THE FINANCIAL ENVIRONMENT
In every given environment, whether large or small, it is easy to observe different economic functions
taking place on continuous basis. To maintain a healthy and acceptable interaction among several economic units, a nation
has its laid down rules and expected roles to be played by the citizens and other investors.
No nation would ever survive without a sound financial system, which is the law and environment with an interchange
of wealth, asset and liabilities on regular basis for economic growth. In fact, in the words of Herggott Beckhart, financial
system is defined as “the family of rules and regulations and the congeries of financial arrangements, institutions,
agents and the mechanism whereby they relate to each other within the financial sector and with the rest of the world.”
As related activities are grouped, so also is the grouping of all financial entities and agents, under the financial
sector. This sector is briefly defined as the grouping of all financial agents whose transactions determine qualitatively,
the financial flow in the economy. (Okigbo P23) .
Apart from political reasons, a country is said to join the international financial system for social intercourse with
other nations, so as to obtain some assistance for new development efforts. Some
of these financial institutions include the International Bank for Reconstruction and Development (World Bank), International
Monetary Fund (IMF), International Finance Corporation (IFC), International Development Association, African Export Import
Bank and African Development Bank. Specifically, the foreign exchange department
is responsible for the formulation of exchange control policies and procedures of the Central Bank.
Public finance as a discipline, is concerned with the allocation of resources, distribution of income and wealth and
stabilisation of the economy (A.O. Akerele, 1998, P.21). All nations’ economies
depend on the public and private sectors’ full participation in addressing social and political issues through efficient
allocation of resources. Therefore, there is the need for free competition, enabling
environment for investments, availability and utilisation of resources and adequate information for public awareness for greater
participation of all at achieving macro-economic stability. It is in view of
this, that the Ministry of Finance has intensified efforts at announcing and publicising some incentives like deregulation,
commercialisation and privatisation, tax relief and indeginisation, for achieving more participation.
Therefore, public finance institutions as state organs are to maintain the financial integrity of the government and
create the necessary machinery for monitoring the activities of profit makers and preventing unwholesome financial disruption. But where the private sector is unable to establish and provide economic facilities
which are commercially unprofitable but otherwise essential for the efficient working of the economy, the public institution
as government policy maker, will recommend and implement appropriate measures at providing such social overheads.
The action of the Government in stepping in, may not necessarily indicate that the public sector is more efficient
than the private sector. The public sector cannot be ignored when it comes to
providing essential economic social overheads, which include providing an enabling environment for investment such as accessible
road network, hospitals, security and flexible fiscal policy, among others.
It is not desirable to leave the production of social overheads in the hands of the private sector alone, and thus
deprive the economy of the extra benefits which it can derive from these essential economic facilities. Government parastatals are expected to provide conducive economic environment out of public funds acquired
through other agencies and provide this, occasionally, on commercial loss.
In view of this, in the
word of Bhatia HL (Public Finance, Vikes Publishing House 1976, P.21), it is
considered best that the public sector should only help and supplement the private sector and should never supplant it. According to him, the problems of capital formation and economic growth are supposed
to be tackled adequately by the private sector itself. The market forces of demand
and supply, which basically means obeying the law of consumers’ sovereignty, would guide the private investors and savers.
The federal government through its appropriate ministries, makes vital budget breakdown annually, which comprises fiscal
and monetary policies aimed at achieving certain macro-economic targets like reducing inflation, increasing employment and
maintaining a stable exchange rate regime. The budget breakdown serves as guidelines
to investors, financial institutions, businessmen and other tiers of government to explore with the overall aim of maximising
The government, as the major determinant of the direction of public spending through monetary and fiscal policies,
has the task of addressing issues that have direct impact on the entire citizenry, including all operators within the system.
Some of these issues are government taxes and expenditure; resources allocation in the economy; economic incentives and capabilities
to perform the basic economic functions of working, saving, risk taking and spending for consumption; total government expenditure;
the levels of production, national income and employment; total consumption expenditure and the distribution of wealth; the
standard of living of the people, economic growth and stability; public debts; and foreign debts. (Peter Arize, 1998, P5)
The government, in view of the above, therefore, has the largest public, viz its three tiers of government, public
and private sectors and the ordinary citizens who must either enjoy or suffer the effects of the policies’ direction.
