In a year when violence in the Niger delta shut down a fifth of its oil production, nearly one in 10 babies died before their first birthday, and while Nigeria maintained its position as one of the most corrupt countries in the world, Charles Soludo provided cause for optimism.
Foreign investors and multilaterals alike are impressed with the central bank governor’s rapid consolidation and clean-up of Nigeria’s banks, and the relaxation of restrictions on foreign exchange transactions that have helped keep a lid on inflation. Nigeria achieved its first sovereign credit rating, BB-, in February.
“The first phase of financial consolidation has come to an end … in a textbook fashion and without any distress to the financial system,” Soludo tells Emerging Markets. “Literally everything we set out to accomplish we accomplished.”
Soludo has been in the job since May 2004. After raising capital requirements from 25 million naira to 2 billion naira, Nigeria’s 89 banks were forced into a series of mergers. Now there are 25, and the total industry capitalization has more than doubled, as assets, deposits and earnings grow. More consolidation is underway with the merger of FirstBank and Ecobank to form a $5.5 billion bank operating across West Africa. “We have a vision of running Nigeria into Africa’s financial hub,” he says.
The next phase of reform will concentrate on raising standards of corporate governance in the industry, and addressing the skills shortage as Nigerian banks do more business electronically. A code of conduct for workers in the sector has been updated, and “no infraction will be tolerated”. This transformation of Nigeria’s financial system was recognized when it was removed from the Financial Action Task Force money-laundering list.
A new rule requiring all foreign fund managers who want to trade Nigeria’s reserves to do so in partnership with a local bank, has been “quite fundamental in helping to fast track Nigeria’s integration into the global financial system.”
Maintaining macroeconomic stability and developing a credible financial system in sub-Saharan Africa’s biggest country is no easy task. Nigeria has 35.9 billion barrels of proven oil reserves, placing it tenth in the world, but two-thirds of its 131.5 million people do not have a bank account.
New regulations to encourage the growth of microfinance banks are high up on Soludo’s agenda for the coming year. He is also keenly aware of the need to use Nigeria’s massive oil windfall to invest in poverty reduction. Although it is a “humungous challenge” to maintain price stability with the massive fiscal expansion that is central to the National Economic Empowerment and Development Strategy (Needs), inflation is now heading downwards. “We could be even more expansionary before the end of the year,” he says.
Soludo was appointed professor of economics at Nigeria University in 1998. His first government job in Nigeria was in 2003, as head of the National Planning Commission, which prepared the home-grown economic reform programme Needs. —Maria Ahmed