| My vision for Nigeria – Soludo
By SEUN ADESIDA
Monday, January 1, 2007
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Professor Chukwuma Soludo
Photo: Sun News Publishing |
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Professor Chukwuma Soludo, the Central Bank of Nigeria governor
is an ideas man. Apart from brewing ideas, he practicalises
them. When he came up with the idea of consolidation in Nigeria’s
banking industry, which required that banks raise their capital
base to N25billion, many called him the greatest joker of
the year. But Soludo was undaunted.
He pushed his idea forward despite the oppositions mounted
against it. Today, not only that banks operating in the country
have been capitalised up to N25billion, thy have equally consolidated
to 25, down from 89 before 2005.
Recently, the CBN governor came up again with yet another
idea, which he called Financial System Strategy 2020 (FSS2020),
on which he intends to position Nigeria among the top ranking
big economies of the world. Like before, sceptics are expressing
the usual pessimism on the workability of the idea, Soludo
said it is practicable and is going ahead with it.
He said, “After the history we made with consolidation
the whole world is waiting to see Nigeria placed firmly among
the league of the largest economies in the world.” Citing
the projections of professionals like the Goldman Sachs institution
and the publication of the BRIC Concept, he said that if Nigeria
can pull this through, through a series of strategies targeted
at various sectors of the financial system to bring it up-to-date
and at par with international best practices, it indeed can
join the league of top 10 largest economies in the world.
In this chat with Daily Sun, the governor
of the Central Bank, Soludo took time to expatiate on the
new idea and how it will transform the Nigerian economy.
The banking sector pre-consolidation
When I became the governor, it is a daily affair to be chasing
one bank here, running here and there, to catch a bank that
has committed one offence or the other. And that was what
the CBN was doing instead of facing its core mandate, but
since after the conclusion of the first phase of the consolidation
exercise, not anymore, this has given us the space to focus
90 per cent on what Central Bank everywhere in the world are
designed to do and that is to be monetary authority.
Banking sector supervision and regulation are important, but
with emphases shifting on risk base supervision of the N25
billion banks, to guarantee maximum return to the shareholders.
There were actually 13-point agenda, once the banks had the
N25billion everybody forgets about the other twelve. Beginning
from this year, we will no longer import one single bank note
into Nigeria. When we took over, Nigeria Security Miniting
and Printing Company was producing 1billion note in in over
ten years. Now it has produced more than N1billion for the
first time last year, and by the end of April this year, we
will have the capacity to produce 4 billion Naira note every
year, meeting all our demand and probably to the entire West
African region.
The capital market and the insurance sector are undergoing
reforms to increase shareholders returns. These sectors are
going through a concerted reform process, just like what happened
to the banking sector.
Post consolidation
The banking sector is the soundest and strongest that it has
ever been. Now, we have 25 strong and reliable banks, there
is no unsound bank today, so any bank that appeals to you,
work in there put in you money and you go to sleep.
Recently, somebody called me about 6am in the morning, I woke
up and returned the call, the person who picked it sounded
so unhappy, and told me someone gave me your number, and the
reason why I am calling is that I have N200,000 to put in
a bank and I wanted to find out which bank is the best.
I have walked into people who whisper to me that please I
have money in that bank, please just let me know if it is
secured.
This reminds me of my experience in Enugu, down in 1993, when
I was building my house, I went to my bank and said, listen,
I am just coming from abroad and worked so hard to make this
money and am building this house and I will be remitting money
into this account and just tell me, is this bank safe?, I
told him if this thing doesn’t work, I will be coming
to your house, so that you will give me my money back. So,
he said, okay to be honest with you, I will have to renew
my assurance every six months.
The first two largest banks in South Africa are now the size
of the 25 banks we have today, compared to 89 banks which
were just the size of the fourth largest bank in South Africa.
The performance of capital adequacy and liquidity is impressive
and the size of non-performing facility as a percentage of
total loan has actually declined dramatically. So, what is
there is that the system has never been sound as it is today,
and 20 out of 25 banks are part of the top 100 banks in Africa
and 17 out of top 40 are from Nigerian banks and furthermore,
4 out of the top 10 are Nigerian banks.
Growing banking industry
We expect that 20 out of the top 1,000 banks this year should
be from Africa, but there was none in 2003, Nigeria banking
industry is the fastest growing in Africa. There are now more
commercial banks branches than before the consolidation exercise.
Before consolidation, everybody was saying everything was
going to die, today the good news is that we now have more
bank branches than before the consolidation exercise.
