Development of Natural Resources (Gold, Diamonds, Timber

It is very important to discuss this topic on major natural resources (coal, iron-ore, tin and columbine, limestone, lead and zinc) knowing very well that they take important place in the economy of this nation. Senior school examinations may also feature questions on this topic because of its vital role. Hence, it is necessary to study the development of the major natural resources and their contributions (negative and positive) to WestAfrican economies,

Development of Natural Resources (Gold, Diamonds, Timber, etc

Natural resources are things that are not made by man, but exist in the universe, found under
or on the ground and sea, which are explored and used by a nation. The different types of
natural resources which are:

(i) Coal, Limestone, Lead and Zinc

These are sedimentary rock minerals. Coal was found in Enugu and Benue State (Okabo) It is a major source of fuel used in the olden day railway locomotives and the home, Limestone is an essential raw material for cement manufacturing. It was found in Ogun  (Ewekoro and Sagamu), Edo State (Ulcpi

• Cross River State (Calabar, Anambra State

Nkalagu), Benue and Sokoto State. Lead and zinc are used in industries locally, they are
found in Ebonyi State (Abakaliki).

•  Iron-Ore, Tin and Columbite

These are basement rock minerals. Iron-ore is the basis for iron and steel complex. It was found in Itakpe (Kogi State) and Aladja (Delta State) and fed to iron and steel complex in Ajaokuta (Kogi State). Tin and Columbite occur naturally together. Tin is used in the canning industry for coating while columbite is used in the manufacturing of heat resis steel used in jet engines. They are found near Jos (Plateau State). The advent of the natural resources had both positive and negative effects.
IU Iithe Contributions of Natural Resources to Nigerian Economy.

(ii’ Technology Trans/r: Foreign technology is introduced through the participation of foreign firms. Extraction of these minerals involves foreign skilled manpower and
entrepreneurship,
( Acquisition of Skills: Exploration and extraction of the natural resources enforce it
on people to acquire various kinds of skills and knowledge.
tam Pirn’ision of Raw Materials: Gasoline, fuel oil, kerosene and cooking gas are used
as fuel for industrial and domestic uses. Limestone is used by cement industries and
iron ore is used by iron and steel industries.
1w Increase in Per capita Income: There has been an increase in salaries and fringe
benefits witnessed and experienced by public servants, with the increase in
production of petroleum and other natural resources.
Generation of Government Revenue: Government derives revenue from the natural
resources through royalties and profit tax. Mining companies paid taxes including
export and import duties on minerals.
i Pivvisiorz f Foreign Exchange Earnings: Exportation of the natural mineral
resources such as coal, limestone and petroleum, etc. provides foreign exchange for
the economy. Petroleum in particular is the largest source of foreign exchange in the
Nigerian economy.
Imn Improvement of Educational Facilities: Revenue from the resources is used to
provide ftmds for better amenities of educational institutions.
il Eslablishment of Industries: Major industrial projects are embarked upon, such as
the iron and steel complex, oil refineries, vehicle assembly plants, cement industries
and breweries.
Tertiary Production: Mineral resources helped to boom the activities of banking,
inxurance and commerce.
tTJ Development of Jnfrastructure. Infrastructural facilities like roads, electricity,
telephone, pipe-borne water etc., were developed due to the presence of mineral
resources in different areas.
of Employment: There is direct and indirect generation of employment at
the prospecting mining, refining, processing and distribution stages of the natural
resources.
ru Growth Opportunities: The discovery areas of the resources like Enugu, Jos, Warn,
etc. have witnessed economic growth due to the presence of the minerals.
m) Production of Geological Maps: The discovery and mining of the resources in the
country has led to the production of certain geological maps.
th’a lrnpmvement of Balance of Payment: The rapid development of the oil industry
particularly in the I 970s has improved Nigerian’s balance of payment.

Contributions Of Agriculture To Economic

The agricultural sector of the Nigerian economy has made important contributions to economic development. Some of its vital contributions are stated below:

• Major Source of Food Supply

The agricultural sector has been the major supplier of foodstuffs to the populace. In the I 950s and I 960s, Nigeria was self sufficient iii provision of foodstuffs, but in recent times, this is not the case. All the more reason why the government has been laying agricultural production through its various programmes like ‘Operation Feed the ‘Green Revolution’, and ‘Agricultural Development Programmes’ established in all states.

• Major Foreign Exchange Earner and Conservator

It earns the country foreign exchange from its export of agricultural products like cocoa rubber, groundnut, palm kernel, etc. Likewise, it conserves foreign exchange since we not use our hard earned foreign exchange to purchase some goods from abroad and otheT! foodstuffs that it produces too (like yam and cassava tuber, maize, guinea corn, wheat millet, etc.).

• Source of Savings and Capital Accumulation

Agricultural sector in Nigeria and West Africa at large provides savings and investible surplus fund for capital accumulation from its large revenue earnings. In recent timej. individual farmers have been able to accumulate enough money to purchase modern farn machineries and equipments.

• Major Source of Raw Materials for Industries

The agricultural sector produces over 70% of raw materials of food processing industriousness Nigeria. For instance, it provides palm kernels for manufacturers of palm oil and groundnut oil, likewise it produces cocoa for local manufacturers of cocoa butter and beverages. produces tobacco leaves for cigarette products producers.

• Major Market for Agricultural Tools/Machinery

Agricultural sector is a market for agricultural tools, machinery and other farming input produced by the industrial sector. The agricultural sector consumes the various tractor and other agricultural tools and machines produced in the industries. Likewise, it buys the various chemicals like herbicides, fumigants, pesticides and fertilizers produced by industrial sector.

• financier of Industrial Growth and Development

finances industrial growth and development by patronizing its products and services; and at ie same time by re-directing its investible surplus into industrial ventures. Individual rmers and corporate farming bodies re-invest in industries. For example, Amoo-Sanders Hatchery Limited now invest in production of feed mills.

• Providers of Employment Opportunities

provides employment for more than 60% of the Nigerian labour force. as well transfers excess manpower to non-agricultural sector as a result of the use of nadern agricultural machinery.


Agriculture can be categorized into three basic categories:

(I) Crop production;
(ii) Livestock production; and
(lii) Mixed farming.
Systems of agriculture include the following:
(I) Self subsistence/peasant agricultural system;
(ii) Plantation farming;
(iii) Mechanised farming;
(iv) Commercial farming;
(v) State farming;
(vi) School farming; and
(vii) Cooperative farming.
Contribution of agriculture to economic development includes:
(i) major source of food supply;
(ii) major foreign exchange earner and conservation;
(iii) source of savings and capital accumulation;
(iv) major source of raw materials for industries;
(v) major market for agricultural tools/machineries;
(vi) financier of industrial growth and development
(vii) provider of employment opportunities;
(viii) it increases rural net income;
(ix) tourist attraction;
(x) provides means of transport.

Nature Of our Economics Today

Nigeria is a middle income, mixed economy and emerging market, with expansionary service, communications, and entertainment sectors. She is ranked 30th in the world terms of GDP as of 2011, and its emergent, though currently unperformed, manufacturing sector is the third-largest on the continent, producing a large proportion goods and services for the West African sub-region. Although much has been made of its status as a major exporter of oil, Nig produces only about 2.7% of the world’s supply. To put oil revenues in perspective: a estimated export rate with a projected sales price of $65 per barrel in 2011, anticipated revenue from petroleum is about $52.2 billion. This account for less than I of official GDP figures (and drops to 10% when the informal economy is included in calculations). Therefore, though the petroleum sector is important, it remains in facts part of the country’s overall vibrant and diversified economy. The largely subsist agricultural sector has not kept up with rapid population growth, and Nigeria, once  net exporter of food, now imports a large quantity of its food products.

