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Over the long
Easter weekend, I dwelt in the cusp of several dilemmas. There was the
undeniable challenge of the national political choice. But it was with
a lower order problem that I did the greater battle. Riven between, on
one hand, the modern day understanding of the role of the public sector
in an economy, and on the other, a vivid recollection of a
not-too-long-ago past, when all services were provided by the public
sector, I tried to imagine an agenda for the sector’s reform.

The first horn of
this particular dilemma is an argument in favour of a small state. Here
the private sector provides everything within a competitive market
economy. In this context, the state is allowed free rein only in those
areas where a natural monopoly exists, the positive externalities
arising from the provision are too vast to lure private providers, or a
market failure exists.

Otherwise, the
state is most efficient as a regulator of the market: ensuring free
entry and exit, and protecting consumers against price-fixing and
related collusive practices by industry.

The second horn
seemed nostalgic. Or, was it? Add the Tuesday break from work for the
governorship elections, and the whole Easter break was of five days
when electricity from the mains was noticeable by its absence. In the
teeth of the obvious incompetence of PHCN (the yet-to-be-privatised
public monopoly that provides electricity nationwide) it was kind of
difficult persuading my teen daughter that time was when NEPA (that’s
what the monopoly provider used to be called) announced power outages
days in advance; and when the light was turned off as announced and
turned on on cue. A lot less credible in the light of today’s
experiences, is the fact that it was our practice as teens to report
unannounced electricity outages to NEPA; and that having logged the
fault, the service operator would inform that a “fault vehicle” will be
“there” in 30 minutes. Invariably, the service vehicle arrived on
schedule. It was important, growing up, that we knew by heart the
number on the poles that brought light into our homes, and NEPA’s fault
complaints phone lines.

There was therefore
a time when the public sector “delivered”. Now, there may have been
issues with its balance sheet. In other words, the services we enjoyed
in those days may have been provided below the rate at which the market
would ordinarily have cleared the demand for and the supply of such
services (were these to have been left in the hands of private sector
providers). This difference between the rate at which the public sector
provided its services and the putative private sector rate (the
now-famous “subsidy”, which every public policy neophyte would want
removed in today’s thinking) was not without its uses. It would have
helped if all that time these costs were properly captured in the
national accounts and the choices we made happened because we’d
compared their implications for the budget with the intended gains.

Despite the current
narrative, the haemorrhage from such “subsidies” did not lead to the
subsequent incapacitation of the public sector as a service provider.
Indeed, the emergence of millionaire civil servants belies this
possibility. The services failed for less honourable reasons. The point
was reached where public investment in new capacity tailed off, even as
ill-focussed public policy choices drove a phenomenal growth in demand
for these services. As the debate in the US over how to keep public
spending within limits has shown, key parts of the services enjoyed
there is the result of public provision. To some extent, therefore, the
public sector is not as remiss as we want to depict it. Tony Blair,
writing on his tenure as prime minister of the UK, put it most
graphically: “The truth was that the whole distinction between public
and private sector was bogus at all points other than one: a service
you paid for; and one you got free. That point is obviously central –
it defines public service. But it doesn’t define how it is run, managed
and operated. In other words, that point is critical, but at all other
points, the same rules apply for public and private sector alike, and
those points matter enormously.”

Gold surged to a
record high on Friday for the third straight day, as investors kept up
a buying frenzy fuelled by the outlook for low U.S. interest rates that
has propelled bullion to its seventh consecutive weekly rise, its
longest winning streak since 2007.

Bullion jumped to
$1,569.30 an ounce as U.S. consumer spending rose for a ninth straight
month in March with inflation at its highest in nearly a year.

Platinum group metals also rose about 2 percent but silver fell 1 percent after soaring to record high in the previous session.

Option traders
reported strong buying of call options and call spreads, reflecting
bullish market expectations. A gauge of bullion market volatility also
spiked in response to a sharp price rally.

