Corporate issuers appear to be taking advantage of the unorthodox policies of the Central Bank of Nigeria (CBN) to raise funds from the local debt market and reduce refinancing risk. The disenfranchisement of local investors from investing in OMO bills has pushed yields on treasury bills and bonds significantly lower to single-digit levels, as increased demand for those securities spiked on the back of liquidity glut emanating from maturing OMO bills.
We highlight that Treasury Bills stop rate at the primary market auction over a three month period has declined sharply from 12.94% before the announcement was made to 3.5% at the last auction.
Two companies in the consumer goods space; Nigerian Breweries and Flourmills have been in the market to raise a combined sum of N65billion in the form of commercial paper and bond issuance.
On one hand, Flourmills is in the market (offer closes today) to raise N20 billion under its N70 billion bond issuance programme. The N20 billion offer is in 2 tranches viz: Tranche A (Tenor: 3-years, Indicative Yield: 9.70% – 10.00%), and Tranche B (Tenor: 5-years, Indicative Yield: 10.85% – 11.10%).
According to Management, the proceeds will be utilized in restructuring the company’s existing debt of N112.56 billion as of 9M 2019. Nigerian Breweries Plc (NB) on the other hand, was in the market (offer closed on Friday) to raise N45 billion via Commercial Paper (CP) offer under its N100 billion CP programme.
[READ MORE: Economy: EAC submits report to President Buhari)
The offer was split across two tenors: 180-day tenor (Series 5, N15 billion) priced at a yield of 5.0% and 270-day (Series 6, N30 billion) priced at a yield range of 6.2% – 6.75%. Union Bank also recently issued CPs to raise N20bn.
The year 2019 saw corporate debt issuance rise significantly to N637 billion in 2019 (the highest quantum since 2014), split between corporate bonds (20%) and commercial papers (80%).
We believe 2020 would be another record year as corporates seek to take advantage of the lower yield environment occasioned by the liquidity glut expected to characterise the market in H1 from maturing OMO bills.
CSL STOCKBROKERS LIMITED CSL Stockbrokers,
Member of the Nigerian Stock Exchange,
First City Plaza, 44 Marina,
PO Box 9117,
Nigeria’s Unemployment: Looking beyond the interventionist programmes
Direct job interventionist schemes remain largely insufficient and unlikely to generate economic benefits.
Recently, the National Assembly, disclosed that it had suspended the Federal Government’s planned recruitment of 774,000 Nigerians under the Special Public Works programme. According to the spokesperson for the Senate, Dr Ajibola Basiru, the federal parliament took the decision pending proper briefing of the National Assembly by the Minister of labour and productivity on the modalities for the implementation of programme.
We recall that in April, the Minister of Finance, Budget and National Planning, Zainab Ahmed revealed that the President approved the engagement of 774,000 Nigerians for Special Public Works programme in the country to cushion the effect of COVID-19 pandemic. We understand that 1,000 people were expected to be recruited from each of the 774 local government areas in the country while the sum of N60bn for allowances and operational cost had been earmarked from the COVID-19 crisis intervention fund for the initiative. The initiative is expected to start on October 1 and each beneficiary will be paid N20, 000 monthly to carry out public works.
Youth unemployment and underemployment remains one of the biggest social problems confronting Nigeria today. The high level of unemployment has been suggested to be one of the principal contributors to the problems of banditry, kidnapping, armed robbery and other social vices that are fast becoming a daily occurrence. According to the National Bureau of Statistics (NBS), Nigeria’s official unemployment rate accelerated to 23.1% in the third quarter of 2018 (the most recent employment data). This is the highest rate of unemployment recorded in the last eight years as the number of unemployed people surged by about 31% to 21 million people when compared to Q3 2017. With the advent of the global pandemic, the number of unemployed persons is set to increase at a faster pace.
To tackle the problem of youth unemployment, successive governments, over the years, have implemented a raft of interventionist schemes such as National Poverty Eradication Programme (NAPEP) in 2001, Subsidy Reinvestment and Empowerment Program (SURE-P) in 2012, National Social Investment Program (NSIP) in 2015 which placed emphasis on skills acquisition, provision of employments for unemployed graduates through internship programs and the creation of database of unemployed youths. In 2016, the current administration created N-Power to addresses the challenge of youth unemployment by providing a structure for large scale and relevant work skills acquisition and development. The common pitfalls associated with these programmes include; implementation on an interim basis, poor coordination, and gross inefficiency.
