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Cablegate: Nigeria's Vision--Africa's Financial Center

VZCZCXRO4870
PP RUEHMA RUEHPA
DE RUEHUJA #1435/01 1871035
ZNR UUUUU ZZH
P 061035Z JUL 07
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 0150
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 7331
RUEHWR/AMEMBASSY WARSAW 0420
RUEHCD/AMCONSUL CIUDAD JUAREZ 0421
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 ABUJA 001435

SIPDIS

SIPDIS

DEPARTMENT PASS TO USTR (AGAMA)
PASS TO OPIC (ANTONY IERONIMO AND DEBRA ERB)
DEPT OF TREASURY FOR DPETERS

E.O. 12598: N/A
TAGS: EFIN ECON PGOV NI
SUBJECT: NIGERIA'S VISION--AFRICA'S FINANCIAL CENTER

Ref: Abuja 887

ABUJA 00001435 001.2 OF 002


1. Summary. On June 18-20, the Central Bank of Nigeria (CBN)
unveiled it vision for Nigeria's financial future, presenting a
report titled "FSS 2020, Building Africa's Center of Choice". The
FSS 2020 vision refers to the potential for Nigeria to emerge as the
top economy in Africa and the 20th largest in the world by 2020, and
seeks to develop Lagos into a financial center and capital market
comparable to Hong Kong, London and New York. The vision includes
developing the Lekki Financial Corridor east of Lagos as an
international financial services center with its own infrastructure
managed to international standards. To support this vision, Nigeria
will need to achieve impressive growth in GDP, foreign exchange
reserves, banking, insurance and pension reforms. President
Yar'Adua has identified five key areas his administration will
pursue to support this vision, including security, rule of law,
infrastructure, stable exchange rates, and transparency. Major
changes need to be made to the Land Use Act to facilitate land
ownership, provision of housing and mortgage financing are also
promised. The GON will need to address several challenges including
maintaining political stability, improving institutional capacity,
addressing trade policy, and providing infrastructure. End Summary.


How it all began
----------------

2. Financial System Strategy 2020 (FSS 2020) began in August 2006
when Charles Chukwuma Soludo, Central Bank Governor, organized a
technical committee to draft a long-term framework to make the
Nigerian economy one of the largest in the world by 2020. On June
18-20, the CBN hosted a conference to present the plan's main aim of
creating a financial system that will enable Nigeria to emerge as
the largest economy in Africa and the 20th largest in the world. A
wide spectrum of people attended from domestic and international
financial institutions, international developmental agencies,
investment banks, and funds from both the markets and discussed
financial system reform, the economy, strengthening local markets,
building an international financial services center, and supporting
small and medium enterprises (SMEs). Breakout sessions addressed
the legal framework, regulation, macroeconomic and monetary policy,
human capital development, ICT/payment systems, financial markets,
credit mortgage and insurance.

The Vision
----------

3. Governor Saludo explained that FSS 2020 aimed to achieve Goldman
Sach's prediction that Nigeria would be among the next eleven
countries (dubbed the N-11) to surpass Italy in GDP by 2015
(reftel). A robust and vibrant financial sector would be needed to
power Nigeria's new economy and to integrate Africa's financial
systems. Before 2004, the financial system was characterized by low
aggregate levels of banking to the domestic economy, systemic
bailouts of banks by the CBN, an oligopolistic structure where 10
out of 89 banks accounted for over 50% of total banking assets.
Nigeria had been primarily a cash based society, with a weak
insurance industry, non-existent pension funds and a shallow stock
market. Soludo had worked to recapitalize and consolidate banking,
insurance and capital markets, to introduce micro-finance banks and
convert community banks. He had taken steps to establish the Africa
Finance Corporation within the CBN and to reform pension funds to
generate long term investment funds. Further Nigeria saw s in GDP
increase to $142 billion and per capital income to $1,050 in 2006.

