The most important presidential election in Africa in 2019 is finally about to happen. And as expected, many people are agitated, especially members of the two main political parties in the country who are making last minute efforts to ensure that their flag bearers win.
A winner will, indeed, emerge after Saturday’s election. And whoever that might be, their job is already cut out for them. They will be expected revive and position the economy of Africa’s most populous country which, for the most part, has leap-frogged over the past four years. It is needless to say that the incumbent President, Muhammadu Buhari, has been unable to accomplish this between 2015 and now. Does he need another four years to try again?
A failed promise?
Recall that prior to the 2015 presidential election that defeated People Democratic Party’s Goodluck Jonathan, the then All Progressive Congress’ flag bearer, Muhammadu Buhari, made a lot of promises. One of these promises was about revamping the economy and specifically making sure that it grew at the rate of 10% per annum. This promise was never fulfiled, not even once in the course of four years.
Instead, the country’s Gross Domestic Product contracted for the most part, with rising inflation rates, and the consequent hunger and poverty gripping much of the population. According to recent statistics from the Nigerian Bureau of Statistics (NBS), unemployment rate in the country also kept rising; increasing from 18.8% in Q3 2017 to 23.1% in the same period last year.
And as always, the country’s young population was mostly affected by this.
Meanwhile, the Government was ‘fighting corruption’
The Muhammadu Buhari-led administration focused a lot on its fight against extreme corruption in the Nigerian system. And while this is not a bad thing to do (seeing as corruption is basically the bane of the society), some have argued that the Presidency put in a lot of effort into this whilst accomplishing very little result. According to a Professor of Nigerian Politics at the Department of Political Science, University of Ibadan, who chose not to be named:
“This Government wasted four whole years deceiving Nigerians in the name of fighting corruption. Tell me one positive outcome of his so called corruption fights. We all know that he wasn’t fighting any corruption. Instead, he used that slogan as a veil for his political vendetta, targeting political opponents while leaving those in his party untouched. Oh yes, he is harbouring some of the most corrupt politicians in his party, yet determined to allow rival politicians like former National Security Adviser, Col. Sambo Dasuki, to perish in detention.”
To be fair, the Government initiated favourable economic policies
The Economic Recovery Growth Plan, ERGP, can arguably be said to be President Buhari’s most prominent economic policy. This Federal Government policy was conceived as an all-inclusive development initiative, which was supposed to help restore economic growth in Nigeria by investing in the citizens and also building a globally competitive economy.
Expectedly, this policy had a lot of components which ranged from stabilising the macroeconomic environment, to achieving food security, ensuring sufficiency in electricity supply, driving industrialisation, diversifying the economy, and ensuring overall development.
The introduction of the Voluntary Asset & Income Declaration Scheme, VAIDS, is one component of the ERGP. And the successful implementation of the scheme, to a large extent, helped to revive the effectiveness of the country’s tax collection system. As a matter of fact, the Federal Inland Revenue Service, FIRS, said in December last year that it had generated as much as N5.3 trillion from tax collection. This is an all-time-high record, by the way.
The relative success recorded with VAIDS has helped the Government to maintain its public debt level at a relative low of 21% of the GDP. Little wonder the CIA World Factbook classifies the country as having one of the lowest public debt levels in the world.
In the same vein, the Government has tried to shift away from borrowing by issuing billions of dollars’ worth of Eurobonds in the past few years. However, to sustain this trend, the Government will have to actually perform the all-important task of diversifying the economy because this is the only way it can improve corporate performance and unlock private credit, just like the International Monetary Fund, IMF, had advised in the past. However, doing this depends entirely on whether or not Buhari wins this all-important election.
But not everyone is a fan of the ERGP
Still on the Economic Recovery Growth Plan, macroeconomic indicators have fluctuated between Q2 2017 when the initiative was launched, and December 2018. For instance, latest GDP figures published earlier this week by NBS shows that the country’s Gross Domestic Product increased at the rate of 1.93% year on year.