While we applaud the initiatives of the government in solving youth unemployment, we note that direct job interventionist schemes remain largely insufficient and unlikely to generate economic benefits that will boost economic growth and enhance the wellbeing of the beneficiaries. In our view, tackling unemployment requires investment in the business environment and implementation of pro-growth policies that will foster the growth of small and large-scale industries, attract foreign direct investment in high employment elastic sectors and enhance private sector investment.
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.
Top Nigerian FinTech Apps that are leading the competition
It is estimated that there are about 210-250 fintech operators/companies operating in the Nigerian space.
Financial technology is one of the new waves of disruptions in the financial sector, that is fuelled by the internet of things and the increasing digitalisation of the world. In the last decade, the industry has grown by more than 100 times from $1.8billion in 2010 to $19billion in 2015. Recently, the size of the global FinTech industry has been valued at $127.66 billion and is expected to grow at an annual average of 24% to amount to $309.98 billion by 2022.
Fintech refers to the ecosystem where technology companies as well as financial institutions use the innovations in technology to foster financial services and increase access to finance in the market. It an umbrella term that refers to the innovations in technology that are challenging and changing the traditional approaches in the financial service industry.
Almost every corner of the world has been touched by FinTech in as little as 20-25 years of its existence with the likes of PayPal charging at the front by helping people make seamless money transfers across the world and facilitating online payments. In almost every mention of FinTech in Africa, the name m-Pesa is mentioned under the same breathe. Founded in 2007, M-Pesa helps Kenyans make all money transfers and payments online even allow for deposits and withdrawals with the ease of a mobile app.
The advent of FinTechs in Nigeria and regulations
In Nigeria, the presence of FinTech is equally notable, and like its ecosystem, there is a continuous rise in the number of FinTech startups looking to offer better services than pre-existing ones. FinTechs in Nigeria are looking to expand the tentacles of the financial sector to reach its un-banked population of 60 million people (more than a quarter of its estimated 200 million population) through mobile apps that make services.
Also, they are looking to make an array of financial services more available to the banked population by providing seamless services like promising interests on savings and investment more than traditional banking. It is estimated that there are about 210-250 FinTech operators/companies operating in the Nigerian space, and these players brought about the valuation of the industry to $153.1 million in 2017 and are projected to rise up to $543.3 million by 2022.
Regulation of FinTech in Nigeria is overseen by the Central bank. As a measure of risk management, the CBN places a financial barrier of a minimum of $275,000 on entry into the FinTech market to help secure funds and credibility of operators.
Categories of FinTech
As earlier noted, the term FinTech is an umbrella term. It is an ecosystem with many species of habitats. These species are the different sectors in the finance industry from insurance to banking to investment to money transfers and other emerging areas like cryptocurrencies and Agritech.
This paper focuses on five categories for the Nigerian market: Agritech, Savings, and Investments (financial instruments), Crowdfunding, Mobile Payments, and Cryptocurrencies. In ranking the top players in each category, this paper will base its ranking on google play store’s data.
Agritech: Farm Crowdy
In FinTech, agrotech is the use of internet technology to close the funding gap and infrastructural deficits plaguing the agricultural sector. They look to help farmers feed the world, cutting off middlemen and making farming more profitable. Most notably, it is a crowdfunding platform that allows investors to make short-term harvest cycle investments in agriculture and reap high interests.
As the first digital agriculture platform in Nigeria, Farm Crowdy has succeeded in keeping its first position in the industry by providing a platform that connects small-scale farmers with prospective investors who do not necessarily need to know about agriculture to invest. In allocated funds to small-scale farmers that helps them increase their output by adopting capital intensive/mechanised farming, providing them seedlings, training on crop yields, access to more farmlands, and providing insurance for agric products.
Since its launch in 2016, Farm Crowdy has helped 25,837 farmers, provided over 16,000 acres for farming, gained nearly 70,000 farm sponsorships from investors, reared more than 2.5 million chickens, and pays investors 13-25% returns on their investment. On google play store, Farm Crowdy is ranked 3.5 stars with 265 reviews and has over 50,000 downloads. Cumulatively, it has nearly a hundred thousand active users.
