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com or firstname.lastname@example.org 1.0 WHAT IS AN INTERNATIONAL FINANCIAL CENTRE? There are many dimensions to an International Financial Centre, with various factors integrating to provide the necessary infrastructure to support international financial business. Characteristics of an International Financial Centre include: • • A centre from which international financial business can be conducted profitably, easily and efficiently. A centre with skilled management and intellectual talent covering finance and interdependent services such as legal and accounting, to provide multi-disciplined teams that facilitate large cross borders transactions in the shortest possible time frame. •
A centre with deep liquid and sophisticated capital market and world competitive tax and regulatory regimes with foreign investment and offshore business flow. A centre that can add significant value to financial services provided from it, through a workforce that can respond in an innovative manner. A centre with the World’s best telecommunications and IT capacity and a plentiful, well educated, multilingual workforce. A centre where all facets of financial services: CEOs senior traders, regional headquarters, treasury operations, data processing, support functions and call centers, can be located efficiently.
The role of a financial system is to promote economic wellbeing through financial intermediation, i.e., the channeling of savings into investment, and the provision of financial infrastructure for effecting financial transactions. In promoting the effective performance of this role by the financial system, the Government should adopt a free market approach and keep its involvement in the financial system to the minimum, except where the private interests of financial market
Foluso Akinsola University of Lagos, Department of Economics
Policies concerning the regulatory regime should aim to provide a regulatory framework that promotes the stability of the financial system. The Government should formulate specific policies to promote the efficient functioning of the financial system in the following manner a. An international financial centre is a place where financial institutions from many different jurisdictions come together to carry out financial intermediation of an international dimension. and (iv)strengthen corporate governance standards with a view to fostering international confidence in our financial markets. fair and efficient market. Department of Economics . or where the infrastructure is a public good that it may not be possible or appropriate to provide through the market. 2 Foluso Akinsola University of Lagos. Policies concerning financial intermediation should aim to promote the stability. (ii) enhance the international competitiveness of Nigeria’s financial services through promoting international financial intermediation and attracting foreign savings to Nigeria. Towards this end. increase efficiency and enhance market transparency and liquidity. the Government should (i) maintain an appropriate economic and legal environment for an open. provides an appropriate measure of protection to users of financial services and facilitates competition. integrity. The Government through the Central Bank of Nigeria should enhance policies that will pave way for Nigeria financial sector to metamorphosis into an international financial centre.participants do not align with the public interests. and is consistent with the standards and practices of major international financial centers. (iii) develop payment. clearing and settlement systems to facilitate the safe and efficient conduct of international and cross-border financial activities in Nigeria. diversity and efficiency of the financial system. b. for reasons of competitive fairness or commercial viability. thus supporting the safety and soundness of the financial system. Policies concerning financial infrastructure should aim to mitigate risks. c.
We categorise IFCs in four ways. In this increasingly globalized world.e. sound and stable that would facilitate the economic transformation process. Frankfurt. Non-global and non-regional. as global players and technology advancements are having an unprecedented impact on the approach of banking and financial businesses. Regional (RFCs) :they serve their regional rather than their national economies examples of such Dubai. While opportunities have emerged in this new environment. that are increasingly more efficient. 2. it is vital for the financial system. Against this background. Hong Kong. and has a core of strong and forward looking domestic financial institutions that are more technology driven and ready to face the challenges of liberalization and globalization. the future of the financial system lies in its ability to create a dynamic set of financial players. threats of the global marketplace are becoming more intensive. i. particularly the domestic financial institutions to be 3 Foluso Akinsola University of Lagos.0 VISION AND OBJECTIVES OF AN INTERNATIONAL FINANCIAL CENTRE (IFC) A well-diversified and competitive financial system is vital for the long-term economic growth and development to ensure that risks in the economy are well distributed among the various subsectors. Tokyo and Sydney that provide a wide range of IFS but cater mainly to the needs of their national economies rather than their regions or the world – one might be to call them national IFCs although that term is an awkward one because its two defining adjectives are contradictory. Department of Economics . and Offshore (OFCs) These are centers that are primarily tax havens for wealth management and global tax management rather than providing the full array of IFS. The goal of the monetary authority in Nigeria should be geared towards developing a more resilient. ordinary international IFCs :These are centers like Paris. and more importantly. as: Global (GFCs ): These are centers that genuinely serve clients from all over the world in the provision of the widest possible array of IFS. competitive and dynamic financial system with best practices. competitive. that supports and contributes positively to the growth of the economy through the economic cycle. which are able to provide the support to the domestic economy.
