Building credibility is the heart of financial sector Reforms


Jul 11, 2010


World Bank Vice for Africa Region, Obi Ezekwesili, told Clara Nwachukwu, Deputy Editor, Vanguard’s Sweetcrude, on the sidelines of the 2010 Diageo Africa Business Reporting Awards in London recently that ongoing financial reforms in Nigeria need to be sustained and focus specific.


What is your view on the current financial sector reforms in Nigeria?

I think that they need to continue to be sustained because the financial sector is the backbone of the private sector in any economy, so you need to have the financial sector that is able to provide the needed financing for the real sector.


For it to be able to do that, it’s got to be a financial sector that is very sound in corporate governance, and having the capacity to inspire confidence and therefore mobilise the domestic resources as well as private capital flows from abroad. So building credibility is the heart of it.


Some people have criticized the CBN reforms as going back and forth and not meeting set targets, what do you think?

I will say that the financial sector reform can be very difficult even in the most easiest of environments, and I think that it requires a lot of specific focus and the macro prudential element in the reform are the first step.


But then beyond that, the monetary policies are important, so how do you get to the point where the fiscal activities of government are very complementary of the monetary policies and the monetary policies too complement the fiscals and are able to pool access to finance for the real sector. If that happens, the sectors in the economy must go beyond the oil sector, and to make sure the cycle is of very good policies.


Often, the Nigerian market is seen as being very artificial?

Yes, that is why I talked about moving the Nigerian market beyond the oil sector. And you know that agriculture is really the heart of the kind of growth that Nigeria can experience and therefore, government focussing much more attention to unblocking the constraint to agriculture and agri-business is going to be a really important facilitation to partnership and within this; it can hold a lot of activities for growth and deepening of the financial sector.


Also, the energy sector stands in the way of the development of the small and medium scale enterprises, often; it is not the large companies that really push the momentum of growth you see in the economy. It’s going to take both brands and it requires devoting attention to improving the business climate for all categories of investors.


How can the Nigerian economy grow under poor infrastructure?

That is why addressing the power challenge for instance is key. Transportation is also another important area to address and water, so the basic services that businesses need in order to run profitably need to be the priority of government because these are for the public good that enable the conducive and congenial business environment to be available to the private sector. I say private sector in a broad sense and not just foreign direct investor but also the local businesses.


There has to be privatisation of public infrastructure in these key services of power, some aspects of transportation and working with the public sector to provide some of these services. And private public partnerships are becoming a veritable instrument for dealing with the financing gap that the government budget deficits the heart of the problems must solve because its budget cannot do it alone.


But government has been shying away from the privatisation of power?

It’s not about the privatisation, but private public partnerships are really ways of saying that the public finance as well as the private capital come together in a way that accepts and distributes risks and returns and then solve infrastructure problems.


This is becoming the way to go because it also disciplines the market and then brings the capacity of government to be the driver of policy and the legislative and regulatory framework that will enable the private sector gain some levels of protection from the vagaries of destabilising policy changes. So getting the best of the public as well as the private sides can lead to solutions that are very effective to the society.


The aspect that worries people is how do you then solve the social problems of the poor, which sometimes, may be shortchanged when infrastructure is not properly priced. There is something called social price, which enables you to be brought up to the cost of infrastructure in order to ensure that the poor has adequate infrastructure to continue to use it without having to bother about the cost.


But some socialist policies we have tried in the past have not worked in Nigeria?

For them to work, you have to have the fundamental legislation, you have to have the regulatory system, and you have to have the capacity of government of prepare good transaction that are very focused on achieving this support to economic infrastructure provision to reduce the cost of doing business and can also provide social infrastructure for the citizens to be able to leave the scepters of poverty.So some of the social policies we have tried in Nigeria have not been done in a sustained manner, not that they are not working.


Do you think we are going in the right direction in terms of attracting foreign investment?

One thing that has become clear is that foreign investors are always on the look out for democratic stability, and paying a lot of attention to policies that are credible, that are legitimate and that are very accountable to the citizens.


So the accountability issue is crucial to enable the germane political infrastructure that the private sector wants to see. Democratic institutions enable you improve on the rule of law and to provide suitable environment for policies that are pro-business and demand an environment that enables good governance.


So all of these are so inter-linked, and that is why countries like Nigeria need to pay attention to those kinds of issues that matter, not just to foreign direct investment, but also domestic investment.


Foreign institution where you belong have often been criticized as making the situation worse in African economies, what do you have to say?

Frankly speaking, the World Bank, for instance, has been a very good friend to Africa in a number of areas of policy.Some of the policies in the kind of changes and in the kind of improvements you have seen in Africa’s growth performance have been the very important macro economic reforms that the bank has worked with the continent to make happen.


These are fundamental reforms that countries like China and India embarked upon and set the pace for their growth. Africa is setting the stage for its own growth and we at the World Bank are proud to support this process of Africa taking mastery of its own macro economic choices as well as embarking on important sector-specific reforms that will enable it grow and enable it create jobs for the people.






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