While this is good news for the President Buhari administration, the truth is that it hasn’t always been this nice. In 2017, the GDP rate stood at 0.8%, and in 2016, it was -1.6%. When compared, therefore, with the 2015 figure which stood at 2.7%, it becomes obvious that the latest GDP figure isn’t something to dance about, after all.
Moreover, some Nigerians do not exactly feel the impact of the so called increase in GDP. Take for instance, a small business owner at Computer Village, Lagos, who identified himself as Mr Ebenezer, was asked if he thinks the latest GDP figure is indicative of good things to come. He said no, because he never gets to feel the impact when the economy is supposedly doing well, only when it is not.
“From 2015 till around early 2017, most of us were affected by the worst economic recession this country ever experienced in years. Again, that affected us all, and the CBN did not even help the situation with its controversial FX policies. So, how come after we felt the recession and the inflation, we are not feeling the rise in GDP? I mean, this is common-sensical, right? We see people suffering in abject poverty. We see unemployed graduates and we experience epileptic power supply. And here they are, presenting statistics to show that things are better when they are not. Who are they deceiving?
“We need to vote out this Government by all means and allow someone else the chance to try and restore the economy. Apparently, the APC has tried at this but failed. Now, we need someone who can achieve tangible results instead of dishing out unsubstantiated statistics.”
The main opponent, Atiku Abubakar, who could defeat the incumbent, is no angel
Today, many Nigerians are very critical of Nigeria’s current Vice President, Professor Yemi Osinbajo, who has basically been the poster child for some of the Government’s economic policies. After all, it has been him who has gone all over the country talking about the millions of jobs the Government supposedly created over the past four years. Moreover, it is the Vice President who has been busy launching the Government’s TraderMoni initiative, which Transparency International recently branded a vote-buying scheme.
But while we criticise Professor Osinbajo, let us not forget so quickly that a former Vice President with a far worse damning political past, is now at the forefront of the race to head the most important position in the country. You guessed that right, we are now talking about Alhaji Atiku Abubakar, the presidential flag bearer of the People’s Democratic Party, PDP. Many see him as a strong contender, who could potentially defeat the incumbent president. And they are right because, not only does Alhaji Abubakar have the political experience and clout, he is also preaching some economic messages which some voters seem to like. But is he really the man that can lead Nigeria to Eldorado?
Agreed, former Vice President, Atiku Abubakar is an astute businessman, whose many business concerns have provided jobs for many Nigerians. But he is also a man with a sketchy past, whose alleged transgressions were supposedly so much to the extent his former boss, President Olusegun Obasanjo, “disowned” him. Ever since 2007 when he left office as Vice President, Mr Abubakar has been trailed by many corruption scandals; none of which he has been convicted of anyway.
Does he plan to continue the job he left uncompleted as VP?
One of Alhaji Abubakar’s most important assignment as Nigeria’s Vice President was to supervise the National Council on Privatisation, which sold off many under-performing and ill-managed state-owned companies. While the privatisation drew widespread criticism back in the early 2000s when it was happening, many praised the process. And now, Alhaji Abubakar has promised that one of his economic policies as Nigeria’s president would be to, among other things, reform public institutions. The man specifically has his eyes set on the Nigerian National Petroleum Commission, NNPC, which he accused of operating as a mafia, at the expense of the Nigerian public.
In the meantime, while Alhaji Atiku’s proposed economic agenda for Nigeria enjoys support from some people, it has also been criticised by some. These proposed policies include monetary and fiscal reforms such as floating the naira, positioning the manufacturing sector, solving the country’s epileptic power problem, actualising public-private partnership for the country’s infrastructure, etc. All these are election promises which may never even get fulfilled if he wins. But then again, can he actually win?
In conclusion, Saturday is Election Day
From all indications, Saturday’s presidential polls is definitely going to be a keenly contested one. And whoever becomes victorious at the would be expected to accomplish quite a lot; doing everything possible to position the Nigerian economy for success. Indeed, the winner will be expected to diversify the country’s economy, drastically reduce the unemployment rate through the creation of actual jobs of various kinds, and also, ensure a reduction of the country’s inflation rate, etc.