Post consolidation, based on the experience of other economies,
banks will grow phenomenally, we are awaiting a survey to
find out what has happened to employment generation. I know
that several of the banks have been expanding their branches,
and as they are expanding branches, they are equally expanding
employment, so we are awaiting the survey, I said over the
medium to long term in terms of bank branches, and employment
generation, the banks will create more jobs, than pre-consolidation,
at least we are now sure today that the rate of growth of
branch network is faster than it has ever been.
It is not yet in the medium to long term, we are still in
the short term, and the rest of the world is beginning to
notice these phenomenal changes and the successes of our reform.
The recently issued Nigerian bonds were over subscribed; in
fact we had to temporarily suspend the issuance of new ones
because we had a huge reserve of hundreds of millions of dollars
worth of investment. Nigerian banks now partner with established
international financial institutions in the management of
foreign reserve, while some of our banks are in talks with
other international banks for further mergers and acquisitions.
Credit lines from international financial institutions into
Nigerian banks have increased in multiples of millions. On
their own, Nigerian banks are internalising, they are going
global, many of the west African countries are now witnessing
a surge in the entrance of Nigerian banks into their countries.
This is to show that Nigerian banks are now net exporter of
capital, they are establishing abroad. They should not be
discouraged because that comes with stringent controls from
the authorities in those countries.
As it is now, the news is that Nigerian banks are overrunning
other local banks in the West African sub region.
Some of these banks in other countries still have $8million
as capital base, while very soon Nigerian banks will be hitting
the $1billion mark, and several of them are already capitalised
up to $800million. So, if our banks have this amount and these
countries require just $8million to set up banks, that tells
you how far our banks have gone.
Political transition and the banking sector
Confidence in the financial sector is at an all high level,
despite the impending political transition and this is very
important, despite the fact that we are about to experience
another government change, people are talking about the sustainability
of these reforms. I can tell you this, the signal that we
are getting from the market, the behaviour of the economic
agents, the economic agents are working soundly and confidently
on the future of the Nigerian economy.
This is seen through their inflows of immense proportion into
the economy, this is despite the Niger Delta and next year’s
election, we still have FDI portfolios flowing heavily into
the economy. Return on investment in the Nigerian economy
is going to remain one of the highest in the emerging markets.
The investors are not stopping, they will go where the money
is and that is why they are coming to Nigeria.
I want to say that the Nigeria Stock Exchange has passed the
N5trillion capitalisation and is about 30 per cent of Nigeria’s
GDP, from about 20 per cent of the GDP only a year ago. You
can see the phenomenal growth in terms of capitalisation.
I want to say in spite of these improvements, we still have
a long way to go, because relative to our potentials, and
compared with the international benchmark, the road ahead
is still very long.
Overview of FSS2020
This is the reason we decided to have a sharp paradigm shift
and the time for this shift is now. This brings me to a quick
overview of the FSS2020; this is casting a new vision for
the financial sector. It all starts with a vision and a long-term
plan, mixed with courage and commitment to carry it through,
and you will get to your destination. The vision to be the
China of Africa and to be among the top largest 20 economies
in the world demands a strategic plan of action and a critical
driver for master plan must be the financial system.
Reforms
Reforms have been going on in various sub-sectors of the economy
in an adhoc manner and not in a systematic manner, comprehensive
reform programme is therefore needed to bring about synergy
and cost efficiency and this is the rational for the FSS2020.
Our vision is to make Nigeria Africa’s financial hub
and second to proactively develop a financial system that
will support Nigeria’s quest to be among the top 20
largest economies in the world.
It is the financial system that will be the lead agent of
change to achieve our economic objective. The key thing we
are trying to avoid is what happened to other dreams, and
that is, the new vision is owned by the people, the operators
and it is backed by implementable plan of action. We have
set out the guiding parameters.
Financial hub
We are not the largest economy on the African continent, South
Africa is the largest economy in Africa, Nigeria is probably
inching second after Egypt, but it has the potential to be
the largest in Africa, and that is why she needs to be the
dominant financial services provider in Africa for sustainable
economic transformation.
Usually a financial hub has larger financial service than
the requirement of the local economy. This is a defining characteristic
of most financial hub, they have more financial services than
requirement of the domestic economy. Nigeria today is a regional
growth pool for Africa. South Africa in the Southern and Eastern
part Africa, while Nigeria in the West and Central Africa.
Examples of hub, Honkong, London, New York, Tokyo, Dubai,
Zurich and the closest to us in Nigeria is Dubai, Zurich and
London. South Africa is a mini hub in Southern Africa and
there is no major financial hub in Africa as at now. Considering
the level of exploration going on in the Gulf of Guinea and
the reforms going on in Nigeria, leaves Nigeria at the most
advantage position to be the financial hub for the region.
