1. 1 IMPROVING FINANCIAL RESOURCE MOBILIZATION TO MOVE THE POVERTY REDUCTION AGENDA FORWARD Ms EVELYN N. OPUTU MANAGING DIRECTOR BANK OF INDUSTRY (BOI) LIMITED, NIGERIA PRESENTATION AT THE HEARING OF THE BUSINESS SECTOR ON FINANCING FOR DEVELOPMENT, UNITED NATIONS 18 th JUNE 2008.

2. 2 INTRODUCTION My brief comments will refer to the two chapters of the Monterrey Consensus dealing with financial resource mobilization, one with domestic and the other, international sources. The relevance of the two chapters derive from an understanding that the Monterrey Consensus is the financial impetus of the Millennium Development Goals Permit me to start by sharing my experience on financing for development; I will then review the main challenges in mobilising financial resources and finally offer possible remedial suggestions.

3. 3 BANK OF INDUSTRY The Bank of Industry, Nigerias leading DFI, is now a significant contributor to Nigerias economic and social development since emerging from the reconstruction of its precursor institution, the Nigerian Industrial Development Bank (NIDB). The transition from NIDB to BOI, a testimonial of the resourcefulness of home grown development effort, the kind which international capital and development partners could support much more The mandate of the bank is primarily to finance and catalyze industrial development. Underlying the implementation of this mandate is a vision to finance growth that puts people first and empower the weaker segments in our society to gain access to productive assets and opportunities and move the poverty reduction agenda forward.

4. 4 PARADIGM SHIFT Our effort toward equity and empowerment through lending and capacity building for sustainable inclusive development has since 2005 underpinned a paradigm shift in the banks strategic direction, orientation and mode of operation. Central to the Banks paradigm shift are: Structured industrialization of the country through the stimulation and development of MSMEs which are widely recognised as the engine of economic growth, with higher developmental impact and multiplier effect per unit of investment and consequently; BOIs commitment of 85% of its resources to MSMEs geared toward the attainment of the objectives of NEEDS, NEPAD and the IDGs..

5. 5 BY END Q1 2008 BOI HAS RECORDED IMPORTANT GAINS: 290% expansion in investments/loans between January 2006 and March 2008 83% lending to SMEs. 289% increase in number of loans to 342 from 88 279% increase in direct/indirect jobs expected to be generated by BOI assisted companies (530,000 jobs) Portfolio at risk dropped from 65% to 10.7% (Industry average in Nigeria is 22%) GAINS OF PARADIGM SHIFT

6. 6 Dec. 2007 Dec. 2005 (audited) (audited) % Increase N N Gross Earnings 6.46bn 1.38bn 368% Operating Expenses 2.56bn 1.27bn 102% Profit Before Tax 2.23bn 0.105bn 2,024% GAINS OF PARADIGM SHIFT CONTD FINANCIAL HIGHLIGHTS

7. 7 GAINS OF PARADIGM SHIFT CONTD INCREASED PRODUCTIVITY & EFFICIENCY Dec. 2007 Dec. 2005 Operating Expenses/ 65% 92% Gross Income Profit Before Tax/ 35% 8% Gross Income Very importantly, our financial and operational performance confirms that enterprise profitability and development could be complementary. Through home grown reforms, we have built a strong, dynamic and flexible DFI responsive to the needs of our people. There are replicas of such success stories around the developing world.

8. 8 WHY PARADIGM SHIFT? Focused the coverage of our operations on micro, small and medium sized borrowers to : Support a sustainable inclusive development process, financing people-based growth with emphasis on creating employment, income and opportunities for the weaker segments in our society (gender loans, microfinance, cooperative) Promote a strategy flexible and adapted to the needs of our people in meeting IDGs, facilitating national development and improving living conditions and the quality of life Expand the formal private sector, bringing to bear, the efficiencies and institutional capacity of formal sector operations on our large informal sector which contributes significantly to GDP. Challenges are legion but surmountable. The bottom line is that we seek, in concert with our development partners to provide a coherent response to the challenges of sustained and equitable development and eradicating poverty in our country.

9. 9 MAIN CHALLENGES TO INCREASE EFFECTIVENESS THROUGH WIDER COVERAGE, WE PLAN TO: Invest up to N250 billion (about US$2.2 billion) over a 5-year plan period, growing lending by N50 billion per annum over the next 5 years. Current capital under N20 billion. Continue to commit 85% of the Banks resources to MSMEs to convert our comparative advantages in the utilisation of local resources into competitive ones Commit the balance of 15% to larger enterprises which would be leveraged with foreign national Development Finance Institutions and International Finance Institutions to mobilise further N40 billion into the domestic economy. Target partners include, but are not limited to, the EXIMBANKS of the USA, India, Thailand and Korea, the Islamic Development Bank and IDC of South Africa.

