ECONOMIC REPORT
FOR THE
FIRST HALF OF 2007
ECONOMIC REPORT
FOR THE
FIRST HALF OF 2007
CENTRAL BANK OF NIGERIA
CENTRAL BANK OF NIGERIA
CENTRAL BANK OF NIGERIA
Economic Report
For the
First Half of 2007
Economic Report
For the
First Half of 2007
CBN Half Year Economic Report for 2007
Vision
o be proactive in providing a stable framework for the economic development of Nigeria
through the effective, efficient and transparent implementation of monetary and
exchange rate policy and management of the financial sector.
T
Mission
o be one of the most efficient and effective world's central banks in
promoting and sustaining economic development.
T
CBN Half Year Economic Report for 2007
MEMBERS OF THE BOARD OF DIRECTORS OF THE
BANK AS AT JUNE 30, 2007
v

MEMBERS OF THE COMMITTEE OF GOVERNORS OF
THE BANK AS AT JUNE 30, 2007

Governor (Chairman)
-
Deputy Governor (Corporate Services)
-
Deputy Governor (Economic Policy)
-
Deputy Governor (Financial Sector Surveillance)
-
Deputy Governor (Operations)
-
Director (Permanent Secretary, Federal Ministry of
Finance)
-
Director
-
Director
-
Director
-
Director
-
Director
-
Secretary to the Board
-
Governor (Chairman)
-
Deputy Governor (Corporate Services)
-
Deputy Governor (Economic Policy)
-
Deputy Governor (Financial Sector Surveillance)
-
Deputy Governor (Operations)
-
Secretary
Chukwuma C. Soludo
Ernest C. Ebi
Sarah O. Alade (Mrs)
Tunde Lemo
Shamsuddeen Usman
Akinlose S. Arikawe
Akpan H. Ekpo
Juliet A. Madubueze (Mrs)
Dahiru Muhammad
Samuel O. Olofin
Joshua O. Omuya
Umaru B. Girei
Chukwuma C. Soludo
Ernest C. Ebi
Sarah O. Alade (Mrs)
Tunde Lemo
Shamsuddeen Usman
Umaru B. Girei
CBN Half Year Economic Report for 2007
TABLE OF CONTENTS
vii

PAGE
Executive Summary
Liquidity Management
Payments and Clearing
Retail Payments System
Cheque..
Electronic Payments
ATM Transactions
Web Transactions
Point of Sale (POS) Transactions
Dollar Denominated Card Transactions
Wholesale Payments System
Financial Sector Surveillance
Banking Supervision
Prudential Examination
Banking Sector Soundness
Routine Examinations
Financial Crime Surveillance
Compliance with the Code of Corporate Governance for
Banks in Nigeria
Examination of Other Financial Institutions
Foreign Exchange Management
Foreign Exchange Flows
Sectoral Utilization of Foreign Exchange
Development Finance Operations
Agricultural Credit Guarantee SchemeFund (ACGSF)
Interest Drawback Programme
The Trust Fund Model (TFM)
Small and Medium Enterprises Equity Investment Scheme
(SMEEIS)
Microfinance
CBN Assets and Liabilities

Monetary and Credit Developments
Drivers of Growth in Monetary Aggregates
Net Foreign Assets (NFA)
Net Domestic Asset
..
Net Domestic Credit (NDC)
Credit to the Government (Cg)
Credit to the Private Sector

xiii


2.2.1.2.3
..
..

2.2.1.2.4
..


2.5.1
..
..


1.0
INTRODUCTION


2.0 Operations of the Central Bank of Nigeria


ECONOMIC REPORT


3.0
DEVELOPMENTS IN THE ECONOMY


CBN Half Year Economic Report for 2007


3.2.2.1
..
..

3.2.2.2
..
..


3.3.1.1
..
..


3.3.2.1
..
..