Overview of the Nigerian

Nigeria’s economy is struggling to use the country’s vast wealth in petroleum resource displace the crushing poverty that affects about 57% of its population. Economists of the coexistence of vast wealth in natural resources and extreme personal developing countries like Nigeria as the “resource curse”. Although “resource more widely understood to mean an abundance of natural resources which fuels offer corruption resulting in a violent competition for the resource by the citizens of the
Nigeria’s exports of oil and natural gas—at time of peak prices—have enabled

A longer-term economic development programmer is the United Nations (UN) — censored National Millennium Goals for Nigeria. Under the programme which covers the yrs from 2000 to 2015. Nigeria is committed to achieve a wide range of ambitious objectives involving poverty reduction, education, gender equality, health, the environment, nd international development cooperation. In an update released in 2004, the UN found that Nigeria was making progress advanced efforts to provide universal primary education, protect the environment, and develop a global development partnership. However, the country lagged behind on the goals of eliminating extreme poverty and hunger, reducing thud arid maternal mortality, and combating diseases such as human immunodeficiency reacquired immune deficiency syndrome (HIV/AIDS) and malaria. A prerequisite for achieving many of these worthwhile objectives is curtailing corruption.

Nigeria ranks twenty fifth worldwide and first in Africa in farm output.

Agriculture has suffered from years of mismanagement, inconsistent and poorly conceived government policies, neglect and the lack of basic infrastructure. Still, the sector accounts for over 26.8% of GDP and two-thirds of employment. Nigeria is no longer a major exporter of cocoa, groundnuts (peanuts), rubber, and palm oil. Cocoa production, motIy from obsolete varieties and overage trees, is stagnant at around 180,000 tons annually; 25 years ago it was 300,00 tons. An even more dramatic decline in groundnut and palm oil production also has taken place. Nigeria was once the biggest poultry producer in Africa, corporate poultry and other sectors.

Fisheries are poorly managed. Most critical for the country’s future, Nigeria’s land tenure system does not encourage long-term investment in technology or modern production methods and does not inspire the availability of rural credit.

Agricultural products include cassava (tapioca), corn, cocoa, millet, palm oil, peanuts, rice, rubber sorghum, and yams. The agricultural sector suffers from extremely low productivity, reflecting reliance on antiquated methods. Although overall agricultural production rose by 28% during the 1 990s, per capita output rose by only 8.5% during the same decade. Agriculture has failed to keep pace with Nigeria’s rapid population growth, so that the country, which once exported food, now relies on imports to sustain itself.



Nigeria ranks 44th worldwide and third in Africa in factory output.

The oil boom of the I 970s led Nigeria to neglect its strong agricultural and manufacturing bases in favour of an unhealthy dependence on crude oil. In 2000, oil and exports accounted for more than 98% of export earnings and about 83% of federal government revenue. New oil wealth, and decline of other economic sectors, led to massive migration to the cities and widespread poverty I 980s followed. By 2000, per capital income had plunged to about one-quarter of its mid- I 970s high, below the i at independence. Along with the endemic malaise of Nigeria’s non-oil sectors, the economy continues to witness massive growth of “informal sector” economic activities, estimated by some to be as high as 75% of the total economy.

The United Kingdom is Nigeria’s largest trading partner followed by the United States. Although the trade balance overwhelmingly favours Nigeria, thanks to oil exports, a large portion of U.S. exports to Nigeria is believed to enter the country outside of the Nigeria government’s official statistics, due to importers seeking to avoid Nigeria’s excessive tariffs.

Oil dependency, and the attraction to the generation of great wealth through government contracts, led to other economic distortions. The country’s high propensity to import means roughly 80% of government expenditures is recycled into foreign exchange. Cheap consumer imports, resulting from a chronically overvalued Naira, coupled witl excessively high domestic production costs due in part to erratic electricity and fuel supply pushed down utilization of industrial capacity to less than 30%. Many more Nigeria factor would have closed except for relatively low labour costs (10%— 15%). Domesuc manufacturers, especially pharmaceuticals and textiles, have lost their ability to compete traditional regional markets. However, there are signs that some manufacturers have begun to improve competitiveness.

Nigeria ranks 63rd worldwide and fifth in Africa services’ output. Low power and telecom has crippled the growth of this sector.

- Since undergoing severe distress in the mid- I 990s, Nigeria’s banking sector has ed significant growth over the last few years as new banks enter the financial market.

monetary policies implemented by the Central Bank of Nigeria to absorb excess Naira liquidity in the economy has made life more difficult for banks, some of whom engage
currency arbitrage (round-tippig) activities that generally fall outside legal banking mechanisms. Private sector-led economic growth remains stymied by the high cost of doing biness In Nigeria, including the need to duplicate essential infrastructure, the threat of [dassociated need for security counter measures, the lack of effective due process, dnon-transparent economic decision making, especially in government contracting. As of ZT, 29% of Nigerians in urban areas did not own bank accounts. While corrupt practices endemic, they are generally less flagrant than during military rule, and there are signs of nvement. Meanwhile, since 1999 the Nigerian Stock Exchange has enjoyed strong, although equity as a means to foster corporate growth remains underutilized ia’s private sector.

Current Economics Plan Need And transformation strategy

Without economic planning a country is planning for failure. The importance of
institutionalizing planning at every level can not be over emphasized. Planning is defamed as
the formulation and articulation of economic policies that would help the effective
allocation of resources to all the sectors of the economy over a period of time. in this chapter,
we shall discuss current economic plans like the National Economic Empowerment and
Development Strategy (NEEDS), Vision 2020 and the Millennium Development Goals (MDGs).

National Economic Empowerment and Development Strategy (NEEDS)

NEEDS is Nigeria’s home grown Poverty Reduction Strategy Paper (PRSP). NEEDS is a medium-term strategy paper (2003—2007), but which derives from the country’s long-term goal of poverty reduction, wealth creation, employment generation and value re-orientation. NEEDS is a nationally coordinated framework of action in close collaboration with the state and local governments (with their State Economic Empowerment and Development Strategy, SEEDS) and other stakeholders, in order to make Nigeria achieve the Millennium Development Goals (MDGs).

The previous rolling plan concentrated on ill-articulated large portfolio of projects, which is contrary to NEEDS. Funds for investment came from federal and state governments as well as private sectors.
In comparison with some of the previous/earlier plans, NEEDS is different in the sense that, all Nigerians and stakeholders are given a chance to contribute to the plan that affect their lives. It is also the first time both Federal Government and state governments under NEEDS and SEEDS respectively are coordinating a planning framework with agreed common priority to agriculture, small and medium enterprises (SMEs), infrastructure, etc. NEEDS shows that federal and state government must work together for the advancement or development of Nigeria’s economy.

National Economic Empowerment Development Strategy: Objectives and Priorities

The National Economic Empowerment Development Strategy (NEEDS) is derived from the urgent requirement for value re-orientation. Therefore, the bedrock of NEEDS is its vision of a Nigeria with a new set of values and principles, which will facilitate the achievements of national goals of wealth creation, employment generation and poverty reduction.

Since the achievement of these national goals depends on a sound economic framework, NEEDS has fashioned a reform agenda with emphasis on strengthening the economic environment, and strengthening the growth agents within the system.

The specific reform programmes in NEEDS include:

• public sector reforms
• privatization and liberalization
• good governance
• transparency and anti-corruption; as well as service delivery by government agencies.

NEEDS also specifies private sector reforms which will address issues such as security and rule of law; infrastructure; finance; sectoral strategies; privatization and liberalization; and trade and regional integration.