“What has been
driving gold is an abundance of liquidity of Fed policy that remains
exceedingly accommodative, which is going to work against the U.S.
dollar,” said Mark Luschini, chief investment strategist of
broker-dealer Janney Montgomery Scott, which manages $53 billion in
client assets.

“There is worry
that inflation, which is not a problem right now, could escalate to
become one. And once it does, it becomes very difficult to put the
genie back into the bottle,” he said.

The CBOE gold volatility index, which measures bullion investor anxiety, rose 6 percent to its highest level in five weeks.

Spot gold was last
up 1.8 percent at $1,563.30 an ounce by 5 p.m. EDT (2100 GMT), having
earlier hit an all-time high $1,569.30. The metal notched a 9 percent
monthly gain, its strongest since November. Bullion also posted its
seventh consecutive weekly rise, its longest winning streak since 2007.

U.S. June futures
settled up 1.7 percent at $1,556.40 an ounce, with trading volumes
about one-third below its 30-day average due to a public holiday in
London.

On the options
front, heavy buying of outright call options and bull call spreads of
June 2012 calls with strikes $1,800 and $2,000, said COMEX gold options
floor trader Jonathan Jossen.

Bull call spread is
an option play involving the buying of calls at one strike price while
selling them at a higher strike with the same expiration date.
Investors often expect prices to rise moderately with the strategy.

A slight drop in
the dollar also contributed to bullion’s gains. Earlier in the week,
expectations of further weakness in the dollar were the biggest drive
for gold and silver rallies to records.

Silver retreats from record

Silver retreated
from the record high it set Thursday, but was still by far the
best-performing commodity in April and so far in 2011. It posted a near
27 percent rise in April, its biggest monthly gain since April 1987.

Silver was last down 0.8 percent at $48.03 an ounce.

Silver gained 3
percent this week, although analysts say its robust performance against
the other precious metals may not be sustainable.

“If silver doesn’t
make a new high and sustain above that, it may go through a more
vicious correction here. So, gold in the short term could go down in
sympathy of that,” said James Dailey, portfolio manager of the TEAM
Asset Strategy Fund.

Speculators scaled
back their bullish bets in COMEX silver futures and options to the
lowest level since early February, even as prices neared the
psychological $50 an ounce, regulator data showed Friday.

The CME Group Inc,
parent of the Chicago Board of Trade, said on Thursday it would raise
maintenance margins for silver futures by 13.2 percent, its second time
this week, making it more expensive for silver speculators to trade in.

Reuters

Bank lending should rise significantly in the second quarter of the financial year once the April 2011 elections, which have prompted a slowdown, are over, according to Bisi Onasanya, group managing director and chief executive officer of First Bank Nigeria.

Mr Onasanya told Oxford Business Group (OBG), a consultancy firm, that financial risk exercises undertaken last year by the Central Bank of Nigeria (CBN) and the April elections had both contributed to a dip in loan growth.

Figures show that lending growth turned a corner to reach 5 percent by the end of last year after plummeting in the wake of the 2008 global financial crisis, which was exacerbated in Nigeria by troubles in the domestic banking sector.

“Lending growth was suppressed last year, partly due to a conservative response from banks following the stress test which the CBN conducted in 2010,” he said. “The elections are slowing loan growth for the first half of 2011, but there will be a major increase after elections in April. I expect loan growth of 10 percent in 2011, which is double the 5 percent figure for 2010.”

Businesses face challenges

Mr Onasanya acknowledged that businesses in Nigeria still faced an uphill struggle to obtain credit from banks, despite CBN Governor Lamido Sanusi’s high-profile campaign to encourage growth by stimulating Small and Medium Enterprise financing. He believes banks are unlikely to increase lending to smaller businesses, which are viewed as a higher risk than big corporations, unless lending rules are relaxed.

