
11.3 per cent. The rise in domestic debt was accounted
for by the issuance of additional FGN Bonds, increase
in treasury bills outstanding as well as the increase in
debt instruments via the introduction of promissory
notes during the quarter.
4.0
DOMESTIC ECONOMIC CONDITIONS

4.1
Agricultural Sector

Agricultural activities during the review quarter centered on harvesting of root crops, especially yams, irish
and sweet potatoes, and ground nuts, while farmers
commenced the preparation of land and nurseries for
the cultivation of tomatoes, pepper, carrots, cabbage
and other vegetables. Farmers also intensified the production of poultry products during the last month of the
quarter in preparation for the end of year festivals.

During the review period, a total of =N=3.38 billion
was guaranteed to 23,291 farmers under the Agricultural Credit Guarantee Scheme (ACGS). This amount
represented an increase of 83.7 and 279.0 per cent over
the levels in the preceding quarter and the corresponding period of 2008, respectively.

A ggregate output growth in the economy
measured by the gross domestic product (GDP) was
estimated at 7.6 per cent in the third quarter of 2009,
compared with 7.2 per cent in the preceding quarter.
Agricultural activities centered on harvesting of root
crops and preparation of land and nurseries for cultivation. Farmers also intensified the production of poultry products during the last month of the quarter in
preparation for the end of year festivals. Crude oil production was estimated at 1.73 million barrels per day
(mbd) or 159.16 million barrels for the quarter. The
end-period inflation rate for the third quarter of 2009,
on a year-on-year basis, was 10.4 per cent, compared
with 11.2 per cent in the preceding quarter. The inflation rate on a 12-month moving average basis was 13.1
per cent, compared with the preceding quarter’s level
of 13.7 per cent.


A sub-sectoral analysis of the loans guaranteed indicated that the food crops sub-sector had the largest
share of =N=2.43 billion or 72.1 per cent to 21,104
beneficiaries, while the livestock sub-sector received
=N=633.25 million or 18.7 per cent to 1,124 beneficiaries. Also, 352 beneficiaries in the fisheries subsector obtained =N=156.1 million or 4.6 per cent. In
the cash crops sub-sector, 507 beneficiaries got
=N=129.21 million or 3.8 per cent, while 147 beneficiaries in ̳others‘ had =N=22.2 million or 0.7 per
cent. Further analysis showed that 33 states benefited
from the scheme during the quarter, the highest and
lowest sums of =N=474.5 million (14.0 per cent) and
=N=5.9 million (0.2 per cent) went to Katsina and
Plateau States, respectively.

The retail prices of most staples recorded increase in
the third quarter of 2009. Eleven of the fourteen commodities monitored recorded price increase, which
ranged from 2.6 per cent for groundnut oil to 18.7 per
cent for brown beans over their levels in the preceding quarter, while guinea corn, millet and yam flour
recorded price decline of 9.5, 15.1 and 22.5 per cent,
respectively. The increase in the price of most commodities was attributed to the subsisting food situation in the country in the aftermath of the global food
crisis.

4.2
Industrial Production

Industrial activities during the third quarter of 2009,
indicated marginal improvement relative to the preceding quarter. At 115.6 (1990=100), the estimated
index of industrial production rose by 0.9 per cent
over the level attained in the preceding quarter but
declined by 1.9 per cent from the level in the corresponding period of 2008. The increase reflected the
improvement in mining activities and electricity generation.

The estimated index of manufacturing production, at
88.4 (1990=100), declined by 0.2 and 3.2 per cent
from the levels in the preceding quarter and corresponding period of 2008, respectively. The estimated
capacity utilization also fell by 0.5 percentage points
to 53.0 per cent during the review quarter. The decline was attributed to the lull in industrial production
due to rising production costs in the face of falling
demand.

At 125.9 (1990=100), the index of mining production increased marginally by 0.8 per cent over the
level attained in the preceding quarter but declined
by 1.7 per cent from the level in the corresponding
period of 2008. The rise was accounted for by the
rise in crude oil and gas production, resulting from
the amnesty programme of the Federal Government,
which reduced the activities of militants in the Niger
Delta region.

At 2,090.0 MW/h, estimated average electricity generation increased by 7.5 per cent over the level attained in the preceding quarter. The rise reflected
the increase in water levels at the hydro dams as
well as improvement in the supply of gas to thermal
stations.