Other Agritech platforms that offer similar services include Thrive Agric, Growsel, Pork Money (which is crowdfunding for a pig farm), Requid, Agropack, Releaf, FarmNGA, Probity Farms, among many others.
Savings and Investment:
Fintechs in Nigeria offers investment platforms that tend to bridge the knowledge gap in investments in financial instruments, eliminating information asymmetry, and reducing the hassles associated with financial instruments. In the Nigerian space, the savings and investment subsector is one of the most populated by fintech firms, among which the most dominant factor in this section is the Piggyvest app.
Piggyvest offers users the financial freedom to not only save responsibly but put their savings into use by investing them. It launched in 2016 as a savings platform – Piggybank – and later rebranded to include investments – Piggyvest. It prides itself as the first online savings and investment platform in West Africa and boasts of 350,000 active users.
Piggyvest promises users 10-13% interest rates on their savings and up to 25% on investment in financial securities. At just two years into the business, Piggybank announced that it had raised $1.1 million in seed fund, and saw a growth in savings rate by up to 3000% between 2016 and 2017. On Google play store, it records more than 500,000 downloads which are about five times more than its two closer competing savings and investment platforms like Cowerywise and i-invest (100k+ each). It also ranked 4.7 stars with 20,000 reviews.
While the aforementioned fintech companies have gained ground in the demand for fintech services, Wealth.ng is introducing high-scale innovation into the market. Recently it entered into a partnership deed with Paga, one of the dominant names in the money transfer sector of the industry, to improve the quality and efficiency of service delivery. Among the industry, there are hardly any existing partnerships, instead, each company competes for customer acquisition and better service.
Wealth.ng sees business differently. A decade ago, many people would dismiss the thought of investing in financial securities for lack of adequate knowledge of how it works or understanding of the trends. Wealth.ng has completely bridged this gap by including consumer education as part of its services. With this, they walk potential investors through every step and provide an array of investment options for each person.
Other players in the savings and investment subsector include Afrinvest, Kudi, Investment one, Payday investor, and many others.
Mobile Payments: Interswitch
This is no doubt the busiest in the FinTech industry in Nigeria, and one of the top FinTech areas globally. According to the Central Bank, between January to December 2019, the volume of transactions via mobile monies stood at 377,265,208 which reflects a transaction value of N5 trillion. The FinTech company at the forefront of this charge is Interswitch. In 2019, it sold a 20% share of the company to Visa for $200 million which brought the company’s valuation to $1 billion (N360 billion) – a unicorn status. At this valuation, it surpasses giant financial houses like Access bank (N327 billion), and UBA (N227 billion).
Unlike savings and investment platforms that people use for savings from time to time – hence mobile apps, mobile payment apps are used for the likes of utility bills, cash transfers, deposits, and withdrawals. Businesses use mobile payment platforms for transaction purposes. However, on play store, Interswitch still boasts of more than 100,000 downloads in its quickteller app and over 50,000 downloads in its quickteller agent app, which top other of its complementary payment apps for Nigeria and other African countries.
Other major players in the payment platform in Nigeria include Flutterwave, Paystack, Remita, e-transact, Vogue Pay, among others.
To many people, cryptocurrencies are still a mirage. As such, investing in any form of cryptocurrency would be considered a wasteful investment. In the Nigerian fintech ecosystem for cryptocurrencies, Quidax is helping cryptocurrency spreading the knowledge and raising awareness for cryptocurrencies, and helping enthusiasts and investors make crypto investments.
Launched in 2018, Quidax has made its platform seamless for trading different cryptocurrencies like Bitcoin, Ethereum, Ripple, Litecoin, and other cryptocurrencies using the naira. Its market approach of trading directly with naira and boycotting exchange rate variations is a major development in the crypto market. One year after it started, CEO Buchi Okoro said they saw a transaction volume of more than $110 million from users in 70 countries from 6 continents. On play store, it has over 10,000 downloads and rated a 4.1 star.
As an alternative to raising funds for personal and business projects like hospital bills, school fees, and the likes, crowdfunding platforms help users source funds from a sea of ‘strangers’ willing to spare some funds to help out. On the global scale, GoFundMe leads other crowdfunding platforms by ensuring a transparent system where people seeking for financial assistance could present their ordeals and receive solidarity.