It also entails a Human Development Agenda or Social Charter, which will focus on
health, education, integrated rural development, housing development, employment and youth development, safety nets, as well as geopolitical balance.

Finally, NEEDS specifies its financial and plan implementation strategies. Of course, whatever funds are spent on this performance would be money well spent. Though, NEEDS is a medium-term economic reform programme, its formulation has been made consistent with both short-term realities and long-term imperatives, that derive from the country’s long-term goals of poverty reduction, wealth creation, employment generation and value reorientation.

NEEDS is becoming a platform for both the federal and state governments to cooperate more closely. The federal government under NEEDS, and the state government under NEEDS, will coordinate a planning framework, with agreed common priorities in agriculture, public finance and public sector forms, with emphasis on the social sector.

NEEDS is therefore fashioning for Nigeria, a common ground for all economic agents
to interplay, in a healthy and sustainable manner. The objectives are mainly threefold:

• poverty reduction
• employment generation
• wealth creation

NEEDS’ intermediate Goals

The immediate goals of NEEDS is to redefine the role of government in the economy, by emphasizing the participation of government in the running of businesses. This is in line with the global view that government has no business running. It is the responsibility of government to create an enabling or conducive environment for the private sector to thrive, through legislation, tax regimes and other incentives.

There is synergy as well as coherence between federal and state reforms, for the first time, in a very long time. This has ensured purposefulness, focus and objectivity. The trend today is a far cry from past experience, by these two levels of government, which had sometimes worked at cross-purposes.
The commitment of government to undertake fundamental reforms, and see them through, has left nobody in doubt. The reforms are based on selected programmers. The question of biting more than can chewed, with all the attendant problems, is therefore, avoided. The phased programme of the reforms ensures that the shock to the system is not massive at any given point.

Vision 20:20 is an articulation of the long-term intent to launch Nigeria back to the path of sustained social and economic progress and accelerate the emergence of a truly prosperous and united Nigeria. Recognising the enormous human and natural endowments of the nation, the blueprint is an expression of Nigeria’s intent to improve the living standards of her citizens and place the country among the Top 20 economies in the world with a minimum GDP of $900 billion and a per capita income of no less than $4000 per aimunt

Nigeria’s targets for 2020 are based on a dynamic comparative analysis of the country’s potential growth rate and economic structure via-a-vis those of other Top 40 economies in the world. This implies that the Nigerian economy must grow at an average of 13.8% during the time horizon, driven by the agricultural and industrial sectors over the medium term while a transition to a service-based economy is envisaged from 2018.

Fundamental to the vision are two broad objectives — optimizing human and natural resources to achieve rapid economic growth, and translating that growth into equitable social development for all citizens. These aspirations are defined across four dimensions:

Fundamental to the vision are two broad objectives — optimizing human and natural resources to achieve rapid economic growth, and translating that growth into equitable social development for all citizens. These aspirations are defined across four dimensions:

(1) Social Dimensions:A peaceful, equitable, harmonious adjust society, where every citizen has a strong sense of national identity and citizens are supported by an educational and healthcare system that caters for all, and sustains a life expectancy of not less than 70 years.

(ii) Economic Dimension: A globally competitive economy that is resilent and diversified with a globally competitive manufacturing sector that is tightly integrated

and contributes no less than 25% to Gross Domestic Product.

(‘iii,) Institutional Dimension: A stable and functional democracy where t:he rights of the citizens to determine their leaders are guaranteed, and adequate infrastructure exists to

support a market-friendly and globally competitive business environment.

(iv) Environmental Dimension: A level of environmental consciousness that enables arid supports sustainable management of the nation’s God-given natural endowments to ensure their preservation for the benefit of present and future generations.Why Vision 20:20?

The need for a holistic transformation of the Nigerian state has assumed an urgent and critical dimension in the course of the last two decades. Notable is the increasing relevance of Nigeria as a leading emerging market albeit with under-utilsed potential. With the return to democratic rule in 1999, and the gradual re-building of civil institutions and a vibrant market economy, the feasibility of Nigeria assuming a key position as a global economic power and a catalytic hub for development in Africa has become more profound. Using an all-inclusive consultative process involving over 1000 of the nation’s leading professionals and thinkers, Vision 20:2020 is an authentic blueprint by the Nigerian people to set for themselves a stretch target to transform the lives of the average Nigerian, and by implication the Nigerian economy.

The economic transformation strategy for Nigeria is anchored upon three thrust:

1. Creating the platform for success by urgently and immediately addressing the most debilitating constraints to Nigeria’s growth and competitiveness;

2. Forging ahead with diligence and focus in developing the fabric of the envisioned economy by;

(a) Aggressively pursuing a structural transformation from a mono-product economy to a diversified, industrialized economy;

(b) Investing to transform the Nigerian people into catalysts for growth and national renewal, and a lasting source of comparative advantage; and

(c) Investing to create an environment that enables the co-existence of growth and development on an enduring and sustainable basis.

3. Developing and deepening the capability of government to consistently translate national strategic intent into action and results by instituting evidence-based decision

making in Nigeria’s public policy space.

Merchant Bank primarily concerned with designing

These organisations; Merchant Banks are primarily concerned with designing and under. Siting new securities, acceptance of trade bills. Merchant banks (Acceptance i-uses) deal in stock exchange securities and help companies to arrange for long-term capital equity. Furthermore, merchant banks serve as general financial advisers to their industrial customers and institutions that solicit their financial services.

In Nigeria, the consolidation of banks in 2004 led to the re-emergence of Universal Banks whereby they can perform both commercial and merchant banking.

Some of the Merchant Banks that operated in Nigeria in the past includes: Abacuses Merchant Bank Nigeria Plc, ABC Merchant Bank Nigeria Pie, Alpha Merchant Bank Plc, First City Merchant Bank Nigeria Plc, First Interstate Merchant Bank Nigeria Pie, international Merchant Bank Plc, NAL Merchant Bank Nigeria Plc. In Ghana, we have the National Finance and Merchant Bank of Ghana.


Insurance Companies

Insurance companies offer financial compensation as protection against the risks of accident, theft, death, fire, flood and other disasters. Regular payment of money called premiums is made by insurance policy holders who are prospective beneficiaries of such funds. The premium accumulated from insurance policy holders or customers are pooled together and invested by the insurance company in short-term and long-term securities especially on the capital market.


 The Capital ‘i-key

It is a medium whereby medium term and long-term loans are sold and bought. Issued stocks, shares, debentures and bonds are some of the long and medium term securities being traded on the capital market.
The major institutions that participate on the capital market are the Central Bank, Securities and Exchange Commission which provides guidelines for activities on the Nigerian Stock Exchange which is the pivotal institution in the capital market. Other participating institutions ace stock-booking firms, building societies, insurance companies, development banks, finance corporations, merchant banks, savings banks, investment trusts and others.


Agencies involved in the capital Market

1. Central Bank
2. Securities and Exchange Commission
3. Stock-booking Firms
4, Building Societies
5. Insurance Companies
6. Development Banks
7. Saving Banks
8. Social Security and Provident Fund

The Lagos Stock Exchange (Securities and Exchange Commission

It was established in 1960. Presently, it has branches  Lagos, Port Courtyard, Kadun Ibadan, Abuja, Onitsha. The stock exchange run by the Nigerian Stock Exchange Coincide which stipulates the standard of business conduct (or conduct of dealings), membership settlement of disputes, and inspection of new quotations.Traditionally, we have brokers and jobbers or buyers and sellers respectively in the Stock Exchange Market. Brokers act as agents for firms or individual buyers or seller of securities. They purchase or sell stocks and shares (and other securities) on behalf of their
clients. They charge commission for performing this service.


