Obadiah Mailafia
10 June 2008
opinion
Abuja — A few weeks ago, the media reported the newly-elected mayor of London, Mr Boris Johnson's, displeasure that Nigeria is not opening up its banking system to foreign competition.
He was quoted as saying that we in Nigeria should open our doors to foreign banks just as his own city of London has done for centuries.
Perhaps he was responding to an earlier pronouncement by the top echelons of the Central Bank of Nigeria to the effect that foreign banks are not welcome in our country. The current President of the Chartered Institute of Bankers (CIBN), Dr Erastus Akingbola, who is also Managing Director of Intercontinental Bank, joined the fray by pitching his camp with the nationalists. Dr Akingbola is a highly accomplished and respected banker, and what he says clearly matters; and as President of the CIBN, doubly so.
For those who may not know Boris Johnson, he is the current mayor of London, having recently trounced the ultra-leftist Ken Livingstone in the mayoral elections to assume the role of Czar of the city that is regarded by the cognoscenti as the world's financial capital. A former conservative member of parliament and a noted journalist in his own right, he was Editor of the Spectator, an influential political weekly. An Old Etonian, he might have been reckoned with as a future conservative prime minister were he not so prone to regular gaffes and with such a penchant for self-lacerating comedy.
Johnson is the quintessential English country boy made good. He is the sort of chap that you are more likely to catch commenting on the quality of Chilean wines or the best from the vineyards of Stellenbosch - and perhaps a connoisseur of the paintings of Vermeer and Raphael - rather than on the algebraic subtleties of high finance. Least of all would one expect him to be raising issues about the Nigerian banking system, a country that a few years ago no member of the English great and good would consider a subject for discussion in polite society. I find his comments both instructive and reassuring.
On the positive side, I believe that if a conservative mayor of London deigns to comment on the banking system of an African country and even complains that foreign banks are not being let in on the act, we should take this as a compliment rather than a source of annoyance. The simple truth is, there was a time, only a few years ago, that nobody from the civilised world would have wanted to invest a dime in our non-oil sector, and least of all in our decrepit banking system.
That they are now angling to do so is perhaps the biggest compliment that anyone has ever given to the macroeconomic reforms undertaken by the benighted Olusegun Obasanjo and the banking consolidation spearheaded by Professor Chukwuma Soludo, Governor of the Central Bank of Nigeria.
But I am somewhat perplexed that somebody somewhere seems scared of foreign banks coming here to compete for a share of the market. As I have indicated, both the CBN and the current president of the CIBN have come out against it. Unfortunately, nobody has thought it necessary to lay out the arguments against foreign bank entry in clear, coherent and reasonable syntax.
Instead, the statement has been thrown up with a tone of axiomatic finality. Like in George Orwell's Animal Farm, the presumption is a simple one: all home banks are good and all foreign banks are bad. We must therefore preserve what we've got and keep out the baddies. It presumes that economic nationalism is right by definition and anyone who is against it must be unpatriotic or something to that effect. In a democracy, public policy cannot - and should not - take the form of such ex-cathedra pronouncements.
Let us look at the facts on the ground. As far as foreign banks go, we only have the Standard Chartered Bank that came in fully as a foreign institution to set up base here two years ago. StanChart, as it is known by its staffers, is one of the oldest of the international banks, founded in London as far back as 1853. Although a British bank, it has more presence in Asia and the emerging markets than it actually does in Europe.
In Nigeria, Standard Chartered is known less on the retail side than it is in the area of project and trade finance. The other foreign bank is Stanbic, which recently bought controlling shares in IBTC to become Stanbic IBTC. As everyone knows, Stanbic is a South African giant and its acquisition of IBTC last year raised quite some eyebrows in the industry. Then there is Ecobank, with headquarters in Lome, Togo. I would term 'Eco' to be, stricto sensu, a West African rather than a 'foreign bank' as such - unless one wants to stretch the argument.
From all I know, we have 25 robust banks that seem to be doing rather well, twenty-two of which are fully 'indigenous' Nigerian banks. The question is: Do we need any more foreign banks coming in to get a piece of the action? And should we tolerate foreigners coming here to buy off some of our banks? What are the arguments for and against?
