Financial services are the lifeblood of a modern economy. When allowed to develop and function, the financial sector enables an efficient allocation of scarce financial resources to where they are most needed thereby catalysing economic growth. The Nigerian services sector comprises banking, capital markets, pensions and insurance. Like most other sectors of the Nigerian economy, the financial services sector has been left to underperform its peers in comparative countries and operate well below its potential due to several challenges.

Banking

In 2018, the World Economic Forum (WEF) ranked Nigeria the seventh most difficult country in the world to access a loan. The average domestic credit to private sectors as a percentage of GDP in Nigeria is at 15%, one of the lowest in the world, compared to 144% in South Korea, 31% in Kenya, 192% in the United States and 155% in China.
Part of the reasons for the unacceptably low availability of credit to productive sectors is the high borrowing cost occasioned by a tight monetary policy stance and other systemic factors. Lending rates averaging 27% per annum in Nigeria are among the highest in the world. This compares to 16% in Kenya, 9% in South Africa and 1% in Japan.

Pensions

Since the Nigerian pensions industry underwent a reform process to the contributory scheme, the industry has experienced appreciable growth. Current assets under management are more than NGN 8.3 trillion from deficits running into hundreds of billions of naira in the early 2000s. Regardless of this, the industry remains shallow with a large room for growth. Only about 7 million workers are contributing into the pension scheme--about 8% of the working population.  The total pension assets as a percentage of GDP is only about 5%, the lowest among emerging markets.

Insurance

Gross premium income as a percentage of GDP is only 0.4% in Nigeria, among the lowest in the world and only 1% of Nigeria's population have any form of insurance policy. This level of insurance industry penetration is one of the lowest even in Sub-Saharan Africa (16% in South Africa, 2.8% in Kenya and 1.5% in Senegal).

Capital market

Only about 200 companies are listed on the Nigerian Stock Exchange and stock market capitalization as a percentage of GDP is only about 8%. Total market capitalization (bond market and stock market) is only about 25% in Nigeria compared to peer countries like 205% in South Africa, 247% in Malaysia and 115% in Brazil.

What We Will Do

In 2006, Nigeria introduced a strategic blueprint for the growth and development of the financial industry called the Financial System Strategy 2020 (FSS 2020). Implementation of the FSS 2020 will elapse within the early years of our administration. We commit to build on the successes achieved by the programme and introduce new, more targeted policies that aim to develop a 21st century financial ecosystem that Nigeria deserves. Some of the major areas we shall address include:

Financial System Stability: Our primary concern shall be the maintenance of macroeconomic and financial system stability. We shall pursue policies that minimize systemic risk and boost investor confidence. We shall endeavour to bring inflation to the single digits, maintain exchange rate stability and institutionalize fiscal discipline.

Improved Regulation: Proper regulation is a pre-requisite for financial system development. Our administration shall guarantee the independence of the regulators of the different segments of our financial system. The Securities and Exchange Commission (SEC), the Central Bank of Nigeria (CBN), the National Insurance Commission (NAICOM) and the Pensions Commission (PenCom) will all be strengthened to craft world-class regulations and enforcement regimes that discourage infractions and foster market development. The regulators under our administration will enforce best corporate governance practices while improving Nigeria's competitiveness.

Financial Literacy and Financial Inclusion: We shall take immediate steps to improve financial literacy among our citizens. Financial education shall be introduced and required through all levels of our education system. In addition, we shall pursue an ambitious financial inclusion strategy that aims to bring access to basic financial services to all Nigerians.

Boosting Access to Finance for the Real Sector: We shall address bottle-necks and other challenges inhibiting access to needed finance for our real sector enterprises, particularly for MSMEs. We shall pursue fiscal and monetary policy alignment that lowers borrowing costs and provides fiscal incentives for investments. We shall reduce government's overreliance on treasury bills with the aim of lowering overall interest rates and reducing the fortuitous crowding out of the private sector.

Deepening Industry Penetration: We shall combine incentives and enforcement to deepen insurance penetration. We will also support employers to implement pension requirements for their employees to expand our pension industry and increase national savings. Our administration will deploy technology to reduce the unbanked population. We will also introduce new incentives to encourage savings and investment, particularly in collective investment schemes and other investment products that increase individual and national wealth.

Financial Technology (Fintech): We believe that in the 21st century, technology will play a more prominent role in shaping our country's future. We shall encourage large scale investment in improving financial system technology. We shall develop a robust policy regime that will encourage the growth and adoption of fintech products in Nigeria to serve our ever growing population of financially sophisticated citizens. 

The Capital Market

No major economy has ever developed without a vibrant domestic capital market enabling capital formation. For Nigeria to achieve rapid and sustainable economic development, a well-developed capital market, serving as the bedrock for long term capital raising and industrial development, is imperative. According to Securities and Exchange Commission data, businesses and state governments raised about NGN10.3 trillion between 2006 and 2015.  Yet, the capital market needs to play a more prominent role in the nation's development.   

The Nigerian capital market has been performing below its potential and its peers. Market capitalization as a percentage of GDP in Nigeria is only about 25%, compared to 205% in South Africa, 247% in Malaysia and 115% in Brazil. The market has been lacking in depth, breadth and sophistication.

Our administration will take ownership of the Capital Market Master Plan (2015 – 2025) which aims to bring about a world class capital market in Nigeria.

