Where have foreign banks in Nigeria gone? Market structure, competitive intensity and the capabilities of Nigeria banks

ABSTRACT

Privately-owned Nigerian banks hold 94% of Nigeria banking assets, the world's second largest share of local ownership. Theoretical explanations for the dominance of local firms related to liabilities of foreignness do not explain this phenomenon, as foreign banks do not experience additional costs compared to local Nigerian banks. In search for explanation, we focus on market structure, competitive intensity and their impact on capability development. In-depth exploratory study of Nigeria banking industry, based on interviews with industry experts and practitioners, supplemented by secondary data, suggests that government policies towards both foreign and Nigerian banks resulted in market structure and competitive dynamics that were conducive to capability development by Nigeria banks, whose strength arrested foreign entry. The study throws light on a regulatory approach that incentivizes capability development via discipline imposed by markets rather than by direct government intervention in the form of protectionism or favorable resource provision. It highlights the merits of studying phenomena that are inconsistent with existing theories for theory extension and development.

KEYWORDS:

• market structure
• competitive intensity
• government policy
• foreign and domestic firms
• Nigeria banks

Notes on contributors

Lilac Nachum is professor of International Business, Baruch College, City University, New York. Her current research interests include global supply chains and value creation in a global world, emerging market MNEs, and the relationship between firms, society and governments as they shape the international strategies of firms. Her research in these areas and others have appeared in the Academy of Management Journal, Strategic Management Journal, Management Science and the Journal of International Business Studies, among others, and has been awarded several recognitions, most recently the AIB 2017 Best Paper Award of the Research Method Division. At various periods she served on the editorial boards of the leading journals in strategy and international business. She has held visiting positions at universities around the world and consulted with firms and governments on issues related to globalization and multinational companies. She is a Fellow of the Academy of International Business.

Chris Ogbechie has a first-class honors degree in mechanical engineering from Manchester University, an MBA from Manchester Business School and a PhD in Business Administration from Brunel Business School in the UK. He has vast experience in marketing, strategy and corporate governance derived from his work as Head of Marketing/Sales at Nestlé Nigeria and from his consulting work with Nigerian, Ghanaian and Kenyan firms over the years. While at Nestlé, he held international positions in Malaysia, Singapore, and Switzerland. Professor Ogbechie teaches strategy, sustainability and corporate governance at the Lagos Business School and Strathmore Business in Nairobi, Kenya; he is also the founding Director of the School’s Sustainability Centre. His research interests are in strategy in turbulent environments, strategic leadership, board effectiveness, and corporate sustainability. Professor Ogbechie has been involved with several start-ups, he was Chairman, Board of Directors, Diamond Bank Plc and is on the board of several private and public companies including Red Star Express Plc (FedEx), National Salt Company of Nigeria Plc. (NASCON), Health Partners and Palton Morgan Holdings. He has several publications in financial services marketing, strategic planning, corporate social responsibility, and corporate governance.

Notes

1. We acknowledge the decline of global banking in the aftermath of the 2008 financial crisis and the regulatory restrictions that followed that had undermined much of the rationale for these activities. The dearth of foreign banks in Nigeria however characterized the local industry long before the crisis.

2. Lord Haily called Nigeria “the most artificial of the many administrative units created in the course of the European occupation of Africa”. Margery Perham referred to it as an “arbitrary block” carved out of Africa. A prominent Nigerian politician concurred: “God did not create Nigeria. The British did.” (quoted in Ellis, 2016).

3. Wikipidia list of countries by English speaking population. https://en.wikipedia.org/wiki/List_of_countries_by_English-speaking_population Retrieved 11/2016.

4. In most SSA countries the market capitalization of local banks is too small to meet the financial needs of the local economy, creating a gap in financing options and acting as a serious barrier to economic development. South Africa and Nigeria are the only two countries in SSA whose stock market value in 2017 exceeded $30billion (Yartey & Adjasi, 2017; PWC, 2018). We thank an anonymous referee for pointing out this important issue.

5. All SSA countries for which data are available from Barth et al., 2013. Ownership levels are 50% or more.

6. We prefer the Barth et al. data over those published by the World Bank because Barth et al. provide data on government ownership and enable us to distinguish between private and government ownership, a distinction that notable of assets and number of banks that challenge the interpretation of the data. As Barth et al. point out, they have taken great care to remove inconsistencies from their dataset (Barth et al., 2013, p. 3).