International financial centre laudable but macro indicators worrying

It will take more than setting up an international financial centre for Nigeria to position Africa’s largest economy as an investment hub and attract badly-needed foreign investments, according to analysts surveyed by BusinessDay.

The Central Bank of Nigeria (CBN) is planning to set up an International Financial Centre (NIFC) in the next 12 months that will act as an international gateway for capital and investment. This will be driven by a technology payment system infrastructure and will enable local banks to become global champions, according to Godwin Emefiele, the CBN governor.

While analysts say the move by the CBN to set up an international financial centre is laudable, they pointed out that the country must address challenges with sustainable GDP growth, ease of doing business, market stability, infrastructure, security and stable FX environment to be conducive as an international financial centre and lure investments.

Abiodun Keripe, managing director, Afrinvest Research and Consulting, says the main thing that drives foreign inflows into the Nigerian economy is the quality of the macro fundamentals.

“While it might be laudable that the CBN is tinkering around initiative that can be used to attract inflows, the mind of foreign investors who are looking at bringing in their funds is premised on stability of macroeconomic and political environment, issues of security, ease of doing business, FX policy,” Keripe states.

“If we are unable to sort out these issues, I am not so sure as to how much of dividend the international financial centre would be able to attract for the Nigerian economy in terms of funds,” he says.

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Emefiele, who reeled out the benefits of the Centre while addressing journalists, said, “Indeed, we have started to receive interest from private sector companies that are saying they have some land that can be designated as the free trade area, some with NIRSAL, we have some in Abuja, some in Lagos and some other parts.

“We are going to think about which one is efficient, which one is better that will serve Nigerians and the international community, which the centre is meant to serve, and they would find it easy, expedient and better for them to operate as a business that is operating outside Nigeria even though they are cited within Nigeria.

“What that does is that it helps to improve economic activity in the country and helps to boost flows of foreign investment into the country. We think that there are tremendous benefits in this project.”

To consolidate on the growth and resilience of Nigerian banks in the last decade, Emefiele said in the next 12 months the nation would be establishing The Nigerian International Financial Centre (NIFC). This new financial hub will curate local and international banks to make them global champions.

For Ayo Teriba, CEO of Economic Associates, “You can’t launch an international financial centre. You can aspire to have it. If you search global financial centres, you will see that the world now ranks major cities as global financial centres. So, you can attain or say Nigeria aspires to have one or more global finance centres in Nigeria.

“But you cannot pick a date on when that will happen. And it is not going to be up to the CBN governor but to the people who have the money to bring it into Nigeria, then Nigeria will become a financial hub.

“For example, South Africa has two global financial centres; UAE has two financial centres, recognised by the world not proclaimed by their governors of Central Bank where you have deep financial markets. It is a centre that people look up to raise money. So, Nigeria has none.

“If you Google the Global Financial Index, you will see the criteria that countries have to meet. So, I think we should be talking more about what Nigeria is doing to meet those criteria.”

Commenting, Ayodele Akinwunmi, senior relationship manager, corporate banking group, FSDH Merchant Bank, says there is a positive correlation between the depth of the financial system and economic growth.

“It will deepen the financial system, more products will be created, more investment will come, foreign flows will come and a lot of assets will be created and it will stimulate more economic activities. But for this to be done, you need to have the right infrastructure in place,” he states.

Moses Ojo, a Lagos-based economic analyst, also says countries that have financial muscle in different regions of the world all have international financial centres. So, that is what the CBN is trying to replicate here in Nigeria. It is going to really help Nigeria by improving the FDI investment into the country and it is going to improve the GDP of the country, among others.

Johnson Chukwu, CEO, Cowry Asset Management Limited, says the financial centre will further open up the economy for investments because it will attract both funders and those sourcing for funds.

“It is basically a meeting point, a market for both users and provider of funds,” Chukwu says.

“If we succeed, it then means we are going to have a lot of financial intermediaries that will want to set up offices in Nigeria, such as interns’ stock brokers, asset managers, insurance brokers, including service providers for such transactions. There will be a heightened flow of capital through Nigeria and that could help us push for convertibility of our local currency.

“But the challenges are whether we will have supporting infrastructure that will enable that centre. From the physical infrastructure for instance, you are going to see traffic of businesses, like investment bankers, brokers come into Nigeria,” he states.

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