investors. and leveraging on world-class skills. highly differentiated financial products which are tailored to meet specific demands of the consumers and the corporate sector. the vision is for the development of a well-diversified financial sector that is defined based on five main characteristics.2 Effectiveness The availability of a broad range of products and services is essential to meet the needs of customers that can be expected to be increasingly more demanding and sophisticated. procurement and other back-office functions. innovation and improved services will be introduced through the existence of innovative players and a more conducive operational environment. liberalized and a more complex domestic economy. While Nigerian institutions do offer basic banking and insurance products. namely: 2. In this regard. the ability of the financial institutions to deliver products and services in the most efficient and effective manner will be the key to determining performance and relevance. Against the backdrop of socioeconomic objectives of the country. despite the achievements of the domestic banking system that has been secured thus far. In the new environment. depositors and risk managers. improvement in productivity and higher returns on assets for the financial institutions will need to be realized through greater penetration of efficient and low cost delivery channels. In the banking sector. 4 Foluso Akinsola University of Lagos. access to scale advantages in processing. namely. 2.resilient and efficient if Nigeria is to ensure that its financial sector remains effective and responsive in the face of a more globalized. Department of Economics . This operational efficiency can be achieved through greater investment in technology and skill enhancements.1 Efficiency The range of financial products and services should be offered at the lowest cost to both institutional and individual consumers. there is significant room for advancement in meeting the new requirements of the new economy. borrowers. The soundness of individual institutions will be a key factor in order to maintain the stability of the overall financial system. effectiveness and financial soundness. In an increasingly competitive market. The degree of innovation of the financial institutions will determine the range of products and delivery channels offered. the Nigeria banking institutions need to strive to enhance their capacity and capability so that they will be at par with global players in terms of efficiency. in particular.
this needs to be balanced with the need to provide an environment which is conducive to the development of an efficient and innovative financial system. This is to ensure domestic institutions will continue to have a prominent role in the financial system.5 Infrastructure The availability of strong infrastructure is crucial to ensure overall stability of the financial system. Improvements in credit skills and risk management among financial institutions would be demonstrated among others by the greater use of financial models and application of risk management framework that is more comprehensive. 2. 2. and instituting a more market-driven consumer protection framework (including deposit protection). 5 Foluso Akinsola University of Lagos. increasing the competitive environment. 4 Prudential regulations While the foundation of a strong financial system is the implementation of effective prudential regulations and supervision. there must be efficient. This will be achieved through institutional development and capacity building. Department of Economics . Robust financial institutions that would have strong risk management capabilities and credit skills as well as sound corporate governance. Corporate governance could be enhanced through improving the quality and accountability of the board of directors and management of financial institutions.3 Stability A safe. sound and stable financial system that is able to withstand sudden adverse economic and financial shocks that emanate from within and outside the system without significantly disrupting the intermediary function and the functioning of the economy. effective and robust financial institutions. strong prudential regulations and supervision. To have a stable system. with a core of strong domestic institutions and an efficient and stable payments system forming the backbone of the financial system. and efficient and reliable infrastructure.2. the continuous improvement in the existing payments and financial markets infrastructure.
We recommend Lagos to be used as one of the locations of IFC. by the relative performance of 6 Foluso Akinsola University of Lagos. A strong.3. with cuts in the corporate tax rate and capital gains tax initiatives. commercial rents and a high quality social infrastructure. To maximize our potential as an International Financial Centre. stable and transparent legal and regulatory system. • • 4. Low cost and efficient communication and information system. and The Government must place itself in a position to respond quickly and flexibly to emerging opportunities and threats. including general living expenses. Department of Economics .0 WHAT WE NEED TO DO? One of the fundamental objectives of the Financial System Strategy 2020 is to make Nigeria as Africa’s financial hub by facilitating the development of an international Financial Centre. The most sophisticated and deregulated domestic banking system. it is about human capital and interaction. International A multilingual professional financial services workforce that can flexibly respond to changing business conditions and independently add value to services. A commitment to business tax reform. In turn. Well established international stock exchange. Political and economic stability. The development of the financial system and the financial hub are obviously linked but they are distinct goals. futures exchange and clearing houses. Competitive cost. For instance. it is important to note the constraints in building IFC: • • • • • • • • Strong commitment by Federal and state Governments to promoting Financial Centre.0 WHAT ARE THE CONSTRAINTS TO BUILDING INTERNATIONAL FINANCIAL CENTRE (IFC)? Nigeria has a potential to develop a formidable and well established International Financial Centre. Lagos has been identified as an industrial area that contains better infrastructure than many others states in Nigeria. The success of a hub is based on concentrating a certain kind of business activity.
