Founder/CEO
Emerging Africa Capital Group
The critical role and impact – direct and indirect – of any financial system on economic growth can never be over-emphasised. Beginning with savings and deposits mobilisation to credit expansion and provision of loans that facilitate the movement of funds from surplus sectors of the economy to the deficit sectors, the impact of the financial system in creating sustainable growth in the economy by mobilising funds into productive sectors is always significant. An effective financial system ensures the efficient allocation of resources and increases the overall productivity of an economy.
The need to stimulate and manage economic growth is of particular relevance globally in a time of global economic pressures arising from the COVID-19 pandemic. It is especially relevant to Nigeria which is entering its second economic recession in two years. Whilst the subject is not new, amidst the population explosion – now estimated at over 206 million Nigerian residents and other factors – changing demographic and bell-shaped income disparities in the economy, the need for economic growth has taken increased importance and urgency.
Economic historians posit that the most successful economies tend to be those which had developed sophisticated financial systems at an early stage which would later sustain their development and growth. However, the financial system can either play a leading role in economic growth or it may take a more passive role in response to expanding economic needs.
In today’s world, the financial sector is usually regulated by a mixture of both a central planning authority and the market itself, and leaving the market to regulate itself could be hazardous due to conflicting motivations, moral hazards, and the impact of market choices on the larger economy. A clear case in point would be events leading up to the 2008/2009 global financial crisis and the consequent collapse of financial institutions, massive losses in asset/values, stock markets, currencies crisis and the collapse of big institutions amongst other factors which demonstrated the dangers of weak financial systems to an economy. Whilst every economy in the world has its inherent financial system, as the world continues its seeming move towards becoming an aggregated global village, the conglomeration of all the financial markets in the world made possible by technology is now referred to as the Global Financial Market. Nigeria is increasingly a part of this web of organised and interrelated financial institutions, borrowers, lenders, investors and insurers within the global economy.
From a global perspective, the global financial system includes the World Bank, International Monetary Fund, International Finance Corporation, the various regional development finance institutions, central banks, government treasuries and monetary authorities, major private international banks and their domestic and regional affiliates and partners. All components of the global financial market are interrelated, and happenings in any country could ultimately affect the performance of the financial market in another country. For example, the 2008/2009 financial meltdown in the USA which resulted from deregulated financial markets and unhealthy risk appetites of banks towards sub-prime mortgages, loans and deals, ultimately affected emerging markets like…