UK Financial Credit Market and Nigeria International Reserves

 IMF Slimming Adjustment
In initially set out to write about the link between Mozambique and Namibia International Reserves, and the ability to combat Climate Change by harnessing the adversities of the extreme weather in that region to facilitate the building infrastructure required and production of amenities needed by the citizenries. Forcing the citizens to emigrate, in search of greener pasture elsewhere, in places like Europe, as climate refugees. I have been researching the circulation of monies in International Reserves transferred across the Pacific and Atlantic from the poor countries to the rich countries for over a year now, but I was confronted with a severe lack of information on these two countries, especially regarding International Reserves and the custodian. So I decided to write to academia in different faculties in the University of Sussex, Institute of Development Studies, SOAS, London School of Economics and Oxford University. I also wrote to the Foreign and Commonwealth Office, consumer rights organisation Which? the rating agency Bloomberg, The African Press Organisation and the African regional bank, The African Development Banks. In my email correspondent with Professor Francesco Caselli of London School of Economics, he put it to me simply: “I very much doubt that this information will be easy to find.” However, I was flooded with information on Nigeria and its gigantic International Reserves and the 99 percent lower-class perishing poverty of its country. So I decided to write on Nigeria. The monies surpluses that you enjoy as your credit and in the wide UK economy are unfairly and forcefully squeezed out of the deficit sectors from Africa countries and other developing countries, and channelled to your already-surplus economic sectors in the west.
True mean of International Reserves.
International Reserves are assets denominated in foreign currency, plus gold, held by a central bank with IMF . They are any kind of reserve funds that can be passed between the central banks of different countries. International reserves are an acceptable form of payment between their banks. The reserves themselves can either be gold or else a specific currency, such as the dollar or euro. International reserves are also used by countries to back liabilities such as any local currency that has been issued as well as bank deposits. 
Special drawing rights are another form of international reserves. It was created by the International Monetary Fund to supplement the existing reserves of member countries. Special drawing rights were created by the IMF in 1969 and were intended to be an asset held in foreign exchange reserves under the Bretton Woods system of fixed exchange rates.
In July 1944 this faulty system was created, after Europe ceases its self-destruction at the end of the Second World War and the US came to their rescue. The US conditioned that the colonial master must decolonise their colonies. However, the problem arose when the colonial master could not pay reparation: Britain could not give Nigeria any money because it was broke and had no monies to help the newly-independent country build its much-needed institutions. Then the US offered to help through unethical and heavily conditioned IMF/World Bank loans by set up economic order. Countries like Nigeria were compelled to set up International Reserves (IR). The IR is accumulated through a quarterly drawing of surplus from Nigeria’s Gross National Product (GNP), and kept with the IMF/World Bank so as to guarantee that Nigeria Federal Government can afford to pay for its imported goods and services.
The Nigeria International Reserve.
The interesting facts about this economic order is that these monies are not kept in Nigeria currency nor deposited in Nigerian or even African banks, but kept with Global North banks. Just like the way the central bank and high street banks create money, such as re-lending and money multiplier factors, but this particular case orchestrated by Bank for International Settlement, IMF/World Bank and sometimes Commonwealth (because of the special relationship within the commonwealth countries. 60% of trade agreement has a degree of subtle influence of the Commonwealth), encouraging to invest part of the reserves with third party in Europe and North America. The IMF/World Bank advises Nigeria and other developing countries to select banks (high street or retail banks) and financial houses (private banks) in Europe and America to become the custodians of the monies by lending it to them, who in return, re-loan to other financial outlets, then loan to ordinary everyday people who needs monies for mortgage, credit purchase or credit cards and to businesses who want to set up or expand.
Nigeria International Reserves amidst 2008 global financial crisis: How safe?
In the latest data obtained from the Central Bank of Nigeria’s website as at 22nd May 2014, Nigeria’s International Reserves stood at $37.37 billion, which indicated that International Reserves, by approximation, dropped $10 billion  from the $47 billion recorded on August 20, 2013. Within the space of three months, from May 2nd to August 5th 2013, the foreign reserves had dropped by $1.8bn from the peak of $48.85bn to $46.98bn.