The inability to accomplish these and more would amount to failure. And Nigerians do not deserve to experience more of such. Therefore, as the candidates and their political parties ready themselves for Saturday, they should also bear in mind that the task ahead is a serious one. If they are not prepared to deliver, it is never too late to stand down.
Central Banks Digital Currencies (CBDCs) – a Gift or a Curse?
Should we expect a CBN announcement on e-Naira soon?
China recently became the first MAJOR economy to create its Central Bank Digital Currency (CBDC).
Specifically, China’s CBDC has gone from the testing phase to actual implementation. Such that the digital yuan is now ready for use in regular transactions. The expectations are that by the time athletes gather for the upcoming Winter Olympics, visitors to the country can pay for a wide range of goods and services using the Digital Yuan. (Think about using government digital currency to settle Hotel and Restaurant bills, Taxi rides, etc.).
Across the world, Central Banks are racing to implement Central Bank Digital Currency (CBDC). The latest BIS 2021 survey identified that 86% of Central banks are engaged in developing a CBDC.
In this article, we ask the question: What exactly are Central Bank Digital Currencies (CBDCs), and why are so many central banks are working towards their implementation?
What is a Central Bank Digital Currency (CBDC)?
Specifically, CBDCs are legal tenders issued by a country’s central bank which will only ever be available in digital format AND will be acceptable from day one for payments of goods and services once implemented.
Fund settlement will be facilitated by the issuing Central bank who may / may not choose to partner with an approved list of institutional counterparties. The Bank of International Settlements (BIS) has a more technical definition here.
For the avoidance of doubt, CBDCs are neither the same as Electronic Funds Transfers (EFTs) nor are they Cryptocurrencies. Despite many similarities such as contactless settlement between counterparties, key differences are that Central Bank Digital currencies are legal tender AND represent a direct claim on a central bank by end-users.
- So, if you are one of those people who likes to “spray” very crispy notes at Owambe… better be prepared as with digital currency, you will never see any physical notes to “spray”.
Which countries have CBDCs on the horizon?
The latest BIS 2021 survey of 65 central banks identified that 86% of Central Banks are engaged in developing digital currencies. Out of which 60% of central banks have begun research work whilst 14% of central banks are already in the pilot and proof of concept phase.
- Bahamas (Sand Dollar), China (Digital Yuan), and Sweden (e-Krona) are the nations most advanced with implementation.
How will the CBDCs work?
For now, each Central Bank is determining its own scope and CBDC functionality as there is no standard global framework regarding infrastructure requirements and functionality scope (e.g. some central banks simply want to focus on domestic payments whilst others want both domestic and international payments focus).
However, having said that, the underlying workflow will likely be similar across the world, in the sense that workflow will include solutions on distribution and utilization.
- Distribution: Central Banks will create the digital currency and permit a list of commercial banks to access to the central payment network for onward distribution to end customers. Given that CBDCs are digital, the Central Banks will be able to track exactly who is holding how much of their currency and how exactly their currency is being spent.
- Utilization: End-users will have a tool (e.g. digital wallets) to help them be aware of their CBDCs balances. Further, these wallets can be presented (i.e. scanned) at participating locations for transaction settlements (think QR codes on a phone app).
In other words, as a CBDC end-user, you only need access to the internet and electricity for spending. Intermediaries such as SWIFT will be bypassed. (You can read more about how the digital yuan will work here).
Why are so many Central Banks rushing into CBDCs?
Firstly, faster cross-border trade settlements / International Trade ambitions:
The widely accepted use of CBDCs will facilitate faster cross-border settlements between participating counterparties. Regardless of your location, there will be less need to convert from local currencies into reserve currencies such as USD, GBP, EUR, and vice versa via financial intermediaries.