“Although SMEs have access to some credit, the risk tolerance limit is too high,” he said. “The banks can’t be blamed since they have to meet provisions when the CBN tests their portfolios. The government and the Central Bank should consider implementing risk sharing to increase the flow of credit to higher risk areas.” With bidding for Nigeria’s unhealthy banks drawing nearer, Mr Onasanya highlighted the importance of ensuring that the selling process was clearly laid out in a framework if legal wrangles and lengthy court cases were to be avoided.

Ten of Nigeria’s banks are up for sale after they failed to meet standards set out in an audit undertaken by the CBN in the wake of the 2008 crisis. The move is set to bring consolidation to the sector, with observers expecting the process to reduce the number of players to 15.

“Due process must be followed involving the boards of directors and shareholders,” he said. “Otherwise, if the distressed banks are sold by the CBN rather than by the actual owners, each acquisition will go into irreconcilable litigation.”

To discourage the use of raw cash in economic transactions in
the country, the Central Bank of Nigeria (CBN) has taken steps to promote the
use of electronic payment systems.

The CBN yesterday in a circular to all banks, Cash-in-Transit
(CIT) operating firms, payments system service providers, as well as money card
acquirers, issuers and processors, said that the new policies, including
payment of increased penalties for cash transactions by individual and
corporate bank account holders, are to help reduce the high usage of cash as
well as moderate the cost of cash management among operators in the country’s
financial system.

The CBN’s director, currency operations department, Muhammad
Nda, said in the circular that the increasing use of cash in transactions has
dire consequences on the overall economy, particularly concerning cost of cash
management to the banking industry, security, and money laundering.

To limit the negative impact on the economy, Mr Nda said the CBN
has directed all deposit money banks (DMBs) in the country to ensure that,
effective June 1 next year, daily cumulative free cash withdrawals and
lodgements by individual and corporate customers do not exceed a maximum
ceiling of N150,000 and N1 million respectively.

Cut down on cash
transactions

Consequently, he said the CBN has imposed a penalty of N100 per
N1000 on all individual cash transactions in excess of the limit, while
corporate customers that go contrary to the new policy are to pay a fee of N200
per N1000 withdrawn above the stipulated cumulative limit.

The circular added that, “Contravention of this policy shall
attract a fine of five (5) times the amount that the bank waives as a first
offender, while the bank shall, subsequently, pay ten (10) times the charges
waived.”

Though commercial banks are allowed to charge their customers at
least an interest of N5 per N1 million as cost of transaction (COT), there is
no approved rate stipulated by the CBN for overdrawn accounts, as the customers
are allowed at the discretion of their bankers.

With effect from June 1,this year, operators of card payment
schemes, processors, switching companies, service providers, and banks risk
being suspended for a month or licence revoked by the CBN, for not acquiring
approved operational agreements/contracts for local currency Point of Sale
(POS) card scheme.

“All financial institutions, including Deposit Money Banks (DMBs),
Savings and Loans, Mortgage and Microfinance Banks shall comply accordingly.
Compliance with the policy shall be monitored by the Banking Supervision
Department and the Other Financial Institutions Supervision Department with
appropriate sanction applied to erring institutions,” the CBN warned.

Similarly, in line with the new policy, third party cheques by
individual customers in excess of the N150,000 limit would no longer be
eligible for encashment over the counter, as the value for such cheques will be
required to go through the clearing house.

Besides, the CBN said where a bank allows a third party cheque
encashment in violation of the stipulated regulation, such a bank would be made
to pay higher than the sanctions between 10 per cent of the face value of the
cheque and N100,000 fine.

On cash-in-transit (CIT) lodgement services rendered to
merchant-customers, the CBN ordered its immediate stoppage, effective June 1,
2012, adding that customers interested in such services should engage the CBN
licenced CIT operators to aid cash movement to and from their banks at agreed
terms and conditions.

The new arrangement, which is to be operational initially in
some major cities, including Abuja, Lagos, Port Harcourt, Kano, and Aba,
attracts a fine of N1 million per specie movement for violators.

