Financial Sector Strategy (FSS) 2020

There was a big gathering in Abuja last month-from 18th to 20th June-discussing the Central Bank of Nigeria’s (CBN) vision of making the Nigerian Financial System the driver and catalyst of the country’s emergence as one of the top 20 global economies by the year 2020. This “dream” aptly titled FSS 2020 seeks to create an integrated, vibrant and robust financial services industry that can power the Nigerian economy into becoming the fastest growing in the world and that can propel the rest of Africa along with it. FSS 2020’s explicitly articulates a vision “To be the safest and fastest growing financial system amongst emerging markets” and its mission is “To drive rapid and sustainable economic growth primarily in Nigeria and Africa”.

In order to achieve these goals, FSS 2020 outlines three main objectives that must be achieved-strengthening domestic financial markets; enhancing integration with external financial markets and building an international financial centre. In order to strengthen national financial markets, FSS 2020 will develop internal capacity; develop varied products; encourage diversified markets; enhance payment processes; improve access to finance; develop credit systems; and encourage savings. To achieve integration with external markets, the strategy seeks to export brands & skills; maintain macroeconomic stability and healthy foreign reserves; integrate with major external markets; stabilize foreign exchange rates; attract FDI; assist in unifying trade and commercial laws within ECOWAS and AU; and encourage entrance of international financial institutions.

Building an International Financial Centre (IFC) will require the establishment of a Financial Free Zone; pursuing Naira convertibility and capital account liberalization; fostering open markets and entrenching the rule of law. It also entails creating a pool of knowledgeable and skilled personnel; providing world-class communication and technology infrastructure; growing the local market by integrating West Africa; creating sophisticated market operations; creating world-class legal and regulatory frameworks and practices; permitting 100% foreign ownership; instituting an internationally competitive tax regime; and developing the IFC (called the Lekki Financial Corridor (LFC)) in the Lekki Peninsula area of Lagos in terms of infrastructure, governance and physical beauty into a city spectacle.

The whole strategy appears motivated by the Goldman Sachs classification of Nigeria as one of the Next-11 (N-11) countries which will be the next breakthrough economies after the BRICs (Brazil, Russia, India and China). Indeed the CBN Governor, Chukwuma Soludo’s presentation at the Conference said that “after the BRICs, there is the next 11 or N11 countries, which have the potential to be ‘BRIC like’ in the future as identified by Goldman Sachs one of which is Nigeria. Goldman Sachs believes that only 2 countries in Africa will overtake Italy in GDP size by 2015 i.e. Nigeria and Egypt. For Nigeria to achieve this feat and its aim of being part of the 20 largest economies by 2020, she must maintain an annual average growth rate of 12.4% over the next 15 years…”

The objective is to build on the successful banking consolidation and economic reforms of the Obasanjo years but recognizes significant challenges including sustaining macroeconomic stability, deepening the financial system, evolving appropriate regulations and laws, addressing infrastructural deficiency especially as regards power & roads, corruption, shortage of skills and competences, corporate governance and risk management, and narrow and shallow financial markets. The strategy will be implemented in three phases-Phase 1 (June 2007 – December 2012) involves review and updating of the legal framework, commencing the physical development of the LFC and implementing the technology and human capital initiatives.

Phase 2 (January 2013 – December 2016) is expected to lead to emergence of global brands & world class players, integration of African financial markets & regulatory environment while development of the LFC would continue. The final phase, (January 2017 – December 2020) is projected to lead to emergence of a world class financial services industry. The proposed implementation structure is a corporation, tentatively called the FSS2020 Corporation. The corporation’s governance structure and “lines of business” include divisions devoted to infrastructural development and management, marketing and business development, markets and segments, technology and human capital, and performance management. Three other divisions dedicated to external, community and media relations are also proposed.

This column has taken time to review all the presentations made by Professor Soludo and other speakers at the conference and is convinced that the vision encapsulated in FSS 2020 is laudable and attainable, even if bold and audacious. Indeed I argue in my business environment classes that Nigeria in the late 1960s and 1970s was an incipient international financial centre. We had many of the global financial brands-Chase Manhattan, Barclays, Citibank, Bank of America-later Savannah Bank(!), Standard Chartered Bank, First National Bank of Chicago, Bank of Boston, Societe Generale Bank and others-in Nigeria. French, American and Italian Banks had equity in the old UBA and IBWA (Afribank) had its roots in France as well. That developing financial centre was destroyed by the indigenization and nationalization policy implemented in the wake of the oil boom and the “commanding heights” philosophy and “bureaucratic prebendalism” (apologies to Richard Joseph) mind set which it fostered.

There are other issues that will have to be addressed as CBN and the banks implement FSS 2020-what will be the future role of the CBN itself-a financial services regulator (like the UK Financial Services Authority-FSA) or an economy manager concerned with price stability (like the Bank of England or US Federal Reserve) or both as it currently is?-the broader question is of course about the structure of legal and regulatory systems; how will issues of ethics and corporate governance in the industry be addressed?; how will capacity and transparency issues in securities pricing and trading be redressed?; how will potential impediments-infrastructure, security, financial crimes (fraud, “419” and internet fraud for instance) and corruption, power and communications, and federal/state co-ordination-be removed? On a final note, it does appear that most of the strategic thinking in Nigeria’s financial services is been done not by the operators, but by the regulator while the banks are carrying out homogenous activities dictated by regulator-designed strategies and competing on quantum of capital and execution. Didn’t Michael Porter say that strategy is essentially about uniqueness? Or is the industry passing through a standardization phase in which it is more important strategically to be compatible and compliant rather than differentiated?