The Coronavirus (COVID-19) pandemic is arguably the biggest challenge facing humanity today. More than 300,000 cases have been confirmed in 188 countries and territories, and over 14,000 people are below six feet already.
Beyond its health impact, the spread of the virus is hurting the global economy. The impact is already visible in the countries most affected such as China and European countries, where travel restrictions and distancing measures have disrupted global supply chains and resulted in reduced economic activity.
But the good news is that world leaders are working hard to contain the virus. Infection rates have dropped drastically in China, while many other countries are responding smartly to put an end to COVID-19.
Nigeria confirmed the first case of COVID-19 on February 28. It has since increased to 31 cases. While the country is not a COVID-19 hotbed yet, its economy could be one of the hardest hit, should it persist for longer, due to a fragile healthcare system and high dependence on the rest of the world.
Ways COVID-19 could affect Nigeria
Trade and investment disruptions: Nigeria’s investment and trade are mostly with China, Europe, and the US, which are territories currently vulnerable to COVID-19. The slowdown of economic activities in these locations means that trade and investment will decline sharply, raising the risk of an economic recession.
Manufacturers relying on imported inputs will face production challenges while reduced importation of food and pharmaceutical products would put a heavy burden on households and the healthcare system.
Lower government financial capacity: Nigeria could lose up to US$20 billion from crude oil sales-which represent 85% of its export- as fuel prices continue to fall.
As oil revenue accounts for one-third of expected public revenue in 2020, governments will have limited capacity to support the economy. Revenue shortfall will worsen Nigeria’s debt burden as around 60% of the federal government’s (FG) revenue already funds debt obligations. Sub-national governments will struggle to pay employee salaries and related costs – similar to what happened during the 2014-16 oil price crisis.
Lower social spending: Typically, Nigeria underfunds social sectors (health, education, and social safety net). Around 4% and 6% FG budget for 2020 went to Health and Education respectively, far below the recommended thresholds of 15% for Health and 20% for Education.
Lower revenue means less money would be available to spend on health, education and critical infrastructure, as overhead and debt payments are usually prioritized during crises. The outcome could be very bad for a country that already has one of the worst health outcomes worldwide, and with 4 out of 5 persons aged 15-24 unable to read a full sentence.
Elevated poverty: Nigeria currently has the largest number of extremely poor people in the world today at 95 million and an average of 4 people join them every minute. Unemployment and poverty will worsen as workers in trade-sensitive businesses, particularly tourism, transport, hospitality, and non-essential manufactured goods are disengaged due to restricted movement of goods, services, and people.
Remittances from abroad, which support households, may also fall and worsen economic hardship. Around $25 billion of remittances – equivalent to the Federal Government of Nigeria budget – came into the country in 2019.
How govt should respond?
The government’s response should come in two approaches: focusing on immediate priorities and implementing reforms to boost resilience beyond the crisis. Beyond international travel restrictions and stimulus for businesses, more must be done to protect vulnerable households.
Adequately support the healthcare system: Prior to COVID-19, healthcare institutions were already overburdened with many ailments given poor medical supplies, shortage of medical workers and poor infrastructure.
To have a fighting chance against COVID-19 and in treating those requiring intensive care, the healthcare sector must be supported through adequate funding, incentives for health workers, and health care subsidies for the most vulnerable people.
Provide incentives and safety nets to the most affected: Through targeted tax incentives, social transfers, and regulatory support, the Nigerian government could help minimize the impact of COVID-19 on the most vulnerable businesses and citizens.
With the adoption of social distancing measures to limit the spread of the virus, the government should partner with informal groups such as trade associations, who have a wider reach, to deliver support to people in vulnerable employment.
Enable vulnerable sub-national (state) governments: Sub-national governments have improved their resilience to oil-related crises by improving Internally Generated Revenue (IGR) but many would struggle to pay salaries given the crisis. Therefore, the FG and the CBN can expand loans to states to enable them to pay workers and support the healthcare sector.
Reduce cost and Improve transparency: The government should reduce the cost of governance by changing its ways in the incurring of administrative costs and prioritizing the most effective development programs. This will free up more money for social and infrastructural spending and improve its resilience.
Similarly, reducing the misuse of public finances through commitment to transparency, opening up budgets, and strengthening anti-corruption institutions should be a priority during and post COVID-19.
Now more than ever, policymakers must be responsive to lessen the effects of the impending social and economic crises and better prepare Nigeria for the future.
Written by: Razaq Fatai from ONE Campaign and Adedayo Bakare from Afrinvest
How foreign exchange risks and others affect the Nigerian pension industry
A report has analysed risks militating against the Pension industry in Nigeria.
Despite being one of the fastest-growing sectors in the Nigerian financial services industry, the Nigerian pension industry has been affected by various risks, such as the volatility in the foreign exchange and other factors.
However, these risks have harsh consequences on the retirement income of contributors. For example, in Nigeria, whilst the pension assets in the last decade have grown by 21% annually, the growth in the value of assets when converted to USD, has been about 11% over the same period.
