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AfricaApril 1 2007

A legacy worth fighting for

Economic reform is transforming Nigeria, not least in the banking sector, but will the programme survive a change of government? Neil Tyler reports.
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In 1999, Nigeria emerged from years of military rule and economic mismanagement with the restoration of civilian rule. At the end of May this year, president Olusegun Obasanjo will be leaving office after an eventful eight years. It will be the first democratic transfer from one civilian administration to another in Nigerian history but, with the country’s electoral commission blocking vice-president Atiku Abubakar from contesting the coming elections, there is still a chance that a distracting and messy legal battle could undermine any transfer of power.

Whatever the outcome, though, in the past eight years there has been democratic governance in which the administration has worked hard to reform Nigeria. Economic policy in the form of the country’s National Economic Empowerment and Development Strategy (NEEDS) has sought to implement a reform programme that has included fiscal reform, greater transparency, measures to counter widespread corruption, investment in badly needed infrastructure and the opening up of opportunities for the private sector.

On the way up

Research by Goldman Sachs suggests that Nigeria, the most populous nation in Africa, can now sustain growth rates of between 5% and 7% over the next 40 years, which if achieved would place the economy in the world’s top 20 by 2025.

Mr Obasanjo’s economic reforms have won plaudits from around the world and the country’s central bank, under the astute leadership of Chukwuma Soludo, has never looked more professional.

The successful consolidation of the banking sector has brought about the transformation of the banking industry, which in turn looks as though it will help to support wider economic reform. “We have 25 strong and reliable banks, without one single unsound or questionable bank. It is the soundest the sector has ever been,” says Mr Soludo.

Credibility won

Although Mr Soludo is confident enough to brush aside worries that the reforms may peter out when Mr Obasanjo leaves office, there are concerns that reform may have been dependent on one administration and that the commitment of all political parties will be necessary to continue it. In the past few years, the programme has won credibility and respect from the international community.

Economic reforms have not come without a price, however. They have brought with them a number of problems for the Nigerian economy, from worsening unemployment to rising prices, as well as a host of unsettling changes to key institutions such as the banking sector.

What are the challenges and opportunities for Nigeria’s banking sector? Although the number of institutions may be fewer, there is plenty of activity in the industry. Managers are more aggressive, and have seized on the consolidation process. They are using it as a catalyst to develop the whole sector. Capital is being raised on the back of the newly merged banks and some of it is being invested in staff and new technology platforms. Most Nigerian banks are even now planning to extend their regional presence.

Aigboje Aig-Imoukhuede, managing director at Access Bank, suggests: “All we need is continued peace and good governance. We have all the conditions necessary to compete with the developed countries.”

Real gains still to come

Nigeria is a key market in Africa, ranking alongside Egypt and South Africa, and the impending election will provide a bellwether of whether the reform programme will continue. People are looking for substantial improvements and, although the results of macroeconomic reform are not always able to bear fruit quickly enough for the economy as a whole, as is often the case, it is vital that these reforms are not abandoned before real gains become apparent.

Nigeria’s economic future is critical to the fate of all of west Africa; and what happens there will matter not only to Nigerians, but also to the whole of Africa.

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Read more about:  Africa , Nigeria