At 1,843.0 MW/h, estimated average electricity consumption rose by 10.2 per cent over the level in the
preceding quarter. Of the total, residential consumption accounted for 52.6 per cent, commercial & street
lighting accounted for 27.1 per cent, while industrial
consumption accounted for 20.3 per cent. The increase in electricity consumption was attributed to the
marginal improvement in power supply experienced
during the review quarter.

4.3 Petroleum Sector

Nigeria‘s crude oil production, including condensates
and natural gas liquids was estimated at 1.73 million
barrels per day (mbd) or 159.16 million barrels (mbd)
during the third quarter of 2009, compared with 1.70
mbd or 156.70 mbd in the preceding quarter. This
represented an increase of 1.8 per cent. The development was accounted for by the relative peace being
experienced in the Niger Delta region as a result of
the Federal Government‘s amnesty programme.

Crude oil export was estimated at 1.33 mbd or 122.36
million barrels in the review period, compared with
1.30 mbd or 118.30 million barrels in the preceding
quarter. Deliveries to the refineries for domestic consumption remained at 0.445 mbd or 40.94 million
barrels in the review quarter.

At an estimated average of US$70.05 per barrel, the
price of Nigeria‘s reference crude, the Bonny Light
(37o API), rose by 14.6 per cent over the level in the
preceding quarter. The average prices of other competing crudes namely, the West Texas Intermediate,
the U.K Brent and the Forcados also rose by 14.5,
15.1 and 15.7 per cent to US$68.03, US$68.79 and
US$69.76 per barrel, respectively.

Qt3. 07
Qt4. 07
Qt1. 08
Qt2. 08
Qt3. 08
Qt4. 08
Qt1. 09
Qt2. 09
Qt3. 09
Manuf.

Mining

Electricity

All Sectors

Indices
Figure 9: Index of Industrial Production (1990=100)


The average price of OPEC‘s basket of eleven crude
streams also, rose by 15.8 per cent to US$67.78 over
the level in the preceding quarter. The increase in price
was attributed to investors‘ renewed optimism of a
global economic recovery.

4.4
Consumer Prices

Available data showed that the all-items composite
Consumer Price Index (CPI) for the end of the third
quarter of 2009, was 212.4 (May 2003=100), representing an increase of 3.8 and 10.4 per cent over the
levels in the preceding quarter and the corresponding
period of 2008, respectively. The development was
attributed largely to the increase in the prices of food
and non-alcoholic beverages.

The urban all-items CPI at the end of the third quarter
of 2009, was 229.3 (May 2003=100), indicating an
increase of 2.6 and 8.1 per cent over the levels in the
preceding quarter and the corresponding quarter of
2008, respectively. Similarly, the rural all-items CPI
for the quarter, at 205.1 (May 2003=100), represented
an increase of 4.3 and 11.5 per cent over the levels in
the preceding quarter and the corresponding period of
2008, respectively.


The end-period inflation rate for the third quarter of
2009, on a year-on-year basis, was 10.4 per cent, compared with 11.2 and 13.0 per cent in the preceding
quarter and the corresponding quarter of 2008, respectively.

The inflation rate on a twelve-month moving average
basis for the third quarter of 2009, was 13.1 per cent,
compared with 13.7 and 9.2 per cent recorded in the
preceding quarter, 2009 and the corresponding period
of 2008, respectively.

5.0
EXTERNAL SECTOR DEVELOPMENTS
5.1
Foreign Exchange Flows

Foreign exchange inflow and outflow through the CBN
in the third quarter of 2009 amounted to US$5.67 billion and US$9.01 billion, respectively, representing a
net outflow of US$3.34 billion. Relative to the respective levels of US$5.36 billion and US$9.14 billion in
the preceding quarter, inflow rose by 5.8 per cent,
while outflow fell by 1.4 per cent. The increase in inflow was attributed to the 41.5 per cent rise in oil receipts, while the fall in outflow was due largely to the
2.5 per cent decline in Wholesale Dutch Auction System (WDAS) utilization during the review quarter.