The activities in the Gulf of Guinea and the exploration thereof
presents Nigeria with a new vista of opportunities, if Nigeria
does not take advantage of this opportunity, another nation
will certainly move in, it might be a tiny island. To be a
financial hub, you don’t have to have the capacity to
absorb all the services, you only become a hub to serve others.
And if Nigeria with a potentially large economy can become
a hub as New York or London. These are examples of next net
exporter of financial services.
As the Ghanaians are getting so ambitious to become the hub,
they are describing themselves as the gateway to Africa. If
they are the gateway, then Nigeria must be the destination.
So, we have no choice than to think proactively through this
emerging scenario in the Gulf of Guinea, the emerging oportunoities
in Africa and prospectively position Nigeria to be that hub.
Several countries have used the hub model to orchestrate the
development of their own economy, Dubai, Singapore and Honkong
are examples, their financial service capacity is much larger
than their respective domestic economy.
Some hubs grow organically out of natural needs, such as London
and New York, but in our own case we want a quantum leap,
we can’t wait to crawl just like we didn’t wait
to crawl and get our banking system up, we just want our banks
there and they are there. We have the advantage of location,
large economy, language, population advantage and skill to
be a financial hub.
BRIC Concept
We don’t have the luxury of waiting, the future and
current generation can’t wait. In terms of the economy,
Nigeria has everything to be there, if you read various papers
like the Bric Concept (British, Russia, India and China),
and their potential to be the next world economic power house
and what they called the N11 with Nigeria being identified
as one of the key economies in the world.
The paper projected that by 2025, Nigeria will be among the
top 20 economies in the world. But the base end of the calculation
is at a much lower base, they calculated our GDP for 2005
as $93billion, whereas it is at $105billion. They assumed
a growth rate of 5.1 per cent whereas over the previous three
years the economy has been growing at 7.4 per cent. So, using
our own figures to project, 2025 might be too further of,
we can actually make history by 2020.
Nigerian Economy
Currently, the Nigerian economy is about 80 per cent of the
ECOWAS economy, Nigeria has the largest gas reserve in the
world, we have the highest rate of return on investment in
Africa presently. A stable local currency backed by a high
reserve, growing financial sector, Telecom is growing at about
30per cent, today we are the world’s largest producer
of Cassava. Our banking system is the fastest growing in Africa,
using the banker’s magazine ranking and the growth of
the capital market. This has made the world to notice Nigeria,
most of this statistics is in the Financial Times of London.
About 50 per cent of our arable land is lying fallow, and
Nigeria can feed the rest of Africa, given the growth potentials
in China and India, Nigeria must begin to think about exporting
to China, these growth parameters can make Nigeria growth
at a rate of 250 per cen per annum. We have large untapped
human and material resources. The 70 million Nigerians in
Diaspora, making remittances of about $4biilion per annum,
for developing economies in the world.
The Diaspora happens to be a major source of finance for growth,
about 50 per cent of FDI into China in recent years, came
from ethnic Chinese in the Diaspora, it is the same for the
Indians. The ICT village in India is powered predominantly
by the Diaspora.
CBN Act and AFC
The key pillar is the quantum size of our external reserve,
if the NASS amends the relevant section of the CBN Act, we
will be able to lend up to 5 per cent of our reserve to development
finance institution for onward lending for infrastructure
development projects. Our level of reserve could finance up
to 24 months of imports. If that amendment comes through today,
we can lend up more than $2billion to the AFC, for onward
lending to finance infrastructure. The Nigerian banking system
is growing rapidly and let me share with you, in the article
in the FT of London, Nigerian banks are now capitalise to
between $1-$3billion now, this is the value of the capitalisation
of Nigerian banks, 12 months ago it was only one bank, now
we have about six banks, and more than 10banks are expected
to reach $5billion by the end of 2007.
There is a forecast for the profit of Nigerian banks for 2007,
to be above 200 per cent. If you look at this indicators,
Nigeria stock exchange is projected to hit $100billion capitalisation
by the end of 2008, up from about $40billion in 2005. According
to top African 40 index, starting from a low base, Nigeria
alone has the momentum, resources and growth potential to
the first rung of emerging market economy.
Relative to Africa, no other country is making the same quantum
leap like Nigeria, even though South Africa is ahead in all
sectors, their capital market is capitalised to about 235
per cent of their GDP as against Nigeria’s 30 per cent.
