Nigeria’s 21 domestic banks are not content to stay within their borders. Many hold the explicit ambition of becoming regionally and even globally relevant banks. Already, a handful have made bold moves into other west and central African countries – and some banks have gone further a field.
The expansion of Nigerian banks into the region is giving momentum to the long-held vision of economic integration in west Africa. That the banks are treading where politicians’ diplomatic efforts have so far yielded little progress is testament to the energy of Nigerian private enterprise.
A great deal of political effort has been poured into a long-dreamed-of integration of the economies of the 15 member countries of the Economic Community of West African States (Ecowas) through free trade and a common monetary area. Last year, the member countries agreed to the free flow of goods by 2007 – a deadline that is cautiously being given a better chance of realisation than countless previous ones since Ecowas was formed in 1975.
Monetary union is another policy priority, although a more difficult one. Eight mainly francophone west African countries already have a well-established monetary union in the form of the CFA franc, which is pegged to the euro, with centralised monetary policy set by the Central Bank of West African States (a separate CFA currency is in circulation in six central African countries). The anglophone west African countries, including Nigeria and Ghana, have been planning to create their own common monetary area to merge with the CFA region.
Dreams delayed
However, the plans have been beset with delays: integration has steadily been postponed and the latest date set for the launch of the eco (as the currency is to be known) is December 2009. A much-vaunted deadline of 2005 came and went. Integration has been delayed by clashing interests of member countries and, not least, Maastricht-modelled convergence criteria that many members are far from meeting.
The CFA zone provides for an open banking market: a bank in one member country can open branches across the zone. Such a model is mooted for the envisioned unified west African zone, complete with a single central bank and centralised bank supervision.
Nigeria’s banks are not holding out for that tenuous vision, however. Three have recently set up shop in Ghana. GT Bank began operations there in May last year, Zenith Bank opened up a few months later and Intercontinental has begun branch operations there this year. With an economy an eighth of the size of Nigeria’s and a population a seventh of the size, Ghana is nevertheless the second most important economy in the region and punches above its weight in regional economic sway.
With Nigeria under the rule of a sequence of military governments until 1999, Ghana has had more practice as a democracy and more economic stability. While it, too, has encountered military regimes in the past, it has had a stable democracy since 1992 and had a generally sound economic policy during the decade before that. Ghana and Nigeria have historical links as former British colonies, although the francophone countries of Benin and Togo separate their coastlines on the Gulf of Guinea.
Limited expansion
Outside of Ghana, Nigerian regional banking interests are even more limited. GT Bank has three-year-old banks in Gambia and Sierra Leone and plans to open in more west African countries. First Bank, Nigeria’s biggest, has a subsidiary bank in London – the only Nigerian bank to have a developed market subsidiary – and a representative office in Johannesburg. Other Nigerian banks, particularly Intercontinental, have said they are working on plans to open in London, New York and Johannesburg.
An example to follow
First Bank could soon open up new front for regional banking through its planned merger with Ecobank. Ecobank has operations in 13 west and central African countries with a total of 109 branches. Its Ghana operation is the biggest group contributor and its Nigeria operation is not far behind. Begun in 1985, it now has $2bn in assets with the controlling company, Ecobank Transnational Incorporated (ETI), which is headquartered in Lomé, Togo. The bank is unique in straddling the currency and linguistic divide between the CFA region and the rest of west Africa.
The complex merger between Ecobank and First Bank is expected to be completed by September. The first step will be for First Bank to buy out Ecobank’s Nigerian subsidiary through a share issue to ETI. ETI will then do a scrip issue to First Bank to purchase its operations. That scrip will be distributed to First’s shareholders. First Bank will eventually account for just less than half of the combined bank, with its shareholders forming the biggest block in ETI, says First Bank’s retail director Remi Babalola. The combined bank will dominate the region: it will be the largest bank in Nigeria and will have a significant presence in 12 other west African markets, serving as a model for private sector regional spread.
Pan-regional banking
There is already pan-regional banking of sorts, driven by foreign banking majors. Standard Chartered operates in Cameroon, Côte d’Ivoire and Gambia as well as Nigeria. Citigroup is present in Cameroon, Gabon, Ghana, Côte d’Ivoire, Senegal and Nigeria. South Africa’s Standard Bank has operations in both Nigeria and Ghana. Barclays has a bank in Ghana and a representative office in Nigeria. Such regional networks map onto the west African operations of multinationals such as Unilever and Cadbury Schweppes. The foreign banks can act on both sides of trade arrangements and rest on mutual home bases.
African-grown banks have found it difficult to challenge the foreign banking majors on the continent. With Africa so reliant on foreign direct investment and trade with the developed world, banks that can grow alongside their home clients into Africa have an obvious business case. South Africa’s banks, which have developed a strong taste for African expansion in the past decade, have benefited hugely from the expansion of their home clients into the rest of the continent. South African businesses are generally thought to have replaced those of colonial-era powers as the biggest foreign direct investors into the continent, particularly in the southern African region.
The client trail
Yet Nigeria’s banks, as the regional giants, have little by way of home-grown companies to follow into the rest of the region. GT Bank, for example, has set its three west African subsidiaries up as banks in which it can replicate Nigerian services and products, but with little business from Nigerian clients. In many ways, the banks are constrained by the regional growth of Nigeria’s private sector, which is almost non-existent. Ninety per cent of Nigeria’s export earnings come from oil sold to the developed world while most of its imports come from Europe and China, according to official trade figures.
The World Bank estimates that only 10% of official trade in west African countries is intraregional. Of that, the CFA-member countries account for the majority. The anglophone countries are much more inclined to trade with the developed world than with their neighbours. However, the migration of people in the region is thought to drive significant invisible trade.
Nigeria has a critical role in driving the regional integration process – it has half the region’s population and 60% to 70% of the GDP. The country is partly to blame for the slow progress of integration under Ecowas. It was a founding member in 1975 and Ecowas is headquartered in its capital city, Lagos, yet its economic dominance combined with political instability has discouraged other member states from subsuming to its influence willingly.
Integration champion
Since the advent of democracy in 1999, that attitude has changed. Nigeria’s president, Olusegun Obasanjo, has become the long-needed political champion for integration. He and his regional counterparts are being helped by a raft of multilateral institutions, particularly the World Bank, which has a dedicated regional integration project. Major state-led regional infrastructure projects, such as the West African Gas Pipeline extending from Nigeria’s Delta region to Ghana, are the first step towards a real shared economic interdependence.
Nigerian banks’ regional ambitions will remain modest until the political momentum for freer regional trade translates into firm regional policy and infrastructure. The private sector still complains about weak regional transport links and border posts often operated like private toll booths. Those are more obvious than the problems of official trade barriers and incompatible legal and tax systems in the region, let alone banking requirements, such as regional clearing arrangements.
Integration to the level that will allow regional economies to take off lies many years ahead. And even if politicians succeed in creating the right environment for companies to spread across the region, Nigerian banks will face tough competition from the foreign-owned regional players.