Jobbers deal in particular types of shares and stocks. He is like a wholesaler in the stock,
market. Whenever jobber is transacting business with brokers (who are like retailers on the
stock exchange), he quotes two prices the selling price and the buying price for the shares
The difference between his buying price and selling price is called the Jobbers turn or pro&
However on the Nigerian Stock Exchange, we have only brokers who are dealing
members on the Stock Exchange. There are no jobbers on the Nigerian Stock Exchange n
because the trading activities on the stock exchange are limited due to relatively
numbers of shares on the Stock Exchange.

Nevertheless, the number of shares on the stock exchange has increased gradually especially due to the implementation of the Nigerian Enterprises Promotion Decree of 1972 and 1974 and the recent privatization and commercialization of some government pastorals and the debt-equity swap scheme of the Federal Government’s Structural,Adjustment Programmer (SAP).


Members of the public buy shares on the basis of two major motives:

(1) To invest their money in specific shares or securities. Those with such motivation
end up buying shares and holding on to them as a source of regular income.
(ii) To speculate and buy shares purposely so as to study fluctuations in prices of stocks
and shares and buy in periods when share prices are low to resell when prices are at
a very high level. Consequently, they aim to take advantage of price fluctuation
the Stock Exchange Market.. Speculators are thus classified.
(a) Bulls: Are speculators who rush to buy shares with the expectation offprint
increase in the future.
(b) Bears: Are speculators who sell their shares in the hope that prices will falL
They aim at utilizing such opportunity to make quick profit. -
(c) Stags: Are those who purchase newly-issued shares hoping to resell them
when price rises.

Building Societies/Mortgage 

Mortgage banks (or building societies) accept deposits from customers and later lend money.
to these customers for the purpose of procuring land or building their own houses. They
therefore aid people to save with a view of procuring their own houses or landed property.

 In Nigeria, we have the Nigerian Building Society, several state owned Housing Corporations, a government funded bank, Federal Mortgage Bank of  Nigeria Plc, as typical examples of Mortgage Banks/Building Societies. In Ghana, we have a similar body called First Ghana Building Society. In July 1991, ten new privately-owned mortgage banks have been licensed to operate in Nigeria and many more since then.

Social Security and Provident Fund

Social Security and Provident Fund organisations provide compensation to workers during illness, unemployment, or retirement. To achieve this goal, the body collects regular contributions from workers and their employers. Such fund is invested in government long- tern] securities. A typical example of this nature was the National Provident Fund in Nigeria. With the Pension Reforms started in 2004, some financial institutions called Pensions Fund Administrators (PFA) were established to collect contributions from workers and their employers and invest such on behalf of the workers so as to pay them their retirement benefits as at when due. Some of such PFA are: IBTC Pensions Fund Administrators, Lead way Pensions Fund Administrators, Crusaders Pensions Fund Administrators, etc.

Savings Bank

Savings banks are specialized institutions that provide savings account services. The Nigerian Post Office Savings Bank (now known as Federal Savings Bank) and Cooperative Thrift and Credit Societies are examples of Savings Banks. The deposits are made regularly in small units and can be withdrawn whenever required. Some of these funds are usually invested in government securities and bonds (e.g. treasury bills).

Development Banks

These are banks that provide short-term and long-term loans for specific sectors of the economy. These banks are funded and owned by the government. The aim is to accelerate the growth and development over time in the sectors under the jurisdiction of such banks. In Nigeria, we have the Nigeria Agricultural and Cooperative Bank, Nigerian Bank for commerce and Industry, Nigerian Industrial Development Bank while Sierra Leone has the Sierra Leone National Development Bank. Ghana’s National Investment Bank serves the purpose of a Development Bank. The Gambia Commercial and Development Bank serve the dual role of commercial and development bank.

Summary

In this chapter, we have discussed the following: Financial institutions refer to organisations and arrangements concerned with lending, borrowing, investing and managing money or funds. They are sometimes referred to as financial markets. These financial institutions use financial instruments in carrying out their different activities.
These include: The promissory notes, bill of exchange, call money funds, bonds, stocks and shares, cheques.

Agencies That Regulate Finance Of Market In Our Country

Financial markets can be broadly categorized into two: the money and capital markets.The working of the two markets ensure that the economy of a nation is well run and ii
have good returns on their investment. In this chapter, we shall identify the rej agencies in the markets, the tools they use in regulating the financial system.

The money market is an arrangement for the exchange of short term securities. The mon market is used by institutions or individuals who wish to borrow on a short term basis or haw money to lend to the financial system on a short-term basis. The some instruments employ in the money market include treasury bills, commercial bills, money at call and bills of exchange, etc.

Instrument or Both Used in The Money Market

1. Bill of exchange

This is as well referred to as a trade bill or commercial paper. The bill of exchange is a downturn showing evidence of an outstanding loan between two parties. When the creditor (or the exporter) draws up the bill of exchange on the debtor (or importer); then it must be accepted consented to by the debtor (or importer) before it would have any value. If this bill exchange is drawn on a bank or an acceptance house (often referred to as drawer); this bill can be sold’ the money market for a small discount (this is called discounting bill of exchange).

The date of payment (or maturity) of the amount stated on the bill of exchange should not exceed 90 days (or 3 months). Often times, they are written out in a set of three. There exist both inland bills of exchange, drawn and payable within a country, and foreign hills (these bills are either drawn within the country and payable abroad or drawn abroad. and payable within the country).

2. Moneylender Funds

This is the excess cash Which commercial banks deposit with the. Central Bank or lend to financial institutions on short term basis. This financial instrument has no fixed date Dravidian or-repayment; it can be recalled by lending banks whenever required.

3. .Treas Bills

Lie Central Bank has part of the control over Commercial Bank converts short-term loans it bills) to government bonds to reduce the lending ability of Commercial Banks. A say bill enables the government, through the Central Bank, to borrow money from the samey market on short-term basis.

Agencies Involved in the Money Market Central Bank

i Commercial Banks
iii Acceptance Houses (Merchant Banks) [l Financial Houses
lv) Discount Houses
vi) Insurance Companies
(ii Central Bank

The Central Bank is the apex of the financial system. Apart from the government, it is the most important monetary and financial regulatory body within the country. Each independent country has its own Central Bank; for instance, Nigeria has the Central Bank of Nigeria.

The Central Bank is owned solely by the government of the country. Its Board of Directors and Governor are appointed by the government. The Central Bank serves majorly as a government instrument for controlling the country’s economy (especially the monetary and financial aspects of the economy). Therefore, the government of the country seeks to substantially influence the activities of the Central Bank.

Before political independence, all the English speaking West African countries have the Vest African Currency Board (WACB) acting as Central Bank. West African Currency Board has its head office in London. Since its functions were majorly the printing of and inane of currency notes, it was more or less a currency issuing financial house. As each of the!English-speaking West African countries gained political independence, it established a Central Bank of its own. Consequently, Ghana established a Central Bank in 1957; Nigeria in 1959; Sierra Leone in 1964 and Gambia in 1971.

These Central Banks perform the nonspecializing services and functions:

(1) Issuance of currency
(11) Serve as banker to the Government
liii) Serve as banker to Commercial Banks
(iv) Manages the country’s foreign monetary matters
(v) Serve as banker to discount houses

(vi) Facilitate socio-economic development

(vii) Implement Government’s monetary and financial policies

2. Commercial Banks

Like Central banks, commercial banks are financial institutions organised in form of limited liability companies or cooperative business units. Commercial banks are either owned by individuals, groups of individuals or corporate bodies or governments. The major economic activities of commercial banks revolve around the acceptance of money deposits for safe-keeping (or indigestible fund) and the granting of loans and advances that bear fixes rate of interest to their customers (or investors).