We shall provide the needed leadership to ensure the emergence of one of the world's deepest, sophisticated and most liquid capital markets in Nigeria. Our new capital market will not only serve to accelerate capital formation in Nigeria but will also be a major gateway of investment into Africa.

We commit to be the first administration in Nigeria's history to prioritize the development of a deep and liquid domestic capital market that is capable of financing long term capital needs of both the private sector and all tiers of government. To achieve this objective, we shall strengthen the Securities and Exchange Commission (SEC) and other capital market institutions to fully implement the master plan.

What We Will Do

Our administration will leverage the capital market to tackle some of Nigeria's most pressing challenges including infrastructure deficit, diversification of the economy, inclusive growth, building a savings culture and improving budget deficit financing.

How we will fund infrastructure

Since independence, Nigeria has heavily relied on government funding of infrastructure through an inefficient budget design and implantation process. Infrastructure is a key growth driver with significant multiplier effect on the socio-economy of a country. Huge investments in infrastructure are acknowledged as one of the quickest means of stimulating an economy, particularly in times of declining economic activities. Throughout our administration, the capital market will be an important source of funding infrastructure projects through a variety of instruments by which the Federal Government, its agencies, state governments and other entities can raise funds. Such instruments like infrastructure funds and infrastructure bonds   will be structured specifically to attract capital for critical national infrastructure projects. Our infrastructure funds will be marketed to millions of ordinary 100
Nigerians, retail investors who will make small investments in roads, railways, airports and seaports. This is capable of boosting social cohesion as people from different parts of the country feel a real sense of ownership of the nation's assets.
Other investors in the infrastructure fund will include our domestic pension fund administrators (PFAs), with over N8 trillion under management, and major international institutional investors. There are also collective investment schemes focused on bonds and infrastructure asset classes which would be attracted to our government's infrastructure instruments.

To address our immense infrastructure funding needs, we shall also issue the following instruments:

Project bonds, to finance expansive national railways and new major strategic roads across Nigeria.

Non-interest capital market products like sukuk will be issued to attract huge infrastructure funding from the Gulf countries and millions of Nigerians who prefer ethical investment. Our sukuk will fund major social infrastructure like hospitals and schools.

Diversifying our Economy

The capital market will drive the development of the real sector. We shall enable the capital market to facilitate capital raising across industries and by all tiers of government for sustainable national development and transformation of critical sectors such as infrastructure, agriculture, solid minerals, ICT and education.  The market will be reformed to considerably expand its capacity for domestic funds mobilization and become, always, the preferred choice for capital raising by both corporates and governments.  Developing a strong local capacity complemented by foreign capital will be our priority. 

With our focus on revolutionizing agriculture, we shall encourage development of an effective off-take system for producers and farmers to stimulate production and growth of the agricultural sector. Companies presently engaged in the processing of agricultural produce for export are beleaguered by high cost of production, absence of reliable off-take contracts, inadequate technical, operational and quality expertise as well as lack of access to adequate working capital. Part of addressing the foregoing will require the existence of a well-functioning commodities exchange and well-funded processing factories. We shall develop a thriving commodities trading ecosystem. This will not only aid the diversification of the economy and foster real GDP growth, but will create jobs within the value chain of the ecosystem thereby engendering inclusive growth.

Delivering Inclusive Growth through Stock Listing

We shall provide incentives for enterprises in the real sector across our vast country to seek listing and funding from the capital market. Sectors such as telecom, power, agriculture, solid mineral, oil and gas and SMEs would be among the targets. Listing on stock exchanges will give Nigerians the opportunity to part own companies in these sectors and share in their successes. We shall particularly adopt this approach when major state-owned companies will be privatized. Such enterprises will undergo an initial public offering that gives Nigerians an opportunity to become shareholders in national assets.
Improving the savings culture to increase funds for investment

We shall prioritize the emergence of a savings culture in Nigeria to increase long term savings by Nigerians which can be harnessed for investment. This will provide funds that can be channelled through the capital market for infrastructure and project financing, as well as other national priorities. To achieve this, we shall articulate a National Savings Strategy that aims to provide fiscal incentives for each additional naira of savings. 102
Budget Deficit-Financing through the Nigerian Capital Market

There is an undue over-reliance on government spending in Nigeria which has tended to hold the entire economy hostage when there are delays and/or poor implementation. Implementation of the federal government's budget has been poor over the last three years. The Ministry of Finance has stated, for example, that only an abysmal 21% of the capital component of the 2017 budget was implemented. This is the lowest budget implementation rate on record. Reasons for this poor implementation have ranged from delayed presentation of budget estimates to the national assembly, lack of political will to demand prompt and effective implementation, and poor leadership.

Our administration will adopt a different approach to the budgeting process.

We shall:

Ensure early presentation of budget estimates to the National Assembly (at the latest in July of each year).

Improve Executive-Legislature relations and interactions to ensure budgets are passed before the commencement of the fiscal year.

Innovatively leverage capital markets to raise the funds needed for more effective budget implementation. We shall achieve this by raising capital from domestic and foreign sources. We recognize that infrastructure financing requires long term funding and should not be left to the inadequacies of an annual budgetary allocation. Therefore, through better planning, we shall reduce government's over-reliance on treasury bills which has crowding-out effect that starves the private sector of much needed credit. We shall instead focus on capital market instruments with longer maturities and lower borrowing costs and other asset classes that can fund key projects.