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Nigeria’s fintech industry 2020: The growth frontier of the new decade

At a time when technology is disrupting the global financial services industry, Nigeria has not been left out of the change.

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At a time when technology is disrupting the global financial services industry, Nigeria has not been left out of the change. Although a cash-based economy, Nigeria’s financial system has been receptive to the new transformations in the financial system, especially the introduction of technology.

Nigeria’s fintech landscape consists of 210-250 fintech companies, key stakeholders (banks, telecom companies, and the government), enablers and funding partners (i.e., universities and research institutions, investors, incubators, technology, and consumers). According to Frost and Sullivan, Nigeria’s fintech revenue is expected to reach US$543.3 million in 2022 from US$153.1 million in 2017.

CBN seeks standard practice from fintech operators, GTB, UBA, 8 other DMBs record N135.15 billion earnings from e-transactions , Body of Bank CEOs and telcos to meet over USSD charges

Nigeria’s fintech industry continues to evolve on the back of technological advancement and demographic support as 50% of the population is expected to be less than 25 years of age by the end of 2020. Besides, the prevailing financial exclusion has resulted in low access to complex financial products for the masses.

For instance, insurance penetration in Nigeria is estimated at a mere 0.3%. In Nigeria, transactions are increasingly shifting towards mobile with the growing popularity of mobile technology among the population, especially the unbanked. The number of mobile money transactions increased c.14x to 217.8 million as at 9M 2019 from 15.9 million in 2013. Nigeria’s expanding fintech space should be further supported by Nigeria’s remittance market, one of the leading remittance markets in Africa due to the blossoming diaspora in the US, UK, Canada and Europe.

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Nigeria’s significantly under-tapped digital payments industry is poised for significant growth over the next 5 years. A myriad of factors across industry fundamentals, positive country demographics and regulatory support have formed the base of expected accelerated growth for the fintech industry in Nigeria. This expectation has received significant attention from investors which has led to significant investments as existing players look to position for future growth.

[READ MORE: Insurance: Recapitalisation exercise sets consolidation in motion)

Nigeria’s fintech industry saw funding rounds from various global investors in 2019, with Interswitch, a payment platform infrastructure service obtaining equity funds worth US$200m from Visa and Branch receiving funds of US$170m from foundation capital and Visa. Overall, Application Program Interface (API) technology-enabled fintech companies control the funding scenario, reflecting investor confidence in such technology.

In this report, for the sake of convenience and ease of understanding, we divide the Nigerian Fintech market into two categories; Payments processing and Banking services (lending and savings).

Despite the increasing payment channels available to Nigerian consumers, the digital payments industry remains significantly under-tapped. Payment for goods & services is mainly done with cash. According to the Enterprise Development Centre (EDC) of the Pan African University, cash payment accounted for 95.3% of transaction volumes at the end of 2018.

This compares less favourably with SSA figures of 88.5% cash payments. Nevertheless, we highlight that the volume of non-cash transactions in Nigeria showed a significant improvement from what obtained in 2013 where EDC puts Nigeria’s cash payment at 99.6% of total transaction volume.

Nigeria is poised to lead the growth in non-cash transaction volume. According to the EDC, % of non-cash transaction volume is forecast to grow at a CAGR of c.39.0% over 2018 – 2023e faster than the c.21.0% forecast for Sub-Saharan Africa and global forecast of c.9.0%. Non-cash transaction is expected to reach 17.8% of total transaction volume in 2023 from 4.7% at the end of 2018.

Increasing mobile and internet penetration has continued to climb in Nigeria presenting further opportunity to support online payments. Data from the Nigerian Communications Commission (NCC) puts broadband penetration in Nigeria at 35.1% as at August 2019 (2018 – 31.5%). This is forecasted to climb to 55.0% by 2025 according to Jumia’s mobile market report for 2019.

The rapidly growing fintech industry is also offering key support to the financial services industry as Nigeria presents a huge market for digitised unsecured loans and Nigeria’s low credit penetration presents significant opportunities. Nigeria’s domestic credit to the private sector (as a percentage of GDP) was 10.9% as per 2018 data, compared to SSA peers like South Africa at 138.8% while World average stands at 129.7% according to data from World Bank.

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Nigeria's fintech industry 2020: The growth frontier of the new decade

We believe Nigeria’s fintech industry can tap the population yet to be financially included. The National Financial Inclusion Strategy (NFIS) of 2012 set targets of 80% (formal and informal) financial inclusion and 70% formal financial inclusion by 2020. As at 2018, only 63.2% of Nigeria’s 99.6 million adult population had access to financial services according to the NFIS strategy document.