But in terms of speed, Nigeria is the fastest growing, it
is this kind of fundamentals that projected Nigeria ahead
of South Africa and Egypt as the only African country to be
in the top 20 largest economies and by 2050. Goldman Sachs
also predicts that Nigeria will be the 12th largest economy
in the world ahead of Italy, Canada and others.
Economic and Financial System
The relationship between the financial and economic system
is interdependent. That is why the strategy must involve two-speed
approach, one strategy is to continue to enlarge the domestic
economy, second one is to proactively develop the financial
system. This brings in the NEEDS II agenda; we need to tinker
with the various sectors, like the education, power and others.
For this plan to work, it must derive from the manifesto of
the ruling party, this is to move away from the mistake of
the past, people draw plans without involving politics in
policy formulation, every policy must be built on the manifesto
of the ruling party. We are making suggestion to the next
government, it is left to them to take it or modify it or
build on it. On thing is clear, every candidate running for
the presidency of Nigeria, sings the mantra of NEEDS, even
some one who said he will reform the reform, it is the same
as saying we are going to be reforming continually.
NEEDS II
NEEDS II, is trying to build on the achievements of NEEDS
I, and move on to the next frontier, so, everybody agreed
that they will be reforming and if we continue to do this
and enlarge the African economy open space, build on regional
integration. Integration into the global economy and the financial
system by negotiating the economic partnership agreement with
Europe, free trade agreement with EU, US and others. This
will enlarge our market and plunge it into the global market
arena.
Institutional reforms
We need legal institutional reforms, all this and many more
of the reforms in the security, education and other sector
will definitely push this economy into its rightful place.
it is pertinent to reform the macroeconomic reforms to deepen
the economy, on the financial system itself, we must continue
with compliance with Basel principle, harmonize bond issuance
so that we can begin to have a single yield curve, the legal
institution and regulatory reforms must be on the top of our
agenda to avoid over regulation. We must ensure better coordination
among the regulatory agencies we must have commercial courts
to ensure speedy adjudication of justice especially for commercial
transactions. Mortgage system needs a regulation and eventually
we might a financial services regulatory agency.
The financial services regulatory agency will have oversight
functions on all financial services institutions in the country.
Under the West African monetary Union, the second monetary
zone we propose to have the West African Financial Services
Authority (WAFSA), this is in the making.
The integration of West African and African financial services,
needs the harmonization of all regulatory issues. This will
enable the opening of African borders to finanacial services,
I wish my Central bank colleagues in th rest of Africa would
agree. That we should have an open borders if we can meet
the requirements, or have a central licensing agency for financial
services institution in Africa, in no time Nigerian banks
will bee dotting the African landscape.
In terms of distribution of financial services institutions
the number one is actually Lagos. Lagos has about 30 per cent
concentration of banks branches, it has the headquarters of
most of the financial services industry. It accounts for about
50 per cent of banks deposit and account for nearly 70 per
cent of all the loans. After Lagos, Abuja then followed y
Rivers, Anambra, Delta, and others.
Strategy
The vision is to make Nigeria the safest and strongest financial
system in Africa. The FSS2020 is to catalyze Nigerian economic
growth. Our strategic objective is to build the best pool
base of financial work force with high financial penetration
in Africa. Nigeria is at the threshold of history, and to
move into this next stage, Lagos state is strategic to the
next stage of development.
A financial system be characterised by transparency and good
corporate governance. February next year we are going to organise
an international financial conference where we are going to
examine the draft report by all financial stakeholders in
Nigeria and abroad. Our approach is to develop a market that
will align with global development strategies.
For the vision to become realistic, we need to designate a
specific place as a financial services centre.
Financial services centre
Is it the old broad street? Who would ever drive through that
area. Is Lagos as a financial centre dying? I want to say,
we must think carefully on what it will take Lagos to be not
just the financial centre and economic capital but an international
financial hub.
The Federal government must take the renewal and redevelopment
of Lagos as a major mega city as a national assignment. If
Lagos does not work our quest to becoming an international
centre, to become one of the 20 largest economy in the world,
and being the economic capital of Nigeria. If Lagos does not
work efficiently and competitively as an international economic
centre our dream, our vision cannot come true.
Lagos cannot and should not continue to be the affairs of
Lagos state government alone. It must be the affairs of all
Nigerians because it is the gateway to the national economy.
Lagos must work. We must coordinate the process of enacting
relevant legislation to evolve a new economy.
If we can get the FSS2020 right, Nigeria truly will become
the China of Africa, we have individual capacity that exits
within the economy that can make the FSS vision work. Nigeria
have the abundant resources, the master plan and the courage
to get there, it gives me hope and confidence that as I look
into the future, I want to tell Nigerians you aren’t
seen nothing yet.
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