the exchange rate will be overseen in an orderly way with the rationale for it clearly explained to all stakeholders. i am sure you have all noticed that we have avoided the volatility that characterised the exchange rate in the first half of 2009 and maintained convergence between the official and parallel market rates of exchange for about eight consecutive months now. a recent paper shows that, in countries with relatively thin financial markets like nigeria, a high degree of exchange rate flexibility consistently leads to lower growth. a 50 % increase in exchange rate volatility leads to a 0. 33 % reduction in annual productivity growth ; and a fixed exchange rate could add almost one percentage point to a country like nigeria ’ s annual gdp growth. 3. capital control approaches to prevent foreign “ hot money ” from destabilising the capital markets and the real economy is another initiative under consideration. evidence suggests that external capital flows are highly pro - cyclical and are a source of financial instability. many believe foreign capital flows contributed to the recent credit bubble, as they were increasingly channelled into non - priority sectors of the nigerian economy. some would advise us to institute “ hot money controls ” similar to those put in place by brazil. without ruling this option out permanently, our present thinking is that the bubble in our market was largely driven by leverage from local banks and any actions now to discourage capital flows may be precipitate. we will monitor capital flows but only intervene where they are seen to be a major, or primary, contributor to the problem. 4. in addition to the monetary and macro - prudential initiatives i have just mentioned, the cbn will become a champion to encourage implementation of directional economic policy to improve basic infrastructure, diversify the economy, and increase the investment absorption capacity of priority sectors and support measures that enable sustainable economic growth. we would like to encourage reforms to improve nigeria ’ s business environment, including property rights, rule of law, ease of doing business and investor risk. nigeria scores relatively poorly on the world economic forum ’ s global competitiveness index. factors contributing to nigeria ’ s low gci score include : low efficiency and the lack of independence and transparency of public institutions, infrastructure of insufficient quality, health and education systems deficiencies, low productivity and the brain drain and low technological readiness. comparator countries with higher gci scores tend to have higher gdp per capita. this presents a strong argument for addressing some of the structural weaknesses of the nigerian economy that are highlighted by the gci. nigeria

was indeed a principal factor contributing to the financial crisis. consolidation created bigger banks but failed to overcome the fundamental weaknesses in corporate governance in many of these banks. it was well known in the industry that since consolidation, some banks were engaging in unethical and potentially fraudulent business practices and the scope and depth of these activities were documented in recent cbn examinations. governance malpractice within banks, unchecked at consolidation, became a way of life in large parts of the sector, enriching a few at the expense of many depositors and investors. corporate governance in many banks failed because boards ignored these practices for reasons including being misled by executive management, participating themselves in obtaining un - secured loans at the expense of depositors and not having the qualifications to enforce good governance on bank management. in addition, the audit process at all banks appeared not to have taken fully into account the rapid deterioration of the economy and hence of the need for aggressive provisioning against risk assets. as banks grew in size and complexity, bank boards often did not fulfil their function and were lulled into a sense of well - being by the apparent year - over - year growth in assets and profits. in hindsight, boards and executive management in some major banks were not equipped to run their institutions. the bank chairman / ceo often had an overbearing influence on the board, and some boards lacked independence ; directors often failed to make meaningful contributions to safeguard the growth and development of the bank and had weak ethical standards ; the board committees were also often ineffective or dormant. we have already published details of the extent of insider abuse in several of the banks. ceos set up special purpose vehicles to lend money to themselves for stock price manipulation or the purchase of estates all over the world. one bank borrowed money and purchased private jets which we later discovered were registered in the name of the ceo ’ s son. in another bank the management set up 100 fake companies for the purpose of perpetrating fraud. a lot of the capital supposedly raised by these so called “ mega banks ” was fake capital financed from depositors ’ funds. 30 % of the share capital of intercontinental bank was purchased with customer deposits. afribank used depositors ’ funds to purchase 80 % of its ipo. it paid n25 per share when the shares were trading at n11 on the nse and these shares later collapsed to under n3. the ceo of oceanic bank controlled over 35 % of the bank through spvs borrowing customer