The financial and professional services sector, encompassing banking, insurance, capital markets, asset management, pensions, non-interest finance, FinTech, legal, and sustainable finance services, is a cornerstone of economic growth. While this sector facilitates legitimate financial transactions, and supports economic productivity of the wider economy, it can also be exploited for activities detrimental to the economy, such as money laundering (ML), terrorist financing (TF), and proliferation financing (PF). These illicit activities pose risks not only to local economies but also to global financial stability. To mitigate such risks, international bodies like the Financial Action Task Force (FATF)—formed by the G7 in 1987—establish standards and monitor compliance to safeguard the financial ecosystem. FATF’s lists of jurisdictions under increased monitoring (Grey list) or high-risk jurisdictions (Black list) identify countries with strategic deficiencies in combating financial crimes. As of October 2024, three countries/jurisdictions were in the Black list and 24 countries/jurisdictions in the Grey list, including a quarter (14) of countries in Africa, namely Algeria, Angola, Burkina Faso, Cameroon, Cote d’Ivoire, Democratic Republic of Congo, Kenya, Mali, Mozambique, Namibia, Nigeria, South Africa, South Sudan and Tanzania. Being on the FATF’s Grey list could have many significant negative implications, particularly for the two larger economies in Sub-Sahara Africa, Nigeria and South Africa, which were recently added to the list, in October 2023. Grey-listing implies a high-risk profile and projects a poor image to the rest of the world, thereby reducing the ability of the grey-listed country to effectively engage in financial and economic exchanges and possible partnerships and collaboration. Significant negative economic subsequence of grey-listing include: Reduction in Cross-border Transactions and Investment Inflows: Cross-border payments to grey-listed countries could decrease significantly due to increased scrutiny by international financial institutions. An analysis of financial institutions’ exchange data from the SWIFT Institute indicates a 10% reduction in cross-border payments in countries/jurisdictions under increased monitoring (i.e. grey-listed) – (Collin, Cook & Soramaki, ‘The Impact of Anti-Money Laundering Regulation on Payment Flows: Evidence from SWIFT Data’, (November 28, 2024), available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2893790). Grey-listing also reduces financial resources allocated to grey-listed countries by international market actors. The liabilities (investments from international business actors) of financial institutions in the grey-listed nations reduced to as low as 15% – 16% – (Julia Morse, ‘Blacklists, Market Enforcement, and the Global Regime to Combat Terrorist Financing’, (November 28, 2024), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3348622 ). When the Philippines was listed in 2010, its average cross-border liabilities per quarter were $11.5 billion. By 2012 its liabilities had reduced to $8.7 billion and rebounded to pre-listing level by 2014; the country was removed from the list in June 2013. A study estimated that grey-listing could reduce capital inflows by as much as 7.6 percent of GDP annually. In the period when Botswana was listed (2018 – 2021) – (Kida & Paetzold, ‘The Impact of Gray-Listing on Capital Flows: An Analysis Using Machine Learning’, (November 28, 2024), available at https://www.imf.org/en/Publications/WP/Issues/2021/05/27/The-Impact-of-Gray-Listing-on-Capital-Flows-An-Analysis-Using-Machine-Learning-50289), FDI in the diamond sector plummeted and transactions by asset managers with offshore portfolio pension funds became limited – (KPMG South Africa, ‘The Financial Action Taskforce Grey Listing is possible… are you prepared for it?’, (November 29, 2024), available at https://assets.kpmg.com/content/dam/kpmg/za/pdf/2022/the-financial-action-task-force-10.pdf ). When Mauritius was grey-listed in 2020, the Reserve Bank of India halted licenses applications of non-banking financial companies (NBFC) affiliated with Mauritius-based venture capital and private equity funds – (Digbijay Mishra, ‘RBI blocks NBFC plans of Mauritius funded startups’, (November 29, 2024), available at https://timesofindia.indiatimes.com/business/india-business/rbi-blocks-nbfc-plans-of-mauritius-funded-startups/articleshow/77360368.cms). Reduced Development Assistance and High Borrowing Cost: Grey-listing creates perceptions of weak institutional frameworks, discouraging development partners and donor agencies from providing aid. It could also raise risk assessment costs for a disbursement. The International Monetary Fund (IMF) required Pakistan to be removed from the FATF’s Grey list as part of the conditions for a $6 billion bailout programme in 2018 – (Caitlin Maslen, ‘The Impact of