This step, many believe, would help curb incidents of violent
robberies which have become common because people move huge volume of cash
around.

However, there are concerns about the implementation of this new
policy, especially as it would mean transiting from a cash-based economy to a
near cashless one in just one month. A medical equipment supplier who gave his
name as Monday, said the policy would cause some distortion in the economy in
the short term.

“For instance, some of my customers always insist on cash
payment before they would release their goods. How do we make this change all
within one month,” he asked.

He said the CBN ought to have carried out sensistisation
programme to prepare Nigerians for the transition.

Currency outside the banking system is currently put at over
N1.025 trillion, as at February, according to the latest official figures
released by the Central Bank.

The figure stood at N927 billion as at December 2009, due
largely to skepticism about the efficiency of the Nigerian banking system.

The latest move is expected to reduce the amount of currency
outside the banking system.

Customers of First Bank and GTB yesterday had hard times
transacting business at the banks as their networks broke down. Normal services
were not resumed until after midday, leading to frayed tempers in the banking
halls across Lagos.

The banks have been showing signs of network challenges, either
technology migration induced or just service breakdown. Visits to branches of
the banks showed that the challenges faced by the banks before the long Easter
breakstill persisted, as both had their banking halls filled with aggrieved
customers.

Tough business day

The network challenges made it difficult for customers to
transact business. Mostly affected were those who wanted to withdraw money from
their accounts through the Automated Teller Machines (ATMs), as the banks
continued to accept deposits but could not post them immediately.

Funmi Adekoya, a customer said, “Last Thursday, I was here and
they officially announced to us that they were having network challenges; that
we should bear with them, because their services would be below expectation. I
initially thought it was because of the rush for withdrawals by customers
because of the long break ahead, but a week later, I am surprised that am
starring at even a worse situation.”

Some of the customers were so frustrated they refused to switch
off their phones while some picked their calls, despite caution from the bank
attendants.

“How do you expect me to switch off my phone? Do you know how
long I have been here? So I should not pick my calls? If you don’t want me to
pick my calls, then give me my money and let me go. It is only when you are
rendering your services efficiently that you can expect me to obey your rules,”
a customer told an official in anger.

First Bank, in some of its branches, could not carry out any
transactions for its customers till noon yesterday.

“The network was just restored a few minutes ago,” a bank
attendant at First Bank, Oba Akran branch, said, around 12.20 pm. “It has been
down since morning. We have not been able to make any payments or perform other
transactions,” she said, looking at the crowded hall.

According to her, there was no need heading for another branch.
“The truth is that it is everywhere; it’s affecting all our branches” she
added.

The bank’s hall was filled to capacity, despite the fact that
some customers were turning back, as soon as they sighted the queue. At the
GTBank, it was no different. At 12.30pm however, the banks had begun responding
to customers.

On Wednesday, GTB on Facebook apologised to its customers for
the downtime experienced with its challenges during the Easter holidays.

The bank had said, “We want to sincerely apologise for the
downtime experienced with our Internet Banking Service during the Easter holidays.
We recently migrated to our Superdome Servers, which will provide our e-Banking
Channels with a more robust, secure, stable & reliable platform.

“Over the next few days, you may notice some service disruptions
across certain branches and e-Banking Channels. This is also a result of
Internal Migrations and Platform Reboots. Please be rest assured that our other
e-Channels (ATM, Mobile & GTConnect) will continue to function throughout
this upgrade/ migration. Thank you for your understanding and know that we do
this because we want to serve you better,” the statement said.

The spokesperson for the First Bank, when contacted on phone,
said he was out of Lagos and could not speak on the problem.

Service breakdowns are not totally avoidable. It is not known
when the banks service breakdown would be fully addressed, but customers say
banks should devise a more effective way to address their internal challenges,
without having to put their customers through such extreme discomfort.

