Nigeria has shown remarkable economic growth, and for over a decade has been featured among the fastest growing economies in the world. It has critical mass with 167 million people, it is the 8th largest producer of crude oil in the world and has substantial gas reserves. However, a lot still needs to be done to enable the country to become one of the top twenty global economies by 2020.
A healthy and well-functioning banking sector is one critical building block towards sustaining and accelerating growth in Nigeria. The banking sector is a major source of short to medium-term funds, and has actively contributed to economic development in Nigeria. No business can succeed without access to adequate working capital and only the banking system can fill this gap. Our response to the impact of the global economic crisis in 2009 was therefore not only a test of our commitment more generally to creating an environment in Nigeria that is conducive to private investment, but more specifically, to ensure that the productive sector has access to this critical source of funding.
Nigeria was not hit by the first effects of the world financial crisis - it was more the secondary effects such as the crash in oil prices. When I took over as governor of Nigeria’s central bank in 2009, we had huge macro-economic issues.
A significant part of the banking system was on the point of collapse. We did a proper examination of the bank’s books and we found out that 10 banks were short of capital. We stepped in, removed the management of those banks and discovered there was margin trading and also outright theft, with money having been taken out of the country with no intention of it ever being paid back.
So we had to set up an asset management corporation to recapitalise the banks and we recovered 200 pieces of real estate in Dubai, Johannesburg and four private jets. It’s extremely easy to run a bad bank for a very long time - until there is an external shock. And the financial crisis brought out years and years of fraud that had been covered up in these institutions.
But it’s important to put the Nigerian experience in context. First, fraud and corruption was not endemic; it was a tiny minority of Nigeria’s banking community that was guilty. Furthermore, Nigerian bankers, as a whole, agreed to place 0.3% of their balance sheets into a special account to fund 66% of the banking bailout - unlike in many countries where the taxpayer bore the brunt of the financial cost.
We had a crisis, and we fixed it. We have done everything that the British and Americans are still talking about. We are one of the few if not the only country to hold the industry to account for what it did. We have held people responsible, we have broken up universal banking, we forced bank CEOs to leave office after 10 years, we have compelled them to adopt IFRS, embrace the Basel III Accord, and overall we have improved governance and risk management. No one can point the finger at the Nigerian banking industry - we have shown others how it can be done.
As we look forward though, the real challenge is lessening our dependence on government as the major driver of the economy. Until we move away from this and hand more of this activity to the private sector there will remain opportunities for corruption. Ultimately, like all countries, we need a civil society that holds politicians to account. That is when government knows it has to deliver.
Central Bank of Nigeria governor, Sanusi Lamido Sanusi, is widely credited with establishing a foundation for an environment where business can thrive in Nigeria. He has won numerous accolades for spearheading reforms in Nigeria's banking sector, including being named the top central bank governor in the world by Banker magazine, Forbes magazine’s Africa Person of the Year, and one of Time magazine’s 100 most influential people in the world in 2011.
The article is republished with permission from professional services firm, Ernst & Young. The firm recently launched its 2012 Africa Attractiveness Survey.