Commercial bank business originated from the activities of London Goldsmiths that accepted deposits from customers and lent out part of the money deposited with interest. In West Africa, commercial banking began in 1894 when the Bank of West Africa owned by Lloyd Standard Bank of South Africa and West Minster was established. Later in 1 926 Barclays Bank was instituted. These banks conducted commercial banking services on the West African shores with branches all over West Africa and close links with their foreign headquarters in Britain.

Indigenous commercial banking activities started in Nigeria when the industrial and commercial bank was established in the late I 900s. Economic mismanagement, accounting irregularities coupled with highly competitive nature of the banking environment brought about the demise of this indigenous bank in the 1930s. Three years later (1933); Dr. Maja. Dr. Daugherty and Dr. Subair founded the National Bank. This bank lived and grew until I 961 when the Western Region Government of Nigeria assumed control of it and changed its name to National Bank of Nigeria. In 1937, the Arab Bank (now known as African Continental Bank) was established too.

It is noteworthy that commercial banking was not regulated by government until unfortunate disquieting experiences of bank failures were recorded in the banking Indus. In 1952, the first Banking Ordinance was passed to regulate banking business. Thc commercial banking business in Nigeria today is less regulated than before and there exist many indigenous commercial banking institutions in the country too.

Functions of commercial Banks

The functions of commercial banks can be grouped into six major categories. Each is identified as follows:

• The safe-keeping (or acceptance) of customers’ money
• The transfer of money
• Provision of loans, advances and overdrafts
• Promotion of economic development

Lesson For World Economics System

Since the 1990’s crisis most of the Tiger economies have become financially and now have stronger companies and regulatory frameworks in place to prevent another similar crisis. However, this has shown many Asian governments that the easy and predictable prosperity of export-led growth and cheap labour costs will not last forever. The emerging manufacturing giants of China and India are forcing the Tigers to look into creating new industries that add more value and create stronger service sectors to help provide stroeg demand at home, so that they can compete.

1. Development is impossible if Nigeria do not use the policy of import substitution, We can not continue to depend on import without developing our industrial sector.

2. Government should focus on the production of fertilizers, plastics and synthetic fibers from the country’s huge natural resources. This would encourage agricultural’ productivity.

3. Nigeria must find her comparative advantage. She must emphasis on products that can bring astonishing growth to her economy. An example is that Singapore and Hong Kong focused on being international financial centers while Taiwan and South Korea focused on their manufacturing sector with emphasis on Information Technology.

4. Nigeria should establish a banking system that favors the culture of the Nigerian
people.

5. Nigeria should formulate economic policies that would keep the country’s corporate and household debt at moderate and manageable levels.

6. The educational sector of the country must be given priority attention as obtained in the Asian Tigers.

7. Corruption, theft, and outright looting of government treasury must be discouraged A corrupt country cannot see through the process of development.

8. Jobs should be created for the teeming population of Nigerian youth. They must also be encouraged to create jobs in the informal sector of the economy.

9. The productive base of the economy needs to be restructured and diversified to reduce dependence on oil and imports.

10. Nigeria should vigorously pursue the achievement of fiscal and balance of payment viability.

11. Further devaluation of the naira must be stopped to prevent distortions in the economy.

Summary 
The Four Asian Tigers or Asian Dragons is a term used in reference to the highly developed economies of Hong Kong, South Korea, Singapore and Taiwan. These nations and areas were notable for maintaining exceptionally high growth rates (in excess of 7% a year) and rapid industrialization between the early 1 960s and 1 990s. By the 21st century, all four have developed into advanced and high-income economies, specialization in areas of competitive advantage. For example, Hong Kong arid Singapore have become world-leading international financial centers, whereas South Korea and Taiwan are world leaders in manufacturing information technology. Their economic success stories have served as role models for many developing countries.

Despite a World Bak report crediting liberalness policies with the responsibility of the
boom. including maintenance of export-led trade regimes, various analysts criticized the
institution for overlooking a range of other state supported policies that facilitated growth.
The tigers experienced decades of supercharged growth based largely on state industrial
policies supporting exports to rich, industrialized nations.

Even the World Bank report acknowledged benefits from policies of the repression of
the industries. As a result these economies enjoyed extremely high growth rates sustained
over decades. Other important aspects include major government investments in education,
nan-democratic and relatively authoritarian political systems during the early years of
development, high levels. bond holdings, and high public, and private savings rates.

Questions
I. Name the countries that were referred to as Asian Tigers? Why was their growth
referred to as an economic miracle? Discuss.
2. What influence do the China economy have on the economies of the Asian Tigers.
3. Identify seven lessons from the Asian Tigers for any developing economy like
Nigeria’s.
4, Explain in detail the economic strategies employed by these countries called the Asian
Tigers.

In recent times, some commercial banks use savings withdrawal and savings deposit slips in addition to the passbook. Withdrawals can be made without prior notice. Nevertheless, the interest earned on the savings deposit account is relatively lower than that earned on fixed time deposit accounts.
At the same time, there is always an upper limit on the amount of money a customer may keep in a savings account. If a customer exceeds this stipulated maximum (which differs from bank to bank); the bank will advise him to transfer the excess into a time deposit account.


The Transfer of Money
Commercial banks help their customers in making payment on their behalf through the use of transfer facilities like bank drafts, certified cheques, bills of exchange or discounted bills of exchange and standing orders.

Customers operating demand deposit accounts do make payments through the issuance of cheques which are drawn on their banks. The commercial bank then transfers money on its customer’s behalf to the bearer or the person it is directed to pay money to. Likewise, bank drafts and bills of exchange are used similarly by customers of the bank in trade transactions.

Customers of the bank can as well give their banks standing orders; which are special arrangements between the customer and his bank, with regards to regular payments of rents, school fees, insurance premiums, annual dues of societies/bodies and salaries and wages of staffs in the case of business units.

This function is highly beneficial to the bank customer since it affords the
customer to pay money (even large sums) over a long distance without the need for
personal contact and the need to carry large sums of money around.

Provision of Loans, Advances and Overdrafts
This is the major source of income of commercial banks. Loans and advances are money loaned out to customers for a specified period of time and requires interest payments until the total loan is fully paid back.

Overdrafts are privileges granted to current (demand) deposit account holders to withdraw more money than deposited in their accounts. However, this amount loaned out (or the excess withdrawn over and above the amount in his account) carries a fixed rate of interest.

Furthermore, commercial banks lends to their customers by discounting bills of exchange. This implies that the bank on behalf of the bank customer (who is a debtor that made out a bill of exchange to his creditor) pays the creditor on behalf of the bank customer before the date specified on the bill of exchange. This enables the bank customer to meet his indebtedness and the creditor to receive speedy payments for goods sold or services rendered.

Economics Lessons From Assia Tigers Today That Show All About

Asian Tigers or Dragons is a term used to describe the highly developed economies of Hong Kong, South Korea, Singapore and Taiwan. The term started to be commonly used in the 1970s. The countries are groups in this way since the 1960s because they all followed a similar path to development and went on to reach frilly developed status. In this chapter, we shall examine the economic history of the Asian Tigers (1960 to 2000), review the development strategies and discuss the lessons for the Nigerian economy.


The conventional step taken to kick start development in the 1960’s was to implement import substitution. This involved raising tarries to reduce the imports of consumer goods and thereby allowing a country’s own industries to develop and stabilize. The Asian Tigers, however, decided to capitalist on the growing materialistic attitude developing in much of Europe and North America and so pursued an export-driven model of industrialization and development instead and this was achieved by rapidly increasing the production of goods that could be exported to the highly industrialized nations of the world.