10. 10 KEY CHALLENGES TO REALIZING THESE GOALS REMAIN MOBILIZING FINANCIAL RESOURCES IN BOTH THE DOMESTIC AND INTERNATIONAL MARKETS. Domestic market improving but lacks financial resources. Why? Structural fiscal rigidities that hamper optimum collection of internal public financial resources Debatable impact of direct foreign investment e.g. private capital flows that repatriate profit not counting as finance for development even if they bring indirect benefits, Also the adverse impact of tax holidays and other fiscal incentives to attract direct foreign investments on domestic resource mobilization Private savings and investment level growing but not significant to make a dent on resource gap in financing inclusive social and economic development Inadequate capacity of domestic financial institutions to cover the broad waterfront of finance for development and capacity building Lack of well developed capital market – Non-bank financial institutions slow to provide alternative sources of capital Despite groundwork laid with reform, financial institutions and financial markets still have to develop capacity to respond to increasing need for finance for development MAIN CHALLENGES (contd)

11. 11 MAIN CHALLENGES (contd) The main challenges in mobilizing international financial resources for inclusive development include: Slow pace of growth of international development assistance especially Official Development Assistance (ODA). Implementation of 0.7% of GNP contribution (about US$250 billion) by G8 as ODA does not appear to be on course. Reality is that ODA figures for development finance are indeed falling, propped only by debt relief and rising emergency aid. Yet ODA has tremendous potential to catalyze mobilization of financial resources by leveraging larger amounts of domestic and foreign capital. Conditionality and other policy preconditions impair availability of limited mobilized resources. They serve more to impose political conditions on development assistance. Lack of financial institutions primarily responsible for mobilizing and coordinating development resources and with capacity to introduce new services and products that unlock development aid. Limited or no engagement with sub-regional and national DFIs instead inclined toward non-financial government agencies with vaguely defined poverty reduction programmes

12. 12 Recommendations (contd) The main objective of the chapters of the Monterrey Consensus dealing with the mobilization and effective use of financial resources is to achieve national economic conditions needed to fulfill internationally agreed development goals as a first step to ensuring that the 21 st Century is the century of development for all. Given that each country is ultimately responsible for its own development, we recommend the following for better domestic resource mobilization: Step up fiscal reforms that will substantially improve the tax base, tax collection and other internal financial resources.

13. 13 Recommendations (contd) Recipient countries in Africa should create investment environments that are in themselves attractive to business by continuing progress on government reforms that have removed many obstacles to investment Strengthen domestic development financial institutions and improve financial sector regulation as microfinance institutions assume greater role in financing for inclusive sustainable growth Better management of resource endowment to increase investments in income and employment creating activities. Expand public-private partnerships especially in infrastructure projects which require substantial financial resources

14. 14 Recommendations For greater international financial resource mobilization, there is need to: International financial system should identify and support national development finance institutions that have demonstrated sound management and a capacity to mobilize resource. Bilateral, multilateral and regional development institutions could offer such support through investments, loans and/or matching grants that increase the opportunities for individuals Establish a framework for achieving investment effectiveness of Foreign direct investment and private capital flows to ensure long term net positive contribution to finance for development. Such a framework must at the minimum have a commitment to a pro-poor agenda and to create jobs through inter-linkages with the domestic economy

15. 15 RECOMMENDATIONS (CONTD) International investors and ODA should take a long term perspective in developing country DFIs that fund MSMEs. International investments in local DFIs provide a stamp of approval raising the profile of lending to DFIs which in itself helps to diversify the DFIs funding base in international and domestic markets. In addition, international investors bring in a global knowledge of best practices and innovation as part of the package. Build development partnerships that increase the volume of ODA while reducing both the suffocating influence of donors foreign and economic policies and the high costs of development assistance administration and technical assistance.

16. 16CONCLUSION The great challenge of the Monterrey Consensus is to address the constraints that limit financial and technical cooperation that can help people to improve their lives. There is a need to build financially robust domestic and international institutions as vehicles that mobilize and channel finance for development. This long term strategic agenda is ambitious. It is achievable however when the domestic and international environments work together to create enabling conditions to increase the capacity of developing countries to absorb and take advantage of global financial resources.

17. 17 Thank you