Overview

This document is a speech delivered by Charles C. Soludo, Governor of the Central Bank of Nigeria, at the Economist Second Business Roundtable with the Government of Nigeria on January 31, 2006, in Abuja. The speech, titled 'The Next Stage of Reform: Institutionalising Change in Nigeria,' provides a comprehensive overview of Nigeria's economic reforms, macroeconomic outlook, banking sector reforms, and aspirations to become Africa's financial centre. Soludo begins by outlining the background to the reforms, which are embedded in the National Economic Empowerment and Development Strategy (NEEDS) document prepared in 2003. Key elements of NEEDS include a stable, predictable, and sustainable macroeconomic environment; non-inflationary, non-oil GDP growth for poverty reduction; low and stable price levels; a stable and competitive exchange rate regime; and sound monetary and fiscal policy regimes. On macroeconomic performance, Soludo highlights that GDP growth averaged 7.4% between 2003 and 2005, led by the non-oil sector which grew at 8.5% in 2005. Lending to the private sector rose by 40% in 2005, exceeding the programme target of 30%. Regarding price stability, the inflation rate was 10% in 2004, and despite food shortages causing non-core inflation to peak at 38% in August 2005, headline inflation was reduced to an estimated 15.1% by November 2005, with core inflation at 6.8%. This was achieved through strong deflationary measures, including reducing the growth of reserve money below the PSI target and increasing the frequency of CBN's analytical balance sheet data from monthly to daily series. The exchange rate remained stable within a predetermined band of plus/minus 3%, appreciating by 3% in 2005 following a 3.1% appreciation in 2004, reinforcing investor confidence. Nigeria's sound reform programme led to external debt relief of US$18 billion, and external reserves exceeded US$30 billion, the highest in Africa. For growth prospects, Soludo notes that President Obasanjo and stakeholders are committed to achieving 10% growth in 2006 by improving infrastructure (power, transport, communication, water), developing efficient institutions for contract enforcement and business facilitation (NIPC, NEPC, EPZ, CAC, customs), and fighting corruption through value-for-money spending. About 32% of GDP is expected in total investment spending in 2006 through government, private sector, and FDI. Heavy investment in agriculture will dampen inflation, while spending on power plants and transportation should be externalized. The CBN is working with universal banks to mainstream microfinance banks (MFBs) to jump-start SMEs and create jobs, encouraging states to devote 1% of their budget to micro credit (about N20 billion in 2006) and local government areas to devote 1% (N5 billion). The African Investment Bank is being established to finance export-oriented industries and infrastructure. Soludo also mentions reviews of SMEEIS, ACGS, and Inter. The speech concludes by emphasizing the need to institutionalize these reforms for sustainable development.

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