P rovisional data indicated that foreign
exchange inflow through the CBN in the third quarter
of 2009 rose by 5.8 per cent, while outflow fell by 1.4
per cent. Similarly, total non-oil export earnings receipts by banks declined by 11.4 per cent from the level
in the preceding quarter. The weighted average exchange rate of the Naira vis-à-vis the US dollar, depreciated by 2.1 per cent to =N=150.92 per dollar at the
Wholesale Dutch Auction System (WDAS).


Available data on aggregate foreign exchange flows
through the economy indicated that total inflow
amounted to US$17.29 billion, representing an increase
of 34.1 per cent over the level in the preceding quarter
and a decline of 39.2 per cent from the level in the corresponding period of 2008. Oil sector receipts, which
accounted for 26.0 per cent of the total, stood at
US$4.57 billion, compared with the respective levels of
US$3.23 billion and US$13.81 billion in the preceding
quarter and corresponding period of 2008, respectively.
Non-oil public sector inflows, which accounted for 6.4
per cent of the total, however, declined by 48.1 per cent,
while autonomous inflow, which accounted for 67.2 per
cent increased by 54.3 per cent.

At US$9.24 billion, aggregate foreign exchange outflow
from the economy declined by 1.0.4 and 18.0 per cent
from the levels in the preceding quarter and the corresponding period of 2008, respectively. The fall in outflow relative to the preceding quarter was accounted for
largely by the decline in funding of the WDAS segment
of the foreign exchange market during the quarter under
review

5.2 Non-Oil Export Proceeds by Exporters

Total non-oil export earnings by Nigeria‘s exporters
declined by 11.4 per cent to US$335.84 million from the
level in the preceding quarter. A breakdown of the proceeds in the review quarter showed that the proceeds of
industrial, food products, manufactured products, transport, agricultural, and minerals stood at US$213.93 million, US$9.15 million, US$74.29 million, US$0.03 million, US$35.38 million and US$0.01 million, respectively.

The shares of industrial, food products, manufactured
products, transport, agricultural, and minerals subsectors in non-oil export proceeds were 64.3, 2.8, 22.3,
0.0, 10.6 and 0.0 per cent, respectively, in the review
quarter. The development was attributed largely to the
decline in the prices of the goods traded at the international market.

5.3 Sectoral Utilisation of Foreign Exchange


The invisibles sector accounted for the bulk (34.5 per
cent) of total foreign exchange disbursed in the third
quarter of 2009, followed by the industrial sector (19.0
per cent). Other beneficiary sectors, in a descending
order of importance, included: manufactured products
(16.5 per cent), minerals & oil (14.7 per cent), food
(10.4 per cent), transport (4.3 per cent) and agricultural
products (0.6 per cent) (Fig.14).
5.4 Foreign Exchange Market Developments

Foreign exchange demand by the authorized dealers
stood at US$10.30 billion, indicating an increase of 6.5
per cent over the level in the preceding quarter. Relative
to the level in the corresponding period of 2008, demand rose by 48.9 per cent. Consequently, a total
amount of US$7.34 billion was sold by the CBN during
the period, indicating a fall of 6.3 per cent from the
level in the preceding quarter.

Under the WDAS, the weighted average exchange rate
of the Naira vis-à-vis the US dollar depreciated by 2.1
per cent to =N=150.92 per dollar from =N=147.76 per
dollar in the preceding quarter. It also showed a depreciation of 22.0 per cent from the level in the corresponding period of 2008. In the bureaux-de-change segment
of the market, the naira traded at an average of
=N=157.36 per dollar, compared with =N=175.68 and
=N=119.00 per dollar in the preceding quarter and the
corresponding quarter of 2008, respectively. Consequently, the premium between the official and the bureaux-de-change rates narrowed from 18.9 per cent in
the preceding quarter to 4.3 per cent (fig. 16).

6.0 GLOBAL ECONOMIC CONDITIONS
The modest growth in the global economy experienced
in the second quarter continued in the third quarter,
following the strong performance of Asian economies.
In the advanced economies, unprecedented public intervention has stabilised activity and has fostered a return
to modest growth in several economies. Emerging and
developing economies were generally further ahead on
the road to recovery, led by rebound in Asia. The recent rebound in commodity prices and supportive policies are helping many of these economies. World Bank
economists stated that such economic vital signs as
industrial production, trade, and foreign direct investments were picking up, though they were at considerably lower levels than before the financial crisis. But the
gap between what the world can produce and what it
was actually producing is expected to remain very large
— about 6 percentage points of GDP for developing
countries. Moreover, the higher borrowing costs and
weak financial system would likely reduce the long run
potential output of developing countries by as much as
4.0 percent of their GDP.