Additionally, for a country such as China which has long sought to expand its global reach in international trade, the digital yuan provides mouth-watering opportunities.
- As a simple example, for international trade facilitation, end-users of smartphones built by Chinese-owned phone companies can potentially be enabled to access the Digital-Yuan, and that digital yuan can be spent with Chinese-owned firms across the world. These payment transactions can take place on the People’s Bank of China (PBOC) controlled network and bypass any existing financial intermediary (you can read more about digital yuan opportunities here).
Secondly, from a domestic perspective, CBDCs will be a potential game-changing macro-economic tool.
For countries not interested in global trade dominance, digital currencies offer Central banks an exciting opportunity to transform monetary policies. Specifically with regards to financial relationships and money transmission mechanisms (too much grammar but we have all heard of stimulus and intervention funds!!)
Under the current state, when a Central Bank wants to increase or decrease money going into the hands of consumers, it does so via a range of tools (i.e. alter interest rates, set reserve ratios, buy/sell short-term instruments, etc.). Unfortunately, this current approach has some limitations which include:
- Transmission mechanisms: Despite all the tools available to Central Banks, they ultimately rely on financial intermediaries (i.e. banks). Existing monetary policy tools simply aim to influence commercial banks to increase or decrease the amount of money/funds available for onward lending to end consumers.
- These tools, as well as, associated end-user responses may not often work as fast as Central Banks would like. As an example, most bank customers will tell you that loan application processes can be extremely cumbersome and sometimes subjective.
- Also, think about folks in remote areas who truly need credit for their business expansion but are not financially included or are not able to complete the plethora of loan application forms or are missing IDs for authentication, etc.
- All these limitations create latency challenges for Central Banks looking to influence macroeconomic indicators quickly.
- Monitoring: Under the current approach, it is cumbersome for Central Banks to continually track existing money in circulation and utilization purposes. Think about CBN intervention funds and how difficult it is for the CBN to know exactly how its intervention funds are being spent once the funds are disbursed to applicants.
Fortunately, with digital currencies, given that they leave digital footprints, Economic Surveillance is facilitated (i.e. Central banks can monitor exactly who owns how much and what it is being used for); arguably giving Central Banks an opportunity to better direct funds to parts of the economy requiring support.
Thirdly, Technology advances driving the growth of the Digital Economy and lowering operating cost dynamics.
- The unrelenting growth of the Digital Economy: The use of physical cash continues to decline driven by the exponential growth of contactless services such as e-commerce (Amazon, Alibaba, eBay), contactless interaction (Zoom, Facebook-Portal, Google-Nest), etc.
- Global eCommerce is now projected to be over 25% of total retail sales across the world and the US estimates that Digital Economy accounted for 6.9% of 2017 GDP which made it the seventh (7th) largest component of GDP and still growing.
- Given that no one needs physical cash for transactions in the digital economy, Central banks are warming up to the need to implement CBDCs for transactions in this emerging digital economy.
- Changing unit cost dynamics: From a central bank perspective, there are significant costs incurred for maintaining oversight of existing payments and settlement systems. Furthermore, there are additional costs for creating cash, transporting, storing, and securing existing stock of physical cash. As existing systems become outdated and population growth continues apace, there will be an inflection point for when it will simply be cheaper to create digital currencies to drive financial inclusion. Especially as cloud computing processing capacity continues to expand at a cheaper unit cost.
Are there risks/issues to be concerned about with Digital Currencies?
The answer is yes, whilst there are benefits, there are also some risks and concerns such as the risk of excessive Economic Surveillance, Privacy concerns, ease of implementing, and Negative Interest (aka financial wealth tax).
Economic Surveillance can easily be a double-edged sword especially in the hands of an authoritarian regime, as an increased level of economic oversight can easily lead to financial repression or targeting opponents. However, just like with CCTVs, the risk of misuse cannot be a unilateral reason to discredit the opportunities available with CBDCs. (You can read more about concerns here)
So, what about Nigeria?