However, according to Executive Secretary for United Nations Economic Commission for Africa Carlos Lopes, in his speech at the 7th Africa Union and Economic Commission for Africa Annual meeting in Abuja Nigeria, the Africa continent has put up to $500 billion in foreign reserves. “It is troubling that, unlike other developing regions of the world, African countries hold in aggregate more deposits in the Bank for International Settlements (BIS) reporting banks than they receive in loans from them.” The funds, nearly a third of the more than $500 billion in total reserves held by the African countries, have been invested mainly in developed economies, such as the UK, Swiss and US economies. African countries are holding outside the continent cash reserves totalling nearly $200 billion. This trend suggests that the bulk of revenues from exports, mostly from African oil and commodities, are not intermediated by local banks. Instead they remain in overseas banks, which recycle about 60 percent of these deposits as cross-border loans back to African banks and the non-bank sector. However, the African Development Bank (AfDB) estimates that Africa requires at least $100 billion annually for infrastructure projects for the next 10 years.
However, this is not the whole story. Before the 2007 economic crisis, in 1999, at the beginning of the civilian administration in Nigeria led by Gen. Olusegun Obasanjo, Central Bank of Nigeria statistics claimed that Nigerian International Reserves stood at US$7,100 million. However, Nigeria made so much money during the Iraqi war that  International Reserve figure drastically increased from $10,500 million to $67bn between 2001 and 2008. This was largely due to the ‘windfall’ profit raked in from the sales of the then ever-rising crude oil price ($164 per barrel).
The $67billion comprised of two account balances – that is, $45 billion in International Reserve account and US$22 billion in the Excess Crude account. At beginning of 2009, Nigeria’s International Reserve began to feel the scourge of the economic crisis, combined with landmark embezzlement. The International Reserve began dwindling from $65bn to $50.9bn: according to a Nigeria newspaper, the 2nd February 2009 edition of the Daily Trust, the Nigerian International Reserve lost $14billion in just six months.
The website of Nigeria’s Democratic Socialist Movement said: ‘In October 2006, when the Nigeria International Reserves stood at $38bn, the Central Bank of Nigeria (CBN) had shared $7bn among the 14 global asset management firms, mostly banks which had entered into partnership with some Nigerian banks. Most of the balance has been kept as deposits with some foreign banks.’ The firms authorised to manage the Central Bank of Nigeria’s share of the reserves and their Nigerian partners include: JP Morgan Chase (partnering with Zenith Bank Plc Nigeria); HSBC (partnering First Bank of Nigeria); Black Rock (partnering Union Bank of Nigeria); BNP Paribas (partnering Intercontinental Bank Plc) Swiss UBS (partnering United Bank for Africa); Credit Suisse (IBTC-Chartered Bank) and Morgan Stanley (Guaranty Trust Bank). Others are Fortis (Bank PHB); Investec (Fidelity Bank) ABN Amro (partnering Access Bank); Cominvest (partnering Oceanic Bank); ING (partnering Ecobank); Bank of New York (partnering Stanbic Bank) and Crown Agents (partnering Diamond Bank). It is not clear today to Nigerians how much of their money is kept in the International Reserves. However, amongst the 14 banks listed in 2006 that managed Nigeria International Reserves is ABN Amro, which has been in existence only by default. Also, Fortis, which is one of the foreign banks used by the Nigerian government, has been reduced to a mere brand name.
ABN Amro, a one-time Dutch banking giant with operations in 63 countries around the world, had already sold itself to Fortis, Royal Bank of Scotland and Santander of Spain for €70bn ($110.4 billion) in October 2007. Indeed, it was this transaction that has finally crippled Fortis, another bank that manages Nigeria’s foreign reserves. The acquisition of ABN came at the time the capital reserves of banks across the world had started being depleted by huge losses due to bad debts in sub-prime related investment at the outset of the global credit crunch.
Fortis was weighed down by the €24bn it paid for its share of acquisition of ABN Amro. It needed badly to bolster its finance by €8bn but could not raise it due to the credit crunch. The crisis was so deep that initial joint efforts by the governments of Belgium, Luxembourg and the Netherlands, with an injection of $16.1bn, failed woefully to bail out the bank. The worth of the entire Fortis, which was judged in 2007 as the 20th biggest business in the world by revenue in Fortune’s Global 500, had been vastly eroded by the crisis. It was valued €23.5bn – less than €24bn it paid for ABN in Netherlands.