Money Market Developments
Money Market Assets Outstanding
Primary Market
Open Market Operations (OMO)
Interest Rates Developments
Money Market Rates
Deposit Rates
Lending Rates
Institutional Savings
Other Financial Institutions
Community / Micro Finance Banks
Discount Houses
Finance Companies (FCs)
Primary Mortgage Institutions (PMIs)


Capital Market Developments
The Nigerian Stock Exchange
New Issues Market
The Secondary Market
Value Index of Equities
Monetary Outlook for the Rest of 2007
Fiscal Operations
Federation Account Operations
Federal Government Finances
Federal Government Retained Revenue
..
Total Expenditure of the Federal Government
State Governments Finances
Local Governments Finances
Public Debt
Domestic Debt
External Debt
Fiscal Outlook
Real Sector Developments
Agriculture
Agricultural Policies and Institutional Support
Agricultural Production and Prices
Industry
Industrial Policy and Institutional Support
Industrial Production
Manufacturing
Crude Oil
Crude Oil Prices
Gas
Consumption of Petroleum Products
Solid Mineral
Electricity Generation
Electricity Consumption
Industrial Financing
Development Finance Institutions

Bureaux-de-Change (BDCs)
Pension Fund Administrators/Custodians
viii
ix
CBN Half Year Economic Report for 2007
Nigeria Export Import Bank (NEXIM)
Telecommunications
Consumer Prices
Industrial Relations
Real Sector Outlook for the Second Half of 2007
External Sector Developments
Balance of Payments
The Current Account
Goods Account
Services
Income
Current Transfers
Capital and Financial Account

External Assets

External Sector Outlook for the Rest of 2007
World Economy Outlook for the rest of 2007
Sub-Regional Institutions
Economic Community of West African States (ECOWAS)
West African Monetary Zone
Regional Institutions

African Development Bank Annual Meetings

The Association of African Central Banks (AACB)

The United Nations Economic Commission for Africa (UNECA)
Global Institutions
World Economic Forum Annual Meeting
Spring Meetings of the Inter-governmental Group of Twenty-four
(G-24) and the Boards of Governors of the International Monetary
Fund (IMF) and the World Bank Group
The International Monetary and Finance Committee (IMFC)
G7/8 Finance Ministers
G 8 Summit
BILATERAL RELATIONS
Fourth Session of the Nigeria/Korean Joint Commission
International Commodity Organization
The International Cocoa Organisation (ICCO)
Outlook for the Economy


4.2.1
..
..


4.3.2
..
..

4.3.3
..


4.4.2


4.4.3
..


4.5.1
..
..


4.0
DEVELOPMENT IN THE WORLD ECONOMY


x
CBN Half Year Economic Report for 2007
Selected Macroeconomic Indicators
Monetary Policy Targets at OMO Sessions
Percentage Value and Volume of Electronic Payments
Open Market Operations at OMO Sessions
Treasury Bills: Issues and Subscription
Monetary and Credit Developments
Value of Money Market Assets
Selected Interest Rates
Federation Account Operations
Summary of Federal Government Finances
Allocation to State Governments from Federation and VAT Pools Accounts
Allocation to Local Governments from the Federation and VAT Pools Accounts
Domestic Debt of Federal Government
External Debt Outstanding
Selected Real Sector Indicators
Balance of Payment Analytical Statement
Selected External Sector Indicators (N)
Foreign Exchange Flows Through the Economy
Nigeria Foreign Exchange Rates
Demand and Supply of Foreign Exchange
Non-Oil Export Proceeds by Top 100 Exporters
Sectoral Utilization of Foreign Exchange
Total External Assets of Nigeria

xvii


..

..


TABLES
xi
CBN Half Year Economic Report for 2007


..
..
..


..
..
..


..