The Central Bank of Nigeria (CBN) was not included in the BIS 2021 survey, additionally, the CBN has not formally outlined its position on whether it plans to implement a Central Bank Digital Currency in the future (e-Naira).
However in February 2021, (as part of its explanation of its regulatory directive on Cryptocurrencies), the CBN acknowledged the emerging trend of Central Banks’ ability to issue legal tender digital currencies.
Nairametrics founder, Ugodre mentioned on his Twitter Spaces show “OnTheMoney” that a senior official at the CBN informed him that the Apex bank was seriously considering digital currency and had put together a team to explore its possibilities.
So, should Nigerians expect an e-Naira soon?
Firstly, with regards to innovation, the Nigerian payments landscape continues to evolve rapidly as the CBN drives innovation as part of its National Financial Inclusion Strategy (NFIS). Thus far, this strategy has resulted in the deployment of new products in the Nigerian payments space such as Money Market Operators (MMOs), Payment Solutions Service Providers (PSSPs), Agent/Super Agents, Payment Service Banks (PSBs), etc.
Consequently, having a digital Naira should not be ruled out as an additional tool to drive financial inclusion in Nigeria,
Secondly, based on industry statistics, Nigerians are quick to adopt technology that facilitates convenience at minimal cost to end-users.
- Specifically, CBN payments statistics reports show that the use of cash and ATMs in Nigeria continues to decline rapidly. The latest annual report shows Cash/ATM usage has declined from 18% of transactions in 2015 to 6% of transactions in 2019. In other words, 93% of activity was done electronically (across platforms NIP, REMITA, MMO, etc).
- Furthermore, NCC reports show high penetration rates for mobile technology with over 195 million active mobile phone subscribers (95% penetration) and 150 million internet subscribers (73% penetration rate).
These reports lend credence to the perception that Nigerians are quick adopters of new technology where the technology enhances convenience at minimal cost to end-users.
Consequently, a digital Naira will likely have high adoption rates to the extent that end-users do not expect to incur additional onerous charges.
Finally, from a CBN perspective, we already know that the APEX bank prefers direct interventions as part of its macroeconomic toolkit. Arguably having a digital Naira (e-Naira) allows the CBN to better facilitate direct transmission to target beneficiaries in key sectors, whilst monitoring the use of the funds disbursed, and expedite recovery when funds are due for repayment.
So, should we expect a CBN announcement on e-Naira soon? Your guess is as good as mine.
Why SEC should support democratization of sale of foreign securities
In the spirit of progressive engagement and dialogue, many voices now suggest that the SEC take a fresh look at its latest position.
The directive of the Nigerian Securities and Exchange Commission (SEC), issued 8th of April 2021, has been met with consternation and a straightforward (but hopefully simplistic) interpretation that; “the government is out to stifle innovators, again.”
These perspectives aren’t unfounded, as innovators of all shades have taken a heavy beating lately due to a number of direct government policies or interpretations of these policies – irrespective of how well-intentioned these policies may be. On the contrary, micro-investment platforms deserve a fair shot within Nigeria’s capital market.
This is especially true considering that the recent regulatory fervour coincides with a period where the innovation ecosystem is recording new milestones and gaining traction, solving problems for users in all walks of life, democratizing wealth creation, and creating high-value jobs, all of which Nigeria desperately needs.
In the last six months alone, Nigerian startups have gained the confidence of some of the best investors locally and globally, leading to never-before-seen innovations, acquisitions, and investments into the economy. This promotes interest in the Nigerian innovation ecosystem from foreign market actors and increases its relevance as a high-value job creator. Some now wonder if our regulators want more or less of this positive momentum.
This latest notice from the SEC warned Capital Market Operators (CMOs) to desist from selling securities not quoted or registered, as only registered securities in Nigeria can be issued, sold, or offered for sale. Ostensibly, the directive requires CMOs registered with the SEC to offer only securities listed on any exchange in Nigeria to the public.