At present, Fortis is balkanised. To defend their nationalistic interests the three governments have gone their separate ways. Fortis was the Belgian biggest financial service provider while ABN Amro, the lethal poison taken by the bank, was a Dutch financial institution. However, the saga continued. RBS and Fortis soon ran into serious trouble: the large debt created to fund the takeover had depleted the banks’ reserves just as the financial crisis started. As a result, the Dutch government stepped in and bailed out Fortis in October 2008, before splitting ABN AMRO’s Dutch assets (which had primarily been allocated to Fortis) from those owned by RBS, which were effectively assumed by the UK government due to its bail-out of the British bank. The operations owned by Santander, notably those in Italy and Brazil, were merged with Santander, sold or eliminated.
Thus, Fortis units in Belgium and Luxemburg have been sold to the French giant BNP Paribas for $21bn with Belgium having an 11.6% stake in the bank and Luxemburg a 1.1% holding. On its part, the Dutch government has fully nationalised Fortis’ assets in the Netherlands, including the bank ABN Amro. The financial institution will henceforth operate with the name ABN Amro, because ABN has bigger assets in the country than Fortis. Technically, Fortis does not exist again and ABN has now resurrected though only in Holland, but weaker. Royal Bank of Scotland and Santander still hold onto its assets elsewhere.
Who manages the part of the reserve originally kept with Fortis now? Is it ABN Amro or BNP Paribas? Who had earlier inherited the part with ABN Amro after it was sold last year? Has anything been lost to this web of transactions, and could a return be expected or not? Nigerians have been kept in the dark.
BNP Paribas also has its share of Nigerian reserve. It was the first in August 2007 to cry out from the serious pang of the sub-prime crisis and credit crunch outside the US. Indeed, according to a BBC analysis, the start of the global credit crunch has been pinpointed as August 9th 2007 when the French investment bank told investors they would not be able to take money out of two of its funds because it could not value the assets in them, owing to a “complete evaporation of liquidity” in the market. This revelation triggered a sharp rise in the cost of credit.
Among those hardest hit by losses from the American sub-prime mortgage debt is the Swiss UBS, which also has a part of Nigerian reserve at its disposal. The bank has recorded around $50bn in write-downs, more than any bank, in bad debt and rotten assets on its books. It had staked over $80bn on the risky mortgage securities. It was the first major global bank to announce a loss of $3.4bn in October 2007 and posted net losses of $12bn in the first quarter of this year. As of September, private depositors had withdrawn $43.4bn from the bank. UBS has announced it would retrench 5,500 workers by mid-2015.
The Swiss government had to intervene to save the bank from collapse by providing it with $5.36 billion in capital and take 9 percent stake. The government has also set up a $60 billion fund to absorb rotten assets in the bank’s books. Another Swiss banking giant, Credit Suisse, also holding Nigeria’s reserve, rejected the government’s direct intervention. But this does not imply a clean bill of health. The bank made a write-down of $6.3bn as of the first quarter and has planned to raise $8.75bn from Qatar Investment Authority to shore up its capital base. The bank recorded a $1.12bn loss in the third quarter of that year.
JP Morgan Chase has appeared as one of the few banks that have been able to weather the storm of the financial crisis. It has acquired two of the casualties of global meltdown in the US, Bear Stearns and Washington Mutual. But all is not well with this banking giant that also manages a part of the Nigerian foreign reserve. It has reported an 84 percent drop in its third-quarter profit as a result of losses on bad mortgage investments, leveraged loans and home loans. As of the first quarter, it had written off $9.7bn as a result of its exposure to the sub-prime mess.
One of the two surviving independent investment banks on Wall Street is Morgan Stanley. The other one is Goldman Sachs. Lehman Brothers has gone under. Bear Stearns was bought by JP Morgan Chase while Merrill Lynch sold itself cheaply to Bank of America to prevent a worse scenario. Morgan Stanley, which also holds a part of the Nigeria’s external reserve, and Goldman Sachs have had to give up the shadowy Wall Street investment-banking model in order to remain in business. Wachovia, America’s fourth largest commercial bank and one with which Morgan Stanley had earlier planned to merge with in order to secure a lifeline, has collapsed. The investment bank whose share value has dropped by half in the last one year has had to sell a 20% stake to Japan’s bank Mitsubishi in a $9bn deal as a timely rescue. The bank had written off $12.6bn in bad debts in the first quarter.