Holdings of NTBs
Volume of Cheques Cleared
Value of Cheques Cleared
Volume of ATM Transactions
Value of ATM Transactions
Volume of Pos Transactions
Value of Pos Transactions
Volume of Large Value Transfers (First Half 2007)
Value of Inter-bank Transfers (First Half 2007)
Demand and Supply of Foreign Exchange
Exchange Rate Movements
Bureaux de Change Premium
Foreign Exchange Disbursements
Foreign Exchange Flows Through the CBN
Sectoral Utilization of Foreign Exchange
Sectoral Disbursement of ACGSF Loans
Sectoral Distribution of Investments by Banks
Growth in Money Supply
Ratio of M2 and Banking System Credit to GDP
Share of Government and Private Sector in Banking System
Share of Private Sector
Nominal Interest Rates Movement
Real Interest Rates Movement
Market Capitalization and NSE Value Index
Volume and Value of Transactions at the NSE
Structure of Federation Revenue
Distribution of Federally-Collected Revue
Composition of Federal Government Retain Revenue
Composition of Federal Government Expenditure
Fiscal Deficits
Summary of State Government Revenue
Statutory allocation to the Local Governments
Local Government Statutory Allocation
Breakdown of External Debt Service Payments to Creditors
Crude Production and Exports
Average Spot Prices of Selected Crud Traded in the International Oil Market
Gas Production and Utilization
Consumption of Petroleum Products
Sectoral Disbursement of Loans by the NEXIM Bank
Total Connected Lines and Teledensity
Consumer Price Indices and Inflation Rate
Urban and Rural Consumer Price Indices
External Reserves Stock
Exports, Imports and Trade Balance
Non-Oil Exports Proceeds by Top 100 Exporters
Interest on Reserves, Betb and Net Income
Private Home Remittances
External Assets
CHARTS
xii
CBN Half Year Economic Report for 2007


The CBN Standing Facil
Recent Developments in the Nigerian Capital Market
ity
Pension Fund Reforms
BOX INFORMATION
xiii
CBN Half Year Economic Report for 2007

EXECUTIVE SUMMARY


POLICY
FRAMEWORK

Liquidity
Management

CBN OPERATIONS


Payments
&
Clearing System

Financial Sector
Surveillance


The Central Bank of Nigeria (CBN) pursued its primary mandate of maintaining
monetary and price stability through monetary targeting. The Bank’s monetary
operations relied on the lending and deposit facilities anchored on the monetary
policy rate (MPR) with a rate corridor. This was complemented with the open
market operations (OMO), the sale of foreign exchange through the Wholesale
Dutch Auction System (WDAS), reserve requirement and auction of treasury
securities in the primary market. In order to play its developmental role, the Bank
intensified the implementation of its initiatives on development financing
namely, the Small and Medium Enterprises Equity Investment Scheme
(SMEEIS), the Agricultural Credit Guarantee Scheme (ACGS) and the
microfinance scheme.
The Bank’s liquidity management operations involved the two-way quote
trading, primary auctions in treasury securities, reverse repurchase sales,
standing facilities, OMO and reserve requirements. These operations yielded
positive results as the reserve money target for the first half of the year was met
and the volatility in inter-bank rates remained subdued with rates hovering within
the MPR corridor.
The Bank sustained the reforms in the Payments System with the
full implementation of the cheque standard and the approval of Oceanic Bank
as an additional settlement bank, bringing the total number of settlement
Banks to eleven. Furthermore, the Bank concluded arrangements to further reduce
the up-country cheque clearing cycle, as well as commenced the electronic
bulk payments of salaries of 7 Ministries, Departments and Agencies (MDAs)
of the Federal Government. In addition, the National Payments System
Vision 2020 was presented to stakeholders at a National Payments System
Stakeholders’s Forum in order to harvest ideas to improve the strategy. Available
data indicated that the upward trend in the volume and value of the various modes
of payments continued in the period reflecting increased public confidence and
awareness in the payments system.
As at end-June 2007, the private sector liabilities of seven banks had been
assumed by three of the 25 capitalized banks under the Purchase and Assumption
programme to ensure that no private deposit was lost in banks that failed to meet
the capitalization requirement. On the liquidation of the four (4) outstanding
banks, the NDIC had obtained provisional court order to liquidate one (1),
while the remaining three (3) banks were still undergoing
court processes
xiv
CBN Half Year Economic Report for 2007
Financial Sector
Surveillance
Foreign Exchange
Management
THE FINANCIAL
SECTOR