Grey-listing by the Financial Action Task Force (FATF)’, (November 28, 2024), available at https://www.u4.no/publications/the-impact-of-grey-listing-by-the-financial-action-task-force-fatf.pdf). Decline in Economic Growth: The combined impact of reduced investments, exports, and remittances diminishes overall economic performance. Between 2008 and 2019, the periods Pakistan was grey-listed – (Pakistan was grey listed 2008, 2012 and 2018), it recorded an accumulated gross domestic product (GDP) loss, approximately $38 billion, alongside declines in FDI and exports to $3.6 billion and $4.5 billion, respectively – (Naafey Sardar, ‘Bearing the Cost of Global Politics: The Impact of FATF Grey-Listing on Pakistan’s Economy’, (November 28, 2024), available at https://www.tabadlab.com/wp-content/uploads/2021/02/Tabadlab-Working-Paper-07-Bearing-the-Cost-of-Global-Politics.pdf). Loss of Correspondent Banking Relationships: FATF’s grey-listing could cause exclusion of local banks from the international banking system and loss of correspondent banking relationships. As of 2022, when Zimbabwe exited FATF’s Grey list, the Zimbabwean banks had lost at least 100 correspondent banking relationships and were challenged to establish new partnerships with any international banks – (Mhlanga & Nyamuziwa, ‘Non-compliance led to loss of correspondent banking deals’, (November 28, 2024), available at https://www.newsday.co.zw/business/article/200017815/non-compliance-led-to-loss-of-correspondent-banking-deals). Nigeria being grey-listed could increase scrutiny and due diligence costs for international businesses, adding more pressure to heightened business operations costs – (S&P Global, ‘Nigerian Banking Outlook 2024’, (December 11, 2024), available at https://www.spglobal.com/_assets/documents/ratings/research/101592100.pdf). According to the National Bureau of Statistics, FDI decreased by 33% and 19% in 2022 and 2023, respectively. The country recorded a decrease in annual non-oil exports by more than $300 million in 2023 – (Kelvin Okojie, ‘Nigeria’s Non-oil Exports Drop to $4.5 billion in 2023, Says NEPC’, (December 11, 2024), available at https://businessday.ng/news/article/nigerias-non-oil-exports-drops-to-4-5bn-in-2023-says-nepc/). There is a likelihood that these were influenced by the country’s grey-listing status. While Grey-listing presents challenges, it can also catalyse reforms. Strengthening AML/CFT systems can improve transparency, governance, and global confidence, attracting investments in the long term. For example, Mauritius, after being grey-listed in 2020, leveraged the opportunity to enhance its financial systems and emerged stronger within 18 months. What lessons can Nigeria and other African countries learn from Mauritius, to navigate out of the FATF’s grey-listing and minimize its impacts? Leaning on Mauritius’s exist strategy, there are six focus areas that any country can prioritise for impact: Political Commitment: A unified, high-level commitment led by… Continue reading Navigating Out of the Financial Action Task Force’s Grey-listing: Lessons for Nigeria
Tag: Financial and Professional Services Sector
Showcasing the Immense Potential of Nigeria’s Financial and Professional Services Sector at WAIFC AGM in Tokyo
Showcasing the Immense Potential of Nigeria’s Financial and Professional Services Sector at WAIFC AGM in Tokyo In line with our commitment to champion collective advocacy for the development of Nigeria’s Financial and Professional Services (FPS) sector, EnterpriseNGR‘s CEO, Obi Ibekwe, played prominent roles at the World Alliance of International Financial Centers (WAIFC) Annual General Meeting held last week in Tokyo, Japan. Obi, a WAIFC Board Member, delivered two impactful presentations highlighting Nigeria’s growing FPS landscape and the opportunities for investment in the country at adjoining events of the AGM. In her first presentation, titled “Unlocking Opportunities in Africa’s Most Populous Economy”, she highlighted key investment opportunities in Nigeria, promoting our agenda to position Nigeria as the premier financial services centre in Africa. Her second presentation titled “Art and Finance: The Nigerian Perspective”, showcased the intersection between Art and Finance and how Financial Institutions and government collaboratively support the growth of the creative sector in Nigeria. EnterpriseNGR is dedicated to leveraging international collaboration and innovation to promote Nigeria’s FPS sector. The Sector comprises Banking, Insurance, Capital Markets, Asset Management, Pensions, Non-interest Finance, FinTech, Professional Services (Legal Services, Accounting and Management Consulting), and Sustainable Finance. We remain dedicated to promoting Nigeria’s potential and leveraging strategic partnerships to enhance the FPS sector’s growth. We welcome more organisations to join us in this noble cause to unite the voice of the Sector.