These four countries have experienced very rapid growth and have had many things in
common some of which are:

• All four territories had a strong degree of Chinese influence, with most having a large ethnic Chinese community. Singapore had a population that included 75% ethnic Chinese, Hong Kong had 95%, Taiwan had 98% and South Korea 65%.

• They were relatively poor during the 1960’s and had an abundance of cheap labour.

• They had non-democratic and relatively authoritarian political systems during the early years. so the governments could easily drive though their plans for economic

They focused their development drive on exports to richer industrialised nations rather than focusing on import substation, which meant that they built up trade surpluses with the industrialized countries.

The Tigers singled out education as a way of improving the productivity of the labor force and so they ensured that all children attended primary and secondary school. They then went on to invest heavily in the development of their university systems and in sending students to foreign universities.

Domestic consumption and purchase of consumer goods was discouraged at first and this was done by placing a high tariff on imports. This high tariff on imports led to the encouragement of high saving rates which then allowed for specific areas industrious be invested in.

Trade unions were discouraged and in their place, governments encouraged managers to provide job security and other benefits in a paternalistic type of industrial organisation.

They all sustained double-digit rates for growth for decades.

While industry was developing, agriculture was protected by subsidies and tariff on non-essential imports. Land reforms were created to ensure that small and sensitized farmers had security of tenure, which in turn, encouraged them to invest in their land. This resulted in a cease in rural discontent and also allowed investment in the mechanization of agriculture which released rural workers from the land and enabled for further industrialization to occur.

Prior to the 1997 Asian financial crisis, the growth of these four Asian Tigers economizer (commonly referred to as, “The Asian Miracle”) has been attributed to export oriented policies and strong development policies. Unique to these economies were sustained rapid growth and high levels of equal income distribution. A World Bank report suggests two I development policies among others as sources for the Asian miracle: factor accumulation and macroeconomic management.

By the I 960s, investment levels in physical and human capital among st the four I countries far exceeded other countries at similar levels of development. This subsequently led to a rapid growth in per capita income levels. ‘While high investments were essential to the economic growth of these countries, the role of human capital was also important. Education in particular four Asian Tigers were higher than predicted given their level of income. By 1965, all four nations had achieved universal primary education. South Korea in particular had achieved a secondary education enrollment rate of 88% by I 987 There was also a notable decreased in the gap between male and female enrollments during the Asian ! miracle. Overall these progresses in education allowed for high levels of literacy and cognitive skills.

The creation of stable macroeconomic environments was the foundation upon which the Asian miracle was built. Each of the four Asian tiger states managed, to various degrees of success, three variables in: budget deficits, external debt and exchange rates. Each tiger nation’s budget deficits were kept within the limited of their financial limits, as to not destabilize the macroeconomic. South Korea in particular had deficits lower than the OECD average in the 1 980s. External debt was non-existent for Hong Kong, Singapore and Taiwan, as they did not borrow from abroad. While South Korea was the exception to this as their debt levels during 1980-1985 was quite high compared to their GNP ratios, it was sustained by the country’s high levels of export. Exchange rates in the four Asian tiger nations had been changed from long-term fixed rate regimes to fixed-but-adjustable rate regimes with the occasional step devaluation of managed floating rate regimes. This active exchange rate management allowed the four tiger economies to avoid exchange rate appreciation and maintain a stable real exchange rate.

Export policies have been the major reason for the rise of these four Asian Tiger economies. The approach taken has been different among the four nations. Hong Kong, and Singapore introduced trade regimes that were illiberal in nature and encouraged free trade, while South Korea and Taiwan adopted mixed regimes that accommodated their own export industries. In international prices. South Korea and Taiwan introduced export incentives for the traded-goods sector. The governments of Singapore, South Korea and Taiwan also worked to promote specific exporting industries, which were termed as an export push strategy. All these policies helped these four nations to achieve a growth averaging 7.5% each year for three decades and as such they achieved developed country status.

This method of development seems to have worked for the four Asian Tigers at the start

of the 21St century, they had all reached high positions in the ranking of countries by total GDP but is this path to development applicable to other countries or, in fact, should

developing countries be encouraged to use the Tigers as role-models and therefore mirror Hemingway which they developed?

Well the Asian Tigers have received quite a bit of criticism from economists and

geographers and their development has not been as smooth as it may first sound.

The biggest criticism they have faced is focused on the fact that they have relied on exports, at the cost of home demand, to develop. This has left the Tigers incredibly reliant on the economic health of their targeted export nations — a very risky factor to rely on! Their early development was also based on the utilization of their abundant cheap labor force; which has now been rivaled and surpassed by the likes of China and India; who are arguably emerging as almost like the new tigers as they have incredibly fast growing economies.

However, fast expansion of a country’s economy is not necessarily a good thing and, in the 1990’s, the Four Asian Tigers learnt this lesson the hard way. Their economies had expanded so fast (too fat in reality) that their growth provoked the prices of properties, stocks and shares to become overvalued. This caused several of the stock markets to collapse, thereby creating a worldwide financial crisis. After much social unrest and political instability the Tigers had to receive help from the International Monetary Fund.

Money Inflation And Deflation money is declining

Inflation is a situation in which the value of money is declining or when the average price level rises. Inflation occurs often as a result of increase in the existing quantity of money without a corresponding increase in the available quantity of goods in the economy. Since too much money is used to exchange few quantity of goods and services, therefore a unit of money will buy less quantity of goods.
The following section will discuss types, causes, effects and control of inflation.

Types Of Inflation
Before we discuss the types of inflation, it is note worthy that inflation is classified on the basis of its causes:

i,) Demand-Pull inflation
This is caused by increase in aggregate demand, due to increase private and government spending. It is also referred to as “Wage Inflation”. This is because rising prices make workers to demand for increased wages and when granted will increase the purchasing power of workers. Eventually, increased spending on the part of workers lead to inflation or increase in general price level.


ii,) Cost-Push inflation

It is also known as “Commodity Inflation”, or “Supply Shock Inflation”. This is caused by a drop in aggregate supply (potential output), which leads to increases in prices of
commodities. This may be due to natural disasters, or increased prices of inputs. For example, a sudden decrease in supply of oil, leading to oil prices increases, can cause cost- push inflation because producers for whom oil is part of their cost could then pass this to consumers in the form of increased prices.

This is also known as monetary inflation. This usually occurs from changes in money supply, which bring about changes in price level. For example, increased supply ofmoney can make people to have more cash at their disposal, which may lead to a fall in value of money since more quantity/units of money is spent on the same quantity of commodities, leading progressively to inflation.

Also known as “Runaway Inflation”. It occurs when price level suddenly increases rapidly over a short time period, for example, price level can double in a month or less, which may lead to breakdown in a country’s monetary system.


It is also referred to as “Out of Control Inflationary Spiral”. The consensus view is that, this long sustained period of inflation is caused by money supply growing faster than the rate of economic growth. Hyper inflation also occurs if inflation get totally out of control (in the upward direction).

 It can grossly interfere with the normal working of the economy, hurting its ability to supply goods. It can lead to abandonment of the use of the country’s currency, leading to inefficiency of barter. It is mostly evident when government finance spending in crisis, such as civil war, by printing money excessively. Hyper inflation usually occurs during or soon after a war, when government turns to the printing press (Central Bank) to create money to pay its debts or invest in the economy. It is usually short-lived, and should not be regarded as typical of inflation. Examples of countries that have experienced this type of inflation are Germany, China and Hungary.

(vi) Foreign Exchange Inflation
This happens when local currency falls dramatically against other World’s currencies, thereby sharply raising the prices of imported goods and hence overall price level.


