CASE STUDY Nigeria

Business Traveler (USA) - - SPECIAL REPORT -

Nigeria is the largest coun­try in Africa in terms of pop­u­la­tion (170 mil­lion), and has the sec­ond-largest bank­ing sys­tem on the con­ti­nent, af­ter South Africa. How­ever, its largest bank – First Bank of Nigeria – is para­dox­i­cally only the 15th largest in Africa.

“Nigeria’s econ­omy con­tin­ued to per­form strongly in 2013,” says Gene Leon, the IMF’s mis­sion chief and se­nior res­i­dent rep­re­sen­ta­tive there. “Real GDP grew by 6.8 per­cent in the third quar­ter of 2013. The bank­ing sec­tor is well cap­i­tal­ized with low lev­els of non­per­form­ing loans.”

Ac­cord­ing to The Econ­o­mist, the on­pa­per re­turns are enor­mous for banks op­er­at­ing there. Net in­ter­est mar­gins in coun­tries such as Nigeria are as high as 8 per­cent – about twice as high as in South Africa and four times higher than those rou­tinely achieved in the West.

But get­ting these re­turns in­volves de­vel­op­ing a branch net­work, and tak­ing on the risks that go along with this. Ac­cord­ing to an­a­lysts, the out­look is clouded by po­lit­i­cal risks, in­clud­ing the pres­i­den­tial elec­tions next year, and a change in cen­tral bank gover­nor ear­lier this year.

Nigeria’s bank­ing sys­tem is im­por­tant but not dom­i­nant in Africa, ac­cord­ing to an­a­lyst David Gy­ori, mainly ow­ing to the col­lapse of the do­mes­tic bank­ing sys­tem in 2008.

The na­tion’s bank­ing mar­ket has again re­cently been in the spot­light, with for­eign mar­kets ceas­ing trad­ing af­ter Nigeria’s cen­tral bank gover­nor, Lamido Sanusi, was sus­pended in Fe­bru­ary af­ter al­leg­ing that $20 bil­lion in oil rev­enue had gone miss­ing.

“Al­though the out­look is pos­i­tive, risks need to be man­aged,” Leon con­cludes. “Growth is pro­jected to in­crease to about 7 per­cent in 2014, while in ation should rre­main in the sin­gle dig­its. Growth in the next decade will rely on con­tin­u­ing re­forms to strengthen in­sti­tu­tions, im­prove ef ciency, and pri­or­i­tize qual­ity in­fra­struc­ture in­vest­ments.”

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