BY MICHAEL EBOH
The Financial sector instability in Europe and the US is very likely to be transmitted into the Nigerian financial and capital markets, according to a report published by Resource and Trust Company, RTC, Limited.

Mr. Opeyemi Agbaje, Managing Director, RTC, in his business and economic review for September 2011, said the current trend in the global economic landscape will defer stability and ongoing recovery in the Nigerian financial sector if the necessary measures are not put in place to checkmate the effect of the ongoing crisis in the global scene.

He said that the major linkage with the Nigerian economy is that slow global growth will reduce oil prices and negatively affect exchange rates, foreign reserves, budget revenues and increase pressures for domestic taxation.

According to him, reviews for some months point to the fact that current global economic conditions and risks are ‘dangerous’ and now clearly threaten a second financial crisis and recessionary conditions in developed economies, which of course would dampen global growth and undermine global financial stability.

Agbaje further stated that the Central Bank of Nigeria’s, CBN, exchange rate policy is unsustainable and that this will soon be evident as oil prices decline and the country’s foreign exchange demand continue to increase.

“The nation will probably have been better off if savings had been made from another round of exceptionally high oil prices, rather than frittered away through capital flight, currency speculators, imports, travels and other invisibles and foreign consumption,” he said.

Agbaje noted that the external environment, represented by falling oil prices, greater financial sector risks and slower global growth prospects, poses the biggest risks to the Nigerian financial sector and the economy in general.

“Unfortunately,” he said, “the country has by-and-large wasted the post-global recession gift of a second round of exceptionally high oil prices through low exchange rates, on the monetary side, high recurrent expenditure, on the fiscal side, and corruption, everywhere.

“Hopefully this time, policy makers will not hope that Nigeria will be immune from the world.”

On the outlook for the Nigerian economy for the rest of the year, he stated further, “We project a period of industrial ‘insurgency’ as organized labour seeks to prevent government’s planned policy actions in terms of higher oil prices and electricity tariffs, privatizing Power Handling Company of Nigeria, PHCN, entities, as well as sustaining the minimum wage battle against stubborn state governors.

“Projected downstream oil sector deregulation, as well as other measures will clearly increase inflationary pressures in 2012, in spite of CBN valour in its anti-inflation ‘war’.

“It is becoming increasingly probable that power sector privatisation will be completed sometime in 2012 heralding private investment and management of electricity, and ultimately sector and economic transformation.”