Uncertainty and systemic risk in financial markets are
now lower. The triggers for the rebound were attributed
to strong public policies across advanced and many
emerging economies that have supported demand and
eliminated fears of a global depression.

These fears contributed to the steepest drop in global
activity and trade since World War II. Central banks
reacted quickly with exceptionally large interest rate
cuts as well as unconventional measures to inject liquidity and sustain credit. Governments launched major fiscal stimulus programs, while supporting banks
with guarantees and capital injections. Together, these
measures reduced uncertainty and increased confidence, fostering an improvement in financial conditions, as evidenced by strong rallies across many markets and a rebound of international capital flows.

However, the environment remained very challenging
for lower tier borrowers. More generally, the risk of a
reversal was a significant market concern, and a number of financial stress indicators remained elevated.
Looking ahead, the policy forces that are driving the
current rebound would gradually lose strength, and real
and financial forces, although gradually building, remained weak. Specifically, fiscal stimulus would diminish and inventory rebuilding will gradually lose its
influence. Meanwhile, consumption and investment are
gaining strength only slowly, as financial conditions
remained tight in many economies. The main shortterm risk was that the recovery would stall. Premature
exit from accommodative monetary and fiscal policies
seemed a significant risk because the policy-induced
rebound might be mistaken for the beginning of a
strong recovery in private demand.

In general, the fragile global economy remained vulnerable to a range of shocks, including rising oil prices,
a virulent return of H1N1 flu, geopolitical events, or
resurgent protectionism. However, short-term risks
were not only on the downside, as evidenced by the
recent, more-rapid- than-expected improvement in financial conditions. In particular, the policy-induced
reduction in fears about a 1930s-style crash in activity
and the accompanying strong rebound in financial market sentiment might induce a larger-than-expected
surge in consumption and investment across a number
of advanced and emerging economies. Extending the
horizon to the medium term, there are other important
risks to sustained recovery, mainly in the major advanced economies.

On the financial front, a major concern is that continued public skepticism toward what is perceived as bailouts for the very firms considered responsible for the
crisis undercuts public support for financial restructuring, hereby paving the way to a prolonged period of
stagnation. On the macroeconomic policy front, the
greatest risk revolves around deteriorating fiscal positions.

Figure 17: WDAS-BDC Exchange Rate Premium
(Quarterly)

'4th Qtr-06
2nd Qtr-'07
4th Qtr-07
2nd Qtr 08
4th Qtr 08
2nd Qtr 09
Premium


6.1
Global Inflation

The sharp drop in activity and rise in output gaps have
decreased inflationary pressures. At the global level,
year-on-year inflation moderated to 1.0 per cent in
July, down from more than 6 per cent a year earlier. In
the advanced economies, headline inflation has been
below zero since May, as oil prices have remained far
below levels a year earlier despite their recent pickup.
Core inflation has eased to 1.2 percent, down from just
over 2 per cent a year earlier. Similarly, headline and
core inflation in the emerging economies have moderated, falling to 4.2 per cent in July. However, developments have been uneven, with inflation falling mainly
in emerging Asia and less so in emerging Europe. Policy interest rates have been brought down considerably, close to the zero floor in many advanced economies. Cuts in rates were generally smaller in emerging
economies, reflecting a combination of higher inflation
at the onset of the crisis and pressure for exchange
rates to depreciate in response to capital outflows.
Looking ahead, some central banks in Asia and Latin
America may start to tighten again, if the strong rebounds there are sustained, although some central
banks in emerging Europe are still exploiting room to
cut rates in response to more stable external financial
conditions. Central banks in most advanced economies
and some emerging economies resorted to a range of
unconventional measures to further ease financial conditions during the past year. There have been a variety
of different approaches, mainly reflecting different
financial system structures.

