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Nigeria: Neglect of Financial Services Dooms Ministry of Trade to Failure

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The Ministry of Trade and Investment along with the Nigerian Export Promotion Council recently announced 13 non-oil export products that Nigeria should develop to pull the nation out of its reliance on the exportation of crude oil which amounts for over 70% of its exports. Crude oil has tumbled to record lows due to decline in global demand and a massive increase in oil-production from fracking in North America. The dynamic is causing Nigeria's foreign reserves to decline rapidly, putting increased strain on the Naira and Nigerian capital markets. To diversify Nigeria has sought to promote its mining potential as well as other commodities in agriculture and small-scale manufactured goods and downstream petroleum products as opposed to exporting raw crude oil. (SEE: Noticeably missing from all of this was the service sector, in particular financial services. Compared to its size, Nigeria is far from being a leader in Africa with respect to financial services and asset management. Typically when institutional and individual investors want to invest capital with Africa-focused asset management groups they look toward western-based firms or companies registered in South Africa or Mauritius. Despite this, increasing financial service asset managers in Nigeria by a small number can single handedly make up for the loss of foreign exchange the country currently has due to collapsing oil prices, while at the same time invest in agriculture, mining, small-scale industry, downstream oil production, and SMEs. By ignoring the massive deficit Nigeria has in financial services as the single most important export product that Nigeria needs right now, the Ministry of Trade, and the Nigerian Export Promotion Council are doomed to fail in their effort to quickly shift Nigeria away from its reliance on crude oil exports.

In addition, Nigerian development finance institutions (DFIs), that work in concert with the Ministry of Trade and Investment, are all ignoring the paramount importance of promoting financial services as an major export product. The Nigerian-Export Import Bank, the Bank of Industry, the agriculture and housing government backed DFI lenders, as well as the sovereign wealth fund all ignore financial service providers and make no attempt whatsoever to promote their utility as vehicles for small-scale and institutional foreign-direct-investors to access privately held investment opportunities in Nigeria. By so doing, Nigeria remains relatively closed-off to small-scale global capital investors who are hungry for high-growth investments in frontier economies but are not able to source capital into private investments without a financial service provider. Both the Ministry of Trade, the DFIs in Nigeria have the capacity to much more to shift Nigeria from its reliance on oil exports, if they galvanized their efforts and made a strategic partnership with financial services exporters to promote and establish more firms in Nigeria. Many of the few financial service exporters operating in Nigeria are actually Mauritius registered companies and not Nigerian. So long as these obstacles remain, Nigerian industry will remain starved of global capital investors that would be open to investing in them in there were enough financial service providers exporting their services to assist them in sourcing capital investment. The lack of understanding among DFI's and current administrators in Ministry of Trade and Finance to this dynamic is staggering.

Moving forward, as Nigeria seeks to quickly rebound from its slumping economic performance since the collapse of oil prices, bolder more insightful steps are required to build Nigerian financial service and investment management exporters in order to promote and facilitate global capital investment in Nigerian industry, agriculture, mining, and SMEs. While the DFIs and the Ministry of Trade are fully equipped high-performance vehicles, their current drivers seem satisfied with cruising in first gear even in the face of worsening economic conditions. Their continued neglect and failure to recognize the paramount importance of financial service exporters in attracting FDI from global capital investors may leave them spinning their wheels while their counterparts in other parts of the continent and the rest of the developing world are moving their economies forward and diversifying their export portfolios.

Kuranga and Associates Limited is an investment management advisory firm and an asset manager with a principle practice area of Africa. To learn more about Kuranga and Associates go to © Copyright 2014 David Kuranga. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

David O. Kuranga; Ph.D.
Managing Director
Kuranga & Associates Limited
Phone: 212.363.0936
[email protected]

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Articles by David O. Kuranga, Ph.D.