Examination of banks using CAMEL parameters during the period revealed that no bank
was rated unsound, reflecting the absence of signs of serious weakness.
Also, prudential examination of banks revealed that 88.0 per cent of the banks in
the system met the specified minimum capital adequacy ratio, while the
defaulting banks were penalized accordingly. In addition, verification
exercise on compliance with the provisions of the code of corporate governance for
banks issued in April 2006 revealed that four (4) banks had government equity holdings
above 10 per cent, while no bank had complied with the appointment of
independent directors
Demand pressure increased substantially at the WDAS relative to the period a
year ago, occasioned by the seasonal payments for dividend remittances as well
as payments for new oil blocks and importation of petroleum products.
Consequently, foreign exchange sold by the CBN to the authorized dealers
increased by 137.6 per cent to US$8,641.21 million. Notwithstanding, the
exchange rate of the naira vis-à-vis the US dollar appreciated by 0.8 per cent over
the level in the corresponding period of 2006. Thus, the wide parallel market
premium of 11.8 per cent in the first half of 2006 crashed to 1.1 per cent in the
period under review. Foreign exchange flows into the economy at US$29.71
billion, increased by 1.8 per cent over the level in the corresponding period of
2006 while total foreign exchange outflow increased by 19.4 per cent
to US$13.50 billion. Transactions through the CBN resulted in a net inflow of
US$1.40 billion compared with US$7.32 billion in the corresponding period of

The major monetary aggregates grew modestly in the first half of 2007. Available
data indicated that relative to the level at end-December 2006, broad money (M2)
grew by 11.01 per cent as at end-June 2007, compared with the 29.1 per cent in the
corresponding period of 2006. On an annualized basis, this represented a growth
of 22.02 per cent, compared with the target of 19.0 per cent for fiscal 2007.
Narrow money supply (M1) grew by 0.63 per cent, compared with 20.4 per cent in
the corresponding period of 2006. The growth in the money stock reflected the
increase in foreign and other assets (net) of the banking system. The reserve
money target for the first half of 2007 under the Policy Support Instrument (PSI)
was met. The Federal Government was a net creditor to the banking system as net
credit to the Government fell by 126.0 per cent, compared with 17.89 per cent
recorded at end-June 2006, reflecting the significant increase in Federal
Government deposits with the banking system, particularly with the CBN.
The development reduced credit to the domestic economy by 187.2 per cent at
end-June 2007 relative to the level at end-December 2006.
xv
CBN Half Year Economic Report for 2007
THE
FINANCIAL
SECTOR
THE
GOVERNMENT
SECTOR
THE REAL
SECTOR
Credit to the private sector however rose by 34.4 per cent. The rising trend observed in
bank deposit rates since 2006 persisted. The average savings deposit rate as well
as other rates on deposits of various maturities rose, reflecting increased
competition in the deposit market. The declining trend that was observed in bank
average prime lending rate reversed in the first half of 2007. With the year-onyear inflation rate at 6.4 per cent in June 2007, most of the term deposit rates were
positive in real terms. Aggregate institutional savings as at end-June, 2007,
amounted to N2,345.4 billion, indicating an increase of 2.6 per cent over the level
in the corresponding period of 2006. The DMBs, buoyed by the deposit of N650
billion under the Pension Fund Scheme, remained the dominant savings
institution, and accounted for 90.0 per cent of the total institutional savings at
end-June 2007. Transactions on the Nigerian Stock Exchange were bullish as all
market indicators trended upwards.
Total federally-collected revenue which stood at N2,344.9 billion was 4.9 and
21.6 per cent lower than the proportionate budget estimate and the actual revenue
in the corresponding period of 2006, respectively. Oil-revenue accounted for
83.0 per cent, while non-oil revenue accounted for the balance. Aggregate
expenditure of the Federal Government stood at N1,070.6 billion, 12.5 per cent
lower than the proportionate budget estimate, but 42.4 per cent higher than the
level in the corresponding period of 2006. The lower total expenditure relative to
the budget estimate resulted from a decline in interest payment on domestic
debt. Thus, the fiscal operations of the Federal Government resulted in an overall
surplus of N73.0 billion as against the proportionate budget deficit of
N269.8 billion.