6.2
Global Commodity Prices

The rise in the global demand and price of commodities continued in the third quarter. World crude oil
output in the third quarter 2009, was estimated at 84.32
million barrels per day (mbd), while demand was estimated at 83.13 mbd, compared with 83.62 and 83.17
mbd supplied and demanded in the preceding quarter,
respectively. The increase in demand was due to renewed optimism of a global economic recovery. Crude
oil prices in particular have hovered between $70 and
$80 per barrel during the quarter. Price developments
would partly depend on how strongly supply responds
to recovering demand. With non-Organisation of Petroleum Exporting Countries (OPEC) supply unlikely
to pick up substantially—given high decline rates in
some large, matured fields, notably in the North Sea
and Mexico, and given sluggish capacity buildup because of barriers to investment in many countries—this
response will depend largely on OPEC production.
The experience of recent episodes of deliberate production cuts suggests that OPEC members will respond
gradually and with some lag to increasing demand and
rising price pressure. Indeed, recent statements by key
OPEC officials suggest that OPEC production increases
will be predicated on a substantial drawdown of Organisation for Economic Cooperation and Development
(OECD) inventories to more normal stock-use levels and
on an oil price within the target range of $70−$80 per
barrel.

Also, in line with broad commodity market developments, most metal prices rebounded in the second quarter of 2009. By end-July, the IMF metal daily index
which had risen by nearly 60 per cent from its trough
earlier in the year was led by copper, lead, and nickel.
Besides, the improvement in near-term global economic
and financial prospects, which elicited strong price responses from the cyclically sensitive base metals, the
price rebound also reflected metal-specific factors. As in
the case of oil, a good part of the recovery in metal demand has already been priced in, and further strong
price increases in the near term seem unlikely at this
point because of substantial excess capacity.

Looking ahead, as reflected in futures prices, food prices
are expected to rise only gradually throughout the global
economic recovery. Demand is relatively insensitive to
the business cycle compared with other commodities,
and future harvests are expected to be fairly abundant,
although there is the prospect that the El Niño weather
pattern may affect production of some crops, particularly soybeans, through 2010. However, there are upside
risks to prices. Agricultural supply-demand balances
remain relatively tight, with the global stock-to-use ratio
for the major crops of corn, rice, soyabeans, and wheat
expected to remain below their average levels over recent.

Low inventory ratios are a result, in part, of food demand in emerging economies, which rose quickly during
2001−07. The renewed pickup in growth in these economies over the coming years will keep market balances
tight, and risks are that the increases in food price volatility observed over the past decade or so will be sustained. Another risk concern is the higher cost of energy,
particularly as oil prices remain well above their decade
averages. Higher energy prices drive up the cost of farming through fuel inputs and fertilizer prices. An indirect
effect of higher oil prices is the increased incentive to
divert food crops toward biofuel production. Acreage
dedicated to biofuel production has increased significantly in recent years, helped by high oil prices and,
particularly in advanced economies, by policy incentives.

In the United States, it is anticipated that the fall in the
oil price would lead to a sharp decline in ethanolrefining margins and to industry consolidation. However, the U.S. Department of Agriculture projects that
the proportion of U.S. corn production used for ethanol
will still rise in 2009−10, albeit at a slower pace than
had been projected in 2008. These emerging biofuel
linkages have led to an increase in the correlation between food and energy prices, and although these prices
were possibly inflated by the effects of the extreme
volatility of 2008, they will likely remain higher than in
the past.