The State, as the major instrument that addresses social welfare and provides infrastructure and enabling environment
for economic growth, needs to keep the public fully informed about the facts and those policies as they have direct bearing
on individual lives and the economy as a whole.
It is in view of keeping the public well informed about the fiscal and monetary efforts of the government at addressing
the major economic problems, that the Information and Public Relations Units are charged with the responsibility of giving
out the facts and promoting the economic programmes of the government.
Whenever the word “finance” is mentioned, the first thing that comes to mind is money. But the word is more than money. Finance is the art and science of managing money. Therefore, the word ‘finance’ is closely related to economics, since every
profit-making organisation or enterprise operates within the economy to manage the use of money.
Nigerian economy may not be different from others except in its policies and implementation, which surely have direct
effects on day-to-day businesses.
Many expert believe that the Nigerian economy is nose-diving, unpredictable all the time with solutions daily proffered
but to no avail. According to Mr. Akingbola, the Managing Director of International
Bank Limited, in an article published in Thisday (22/9/99 p.20): “the state of the economy as at the beginning
of this year (1999) was anything but encouraging as all key performance indicators went crashing, inflation was again on the
rise, interest and exchange rates had resumed pendulum with budget deficit ballooning”. Mr. Akingbola’s observation
as a banker illustrates the unfavorable position of the economy, as it requires a dynamic redirection, reorientation and possibly,
an effective fine-tuning of existing policies for efficient implementation towards the benefit of the generality of the citizenry.
The situation has persistently remained the same from the beginning of the 90s, a period of military regimes when no
concrete democratic institution was set up. It must be admitted here that even
though some progress was noted, bad management and unwholesome activities of the leadership had become a cog in wheel of the
A journalist, Mr. Akin Olaniyan, in an article published in the Punch, entitled “Economy: Abubakar’s
unfinished Business”(28/5/1999) decried the performance of the economy when he wrote that “by 1995, the negative
growth of the Gross Domestic Products (GDP) the total value of goods and services produced within the time by the country,
had been reversed and in fact, had grown by 2.2%” . He added that this
rose to 3.25 % in 1996 and 3.77% in 1997 but fell in1998 to 2.36% and that surplus deficit in 1995 was N1 billion. By 1996, it was 37 billion but this had, by 1997, fallen to a N5 billion deficit and N57 billion in 1998. The interest rate, which can be used to control growth between 1995 and 1998, was
generally stable between 18 and 21 per cent.
Looking closely at the government’s commendable publicly announced measures at that period, one might wonder
what the problem is with the system due to the obvious instability in the economy, even when exchange and interest rates are
stabilised. In fact, capacity utilisation in 1997 dropped from 34.32% to 31.30%
in 1998. It is the prayer on every lip that with emergence of the elected democratic government of Chief Olusegun Obasanjo,
the new regime would squarely address the comatose economy. The good tidings
is that, a democratic government always opens doors of opportunities for business-conscious investors to come in.
In his first budget presentation to the National Assembly in 2000, the President admitted that his administration inherited
a prostrate economy characterised by declining capacity utilisation in the real sector, poor performance of major infrastructural
facilities, unsustainable liquidity position and rising level of unemployment and inflation (Vanguard 25/11/1999). Even though
an elaborate and decisive mechanism was employed by the administration at tackling the persistent inflation, the rate only
declined by about 10.5%.
The budgetary estimates of revenue from oil were based on $18 per barrel for the revised supplementary budget of 1999
and Budget 2000. Despite the macro-economic achievement of the administration,
the President admitted that basic structural imbalances persisted. The inadequacies
are noticeable from the lingering problem of import dependence, reliance on a simple economic sector - oil, weak industrial
base level of agricultural production, a weak private sector, high external debt overhang, inefficient public utilities, low
quality of social services and un-abating unemployment. In outlining the basic thrust of the budget, christened “People’s
Budget,” President Obasanjo announced that the administration would lower the inflation rate, lay a solid foundation
for private sector - led economic growth, pay profound attention to education and agricultural production, and consequently
reduce unemployment and poverty. The emphasis of the fiscal policy of the regime
for the period was to vigorously pursue effective mechanism to increase the level of government revenue and promote overall economic development.