Provisional data from the NBS indicated that the Gross Domestic Product (GDP)
at 1990 constant basic prices grew by 7.4 per cent, compared with 5.3 per cent
in the corresponding period of 2006. The main growth driver was the
non-oil sector which grew by 9.2 per cent and contributed 76.8 per cent to the
GDP. At 194.8 (1990=100), the provisional aggregate index of agricultural production rose by 7.4 per cent, compared with the 6.2 per cent recorded in the first
half of 2006 while activities in the industrial sector declined as its index of
production at 116.6 (1990=100) fell by 6.4 per cent below the level attained
during the corresponding period of 2006. The poor performance reflected
the decline in mining production, manufacturing output and electricity
consumption. Crude oil production, including condensates declined to an
average of 2.14 million barrels per day (mbd) from 2.25 mbd in the first half of
2006. The average spot price of Nigeria’s reference crude, the Bonny Light (37
API), was $65.56 per barrel in the first half of 2007, down by 1.4 per cent from
$66.48 per barrel in the first half of 2006. Inflationary pressure moderated as the
headline year-on-year and the 12-month moving average inflation rates fell to 6.4
and 5.9 per cent in June 2007 from 8.5 and 13.6 per cent in June 2006, reflecting
largely the effects of the stabilization in the supply of petroleum products, large
stock of agricultural products from the 2006/2007 harvest, as well as good
macroeconomic management.

xvi
CBN Half Year Economic Report for 2007
EXTERNAL
SECTOR
OUTLOOK
FOR THE REST
OF 2007
Macroeconomic environment was expected to be conducive in the second half of the
year as growth rate of output would be sustained, supported by a strong external
sector. This is based on the expected continued improvement in agricultural output
arising from favourable weather, government support and farmers’ positive
response. The industrial sector is also expected to outstrip its performance as a
result of envisaged improvement in the power supply. The external sector is
expected to remain robust, driven by persistent increase in crude oil prices to
an estimated all time high of US$80.0 per barrel in the third quarter of 2007. The
protracted crisis in the Middle East, particularly in Iraq and the current disruption
of production activities in the US and Mexico are likely to prompt supply
shortages and spur price increases. In addition, the sustained growth in China and
India would continue to exacerbate pressure on demand for crude oil and
consequently sustain the upward pressure on prices in the international market.
The performance of the external sector improved significantly with the outcome driven by
the developments in the current account (CA) occasioned by huge diaspora funds from home
remittances, and increased financial flows. The current account surplus increased while the
capital account was in deficit. Consequently the overall balance of payments was N109.6
billion (US$862.01 million). Provisional data indicated that Nigeria’s external assets at
end-June, 2007 stood at N6,462.19 billion (US$50.76 billion), representing increases of 3.3
and 26.4 per cent over the levels in the preceding half year and corresponding period of
2006, respectively. The development was due entirely to the increase in the net assets of
Deposit Money Banks (DMBs). The CBN’s holdings accounted for 86.6 per cent of the total
external assets, compared with 86.9 per cent in the corresponding period of 2006. World
output growth for 2007 was projected by IMF’s World Economic Outlook (WEO) at 5.2
per cent. World output however, expanded modestly in the first half of 2007 although growth
in the US economy slowed in the first quarter but regained momentum in the second quarter.
Output in most other countries expanded strongly especially in the euro area, Japan and the
emerging market economies, led by China. Sub-saharan Africa also experienced growth,
attributable to the increase in the prices of natural resources. Commodity prices fell in the
international markets while domestic consumer prices increased in industrial countries.
Inflation remained generally contained despite strong global demand. However some
emerging market and developing economies faced rising inflation, especially in energy and
food prices while oil prices increased due to limited spare production capacity.
However, the expected inflows may precipitate strong revenue to the three tiers of
government with likely attendant fiscal profligacy, particularly at the sub-national
government levels. Also, the planned expenses on infrastructural facilities, particularly in
the power sector by the Federal Government was expected to accentuate fiscal spendings
with serious challenges for monetary management. Consequently, inflation may be
contained to about 9.2 per cent by the end of the year.
xvii
CBN Half Year Economic Report for 2007
Selected Macroeconomic and Social Indicators