[READ ALSO: Top 10 stockbroking firms trade N1.35 trillion on stocks in 2019)

In addition, bank account and mobile money account penetration also remain significantly low though the latter is growing at a fast pace. Mobile money account penetration in Nigeria stood at c.6.0% in 2018 which compares less favourably to SSA average and Kenya with c.21.0% and 73.0% penetration levels respectively. We believe local fintechs exploring the Nigerian unsecured lending business would see strong growth in coming years while new players also come into the industry to tap into the fast-growing sector.

________________________________________________________________________

CSL STOCKBROKERS LIMITED CSL Stockbrokers,

Member of the Nigerian Stock Exchange,

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First City Plaza, 44 Marina,

PO Box 9117,

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Lagos State,

NIGERIA.

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Columnists

Emerging concerns on crude oil price dents economic recovery

The economy continues to face severe dollar shortages due to lower oil receipts which continues to pressure the nation’s FX reserves.

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Crude Oil prices, oil

Yesterday, Brent crude oil price settled at US$41.44/bbl, down 10.7% from 6-month high of US$45.86/bbl. We note rising emerging concerns on the outlook for oil price in the global market. Cases of coronavirus are now rising faster in many European countries that had earlier taken gradual steps to open up their economies. For example, in the United Kingdom, Prime minister Boris Johnson stated the possibility of another lockdown to curtail the recent resurgence in new cases of infections. Furthermore, Libya (who has not been producing crude) announced the lifting of the force majeure on some oilfields & ports where fighters no longer have their presence. This implies Libya would resume production soon which may lead to a glut in the crude oil market particularly as the country is exempted from all OPEC cuts. The fear of increased supply comes amidst fragile demand for jet fuel.

The renewed concerns around crude prices is an unwelcome development for Nigeria considering the fact that hope of an economic rebound is largely hinged on sustained rebound in crude prices. Last week, the Minister of Finance highlighted that the country has suffered a 65% slump in revenue largely due to weak oil revenue. Furthermore, the
economy continues to face severe dollar shortages due to lower oil receipts which continues to pressure the nation’s FX reserves. In addition, external trade condition continues to worsen with a trade deficit of N2.2tn in H1 2020. With oil prices still down by c.30% from 2019 levels amidst the nation’s pledge to OPEC cuts, we do not expect any significant improvement in external conditions. However, we believe news of a decline in crude prices may provide succour for the Nigerian consumer given that lower crude price is expected to translate into lower petrol prices following the deregulation of the downstream sector.

That said, we reiterate our position that the diversification of the economy from oil remains the key strategy in reducing the vulnerability of the Nigerian economy to volatilities in oil market. The non-oil economy (which accounts for c.90% f GDP) remains crucial and its potentials can be best exploited by the private sector.


CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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Are we heading towards a food crisis?

The government may need to review the protectionist measures in place in order to avert a food crisis.

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How Nigeria’s GDP growth and food security hinges on financial inclusion of farmers

Based on the selected food price watch data for August 2020 released by the National Bureau of Statistics (NBS), major consumer staples showed substantial increases between August 2019 (when the land border closure took effect) and August 2020. The steep price increases across the food items is consistent with the increase in food inflation from 13.17% in August 2019 to 16.0% in August 2020. Of more concern is the fact that rice, the most
widely consumed food staple among consumers showed substantial increase in the two variants; local sold loose (up 37.5% y/y) and imported high quality sold loose (up 40.7% y/y).

Explore the Nairametrics Research Website for Economic and Financial Data

READ: Nigeria among countries to be worst hit by food crisis globally

In our view, the predominant factor behind the surge in the prices of major food items is the closure of the land borders, which has been exacerbated by administrative controls employed by the monetary and fiscal authorities in rationing foreign exchange. We recall that in July, the CBN included Maize on the list of items ineligible for FX from official sources. Recently, President Muhammadu Buhari ordered the Central Bank of Nigeria (CBN) not to allocate foreign exchange to importers of food and fertilizer. We also understand that heavy rainfalls in the northwestern part of the country have also affected farmlands, as the head of Kebbi state branch of the Rice Farmers Association of Nigeria revealed that about 90% of the 2 million tons of rice to be harvested were destroyed.

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READ: Has the President erred in stopping CBN from funding food imports?

The persistent increase in the prices of food items despite the protectionist measures implemented by the government suggests that local production still lags consumption significantly. Considering the weak harvest season due to the impact of the global pandemic amidst higher distribution costs linked to higher PMS prices following the deregulation of the downstream sector, we believe price of food items will continue to trend upwards.

