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Finance
minister, Olusegun Aganga said the plans to change some existing laws
in the country that impede the growth of the economy will soon go into
effect. He said the move was necessary in order to stimulate credit to
the real sector. At a media briefing in Lagos at the weekend, he
explained that the independent assessment report by the World Bank
states that Nigeria’s current credit profile is adequate for the
country’s economic status and was still higher than her peers in sub
Saharan Africa like Kenya and South Africa. Contrary to what many
Nigerians think, a World Bank assessment report shows that Nigeria is
not going through a credit squeeze. “Between when we had banking
consolidation and when there was credit boom, there is no country that
will go through such an artificial credit that will not experience a
bust immediately after. So World Bank conclusion is that there is no
credit squeeze. Yes there is lack of liquidity, but not credit
squeeze.”

Legislative overhaul

He
said based on consultations with various players in the financial
sector, there was need for a major overhaul of the Bankruptcy Act, Land
Use Act, and Evidence Act in order to stimulate lending to the real
economy. Two of these laws are already with the National Assembly.
“Secondly, is the establishment of commercial courts. Part of the
problems we have is people use their houses as collateral. In order
parts of the world, I have access to that house once you default, but
here you can’t. The debtors easily go to court and get injunction so
banks are left with non performing loans. With a commercial court,
issues like this can be settled, in two to three weeks.” He said the
ministry has applied to the chief judge of the high court on its
establishment.

Another
issue which the World Bank addressed is that of setting up credit
guaranty schemes which is like insurance for credit default. “We have
done it for small and medium enterprises. What we want to do with the
World Bank is to look at the existing schemes to see how effective they
are, what has changed and whether we need to come up with a new
guaranty scheme,” Mr. Aganga said. All these are geared towards
enabling the real sector have access to cheaper longer term funding.

According
to him, the increase in credit growth in 2008 did not have impact on
the economy as it was channelled to three sectors, especially margin
lending and insider lending. “In margin lending, they were using it to
buy bank shares. Not a lot of that went into the real economy. There is
a report that says less than five per cent was going to the real
economy. What we have now is a boom and bust situation.”

Economic growth

He
said despite the turmoil, the economy was still growing at an average
of 7 per cent every year but without impact on the average Nigerian.
“We need a stronger foundation so that we do not have the boom and bust
we had before. Yes there is no credit squeeze, but consumer spending is
down significantly. There is high level of unemployment in the
country.” He said major sources of credit like bank lending, foreign
direct investment (FDIs), remittances and government spending has
decreased due to the economic downturn.

According
to the minister, there were lessons to be learnt in the whole process
and the need to build the economy on a stronger foundation. “Banks are
not lending any more. They have stopped taking risks. We now have
responsible lending. Banks have realized the need to build capacity in
order to make more informed lending.”

$500 million bond

The
minister said the plan to raise $500 million bond from the
international market was still on course and would materialize within
the next two months. “The only reason why we are raising this bond is
to have bench mark price so that institutions here that have good
credit rating can go abroad and raise funds.” He said encouraging banks
to raise long term capital through the bond market would provide long
term capital for onward lending to the real sector instead the current
practice where banks lend out deposits which are short term.

According
to him, the World Bank report estimates that six million new job
seekers enter the economy each year “The level of unemployment in this
country is unacceptably high. If you look at the statistics, it is not
only an economic issue, it is also a social issue.” He said government
is embarking on inclusive growth with focus on the real sector in order
to stimulate job creation.