Jun-04
Jun-05
Jun-06
Jun-07

Others
Consolidated Government Debt Stock
External
Domestic
Foreign
Domestic
Banking System
Non-bank Public
Current Balance (Deficit(-)/Surplus(+))
Primary Balance (Deficit(-)/Surplus(+))
Overall Fiscal Balance (Deficit(-)/Surplus(+))
Financing
Domestic
Capital Expenditure and Net Lending
Transfers
Recurrent Expenditure
Of which: Interest Payments
Foreign
Federal Government Finance (% of GDP)
Retained Revenue
Total Expenditure
Inflation Rate (%) (12-month moving average)
22.20
Core Inflation Rate (%) (Dec-over-Dec) 7/
22.20
Core Inflation Rate (%) (12-month moving average) 7/
16.60
Oil Production (mbd)
2.11
Manufacturing Capacity Utilisation (%) 1/
45.50
Inflation Rate (%) (Dec-over-Dec)
14.00
Sectoral Classification of GDP (Growth Rate %)
Agriculture
Industry 4/
Services 5/
GDP at Current Mkt Prices (US$' billion) 3/
Real GDP Growth (Growth Rate%) 3/
9.60
Oil Sector
Non-oil Sector
Indicator
Jun-03
Domestic Output and Prices
GDP at Current Mkt Prices (N' billion) 3/

xviii
CBN Half Year Economic Report for 2007
Selected Macroeconomic and Social Indicators (Cont.)

Indicator
Jun-03
Jun-04 Jun-05
Jun-06
Jun-07
Money and Credit ( Growth Rate %)
Reserve Money
Narrow Money (M1)
Broad Money (M2)
Net Foreign Assets
Net Domestic Assets
Net Domestic Credit
Net Credit to Government
Credit to Private Sector
Money Multiplier for M2
Income Velocity of M2
Interest Rates (% per annum)
Minimum Rediscount Rate (MRR) 9/
Monetary Policy Rate (MPR) 9/
Repurchase Rate
Reverse Repurchase Rate
Treasury Bill Rate
91-day
Inter-bank Call Rate
Deposit Rates
Savings Rate
3-months Fixed
6-months Fixed
12-months Fixed
Prime Lending Rate
Maximum Lending Rate
External Sector
Current Account Balance (% of GDP)
Goods Account
Services and Income Account
Current Transfers
Capital and Financial Account Balance (% of GDP)
Overall Balance (% of GDP)
External Reserves (US $ billion)
Number of Months of Import Equivalent
Debt Service Due (% of Exports of Goods and Services)
Average Crude Oil Price (US$/barrel)
Average AFEM/DAS Rate (N/$1.00)
End of Period AFEM/DAS Rate (N/$1.00)
Average Bureau de Change Exchange Rate (N/$)
End of Period Bureau de Change Exchange Rate (N/$)
Capital Market
All Share Value Index (1984=100)
Value of Stocks Traded (Billion Naira)
Market Capitalization (Billion Naira)


xix
CBN Half Year Economic Report for 2007
Selected Macroeconomic and Social Indicators (Cont.)
Indicator
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Social Indicators
GDP per Capita (N) 3/
GDP per Capita (US$) 3/
Population (million)

Population Growth Rate (%)

Life Expectancy at Birth (Years)

Adult Literacy Rate (%)

64.2
Incidence of Poverty 11/

1/ Revised
2/ Provisional
3/ Revised based on National accounts of Nigeria 1981-2005 Harmonised series
4/ Includes Building and Construction.
5/ Includes Wholesale and Retail Services
6/ Based on GDP at purchasers' value (i.e. GDP at market prices)
7/ Core Inflation is measured as the rate of change of all-item Consumer Price Index (CPI)
less farm produce.
8/ Based on GDP at Current Purchasers' Value (Current Market Price).
9/ MPR replaced MRR with effect from December 11, 2006
10/ The 182-day and the 364-day bills were introduced with effect from
11/ The incidence of poverty in Nigeria was projected to increase from 65.6 per cent
in 1996 to 70.0 per cent in 2000.
However, the result of a Nigeria Living Standard Survey of 2003/2004 from NBS (former FOS),
showed that the incidence of poverty declined to 54.4 per cent in 2003/2004.
*** indicates not available.