Black Rock, a US based asset management company, might have become history if Merrill Lynch, its largest shareholder, had not shelved the plan to sell its 49 percent stake. Black Rock also holds Nigeria’s foreign reserve. As earlier mentioned, Merrill Lynch itself has been bought by the Bank of America.
Due to the effects of the global financial crisis which the Nigerian Federal Goverment is still reeling from, it has decided to replace one costly financial policy with another would-be monumental tragedy. The deputy governor, Kingsley Moghalu of Nigeria’s Central Bank, announced in January 2014 that it shifting more of its $43 billion of reserves into Yuan from dollars, as the Chinese currency gains greater prominence within global trade. The central bank started diversifying its reserves into Yuan in 2011, but is further working with the People’s Bank of China to boost the holdings as soon as the relevant structures are in place. The Central Bank of Nigeria will increase the yuan’s share of its reserves to as much as 7 percent, from 2 percent. About 85 percent of Nigeria’s reserves are held in dollars.
The disappearing act: The vanishing of $20bn from the confer of Nigeria Central Bank.
The regime of the incumbent president, Goodluck Jonathan, under the watchful eyes of the governor of the Central Bank of Nigeria, Mallam Sanusi, who was named central bank governor of the year for 2010 by Banker magazine, squandered from $22 billion in the Excess Crude account to about $11.5 billion in December 2012. The Excess Crude account has now declined to less than $2.5 billion as at January 17th 2014. Mr. Sanusi’s argument and explanation was: “One of the good things about not having a lot of money in the ECA is that there would not be much ammunition to spend since the money is not there.”
Meanwhile, in another development in February 2014, governor Sanusi reported that $67 billion in oil revenue from the corruption-riddled state-owned Nigerian National Petroleum Corporation had not entirely been paid to Central Bank of Nigeria. Mr Sanusi told a senate committee on petroleum that oil sold between January 2012 and July 2013, worth $20bn (£12bn), had basically vanished into thin air. He said over a 19-month period more than $1bn was unaccounted for every month. Rather than investigate, the Nigerian President Goodluck Jonathan on Thursday suspended the Central Bank governor and blamed him for leaking that news that billions of petrodollars are missing from the coffers of Africa’s biggest oil producer, accusing him of “financial recklessness and misconduct.” The president has demanded  a ‘forensic audit.’
Conclusion and the way forward.
According to a UNFPA report, by 2030 Nigeria is estimated to be one of the few countries in the world that will likely have a bountiful supply of young workers. Out of a current projected population of 169 million Nigerians, young people account for over 43 percent of the population. What this means is that there are currently over 72 million young people in the country. Thus, youth, more than oil, could be Nigeria’s asset in the following decades, depending on how this demographic reality is managed as human resources match alongside the natural resources available in Nigeria. [The period of Adolescence is between the ages of 10-19 years; Youth: 15-24 years; Young people: 10-24 years and Children: 0-18 years (UNFPA 2003:4). The Nigerian National Youth policy (2001:2), defines youth as comprising all young persons between the ages 18 and 35 years who are citizens of the Federal Republic of Nigeria]
I am very disturbed that there appears to be no strategic plan towards tapping the great potentials hidden in a growing youth population energy and to match it with the abundantly available natural resources (like sunlight and wind for surplus renewable energy, iron ore for fabricating machinery, crude oil cheap energy to power machinery) to boost the national productivity and improve income distribution among the ordinary working class Nigeria. With a current youth unemployment rate of up to 50 percent, the growing menace of kidnap cases perpetrated by disgruntled youths, massive recruitment of young people into terrorist gangs and the ever growing number of desperate young people willing to become secret cult members for connection and thugs for self-seeking politicians.
The young people in Nigeria must grasp the fact that the leaders in government have failed us and robbed us of our future as they have stolen the futures of the generations before us. We, the young people, must start thinking and strategizing for contesting and grabbing power from the ne’er do well leaders in government, forestalling this oppression from being imposed unto us and the generation behind us. Because we have virtually done everything humanly possible that a striving human would, but we have nothing to show for it, except for being trapped in the same bubble as our parents and the generations before us.
We must understand the natural concept of authority and power. Power lies in the fact that masses (woman and man) choose to accept and consent to taking authority from those in power. If the masses choose to reject their authority, the leadership would cease to be in power. Hence, the power of an authority lies in the masses. Every young person of a working-age and voting-age must start seeing themselves as part of the Nigerian masses, and the future working class.