Causes Exchange Inflation

Inflation is an economic imbalance or disorder which can be due to variety of reasons or causes such as stated below.

(i) Excessive Demand or Demand Pull
Over time, the demand for goods and services by Nigerians (West Africans at large) have been rising consistently especially for foreign imports whereas there has been no remarkable increase in the supply of these goods and services to offset the excessive demand. Consequently, the price level kept rising consistently. For example, in Nigeria, the Udoji Award (increase in wage rate) and the Oil Boom jointly resulted in higher levels of income. This increase the level of prices due to increases in demand for goods and services.

(ii) Creation of Artificial Scarcity of Goods
During the period when import licences were being given Out for the purpose of importing goods, majority of those who got import licences and imported goods were hoarding such goods. This occurrence resulted in higher inflation within the economy.

(iii) Inadequate Supply of Goods
Non-availability of foreign exchange with which to pay for the expanding imports of the country and port congestion problems resulted in inflation within the economy. Likewise, the inadequate supply of raw materials for local industries may result in their producing at a very low capacity; consequently, there will be a reduction in the available goods and services. Resultant effect of this will be a rise in the price level or inflation.

(iv) Cost -Induced Inflation
if cost of labour (i.e. wages and salaries), cost of land (i.e. rent) and cost of capital or raw materials increases, this will lead to a higher cost of production. Consequently, the higher cost of production will affect the price of the goods and services, thereby resulting in inflation or general increases in price level.
Furthermore, general increase in the prices of imported commodities, especially those that serve as raw materials result in general increases in the price level of these commodities within the importing country.

(v) Inflation Induced by Increased Bank Lending
Whenever commercial banks, financial houses and even merchant banks increase the rate at which they grant credit to their customers without a commensurate increase in the level of deposits being made with the banks and financial houses, coupled with little or no increase in goods and services, this results in a situation whereby too much money will be in circulation being used in exchange for few commodities. This will result in inflation.

(vi) Structural Rigidities
These occur as a result of some rigid difficulty to change structures of the economy. For instance, wages, salaries are sticky downwards, that is, they can not be easily reduced; especially when patterns of demand and costs change, real adjustments in price and wages/salaries occur more slowly. This may result in perpetrating inflation.

(vii) Expectations-Induced Inflation
If consumers have high expectations of price or producers have high expectations of wages or salaries increases or increases in the prices of other factors of production. There is the tendency for consumers to demand more of such commodities and for producers to increase prices of their goods and services thereby resulting in price increases. Consequently, inflation occurs.

Money: Demand For And Supply Of Money Functions And Advantages

In the previous sections, various features, functions and advantages of money were highlighted. Here, we will examine the supply and demand for money, value of money and the price level.
This is the total stock of money or money supply which is made up of coins, currency notes, bank notes, (and gold and silver in some countries) that exists in circulation within the economy at a particular period of time. In Nigeria, money held on demand or demand deposits in banks are as well classified along with the stock of money in circulation. The supply of money in the economy is left to the Central Bank, the apex financial institution, to determine and regulate.
However, during inflationary periods, supply of money often increases, due to increasing demand for money.

Demand for Money

Money is a perfectly liquid asset since it can be exchanged for any other goods or services. Money is held in cash as opposed to investing it in bonds, shares, and stocks because of some basic ulterior motives identified by Lord Gerald Manley Keynes:

(i) Transactionary Motive
Individuals and corporate bodies in an economy prefer to hold certain amount of money in cash so as to meet their day-to-day pressing needs.
Individuals on a daily basis will hold cash for the purpose of feeding themselves, transporting themselves, and making payment for other basic transactions on a day-to-day basis. The amount of cash or money a man holds will depend on the interval he receives his income and the income itself.

Corporate bodies too hold money to offset daily payment for goods and services and the amount of cash or money a firm keeps in its cash box depends on the type of business it engages in and the frequency with which it makes payment for services. This transaction motive implies that payments arid receipts are not perfectly synchronized.

(ii) Precautionary Motive
Lord Keynes says this motive induces individuals and firms within the economy to hold money in cash purposely to offset any unexpected emergencies or contingencies.
In the case of an individual, he holds money so as to offset unexpected medical expenses, for him self or family members, car repairs and other sudden emergencies.
Firms hold money to offset contingencies emanating from various departments in form of repair of vehicles, maintenance of machinery and transport of staff and so on.

(iii)  Speculative Motive (Asset Motive)
The amount of money held for speculative motive is a function of the expected trends in the rate of interest. If the expected rate of interest increases, individuals and firms will hold
money now and invest later, but if the rate of interest is expected to fall then, they will rather
invest now. Consequently, they will bold less money in form of cash.
Speculative/asset demand for money varies inversely with the rate of interest.

Value of Money and the Price Level

Since the demand for money is derived demand (people demand money for the sake of what
it can buy). The amount of money demanded is dependent on the real value of money. The
real value of money is the quantity of goods and services that money can buy; it is as well
called Purchasing Power of money.
The purchasing power of money is inversely related to the price level. The higher the
price level, the smaller the quantity of goods and services that a given amount of money can
buy. Consequently, the lower the value of money.
On the other hand, the lower the general price level, the greater the quantity of goods and
services that money can buy and the higher the value of money or purchasing power. This
can be illustrated with this example. In 1984, a higher education notebook cost N4.OO but
now it costs 48.OO. This shows that the price level has increased thereby reducing the
purchasing power of money from two notebooks for 8 in 1984 to one now.
Price level is determined with the use of price index. A price index is a method of
compiling average price changes far a group of goods and services. The price changes will
enable us to determine the changes in the purchasing power of money. Price index is computed for a variety of purposes. Therefore, there exist different types of price index:

(i) Wage index;
(ii) Import prices index;
(iii) Cost of living index;
(iv) Index of share prices;
(v) Index of wholesale prices.

computation of a Price index

When computing any of the aforementioned types of price index, the following guidelines must be followed:

(I) The first step is to select a group of commodities that best fits the type of price index you plan to compute. For instance, if you want to compute an import-price index; then you select specific number of import commodities. This is as well referred to as basket of commodities.

(ii) The second step is to select the base year. The base year is the year that will form the basis of comparison; a year that has more stable, normal prices is preferably chosen so as not to distort the result of the price index.

(iii) Third step is the selection of an income group. It is necessary that the group should be a good sample of the total population for which the index is being compiled.

(iv) The fourth step is assignment of appropriate weight to each of the sample commodity selected. This should reflect the relative importance of each commodity to other commodities in the basket of commodity.With the above techniques and computation steps taken, we will have a result of an index number, which will show us whether price level has increased or decreased relative to the

base year price level. For instance, if we have these price index numbers (1985 base year)

100%, 1990 = 150%. This means that the basket of commodities which normally cost N 100

in 1985; costs 150 in 1990. It implies that the price level has risen by 50% over the period

1985-1990. Thus, the value of money has fallen by 50%.

Problems of Price indices

(I) The choice of a base year is often the major problem in computing price indices simply because it is difficult to find a year with reasonable stable prices. Consequently the base year selected is often based on subjective considerations.

(ii) Determination of appropriate weight to commodities is another major problem. different weights, such weights will Consequently, such price index can not results.

fix to each commodity in the basket of Since different individuals will fix for yield different price index numbers, result ha objective results but subject

(iii) Price indices are not useful for long-term comparisons since prices are not static and likewise the basket of commodities consumed changes over time because of changes in income and taste and fashion.

(iv) It is often difficult to determine or select a specific group for the computation.of indexation; since most of the people in the same income group do not distribute their expenditure on the same commodities.