Lagos is an international metropolis with more than 30 years international business experience. it systematically focused on areas that involve people and faceto-face interaction (such as private banking). and a system is needed to ensure that these economic activities are properly regulated and that all parties are treated fairly. Arabs. innovation does not mean chaos.existing Global Cities. 7 Foluso Akinsola University of Lagos. We agree that Nigeria needs an efficient financial system for a number of good reasons.1 Lagos has the following advantages: 1. There is no regulation on foreign currency exchange. A successful financial Centre will attract international skilled man power all over the world. New York is America’s main financial center and its economic hinterland is far larger than London’s (London is not even a fully-integrated member of the Euro-Zone). Yet. tertiary education. over the last decade. Therefore. Even when it intervened in the financial sector. London has replaced New York as the world’s leading financial/business hub. Lagos has a geographic advantage since it is an important hub for logistics and import/export 3. 4. entertainment facilities and global linkages. for a city to facilitate the development of IFC. A successful financial/business center is defined by its ability to continuously innovate. Lagos is one of the leading international finance centers with strong finance competence in Africa 4. 2. and Russians live in London. Department of Economics . this is not the same thing as developing the financial cluster in Lagos into an IFC. Furthermore. However. This is because London has been more successful in attracting talent from across the world (note how some of the richest Indians. the city-state should concentrate on improving the quality of immigration. The trick is to balance the need to control with the freedom to innovate. Similarly. so it will be easier for a foreign company to set up business in Lagos since there is no big difference for culture and business rules. (Deutsche Bank (2007)). Lagos has a free economy. there is an urgent need for the our financial system to be organized as a financial hub to attract the world. However. the New York Stock Exchange is far larger than the London Stock Exchange.
Raising the issue of an IFC in Nigeria now suggests that the pressing need for a new.4. Furthermore our financial sector can be examined under these four main criteria: 8 Foluso Akinsola University of Lagos. all parts of the Nigeria financial system at a much faster rate than is presently the case.2 Advantages and Disadvantages of Lagos as an International Financial Centre Advantages: • • • • • • High investment potential stable economy low paid manpower good geographic location economies of scale English as the official language Disadvantages: • • • • • • High tax Underdeveloped infrastructure Young banking system compared to other established IFC Insufficient market capitalization Criminality Heavy traffic The call for creating an IFC in Lagos at this time is implicitly an imperative one that entails deregulating. Department of Economics . liberalizing and globalising. more intensive phase of deregulation and liberalization of the financial system has been anticipated by Nigeria’s policy-makers and regulators The present global financial crisis is a good test of our financial sector in that it shows how open the sector is to the rest of the world as well as how it can absorb global shocks and threats.
The goal of CBN is to position Nigeria as the safest and fastest growing financial system among emerging markets. The objectives of FSS 2020 include. The CBN is adopting a three-pronged strategy towards achieving the FSS 2020 vision. the following: • Developing financial market structures and strategies that align fully with the strategic intent of the overall economic system.0 FINANCIAL SYSTEM STRATEGY (FSS) 2020 The FSS 2020 is a strategic plan by the Central Bank of Nigeria which is expected to synchronize and integrate with the ongoing economic reforms and harness the gains to ensure that Nigeria becomes Africa’s financial hub and joins the league of top 20 world largest economies by 2020. 9 Foluso Akinsola University of Lagos. but not limited to. which are to: • • • Strengthen domestic financial markets. and •Establishing a communication and collaboration environment for the development and delivery of the strategy The CBN is working with the government and private sector in a deliberate and concerted manner to ensure that all elements of the vision are achieved. Enhance integration with external financial markets. •Developing a partnership with all key stakeholders for the implementation of the strategy with performance management framework. and how are they been managed? How are the policy to prevent systemic banking crises in place 5.• • • • How is supply of bank credit changing? What is the pace of structural pace? How is the risk facing the financial sector evolving. Department of Economics . Build International Financial Centre.
and •Exchange rate stability has also impacted positively on the inflation rate. The various sectors of the financial market. The strategy is aimed at enthroning a robust and integrated financial system which will in turn become the catalyst for the ultimate emergence of Nigeria as an international financial centre. such as trade finance.1 SOME NOTABLE PROGRESS It is very easy to see some measurable progress in the strategic agenda of the financial system reforms. •There has also been an increasing wave of portfolio investment inflows through the banks into the economy. insurance and foreign exchange market are expected to be the drivers of the evolution of Nigeria into international financial centre. •Many Nigerian banks are now attracting foreign partnerships for Foreign Direct Investment flows to other industries.by Standard & Poor’s and BB.The FSS 2020 strategy has the financial sector as its bedrock. Department of Economics . •Nigerian industries now have access to more foreign credit facilities through large inflows of confirming lines to banks. no doubt. •Interest rates have gone down considerably. real sector and SME finance. 5. 5. capital market. These include the following: •Nigeria is now rated BB.2 THE ECONOMY The Nigerian economy has been tagged sub-Saharan Africa’s locomotive.by Fitch as a result of increasing confidence of foreign investors in Nigerian banks. meaning that a lot more money is now available to the economy at cheaper cost. •The stock market has been deepened as a result of the activities of banks in the primary market. mortgage finance. This description. the economy has witnessed some 10 Foluso Akinsola University of Lagos. is apt considering that over the past eight years.
