Assessing the Impact of Macroeconomic Policies
The study review post consolidation performance of the banking sector to assess the extent to which the sector meets consolidation objective using post development approach. It was found that while the alliance and marriage of seemingly compatible partners are settling down, the society is at the receiving end of the severance of labor and the enlargement of the pool of reserved army of the unemployed. The fall-out therefore is double-edge for the economy and the society. Keywords: Labor reforms, rationalization, consolidation and post development 1. 0
Introduction Private and public businesses are continually being challenged by performance. Performance success is very minimal measured on the indices of what Also (2006) catalogued as: what the customer needs and values, response to environmental changes and impact on the quality of the people. The issue of performance effectiveness or reengineering organization has preoccupied the minds of organization practitioners, researchers and watchers since asses. Therefore, all over the world, many economies had carried out various reforms to ensure effectiveness of the 166 European Scientists Journal real sectors.
The performance revolution started in the private sector. Its effects spread to the public sector influenced by ideas from public management school. Nigeria as a nation is not left
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Some of the reforms include (1 )power sector reform; (2) ports reforms meant to ensure timely clearing of goods within forty eight hours (3) deregulation of oil and gas sub-sector to forestall perennial fuel scarcity; (4) deregulation in the telecommunication industry to reduce government participation, create employment and commerce (5) the banking sub-sector / rationalization/consolidation to make it play its rightful role as the dominant sector of the economy in driving growth and development in other sector. The current banking sector reforms captioned as rationalization policy was issued out on Tuesday July 6, 2004.
Capitalization is setting the capital base upon which a player can set up and be licensed to operate banking functions. It is setting a capital base which was given as twenty five billion naira (Nub) as at 2005. The former capital base was two billion Naira (Nub), which many banks could not even afford. In Nigeria, empirical studies had been carried out on the relationship between banking reforms and economic growth (Balloon, 2007, Fader, 2010); consolidation and macro economic performance (see Some, 2008); consolidation and adoption of e-banking (Ay, Deadwood and Non 2010; Chimes, Pikestaff, and Chute, 2006).
The implication of banking reforms on labor has scarcely been researched. The main objective of this duty is to review the banking sector reforms 2004 – 2011 and the extent to which the objectives set are met and also, the implication of the reforms on labor as regards employment: security, decent employment, employees’ satisfaction and the outcomes of these variables for the society. 2. 0 Literature Review and Theoretical Framework Consolidation simply means to build on or improve to the extent of stability Diadems (2007) considers it to represent the idea of investment and the coming together of firms or enterprises as a single entity.
In the banking sector of Nigeria the essence of Nanking consolidation 167 May edition Volvo. 8 is to reposition the nation’s banking industry for global competitiveness and also to ensure a strong and reliable banking sector that will guarantee the safety of the depositors’ money. Consolidation as a means of reducing over capacity is doubtful (Some 2008). The effectiveness of banking sector consolidation as a remedy for financial stability and in correcting the defects in the financial sector for sustainable development had not been corroborated by similar exercise in Europe, America and Asia in the last decade (Some, 2008).
Rather, crises and failures as depicted by credit crises and transatlantic mortgage financial turmoil erupted which, in Nigeria, seriously affected invested money values specifically, stock values. Rather than restructuring leading to reduction in over capacity as indicated by consolidation apologists, an improvement strategy that would accommodate the resources available and expand them is advocated by internally induced consolidation apologists. The banking sub-sector in Nigeria witnessed sharp drop in credit rate to the real sector which affected return on shareholders’ fund (Diadems, 2007).
Credit went more to foreign exchange rather than the real sectors. The capacity of real sector to generate employment weakened. The access of small and medium enterprises (SEEMS) and the informal sectors to credit also dwindled (Some, 2008; NDIS, 2008; CAB, 2008). Structuring to the economists is adapting to the demands of increasingly global markets for greater efficiencies. Sociologist always view the social impact, specifically the social problems engendered by externalities which results in social disruption especially the negative effects on level of Job security, commitment, psychological well being and turnover intentions.
The effect of these on organization efficiency, contrary to reformist postulation may be negative. Maintain (2005) saw a yawning gap between the immediate or short term effects of economic reforms and the necessary ideals of Job security. He concluded that the ability of reforms to create employment in the last one decade had been very few and far between. Diadems (2007) also agreed that banking reforms in Nigeria resulted in Job loss, variance level of compensation and remuneration package for different merging groups and board mom squabbles among cliques of the merging banks. . 1 Theoretical Framework Post development approach is a reaction to the dilemma of development. Instead of abundance, discourse and strategies of development produce its opposite: underdevelopment and 168 impoverishment, untold exploitation and repression. (Sideway 2008). The post development apologist claim that change brought about by modernity or driven by the west would always meet with disillusionment on the part of the people of developing countries. 2. 2 Banking Sector Reforms in Nigeria Banking operations began in 1892 owned mainly by expatriates (Some, 2008).