Although GoFundMe shares a strong presence in almost every country, it doesn’t deter other industry players from participating. In Nigeria, NaijaFund presents itself as one of the foremost indigenous crowdfunding platforms. Although mainly present as a web app, it has since its 2016 launch helped Nigerians bridge the funding gap for personal and business projects, in which it claims 10% of the total funds raised.
SEC’s new rules on collective investment schemes: A step in the right direction
The industry needs to be properly regulated and with proper enforcement…
In one of my recent pieces, I elucidated on the importance of and need for standardized reporting on mutual funds. Just recently, the Security and Exchange Commission (SEC), as the apex organization that regulates operations of mutual funds in Nigeria, issued “new rules on collective investment schemes”. This new rule bothers more on the calculation and reporting of expense ratios for mutual funds. This is indeed a step in the right direction, as mutual fund investors should be made to know, in no equivocal terms, how much fees they are paying for the mutual funds they invest in. The importance of that is that it helps the mutual fund investors with the opportunity to compare fund fees, while investing and even before investing so as to make informed choices
Though the new rule has been lauded as a step in the right direction, it does not seem to go far enough. Mutual fund, as an investment vehicle, is still new and young in Nigeria and it is begging for understanding among investors, especially, retail investors. As a result, the industry needs to be properly regulated and with proper enforcement so as to instill confidence among investors.
Historical Performance: Though knowing how much a fund costs is important, such information becomes almost useless when used in isolation of some other parameters. In most cases, fund fees are used together with fund performance to find out if what is being paid for is worth it. For example, if you have two funds, in the same category, one having 0.5% expense ratio and the other 0.75% expense ratio, intuitively, the fund with the lower expense ratio becomes the choice. What if I tell you that the 0.5% fund has historically made 10% return over the past 10 years while the 0.75% fund has made 25% return over same period, your fund of choice will probably change, even though past performance does not guarantee future performance. Therefore, in addition to asking fund managers to report expense ratios, the SEC should ask them to also report historical performance, among others.
Risk Return Profile: Again, what if I tell you that the 0.5% that has the history of 10% return has a low risk or is a fund with a risk-return ratio of 5% while the 0.75% fund with a history of returning 25% gain is a high-risk fund with risk-return ratio of 50%. Meaning that in a bad market, there is 50% chance of losing all your money while the other fund offers 5% chance of losing your entire investment. Depending on your risk tolerance, your choice of fund may change with that additional information. Therefore, the SEC should advocate for fund managers to report the risk-return profile of their funds. Currently, Stanbic IBTC Asset Management Ltd seems to be the only fund manager that reports the risk profile of their funds, on a scale of 1 through 5.
Sill or Luck: Again, what if I had told you that the fund with 0.5% expense ratio made 5% return 3 years ago, 8% return,2 years ago and 7% return, last year but the fund with 0.75% expense ratio made 45% gain, 3 years ago, lost 20% 2 years ago and lost 25% last year. Over the three-year period, you will see that the fund with 0.5% expense ratio made 20% gain but the fund with 0.75% expense ratio made 0% gain, even though it made 45% three years back. Again, with that information, you may wish to rethink your thought on which fund to invest in. Investors should, and many do pay attention to consistency of fund performance because it helps them to know if the fund manager outperformed the benchmark as a result of luck or as a result of skill. The fund manager that made 45% 3 years ago and lost all that the next 2 years, most probably hit the 45% jackpot by luck while the fund manager that gained 5%, 8% and 7% respectively over a 3-year period must have done so out of his investment skill. Therefore, the rule should ask fund managers to report their monthly performance over the last 5 or 10 years so that investors can have a feel about the consistency of performance as well as be in a better position to access whether a fund manager depends on luck or skill.
Perform advanced finasncial calculations on Nairamterics
In Closing: Given the “youthful” nature of the mutual fund industry in Nigeria, one agrees that the role out of the rules may have to be a gradual process, but the earlier the better. More importantly, such rules should be enforced, as research has shown that most of what the fund managers promise in their prospectuses are not delivered as at when due. A good example is daily mutual fund prices, which only a handful of fund managers make available on their websites. Yet there does not seem to be anything being done to enforce the publication of the daily prices.