Lagos City Branding: Boosting Nigeria’s Economic Growth
To grow the domestic economy, nations, among other things, depend on inflows of investments, talent, and tourists from around the world. However, only a few locations are ranked in the top destination list of investors, tourists, and visitors despite the enormous social and economic asset base that nations possess. Most times, countries’ reputation poorly matches their actual position because of misrepresentation and lack of awareness by the global audience. Most of the countries that make it to the top destination lists have to leverage the power of destination branding to create a unique sense of place. Destination branding starts with the goal of developing a distinctive positive image of a location, leveraging dominant attributes like art, culture, lifestyle, value, history and heritage, natural and built environments, landmarks, and the economy that will appeal to the international audience and make the destination more desirable. Today, cities are branded like commercial products: numerous examples abound, from Paris to New York, Glasgow, and the Maldives to Mauritius. Paris, regarded as the world’s most romantic city and a haven for foodies and fashion lovers, leverages many factors, including fashion, art, sports, cultural movements, and iconic landmarks like the Eiffel Tower, Pont du Gard, near Marseille, Place de la Bourse, Bordeaux, Arc de Triomphe, Chateau de Versailles, and Notre-Dame de Paris to achieve a global destination status. This example illustrates how a city’s identity can be a powerful magnet, drawing people, businesses, and investments. New York leveraged the “Big Apple” moniker for a tourism campaign that transformed the city. In 1977, the city embarked on an advertising drive and embraced a campaign with the iconic logo, “I ♥ NY”. The campaign’s success resurrected the city’s image and breathed new life into a tarnished reputation. Also, the city’s significant infrastructure and vibrant financial sector, and arts and culture play a critical role in its larger-than-life reputation. Glasgow adopted a different city branding approach. The city embarked on a crowd-sourced brand identity — “People Make Glasgow” — inviting voices from around the world to shape its brand. The success of the campaign laid in both the slogan and active social media engagements. The “Great Campaign” refers to a series of marketing initiatives launched by the United Kingdom to promote the country’s strengths and assets on the global stage. These campaigns are aimed at attracting international business, tourism, investment, and talent to the UK. The campaigns highlight various aspects of the UK, such as its culture, education, innovation, creativity, and business opportunities. The campaign has been very successful to highlight Great Britain and Northern Ireland as an exciting destination. The Maldives became one of the world’s leading tourist destinations because the Island country recognized the importance of the tourism sector. In 2011, the Island launched a tagline “Maldives…Always Natural” to reflect its eco-friendly environment. In 2020, the Island rebranded to “Maldives…the Sunny Side of Life.” The campaigns carried the message of an Island with tropical paradise and hospitality. The country used them to showcase different aspects of destination experience, marine life, water sports, wellness and leisure, and high-end luxury private Island resorts. Like many other countries, Mauritius purposefully developed its tourism sector and embarked on local and international campaigns and fairs. Tourism now plays a key role in the country’s foreign direct investment, growth, and development. Destination branding is the hallmark of the investment attraction strategy of the tourism sector to promote the growth and development of the domestic economy. The travel and tourism sector is one of the largest economic sectors, contributing $7.7 trillion to the global economy in 2022; the sector’s contribution was projected to reach $9.5 trillion in 2023 and $15.5 trillion by 2033, representing 11.6 percent of the global economy.[1] The sector is responsible for one in 11 jobs globally, with a total employment of over 295 million as of 2022, and overseas visitors spent a total of $1.1 trillion. At the country level, the contribution of the travel and tourism sector is likewise outstanding. Based on the latest statistics from the World Bank, as of 2019, the number of arrivals in France was 217.9 million, 165.5 million in the US, 40.9 million in the UK, 22.3 million in the United Arab Emirates, 19.1 million in Singapore, and 14.8 in South Africa.[2] The impact of destination branding transcends the travel and tourism sector; successful destination branding benefits trade and investments, businesses, and other economic activities. It facilitates the competitiveness of a location, promoting higher perceived value for goods and services that favours businesses — some visitors and tourists do not shy away from paying a premium for products and services at the destination city. Cities in the Economist Intelligent Unit’s top ten most expensive cities list in 2023, including Singapore, New York, Hong Kong, Paris[3] equally have the highest number of tourists by arrivals. The opposite is also true; Tehran, Ahmedabad, Lagos, Chennai, and Buenos Aires, in the bottom ten positions of the list, are among the least visited cities. Famous cities attract other benefits, including preferred locations for businesses and headquarters of global corporations, high concentration of flow of goods and services by air, land, and sea transports, talent attraction, major global events, and global influence, among others. With many resources and opportunities to leverage, Lagos has the potential to tip the scale for Nigeria’s economic development, riding on destination branding and actively showcasing national strengths on the global stage. According to the World Population Review, Lagos with a population close to 17 million, is the largest city in Nigeria, 3rd and 14th largest in Africa and the world, respectively. The state has rapidly evolved into a pivotal economic and cultural hub in West Africa. Multinational companies span sectors such as banking, insurance, telecommunications, oil and gas, and professional services (accounting, consulting, and legal), and the dynamic business environment with a community of expatriates, establishing Lagos as Nigeria’s economic epicenter and commercial nerve centre. Some of the notable attractions in the city include one of the largest and busiest seaports in Africa,… Continue reading Lagos City Branding: Boosting Nigeria’s Economic Growth