6.3
International Financial Markets
The nascent recovery was most evident in financial
markets, although conditions were still very difficult
for many borrowers. Public intervention, low policy
interest rates, and expectations for recovery have
spurred strong rallies in many markets as well as a rebound in international capital flows. Initially, the main
driver was public policy, including guarantees for financial institutions, capital injections, provision of ample liquidity, and intervention in credit markets. Now,
improving growth prospects were beginning to feed
back into financial conditions, with declining risk aversion adding further momentum. However, the environment remained very challenging for lower-tier borrowers, notably small and medium-size enterprises and
many households. Securitization markets are still heavily impaired, which severely limits banks‘ capacity to
originate (and distribute) credit. More generally, the
risk of a reversal was a significant market concern, and
a number of financial stress indicators remain elevated.
Investors were allocating an increasing amount of
funds away from government bonds in search of higher
yields. Confidence in advanced economy banking systems has received a fillip from better-than-expected
earnings results and a series of successful bank capital
raisings.
In addition, stress-testing exercises, completed and
published in the United States and ongoing in various
other countries, are helping to rebuild trust in banks.
Still, questions remain about the sustainability of bank
earnings and the implications of elevated credit risks,
with loan delinquencies continuing to increase and
delays by banks in recognizing loan losses. International capital flows have recovered, including to
emerging markets. Since the beginning of the year,
sovereign spreads are down and sovereign issues are up
for both advanced and emerging economies, consistent
with a noticeable pickup in portfolio flows. The recovery in activity has been better than expected, which has
buoyed market sentiment, particularly in Asia and
Latin America.
Since mid-year, emerging market corporate and sovereign deals have been oversubscribed and refinancing
risks have fallen sharply, although less so in emerging
Europe and the Commonwealth of Independent States
(CIS). As in mature markets, high-quality corporate
borrowers can access funding fairly easily, but the borrowing capacity of those with weaker credit is more
constrained. Notwithstanding these favorable market
developments, vulnerabilities remain, especially in
emerging Europe and other countries heavily dependent on external financing. Cross-border funding for
emerging market banks remains vulnerable to the need
for mature-market banks to further deleverage. Refinancing and default risks in the corporate sector continue to be relatively high, especially in emerging
Europe, but also for smaller, leveraged corporations in
Asia and Latin America.
The return of some appetite for risk in international
markets has contributed to depreciation of the dollar
and yen and appreciation of emerging market currencies. This followed sharp movements in the opposite
direction at the height of the crisis. The euro recently
strengthened against both the dollar and the yen, although it has held more or less steady at the level prevailing before the crisis in nominal effective terms.
Even with improving financial market conditions, however, many households and firms in both advanced and
emerging economies will continue to face difficult conditions. In particular, bank loans to the private sector
are still stagnating or contracting in the United States,
the euro area, and the United Kingdom, consistent with
surveys among bank loan officers that point to a continuation of very tight credit conditions.

6.4
Other International Economic Developments and Meetings

Other major international developments and meetings
of relevance to the domestic economy during the review
quarter included: the 9th meeting of the Special Implementation Committee (SIC) of the Nigeria-South Africa
Bi-National Commission (BNC) held in Abuja from
July 22- 23, 2009. The meeting had six working groups
on Foreign Affairs and Cooperation; Agriculture, Water
Resources and Environment; Social and Technical;
Trade, Industry and Finance; Minerals and Energy; and
Defence and Security (see July Report).

The Committee of Ten African Ministers of Finance
and Governors of Central Bank (Committee of Ten)
held their third session in Abuja on July 14, 2009 under
the auspices of the African Development Bank, the Economic Commission for Africa and the African Union
Commission.

The objective of the meeting was to review the latest
information pertaining to the impact of the global financial crisis on Africa; take stock of recent internal
and international developments; and agree on African
perspectives to be fed into the global discussions, in
particular during the G20 Leaders Summit in Pittsburgh on September 26, 2009 (see July Report).

Also, the International Monetary Fund (IMF) concluded its Article IV Consultation Mission with the
Nigerian authorities on July 29, 2009 and noted that
Nigeria entered the global financial crisis from a position of strong macroeconomic stability. The reforms
of recent years paid off, with oil savings, high international reserves, and a well-capitalized banking system
preventing the type of economic crisis Nigeria witnessed during the oil price cycles of the early 1980s
(see July Report).
The G8 Summit was held in L‘Aquila, Italy from July
8 – 10, 2009. The G8 Leaders discussed the interlinked challenges of the economic crisis, poverty and
climate change among others. While noting some
signs of stabilisation and improved confidence, they
reaffirmed their commitment to implementing the
decisions made at the Washington and London Summits (see July Report).
In another development, the 33rd Ordinary Meetings
of the Association of African Central Banks (AACB)
held in Kinshasa, Democratic Republic of Congo
(DRC) from August 17—21 2009. The theme for the
2009 AACB Annual Meetings was ―The Formulation
of Monetary Policy in Africa: The Relevance of Inflation Targeting‖ (see August Report).
In a related development, the African Caucus, comprising African Governors of the International Monetary Fund and World Bank met in Freetown, Sierra
Leone from August 12 – 13, 2009. The Meeting considered the draft Memorandum to be submitted to the
Heads of the Bretton Woods Institutions (BWIs) at the
IMF/World Bank Annual Meetings in October, 2009.
The Memorandum welcomed the reforms undertaken
by the IMF to overhaul its low income countries
(LICs) financing framework, notably by streamlining
structural conditionality, providing short-term and
emergency financing, increasing the access limits and
norms of concessional instruments along with those
for General Resource Agreement (GRA) resources
(see August Report).
Also, the United Kingdom Department for International Development (DFID) met with the African
Governors of the BWIs on the role of International
Financial Institutions (IFIs) in supporting growth in
Africa.
The discussions were intended to articulate the position
of Africa on the IFIs, especially the BWIs as input into
the presentation of the G-20 Chairman, Prime Minister
Gordon Brown to the upcoming G-20 Summit in the
USA (see August Report).