Additionally, we expect the pass-through impact of the devaluation in the local currency to put further pressure on imported food inflation. Overall, we think the government needs to review the protectionist measures in place in order to avert a food crisis.


CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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Has the President erred in stopping CBN from funding food imports?

What implication does the President’s directive to the CBN hold for the economy?

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President Buhari may sign 2020 Budget tomorrow, President Buhari approves N37 billion for National Assembly renovation, President Buhari appoints Sarki Auwalu to head DPR , FG may stop interstate and inter-town travels, COVID-19: President salutes Elumelu, Dangote, Atiku, Banks, others for support, Naira export earnings, Covid-19: FG to set up N500 billion intervention fund, sovereign wealth, FG issues guidelines on implementation of gradual easing of lockdown nationwide, Electricity: FG approves one year waiver of import on meters

The President of Nigeria, President Muhammadu Buhari, last week said, “I am restating it that nobody importing food or fertilizer should be given foreign exchange from the Central Bank. We will not pay a kobo of our foreign reserves to import food or fertilizer. We will instead empower local farmers and producers.”

Why is the president stopping the CBN from funding food imports? The answer is simple. The CBN Exchange rates are cheaper than autonomous sources. The CBN lists the exchange rate for the Dollar at $1 to N379, however the Naira is being sold on the parallel market at N440. Hence, importers prefer to access CBN funds to import, because it reduces the cost of those imports. In effect, at N379, the CBN is subsidizing those imports via a ‘strong Naira’

The President’s directive is thus in line with his new overall push to eliminate all subsidies especially subsidies funded by the scare US dollar. In this aspect, the President is simply seeking to protect the foreign reserves which are paying for other imports. So, he is right.

READ: CBN to set up $39.4 billion infrastructure development company with AFC, NSIA

Is this a wise strategy?

Nairametrics earlier reported on the NBS recently released report on Nigeria’s total spending, which indicated that about N22.7 trillion was spent on food in 2019. This is 56.7% of the total spending (N40.2 trillion) for that period.

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Where does the food Nigerians eat come from? Clearly Nigeria has a large agricultural base, but a significant proportion of Nigeria’s food is imported, and the cost of those imports have risen, as the value of the Naira has depreciated in relation to the US dollar.

(READ MORE: Agrorite leading the fight against food insecurity using Agtech)

According to data from the NBS, Nigeria’s spending on food and drink importation increased from $2.9bn in 2015 to $4.1bn in 2017, but dipped in 2018.

Have these imports plus local production met local demand on a consistent basis? The answer is no. Take rice for instance, the BBC reports that, “Between 2015, when the foreign exchange restrictions for rice came into effect, and early 2017, the price of a 50kg bag of rice went from $24 to $82 and fell in mid-2017 to $34, but in June 2019, the price stood at $49.”

The law of supply in economics, states that when the price of a commodity increases, its supply also increases. Hence, there is a direct relationship between price and supply of a commodity. In other words, if the price of rice goes up, more suppliers will enter the market to supply rice.

READ: Naira devaluation would affect our profit margins – Flour Mills

However, In Nigeria, as the price of food is rising, the NBS in the latest Inflation report, says the composite food index rose by 15.48% in July 2020 compared to 15.18% in June 2020. This rise in the food index was caused by increases in prices of Bread and cereals, Potatoes, Yam and other tubers, Meat, Fruits, Oils and fats, and Fish. (essentially everything). The NBS says, the average price of 1kg of rice (imported high quality sold loose) increased year-on-year by 37.72%.

So why has the supply of rice not risen to correspond with rise in prices? Well, because the supply of rice and other foodstuff have indeed risen, but the problem remains logistics processing & storage.

In Nigeria, you only eat corn during corn season, same with mangoes, and tomatoes. Prices fall during harvest, then rise after harvest. The problem is not just with the harvest, but getting that harvest to market, storing the excess, and processing its supplies all year round. Therefore, imports are needed to plug supply holes.

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READ: CBN removes “third parties” from buying forex routed through Form M

Nigerians in 2019 alone spent N1.9trillion or 4.7% of their budget on rice alone. When the President banned food importers from getting the CBN dollar at N379; he simply pushed them to import rice at N440; a N61 difference that will be added to the cost of imports, and will fuel imported inflation.

Where the president got it wrong is trying to fix a local logistics problem with a foreign exchange fix.

READ: Official: Nigeria spends N1.2 billion only on imports of Arms and Ammunition

The solution is to go back to the various food supply value chains, de-risk and de-cost them. If food is cheap and plentiful, there will be no need for imports and inflation will fall.

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