After several years of banking only with companies, Citi has decided to jump with both feet into Africa’s most populous nation, with its regional head announcing plans to open a consumer banking franchise in Nigeria (schedule unknown.) The country of 165 million people is apparently “at the top of the list” of Citi’s African prospects. This announcement follows on research the bank published last year in which it laid out its case for the country to belong on its list of 11 “3G” (as-in “global growth generator”) countries. Goldman Sachs also includes Nigeria on its own list of the “Next 11″ (btw, are we talking about countries or cellphones?)
Here is why they’re both interested:
- Population. Nigeria has 165 million people. That’s more than twice as much as Turkey, slightly more than Bangladesh and simply too large to be ignored. And the country’s inhabitants are becoming ever easier to reach. In 2010 the United Nations estimated that Lagos would surpass Cairo as Africa’s biggest city by 2015, with 12.4 million residents.
- Market size. In 2010 EFInA, a Bill and Melinda Gates-funded organization that promotes financial sector inclusion in Nigeria, estimated that only 25.4 million Nigerians are “banked”. That’s only 30.0% of the adult population, leaving another 60 million in need of financial services. (Cue mental image of Vikram Pandit rubbing his hands with glee.)
- Ease of entry. Its financial industry at a stage where it’s relatively easy — and cheap — for an experienced player to make a go of it. This is especially true of a bank like Citi, which has been operating in the country for some time already. In addition it seems that Nigeria’s financial services regulations already have some aspects of America’s. A report from Vincent Nwani of First Bank of Nigeria makes this clear:
[There is] a broad range of elements of Sarbanes–Oxley entering Nigeria’s Corporate Governance tenets, introduction of “Universal Banking” in 2000, following the repeal of the US Glass-Steagall Act in 1999, and, a decade later, the ongoing scrapping of the Universal Banking following the introduction of the “Volker [sic] Rule”, aimed at limiting the banks’ trading and investment capabilities [...]. Also, the extant delineation of commercial bank’s margin lending limits echoes similar restrictions in the US jurisdiction.
This is all great for Citi but why should investors care? It’s simple. Banks are like the athletic scouts of commerce. They’re the first to sniff out profit opportunities and where they go, other industries are sure to follow. As an example, note that Citigroup was one of the first supranationals on the ground after the Iraqi invasion. It was the only bank represented on a Council of Foreign Relations-sponsored task force to “explore the options of reconstruction and governance in a post-Saddam transition”. And this was back in March 2003 — a full two months before President Bush’s overoptimistic “Mission Accomplished” speech.
Make no mistake — Nigeria is a country to watch. But it’s not without its major issues, including Islamist terrorism in the north of the country, long-running tensions in the oil-rich Niger Delta, that often boil over, and widespread corruption. President Goodluck Jonathan is having a harder go of it than his name might lead you to believe. As the year started he faced — and lost — a showdown with the entire country over an attempt to remove fuel subsidies.
So, yes, investors with a long time horizon and strong stomach might want to pay attention to what’s going on in Nigeria. But they should do their homework and approach with the right amount of humility. After all, in 2009 Citi itself was a $27 million victim of a Nigerian transfer scam.
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