They remained however unregulated until 1952 (Fader, 2010). There were expansions with indigenous ownership by asses. However, many of the banks failed between 1947 and 1952. The first regulation of banks was put in place by Banking Ordinance of 1952. This was ineffective as there was no Central Bank until 1958 to carry out supervising or control measures. Bank ownership structure shifted by asses with indignation decree. This allows more Nigerian investment in the banking industry. The Nigerian enterprises promotion Decree (NYPD) limits foreign ownership of Nigerian businesses to 60% in 1972 and 40% in 1976.
The sass’s reform allowed for 100% individual ownership which was a shift from existing 10% for individual ownership and 30% for corporate ownership. This led to the proliferation of banks. Banking sub sector rationalization policy was issued out on Tuesday, July 6, 2004. Capitalization is setting the capital base upon which a player can set up and be licensed to operate banking functions. Rationalization is setting a new capital base. The essence is to consolidate the sector to enhance competitiveness and capacity to play important role of financing investment (Some, 2008).
Consolidation which may exult in increase in bank size through merger and acquisition has the potential of increasing bank returns through increase revenue and cost efficiency gains. It may also reduce industry risks through the eliminations of weak banks and create better diversification opportunities (Furlong, 1998). Rationalization policies set twenty five billion Naira (Nub) as the new minimum capital base for banks operating in Nigeria. The former capital base was two billion naira (Nub) and many banks could not even meet this. The objective of rationalization is captured in the governor of Central
Bank of Nigeria (CAB) Charles Cloud’s words thus “the banking reform is to: (1) reposition the nation’s banking industry for global competitiveness; (2) ensure a strong and reliable banking sector that will guarantee the safety of the depositors money; (3) play active development role in the nations’ economy; 169 make the banks less dependent on public sector fund, and be capable of financing the real sector (New Age April 7, 2005). A time frame of eighteen months terminating in December 25, 2005 was set for prospective player to meet the capitalization line.
To facilitate compliance the following “carrots” ere offered by CAB. Banks that met the deadline shall: (1) (2) (3) (4) deal in foreign exchange; take public sector deposit; be recommended to fiscal authorities to collect public sector revenue, and; manage part of Nigeria external revenue. (New Age April 12, 2005); Furtherance to this, nine billion Naira (Nub) loan write off was offered for weak banks to make them attractive for acquisition so as to protect the system, the depositors, and employees as a results of liquidation. . 2. 1 The Need for reform: The Banking sector is one of the dominant sectors of the economy. It serves as the engine of growth for the real sector financing, Its stability and strength and consolidation will to a large extent influence other sectors. Any policies in the banking sector including its activities affect the micro-economic situation and acting as consultant with qualitative advice to the customers will drive the economy as it were.
An inventory of Nigerian banks between 1994 and 2001 as revealed by Nigerian Deposit Insurance Corporation shows that (NDIS, 2004; National Mirror 2005). (1) A total of thirty five (35) licensed banks went into distress and were eventually liquidated. Out of these, thirteen (13) were commercial banks eighteen (18) merchants and one (1) cooperative (2) The loss to depositors was two billion naira (#2. B) (3) Four thousand (4000) workers lost their Job. Mobile (2005) calculated that an average of 3 banks per year was liquidated. That is spanning the period of eight years.
The liquidation was as a result of in-effectiveness and inefficiency arising from (1) financial fraud, (2) insiders’ credit abuse resulting in huge non-performing credit, (3) low quality manpower, (4) inefficiency of management, (5) inaccurate reporting ND non compliance with regulatory requirements(6) low aggregate credit as percentage of the GAP to the domestic 170 economy (20%) Idiot,2006; Diadems, 2007; Cowry research, 2009). By 2005 the following were the status of the banks in terms of their standing Table 1 Category sound satisfactory Marginal unsound 2001 10 6. 8 92002 13 54 13 102003 11 53 14 920041051 1610 Source: CAB reports and statement of accounts 2004 The impacts of these on the economy include the following: (1) There is sociological implication for the social nets of the sacked workers and the multiplier effects on other real sectors Social nets is he web of relationship established by an individual. In African setting, they include lots of extended family members that are dependent on such workers and which he/ she in turn provides financial supports. (2) The confidence depositors have in banking system waned. 3) The economy became depressed as a result of loss of money. (4) Increased unemployment was witnessed. The loss of deposit definitely stalled other businesses and the spiral effect can only be imagined. At the announcement of the banking consolidation, not more than few banks could go it alone. Therefore, merger and or acquisition were necessitated.. The existing eighty nine banks went through the process of merger and or acquisition, and twenty five banks eventually emerged by December 25, 2005 deadline.