CBN Says Bank Recapitalization Crucial to Achieving $1tn Economy, But Experts Warn Power Crisis Undermines Vision

The Central Bank of Nigeria (CBN) said on Monday that recapitalization of the banking sector was inevitable if the country intended to build an economy of 1 Billion by 2030.

The CBN vice-governor, corporate services, Ms. Emem Usoro, who delivered an opening speech to the opening of the 36th CBN seminar for finance correspondents and commercial publishers in Abuja, stressed that the improvement of the banking capital base would ensure resilience and allow them to finance the country’s development projects. She said recapitalization would also position Nigerian banks to compete more effectively with their global counterparts.

Speaking through the interim director, the Department of Corporate Communications, Ms. Sidi Ali-Hakama, USORO said that the time had come to pay significant attention to the recapitalization of banks, especially since Nigeria targets an ambitious economic expansion of its current estimated size of $ 250 billion to $ 1 billion of dollars.

“The pressure for a recapitalization of banks would undoubtedly improve the strength and health of the financial system, would deepen financial intermediation and promote healthier competition that would strengthen our payment system,” she said.

She noted that the 2004 banking reform, which had brought the minimum capital base to 25 billion Nairas and reduced the number of banks from 89 to 25, turned out to succeed in its time. A similar decisive decision, she argued, is now necessary while Nigeria plans to multiply its economic size.

“The exercise of consolidation and recapitalization of the banking sector of 2004, which set a limit of 25 billion basic naim for banks, brought Nigerian banks from 89 to 25 years old, was a noble idea that the Central Bank of Nigeria implemented in accordance with emerging developments at the time.

“Today, our economy is estimated at around 250 billion dollars. While we aspire to build an economy of $ 1 billion, all hands must be on deck … This gathering is essential to highlight the efforts and political orientation of the bank, “she said.

However, outside the seminar walls, consensus among economic experts is much more sober. Many have warned that without a stable power supply, the dream of a saving of $ 1 Billion remains a mirage. According to them, the country’s chronic power crisis is a much greater threat to growth than the insufficiency of capital.

According to a study, for each 1% increase in electricity supply, a saving should increase by 3.94%. Conversely, a 1% increase in real gross domestic product leads to a 0.34% increase in electrical supply and consumption.

Currently, Nigeria generates around 4,000 MW to 5,000 MW of electricity, a figure that has remained stagnating for years despite decades of political changes, billions of dollars in spending and successive reforms in the power sector. Experts argue that this level of generation is not even enough for Lagos alone, not to mention an entire country.

“With a current installed capacity of around 14,000 megawatts and use between 3,500 and 4,000 maximum, over 11 years after privatization, the government’s objective to stimulate access to electricity from 45% to 90% by 2030 is not possible without a marked bench of the end of the last year.

Nigeria needs around 30,000 MW of stable power to considerably increase its economy, but there is no usable plan in place to increase its electricity production to 10,000 MW in the next ten years.

In this context, the discourse of an economy of $ 1 Billion feels disconnected from reality.

The power deficit continues to paralyze productivity between the sectors. Manufacturing factories operate on a fraction of their capacity, small businesses rely on expensive diesel generators and foreign investors regularly cite electricity as a major deterrence.

Over the years, Nigeria has deployed various interventions to reform the electricity sector, in particular the privatization of generation and distribution assets, signing power purchase and implementation of regulatory organizations. But none of these efforts has led to a significant or sustained improvement in electricity supply.

The current administration, like the one before it, promised to “repair power”. However, there is no clear roadmap to increase the generation, extend the transmission or revise the distribution companies. Experts therefore called on the federal government to declare the state of emergency in the power sector.