The dollar won a
reprieve on Monday after last week’s steep slide but traders said it
could head for a test of its all-time low against a basket of
currencies if the U.S. Federal Reserve takes a cautious stance towards
tightening later in the week.

In thin trade due
to Easter holidays in Australia and much of Europe, Japanese importer
bids for dollars were enough to boost the U.S. currency against the yen
and help it to erase earlier losses against other currencies.

Still, the
combination of upbeat global growth, signs of weaker U.S. growth, and
the spectre of dovish Fed policy is expected to support fund flows to
higher-yielding currencies such as the euro and the Australian dollar
from the U.S. currency, traders said.

“I doubt there’s
much dollar carry-trade out there but when market players are eager to
take risk, they tend to look to interest rate gaps on speculation that
the dollar could be used as a funding currency,” said Kimihiko Tomita,
the head of foreign exchange at State Street Capital Markets.

With dollar
interest rates seen taking a pivotal role in the market, players are
looking to a news conference by chairman, Ben Bernanke, on Wednesday
after the Central Bank’s two-day policy meeting – the first regularly
scheduled news briefing by a Fed chief in the Central Bank’s 97-year
history – to see how the Fed plans to seek an exit from its easy
monetary policy.

“It’s all up the
Fed and Bernanke’s stance at his news conference. The dollar could fall
further depending on U.S. interest rates,” said a trader at a Japanese
bank.

In Asian trade, the
Australian dollar rose to a fresh 29-year high of $1.0777, as the
prices of gold and commodities continue to rise, before slipping back
to $1.0735.

Gold hit a lifetime
high while silver surged 4 per cent on the U.S. futures market. The
euro/dollar rate gave up early gains to stand flat at $1.4568, but it
remained near a 16-month high of $1.4649 hit last week.

Against the yen,
the dollar ticked up 0.4 per cent to about 82.20 yen, helped by
expectations of Japanese investor buying, including by asset management
firms which tend to launch new investment trusts at the end of the
month.

U.S. policy

Traders also said
dollar selling by Japanese exporters had been limited since last
month’s earthquake, as supply chain disruptions were making it
difficult to export their products.

Japanese automakers
said on Monday their production in March fell more than 50 per cent
from a year earlier, with Toyota Motor, the world’s largest carmaker,
reporting a 62.7 per cent drop in output.

The dollar index,
which measures the currency’s value against six major currencies, rose
slightly to 74.07, but many traders say it could test a three-year low
of 73.735 hit last week. A break of that could open the way for a test
of the record low of 70.698 hit in 2008.

The dollar has been
falling due to perceptions that the United States is set to maintain an
easy monetary policy, even as most other major global economies, with
the exception of disaster-stricken Japan, look to tighter monetary
policy to rein in inflation.

Some analysts say
worries about rising U.S. debt and political bickering in Washington
over how to tackle the U.S. budget deficit are also undermining the
dollar, making it easier for speculators to sell the currency, although
there is no evidence that foreign investors are dumping their U.S.
assets.

As speculators have already piled up short dollar positions, some market players think the dollar could see a rebound soon.

Data from the U.S.
Commodity and Futures Trading Commission showed that speculators
remained overwhelmingly bearish on the dollar, even after trimming
their huge long positions in the euro and the Australian dollar in the
week to April 19.

Still, many traders
think that, for the dollar to rise, it will need a clear signal from
the Fed that the Central Bank will be on course to raise rates – a
scenario many traders are sceptical about.

The Fed is widely
expected to stick to completing its $600 billion asset purchase
programme in June but many market players think a backdrop of
softer-than-expected economic data, weak housing markets, and possible
government austerity measures to tackle the budget deficit all make it
more likely the Fed will keep its support for the recovery in place for
some time.

Many analysts
believe the U.S. Central Bank will hold the size of its balance sheet
steady by reinvesting maturing assets after June to avoid a passive
tightening – an issue that will likely be discussed at the April 26-27
meeting. Reuters