5.56 trillion by mid 2007. The confidence this has brought in the economy is reflected in the massive growth witnessed in major industries in the country partly driven by foreign funds.3 percentage point from 19. which opened up the economy for foreign participation.21 trillion in 2004 to N6.6per cent. these are some of the measurable progress that resulted from the banking industry reforms: * While there was a reduction in the number of banks from 89 to 25. From a paltry 0.3 THE BANKING INDUSTRY The banking sector has witnessed a period of unprecedented growth in the last three years.5per cent.18 per cent to 21. * Total asset base of banks rose by 104per cent from N3. It contributes 10percent to the GDP and represents 60per cent of the stock market capitalisation. real GDP growth rate today by official figures is 6.3per cent on 5-year compounded annual growth). (Akingbola B.O (2008)). The effect of the reforms is that the country now attracts positive ratings from international rating agencies. In specific terms.6 percentage points from 15. and the reduction in the country’s debt burden (from $37 billion in 2005 to $4 billion today).5per cent to 9.remarkable growth. institution of democracy leading to a stable polity. following consolidation in the sector. which recently hit an all-time high of $135. Key drivers of this growth have been the rising oil prices. * Capital and reserves rose by 192per cent from N327 billion to N957 billion. 11 Foluso Akinsola University of Lagos. reforms across major sectors. Department of Economics . * Capital adequacy ratio rose by 42.40per cent in 1999. transparent and better fiscal management by the government. and * Ratio of non-performing loans to total loans improved massively by 51.6per cent (6. the number of bank branches rose by 33per cent from 3382 in 2004 to 4500 in 2007.
The official economic outlook for the year is 7 per cent growth rate and 13 per cent in the next 12 years. the market has delivered 28per cent returns. Nigeria and South Africa got close to 50 per cent of the $53 billion 12 Foluso Akinsola University of Lagos. the industry cannot sustain domestic economic growth targets. Among emerging markets. It is expected to continue to achieve above-average growth rate in order to reach the 2020 targets. Low retention capacity is still a big challenge. Total market capitalisation has grown by over 4000per cent to N12 trillion in March 2008. and big ticket listings from upstream oil sector and utilities. up from N287 billion in August 1999. Department of Economics . According to the fund. 5. Most commentators have said that the opportunities for business look increasingly rosy in the country. especially in the re-insurance sub-sector. we need a more robust regulatory environment. Except for a few black spots in the regulatory handlings. especially for primary market and Over The Counter (OTC) trades. In all. the opportunities for growth in Nigeria are still strong as underlying fundamentals driving the growth are still present.4 THE CAPITAL MARKET The Nigerian capital market reflects the strong GDP growth.5 THE INSURANCE INDUSTRY The insurance industry has recently emerged from the similar recapitalization and consolidation wave as in the banking industry. further deepening especially in the second-tier segment. stable secondary market environment to tame sharp swings and meltdowns. However.5. the insurance reform was equally successful. The recapitalised indigenous companies are not yet capable of taking full advantage of the available opportunities even in the domestic market where foreign operators continue to dominate. Historically. The industry should however be bracing up for another round of capitalisation and consolidation as the experience in the banking industry has shown that until we are internationally competitive. International Monetary Fund (IMF) projected a 9 per cent growth. the Nigerian market remains one of the most viable in terms of returns on equity.
Department of Economics . “Report of the Senate Committee on superannuation and Financial Services”. Webster Robert (2000). Akingbola B. www. 2007.2008 2.com 4. Economic Special. Asia 13 Foluso Akinsola University of Lagos. are likely to hinder growth.” Report of the high powered export committee on making Mumbai an International Financial Centre”. International Financial Centre British Columbic (2006). 5. weak institutions. Canada. “Building an international Financial Center in Mumbai”. De Silva Charles (2007). “Nigeria’s Financial System Strategy 2020: Perspective On Building An International Financial Centre”. “Re-engineering the Nigerian financial Sector”. a paper presented at the first Nigeria-Canada business and investment forum.O(2008). 3. an environment for global and regional Investment. a high inflation rate (7. Tribune. However. November6-9. Lemo Tunde (2007). June 2nd.”The Trinidad and Tobago International Financial Centre. International Banks and Securities Association of Australia. particularly the legal system.8 per cent by March 2008 – Nigerian Bureau of Statistics) corruption. Akingbola B.” 3.private equity and debt flows to sub-Saharan Africa in 2007. REFERENCES 1. IFCBC. O (2008). 6. Ministry of Finance Government of India (2007). Deutsche Bank (2007).
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