Based on the above-mentioned problems of computing price indices; we can realise that price index does not provide a satisfactory measure of the value of money; rather it can be called an average measure of changes in the value ofmoney or purchasing power of money

Types Of Financial Institutions And Their Functions You Need To No

In this chapter, we will identify and describe the major components of the financial system. 

We will specifically describe the activities of the financial institutions and financial instruments, their relationships, development and interactions. Finally, we will discuss the
two broad classifications of the financial system, money and capital markets. 

Modern  Financial Institutions

Here, we will discuss the functions and operational activities of Central Banks. Commercial Banks, Merchant Banks, Development Banks and others. While banks are major
institutions that make up the financial system, so also we have non-banking institutions like
insurance companies, building societies, etc. Their functions can be divided according to how to perform in both the money market and the capital markets. 

central Banks  

The Central Bank is the apex of the financial system. Apart from the government, it is the most important monetary and financial regulatory body within the country. Each independent country has its own Central Bank; for instance, Nigeria has the Central Bank of Nigeria. 

The Central Bank is owned solely by the government of the country. Its Board of Directors and Governor are appointed by the government. The Central Bank serves majorly as a government instrument for controlling the country’s economy (especially the monetary and financial aspects of the economy). Therefore, the government of the country seeks to substantially influence the activities of the Central Bank. 

Before political independence, all the English speaking West African countries have the West African Currency Board (WACB) acting as Central Bank. West African Currency

Board has its head office in London. Since its functions were majorly the printing of ml issuance of currency notes, it was more or less a currency issuing financial house As feather the English speaking West African countries gained political independence, it established a Central Bank of its own. Consequently, Ghana established a Central Bank in 1957; Nigeria 1959; Sierra Leone in 1964 and Gambia in 1971. These Central Banks perform the following specialized services and functions:

(i) Issuance of Currency

This is a major function of the Central Bank. It controls the quantity of all paper money or currency notes and coins which are produced by the mint (in the case of Nigeria, the Nigian Printing and Minting Company produces the currency notes and coins) in circulation. Consequently, the Central Bank is responsible for the volume of the country’s legal tender. II controls the total supply of money in relation to the quantity of goods and services produced in the economy so as to ensure price stability and avoid inflation.

(ii) Banker to the Government

It is the bank that provides banking and financial services to the government both state and federal government, as well as their agencies). The Central Bank maintains the (bank) account of the government and its agencies, thereby dealing with governments receipts and - payments. It grants overdraft privileges to the government pending its receipts of tax and other revenue. It maintains and services the public (government) debt on behalf of the government. The Central bank gives the government economic and financial Addison services in respect of government borrowing, financial planning and budgeting and other complementary services. Based on the above mentioned functions of the Central Bank. the Central Bank acts like a commercial bank to the government.

(iii) Banker to commercial Banks

All commercial banks have accounts with the Central Bank; in which they keep a proportion of cash reserves stipulated for commercial banks by law. It as well organised clearing houses in which cheques drawn on different banks are exchanged and net indebtedness between them settled. The Central Bank gives loans to commercial banks. 

The Central Bank Garth against bank failures (a situation whereby the people lose confidence in a commercial bank because of its inability to fulfill its financial obligations) by giving out loans to commence banks that need money urgently to meet increased unexpected demands for cash from their customers. in its performance of this laudable service, the Central Bank is referred to as Lender of Last Resort. This lending of last resort is either done by direct cash transfers discounting bills for commercial banks. Therefore, the Central bank assists in developing banking habit by guarding against bank failures which may discourage savings m banks ant thereby reduce the flow of funds needed for productive investment.

 (iv) Manager of the country’s Foreign Monetary Matters

The Central Bank keeps the nations’ gold and foreign currency reserves and services the

country’s external debt. It maintains a link between the country and other countries (and

their Central Banks) as well as international monetary institutions like World Bank or

International Bank for Reconstruction and Development (IBRD), International Monetary

Fund (IMF); African Development Bank (ADB). The Central Bank represents the country in international financial matters and at the same time provides international organisations both economic and financial information about the country. For instance, the Central Bank

of Nigeria (CBN) is a member of Central Bank of West Africa (CBWA), Association of

African Central Banks (AACB), and West African Monetary Fund (WAMF). In conduct of

international trade, it acts as an agent of government’s treasury.

(v) Bankers to Discount Houses

The Central Bank serves as banker to discount houses which include insurance companies and hire purchase companies. These companies borrow from the Central bank when in dire need of money. Since majority of these companies are young, they rely very much on the

Central Bank’s financial support.

‘vi) Facilitates Socia-Economic Development

The Central Bank plays a major role in facilitating socio-economic development of its

country’s economy. This,, it does by influencing positively the mobilization of funds for

rapid economic development of industries and distribution activities of businessmen

through the various credit institutions available within the economy. It therefore monitors

the activities of credit institutions. It as well promotes the development of specialized credit

institutions like Nigerian Agriculture and Cooperative Bank (NACB); Nigerian Bank for Commerce and Industry (NBCl) Nigerian Industrial Development Bank (NIDB) just to mention a few. These specialized credit institutions are motivated through Central Bank

policy regulations to promote agricultural and industrial growth and development.

The Central Bank promotes export of goods and services, thereby encouraging

increased foreign exchange earnings. It helps to maintain price stability by adjusting bank

rates to influence commercial banks’ interest rates. All these functions of Central Bank help

in keeping the economy in proper balance for rapid economic growth and development.

(vii) implements Government’s Monetary and Financial Poolsides

The quantity of money in circulation within a country economy will affect the price level

desiderata and the level of production and equitable distribution of national income.

Based on this fact, the government formulates monetary and financial policies to regulate

the supply of money, maintain stable price levels and redistribute income and maintain full

employment.

The Central Bank is charged with the responsibility of impingement these government monetary and financial policies through the various financial institutions and commercial banks they oversee or control. In implementing these government policies, the Central Bank uses variety of instruments to control the supply of money and granting of credits by the commercial banks. These instruments are discussed below:

(a) Bank Rate

This is the rate which the Central Bank charges for loans provided to cOmmercial banks and other financial institutions. This bank rate is closely tied to the interest rate at which the commercial banks will grant loans to their customers. Consequently, if Central Bank wants In reduce the supply of money, it increases the bank rate which results in increased commercial banks interest rate on loans and reduction in bank lending. It reduces the bank rate when it wants to increase the supply of money and granting of credits by banks.

(b) Minimum Cash or Liquidity ratio

Central Bank gives directives on the minimum proportion of commercial bank assets that must be held in cash or liquid form. Whenever this minimum cash or liquidity ratio is at a low level; commercial banks have the opportunity to create more credits, but when it is high, less credit can be created by commercial banks per unit of their assets.

(c) Special Deposits

Central Banks require that commercial banks keep a specific proportion of their deposit within it as special deposits. This is aimed at reducing bank lending. The higher the special deposits required, the lower the lending ability of commercial banks and vice versa.

(d) Open Market Operations (OMO)

The Central Bank deals in the buying and selling of government securities (both long tern and short term) like government’s development stocks, treasury bills and so on. Whenever the Central bank buys treasury bills or other government stocks, it increases the supply of money in circulation thereby encouraging increased bank lending. However, when it seeded government stocks, it withdraws money from circulation thereby reducing supply of money and bank lending activities commercial banks.

(e) Direct Control

The Central Bank can give specific instructions to commercial banks with respect to the volume of loans and Sectors to be given such loans. This action is taken especially when other instruments fail to provide expected result in influencing economic activities of banks and financial houses. For example in Nigeria, the Central bank has used this method extensively. It is now its usual practice to issue out directives to commercial banks on quarterly basis through quarterly monetary policy circulars or guidelines.