Its currency is struggling, its infrastructure is underdeveloped and its corruption record recently made headline news in the UK; many international banks are, unsurprisingly, reluctant about Nigeria. Some local operators are, however, filling the gaps in the market. Head of WealthInsight, Oliver Williams, looks closer
On the face of it, private banking in Nigeria is pretty dire. The number of high net worth individuals (HNWIs) in the country fell 4.6% from 16,686 in 2014 to 15,850 last year according to latest research released by WealthInsight this month. Average HNWI wealth has as fallen too – from $7 million in 2014 to $6.4 million in 2015 – which doesn’t bode well for any private bank hoping to grow its Nigerian AuM.
Blame can all too easily be pointed at the slumping oil price as the root cause of this. But simply condemning Nigeria’s largest export would ignore a host of other woes haemorrhaging its economy. A combination of some fairly unorthodox central banking policy has thrown Nigeria’s currency, the Naira, into disarray, meanwhile infrastructure underinvestment has left the country with an electricity output no larger than Edinburgh’s. But Nigeria’s biggest concern was addressed recently by Britain’s Prime Minister when he labelled the country "fantastically corrupt". Though highly undiplomatic, few were surely surprised by such a remark concerning a country ranked 136th out of 176 countries on Transparency International’s Corruption Measure. Indeed, when asked if the statement was true, Nigeria’s own President, Muhammadu Buhari, simply responded, "yes…he was telling the truth". Such stigma not only mock’s a nations rule of law, but it also deters any would-be foreign investors from funding some of the many diverse and enterprising businesses in Nigeria.
With these issues, who can blame Nigeria’s HNWI community when they choose invest 16.8% of their wealth overseas. Offshore wealth management is huge in Nigeria, where the big names such as UBS, Standard Chartered and Citibank court HNWIs abroad where they can offer the kind of risk management unheard of in Africa (30% of Africa’s total wealth is retconned to be banked offshore by Oxfam, a total of $14bn). One Nigerian Private Banker recently admitted to me that he was amazed 110 Nigerians were named in the Panama Papers: "I thought there would be thousands".
While these issues have long been apparent to all with a stake in Nigeria, the combined punch of a spiralling oil price, currency collapse and diplomatic faux-pas, is forcing change within. This has obvious knock-on effects for private banking and wealth management industry in Nigeria. As global outfits slowly reduce their Nigerian presence (Barclays recently sold its African division and Credit Suisse have reduced theirs), native banks are rushing to take their place. With an eye on corruption and access to global markets, Nigeria’s home grown private banks can match European counterparts’ portfolios while surpassing them locally: With a superior knowledge of local investment opportunities, these bankers are able to direct private wealth into many of Nigeria’s starved sectors promising strong growth. However, before that happens corruption needs to be routed out carefully through policy and incentive. Aggressive measures might only add to the Nigerian wealth housed in European and American banks. The local private banks themselves need to improve their offering: safety in numbers is not the only reason that African HNWIs bank abroad, they are also enticed by best-in-class services in succession planning, philanthropy and luxury investments. Nigerian wealth managers need to expand their remit beyond simply managing wealth.
Sceptics in Nigeria’s resurgence might be reminded of Hong Kong in the 1960s. Four decades ago, Hong Kong was one of the most corrupt cities in the world, according to anti-corruption organization Transparency International. With the establishment of The Independent Commission Against Corruption (ICAC) in 1974, malpractice was quickly routed out. Guidelines were handed out to businesses with high potential risks, but education was also given at the kindergartens level, where characters created by ICAC present children with ethical dilemmas and stories where the honest one always wins. Hong Kong now ranks 14 on Transparency’s list ; meaning it’s perceived as slightly more corrupt than Germany (13) but less corrupt than the United Kingdom (17) and the United States (19). Notching up 122 places on the corruption index will be no easy feat for Nigeria, but any progress will have profound effects on its private banking industry.