We, the young people, must learn not to leave our women and girls behind in the struggle nor abandon them at the front-line. We must empathise in solidarity with the pain of our sisters and mothers, regardless of their tribes and religions, standing side to side with them in the common struggle for equity, equality and social justice in Nigeria. Because we all came from a woman and got our knowledge from a woman. We must learn to give to our sisters and mothers respect, rather than taking from them. It is high time we hearkened to our sisters’ and mothers’ solidarity clarion call in tribulation for they suffered many layers of injustice greater than what we men have been through, and bled to give us, the men, our precious lives. Since men cannot give lives, we cannot imagine and comprehend magnitude of the tribulation our mothers and sisters are subjected to by nature, and courtesy at least demands not only that we stand for them but to also stand with them against the injustice and inequality that Nigeria’s oppressive political elite imposes upon them.
In the area of education and skills development, the current delirium on university education should be de-emphasised and focus should be given to vocational and functional education leading to the acquisition of specific work skills, especially in technical areas. The predominant perception of education as just university education is deceptive and counter-productive.
The environmental crisis and climatic disaster had created a vacuum, as well as paving the way for new agricultural critical scientific innovative thinking, which the Nigerian government had failed to take the initiative to fund or invest in domestic agricultural research that would not only enhance and modify seeds to resist the climate change and the harsh weather condition but also will forestall food shortage and bring down the price of food from ever sky-rocketing.  Rather, the Nigeria government relies on agro-multinational companies like Monsanto to charitably offer the country farmers with genetically-modified seeds and patented with intellectual property laws, which have been programmed to only grow once in the seeds’ life span. In other words, a means of conditioning farmers to became dependent and enslaved to the cunning ‘lord’ Monsanto seeds. This is a crude form of neo-colonialism and imperialism because the farmers are encourage to get rid of their natural and organic seeds that have multi-dimensional life span (as long as it has not been damaged by weevils or insects or disease) for seeds that have singular dimensional life span. That in itself makes this GM unsustainable. Genetic variety is important, which is why nature frowns on inbreeding. Our health suffers when our only consideration is profit. Illnesses, such as organ failure, sterility and cancer have all been linked to GMs.
All we need to do its look back into our anthropological historical evidence to the facts of our ancestors’ inventions and achievements. For instance in the UNFPA reportthat began in BC 600 in ancient Kemet, in the same period when Europe was going through Dark Age, the so called ‘primitive’ Africans were striving. In Nigeria, iron was fundamental to the rise of several important kingdoms like Dahomey, Benin and the Yoruba kingdoms, including primarily Ife and Oyo. All of these Nigerian kingdoms had a great deal of contact with one another and therefore share similar spiritual beliefs concerning the attributes of iron and ironworking methods.
Black smiting originated from Africa. The Europeans called it ‘black smiting’ for a reason. Our ancestors’ inventions and achievements pivoted around Metaphysic. The Greeks who had initial contact with the so called ‘primitive’ Africans (our ancestors) took and taught to the Europeans. In due course, the European developed it into Alchemy (a cult of scientists that study in secret because of the fear persecution, who ended up creating the periodic table used in physics and chemistry today) and in essence evolved to what is today called Chemistry.  The same techniques that was used to extract iron ore from the ground, separate iron from iron ore and smiting the iron in the Iron Age remained the same till date, with the exceptions of industrial mechanisation.
From the energy standpoint, it is very clear that the energy demand in Nigeria is very high and is increasing geometrically while the supply remains inadequate, insecure and irregular and is decreasing with time: the mix has hitherto been dominated by fossil resources which are fast being depleted apart from being environmentally unfriendly. The energy supply mix must therefore be diversified through installing an appropriate infrastructure and creating full awareness to promote and develop the abundant renewable energy resources present in the country as well as to enhance the security of supply.
To seize the opportunities presented by renewable energy resources in sustainable development, Nigeria needs to establish renewable energy markets and gradually develop experience with renewable energy technologies. The barriers and constraints to the diffusion of renewable energy should be overcome. A legal, administrative, and financing infrastructure should be established to facilitate planning and application of renewable energy projects. The young people, workers, mothers and sisters, must play a direct useful role in promoting renewable energy technologies by initiating surveys and studies to establish their potential in both urban and rural areas, as these are directly affected negatively by energy usage.
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