International Financial Services Center (IFSC)
--------------------------------------------- -

4. In the medium-to-long term Nigeria needs to strengthen the
domestic financial markets and further integrate with external
financial markets before becoming an international financial
services center. To strengthen domestic markets the country will
need to develop capacity, develop non-oil sectors, integrate
informal and formal financial sectors, and improve access to credit.
To integrate with external financial markets the GON will need to
create links to the international financial markets, move toward
currency convertibility while maintaining macroeconomic stability,
maintain healthy foreign exchange reserves, and unified and
liberalize trade and commercial laws among ECOWAS and African Union
countries. FSS 2020 will need a public- private partnership (PPP)
approach with strong support in government institutions.

5. The GON hopes to develop the Lekki Peninsula east of Lagos as

ABUJA 00001435 002.2 OF 002


the Lekki Financial Corridor (LFC). To attract international
financial institutions the LFC will be set up as an independent
corporation and municipality responsible for its own implementation,
strategy, marketing and management with funding support from the
government, private sector and international development agencies.
The LFC will be run by a board of directors comprised of the heads
of the major regulatory bodies in the country with a designated
head/mayor. The LFC is to establish a legal and regulatory
framework based on internationally recognized standards and
jurisprudence. It will have liberal requirements on opening of
capital accounts and currency convertibility, 100% foreign
ownership, with an internationally competitive tax rate on income
and profits.
Implementation is slated for three phases. Phase 1, from June
2007-December 2012, will concentrate on the legal framework and
beginning the physical development of the site. Phase 2, January
2013- December 2016 will focus on global branding, integration of
African financial markets, development of the physical site for the
LFC and review of strategic objectives. Phase 3, January 2017 to
December 2020 will concentrate on final preparations for LFC.

President Yar"Adua's footprint
------------------------------

6. President Yar'Adua opened the conference and supported the
vision of Nigeria as the financial hub of Africa. As at the recent
G8 summit, he said his top three priorities were, "the economy
first, the economy second, and the economy third". For Nigeria to
prosper, it needed a sound financial network. He identified five
key areas that his administration would pursue: the security of
lives and property, respect for the rule of law, infrastructure with
an emphasis on power, a stable exchange rate regime, and consistency
in transparency and policy.

Can Nigeria compete?
------------------------------------------

7. Creating a financial and capital market comparable to the
premier financial centers of the world is astonishingly ambitious.
Nigeria does have several factors to support this ambition. One in
five or 20% of all Africans are Nigerian. With the consolidation of
the banking sector, eleven of the twelve companies in West Africa
with a market capitalization of over $1 billion are Nigerian and
seven are banks. Twenty-nine of the 50 largest companies in
sub-Saharan Africa (excluding South Africa) are Nigerian and 14 of
these are banks. Nigeria's GDP is over 60% of the total GDP of the
16 countries that make up the Economic Community of West African
States (ECOWAS). Nigeria is rated BB- (by Fitch and Standard &
Poors) with external reserves of over $40 billion. External debt is
a low $3.3 billion.

Challenges
-------------

8. On the other hand the challenges are enormous. Nigeria will need
to establish political stability through a succession of governments
with real legitimacy. The LFC board must be both capable and
empowered with support from relevant institutions and adequate
funding. The lack of infrastructure is a major obstacle. Nigeria's
financial sector still has a long way to go in becoming more
integrated with domestic economy, let alone the African economy.
Nigeria and the region will need much more open trade policies, as
financial flows tend to follow trade. Human resources will be
another issue and Nigeria will need to upgrade the skills and
experience for broad range of employees in finance and ancillary
sectors. Another contentious issue is the need to reform the Land
Use Act of 1978. Changes in the Act are crucial for the full
development of the banking sector. The present structure of the act
makes it virtually impossible to use and or transfer land and
property as security because of its complexity. The efficiency of
land registration, surveys and valuation need improvement.

CAMPBELL

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