The International Monetary Fund (IMF) on August 28,
2009 bolstered its members‘ reserves through an allocation of Special Drawing Rights (SDRs) worth US$250
billion, followed by an additional allocation of $33.0
billion on September 9, 2009. With the two allocations
totaling $283.0 billion, the outstanding stock of SDRs
would increase nearly ten-fold to about $316 billion (see
August Report).

The 8th African Growth and Opportunity Act (AGOA)
Forum was convened by the Government of the Republic of Kenya in conjunction with the United States (US)
Government in Kenya from August 1 – 6, 2009 on the
theme ―Realizing the Full Potential of AGOA through
Expansion of Trade and Investment‖. The objective of
the forum was to create a platform on which both the US
and the sub-Saharan African countries could articulate
their views and concerns in order to foster closer economic ties for mutual benefit (see August Report).

In another development, the summit of the Group of
twenty (G-20) industrialized and emerging market
economies was held from September 24 – 25, 2009 in
Pittsburgh, USA. The major highlights of the summit
were as follows:

The leaders noted that the forceful policy response
to the crisis had helped to stop a dangerous sharp
decline in global activity and stabilized financial
markets. Industrial output was now rising in nearly
all economies and international trade was recovering, while IMF analysis indicate that the global
economy is expected to grow at nearly 3 per cent by
2010.


The G-20 leaders agreed to continue strengthening
regulation of the international financial system; protect consumers, depositors, and investors from abusive market practices; and encourage the resumption
of lending to household and businesses. The Leaders asked the IMF to help the G-20 with its analysis
of how national or regional policy fit together.


The leaders noted that the collective response to the
crisis highlighted both the benefit of international
cooperation and the need for a more legitimate and
effective IMF. They welcomed the reform of IMF`s
lending facilities including the creation of the innovative Flexible Credit Line.

They asked the IMF to support G-20 efforts under
their new Framework for strong, Sustainable and
Balanced growth through the Fund‘s surveillance of
countries policy framework and their collective implication for financial stability and the level and
pattern of global growth. They welcomed moves to
create a stronger resource base for the fund, to improve global liquidity through allocation of special
Drawing Rights (SDRs), and the decision to boost
assistance for low-income countries.


The G-20 said that modernizing the IMF`s governance was a core element of efforts to improve the
IMF`s credibility, legitimacy, and effectiveness.
They supported a shift in quota share to dynamic
emerging market and developing countries of at
least five percent from over-represented to underrepresented countries using the current quota formula as the basis to work from. They also stressed
their commitment to protect the voting share of the
poorest in the IMF.
The African Development Bank (AfDB) approved a grant
of US$1 million to AB Microfinance Bank Of Nigeria
(ABN) from the Fund for Africa Private Sector Assistance (FAPA) on September 7, 2009. The Technical Assistance (TA) contribution from FAPA, which accounted
for 7.7 per cent of the overall TA package, will be used to
co-finance the provision of technical assisted to ABN to
build the capacity of the institution during its first few
years of operation.

The grant is attached to an equity investment of US$
1,013,186 made by the AfDB to launch the ABN in partnership with a number of other Development Finance
Institutions that are also contributing to co-financing the
technical assistance package supported by this grant for
FAPA. The FAPA is a component of the enhanced Private Sector Assisted Initiative (EPSA), a billion dollar
joint initiative of Japan and the AfDB to promote private
sector development in Africa. The FAPA trust Fund provides untied grants for studies, technical assistance and
capacity building for private sector projects and African
institution such as ABN.