The economic 'nationalists' among us are decidedly against. One argument is that, like all 'multinationals', they are just here to 'exploit' us; they would milk the economy dry, amass a mountain of profits and repatriate all such funds abroad without giving something back. A second argument is that foreign banks, once they dominate a market, would gradually constitute themselves into oligopolies that would eventually call the shots as far as the rest of the economy is concerned. Was it not Lenin who once declared, "Show me the man who controls your money and I would tell you whose slave you are?" Thirdly, there is the argument of 'neo-colonialism' - that foreign banking interests would tend to toe the line of foreign powers.
According to this argument, after political independence, the biggest problem Africa has faced has been that of the crisis of neo-colonialism by which foreign interests have continued to dominate our countries using economic and financial strings rather than the classic formula of gunboat diplomacy. In the Democratic Republic of Congo, in Gabon, Congo Brazzaville, Cote d'Ivoire and many other places, foreign financial and mining interests have taken over control of the entire destinies of nations. Therefore, the less of these interests we see, the better for our people and the more secure our liberties.
With particular reference to Nigeria, those who toe this line would point to the Indigenisation Decree 1972 which enabled our country to take control of the 'commanding heights' of the national economy. Allowing foreign banks to flood into our economy would be akin to turning back the hand of the clock, as it were. Nationalistic arguments are often difficult to fault given that they resonate with our rawest nerves and our deepest-felt sentiments. After all, East or West, home is the best, as they say. And as my own people would say, 'nobody would ever tell you that his mother's soup is not delicious'. Being the proud Nigerians that we are, we should hold on to what is ours and protect it against all outside encroachments.
Dudley Seers, the distinguished British economist, wrote a fine little book in the early 1980s titled, 'The Political Economy of Nationalism'. Seers was among the fathers of development economics in the same rank as Arthur Lewis, Paul Rosenstein-Rodan, Hans Singer Gunnar Myrdal, Raul Prebisch and Albert Hirschman. Seers urged developing countries not to give up the driving seat of economic development to foreign institutions or interests, but rather to resolutely spell out their own national strategies and to pursue these with vigour and passion. It was an argument of sorts in favour of economic nationalism.
Clearly, there is room for some form of nationalism as far as banking, finance and indeed the macroeconomic management of nations is concerned. But I would insist that such nationalism needs to be qualified. In our age of globalisation, undue nationalism can become a double-edged sword: it can become a form of insularity that keeps us away from new ideas and indeed new sources of technology and capital.
The kind of economic nationalism that I would approve is one focused on ensuring that we call the fundamental shots, and that we are fully in charge of our national and economic destiny; and that it is not foreign agencies or governments that set the agenda as far the fundamentals of economic and public policy are concerned.
Anything beyond this borders in my view on vulgar jingoism. Indeed, the most prosperous nations in the world are those that are outward-oriented in terms of opening up to ideas, best practices, knowledge, skills and competencies. Countries such as Singapore, Malaysia, South Korea, Taiwan and Hong Kong did not get where they are through short-sighted policies of narrow-minded nationalism.
Much of the points marshalled in favour of opening up to foreign banks centre on the classic arguments for direct foreign investment that you would find in any good textbook of international economics: we should encourage foreign banks to come because they bring in much-needed infusion of foreign finance; they also bring in new skills, competencies and best practices; they generate additional employment and they expand the web of international networks that enhance the competitive advantage of nations in an increasingly integrated global marketplace.
To be continued
Dr Mailafia is Chairman of the Centre for Economic and Policy Research, Abuja.
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True we should not be afraid of foreign banks coming into Nigeria but right now the financial giant have messed up their ecomony and looking for who will bail them out,they are seeking greener patures in the emerging markets and the BRIC region to help them stabilise their operations as well ad diversify their operations , so the question is are we dumping groung always the last resort and a sort of bail out.
I strongly believe that we should not be in a hurry to open our doors to foreign banks even with all the massive benefits it will bring to us what we should do is develop our banking system to be able to compete with these big foreign banks before opening our doors to them so that they do not snuff out our banking system.
We would do well to follow the Asian nations develop our self to be able to be in an advantageous position when we do open our doors to the foreign banks.