The challenge here is that High Net worth Nigerians (HNIs) have always had access to foreign securities offered or acquired through registered CMOs for the apparent benefit of the upside available in markets such as the United States. This should be democratized to allow Nigerians with smaller incomes to have access to valuable global stocks within fair rules, and this is what the likes of Trove, Chaka, Bamboo, and Risevest have done. In fact, this democratization should be applauded as one of the outputs of a thriving innovation ecosystem that provides practical
palliatives for the stifling inflation and erosion of value we have all experienced as Nigerians.
After all, what is suitable for Dangote should also be good for Musa, who earns NGN50,000.00, and thanks to any of the apps mentioned above, can today invest in shares of Dangote sugar while also adding a quarter of a Google stock to his portfolio every month. This “magic” of innovation is a poverty alleviator that should be encouraged and nurtured while ensuring that the public is protected from any harmful financial practices.
It is important to acknowledge at this point that the SEC has been a positively progressive regulator, generally engaging its public fairly. The issuance of the guidelines for crowdfunding and accommodation of FinTechs within the capital market was encompassing and engaged stakeholders of all hues. This should be commended. The SEC’s position classifying crypto as an asset class is also fair, refreshing, and proactive. We need more of this and not less.
At a time when we are exploring how the Nigerian capital markets can become a viable option for listing tech startups, this latest body language of the SEC, and the Nigerian government as a whole can be further misinterpreted.
In the spirit of progressive engagement and dialogue, many voices now suggest that the SEC take a fresh look at its latest position, as these innovations are widespread, publicly accepted, and valuable. Furthermore, these innovations support some of the registered and regulated CMOs by offering white-label solutions that are accelerating the ability of these legacy CMOs to better serve their HNI customer base, with local and foreign securities. The emergence of these innovative micro-investing platforms has triggered investments into local Nigerian securities in multiple folds. The volumes these innovative platforms channel into Nigerian stocks are arguably the most significant development in Nigeria’s capital market in a decade.
By virtue of the existence of these innovators, their combined strength has introduced over 150,000 new market participants who are primarily millennials: a majority of whom purchased their first set of stocks through these platforms. Before now, they had no active interaction with the capital market. These new entrants are now trading in excess of NGN10,000,000,000 (Ten Billion Naira) monthly through these apps. Note that a good chunk of the highlighted trade volume is routed through local CMOs to purchase Nigerian securities on the Nigerian Stock Exchange(NSE). Long term, these innovations would also serve as a channel to offer Nigerian guarantees to a global audience which would be a massive positive for the economy.
The quest for diversification of portfolios to include foreign securities can only be good overall. It underscores the global trend in cross-border trade in securities as disintermediated by technology and the need to enhance portfolios’ value globally.
Rather than curbing the practice of offering Nigerian and international stocks in a basket, this micro-investing trend should be allowed to flourish within reasonable regulatory frameworks. These platforms make investments attractive, easier, and affordable. Micro investing will curb the menace of pyramid and Ponzi schemes while introducing a new generation into Nigeria’s securities market in parallel with their appetite for global securities. Regardless of what we decide, the world has gotten smaller, and information that enables people to easily seek the best economic outcomes is readily available. While other nations gain from micro-investing, shouldn’t our people do too?
The ultimate beneficiary of increased wealth for Nigerians is the Nigerian economy. Rather than shutting Nigerians off from the rest of the world, we should be accelerating global access for our millions of people; hence this is the time for dialogue, not shutdowns.
Kola Aina is the Founding Partner at Ventures Platform and writes from Lagos, Nigeria.
Nairametrics | Company Earnings
Access our Live Feed portal for the latest company earnings as they drop.
- CSCS Plc posts profit after tax of N6.93 billion in FY 2020
- BUA Cement Plc announces Board Meeting
- Infinity Trust Mortgage Bank Plc records a 60% increase in profit after tax in Q1 2021.
- Tantalizers Plc reports a loss after tax of N422.05 million in FY 2020.
- NASD Plc announces admission of newly demutualized NGX shares.