This is according to a recent report released on Pension Sector Forum by ARM Pension, with the theme “Pension Assets Risk Management in the Face of Uncertainties”
All other things being equal, the findings revealed that the Defined Contribution Pension scheme assets on a 10- year time frame, grew faster than Defined Benefits (CAGR 8.4% pa vs 4.8% pa). Increased member coverage and higher contributions were probable factors responsible for the growth. In addition, most retirees might not have enough funds to maintain a decent standard of living, as retirement risk has been transferred to them.
Other risks outlined in the summit include; interest rate risk, political risk, operation risk, and key macroeconomic risks such as unemployment, GDP, inflation, currency among others.
With regards to who bears the retirement risk, 68% of the risk is borne from one’s sources, while 38% is from outside sources.
The report also stated that the total pension contributions received in the industry from 2017- 2019, was almost equally split between the private and public sectors at the end of Q3 2019.
In mitigating the risks inherent in the Nigerian pension industry, experts at the summit called for increased collaboration among stakeholders, engagement with all regulators, increased advocacy for corporate governance, increased awareness, and sensitization of contributors by stakeholders among others as viable options going forward.
- As of June 2020, only 11.3% of the Nigerian labour force had opened retirement savings accounts (RSAs), while pension assets stand at less than 10% of GDP.
- The total number of funds under management currently stands at N11.1 trillion.
- There are currently over 9.04 million subscribers and 32 operators.
To view the report, click to download HERE
Nigerian fintech companies raised $600 million in five years – McKinsey Report
McKinsey report has revealed that Nigeria’s fintech companies have raised over $600 million in funding in the last six years.
In a space of five years, Nigeria’s fintech companies have raised over $600 million in funding, attracting 25% ($122 million) of the $491.6 million raised by African tech startups in 2019 alone – second only to Kenya, which attracted $149 million. The period under review is 2014- 2019.
This information is contained in a recently published report by McKinsey titled “Harnessing Nigeria’s Fintech Potential.” The report highlighted the combination of youthful demographic, increasing smartphone penetration, and concerted efforts to driving financial inclusion as factors that interplay to produce conducive and thriving enabler or platform for the fintech firms in Nigeria.
The report outlined some of the feedback against fintech companies ranging from poor user experience, underwhelming value-added from using some of the financial products, low returns on savings, and limited access to investment opportunities.
The report also showed that Nigerian fintech companies are primarily focused on payments and consumer lending, having allotted an aggregate of 39% on payments to consumers, SMEs, and corporate FSP, and an additional 25% to consumer lending. The breakdown is depicted below.
Source: McKinsey report, 2020.
On the driving factors behind the increasing choice of payment and consumer lending as an area of concentration by fintech companies, a part of the report read thus;
“The factors driving growth in each of these segments vary. Payment-focused solutions have surged over the past two years, spurred in part, by the central bank’s financial inclusion drive and favorable regulatory policies, including revised Know Your Customer (KYC) requirements for lower-tier accounts and incentives, to accelerate development of agent networks across the country. Paga, OPay, Cellulant, and Interswitch’s QuickTeller compete with mobile banking applications and bank unstructured supplementary service data (USSD) channels to send and receive transactions and bill payments.
“Fintech activity in lending is picking up, thanks to the fact that fintechs are able to leverage payment data to determine lending risk more easily, and utilize smartphones as a distribution channel. For example, fintech startups such as Carbon and Renmoney have successfully leveraged alternative credit-scoring algorithms, to provide instant, unsecured, short-term loans to individuals. A few fintechs, such as Migo, have also stepped up to offer unsecured working-capital loans to SMEs with minimal documentation. Banking fintech solutions have been fast followers here, with leading banks launching digital lending platforms like Quick Credit by GTBank and Quickbucks by Access Bank.”
In general, access, convenience, and trust have all played key roles in the increasing use of fintech products. For example, in the last six months, 54% of consumers have reported increased usage of their fintech products
Why this matters
In line with the National Financial Inclusion goals of 2020, and owing to the fact that despite the remarkable progress recorded by traditional banking institutions, the vast majority of consumers are underserved. Hence, the issue of accessibility especially in remote areas, affordability, and user experience have been a front-burner issue.
The aforementioned issues have created an opening that fintechs have been quick to take advantage of, providing enhanced propositions across the value chain, to address major points in affordable payments, quick loans, and flexible savings and investments among others.
Fintech accounted for only 1.25% of retail banking revenues in 2019, signaling a room for development. Despite recording a growth of fintech investments in Nigeria to the tune of approximately $460 million in 2019, majority of these investments were from external investors. This was only a small fraction (1.27%) of the $36 billion invested in fintech globally.
The report opined that full optimization of fintech companies in Nigeria can stimulate economic activity, by creating a multiplier effect, and can drive progress towards development goals. Economic impact will primarily come from expanding revenue pools and attracting foreign direct investment to the country. The sector can unlock a plethora of economic benefits by driving increased fintech productivity, capital, and labour hours through digitization of financial services.
PenCom recovers N17.51billion from defaulting employers, imposes penalties
N17.51 billion was recovered by PenCom from employers who refused to remit pensions from workers’salaries
The National Pension Commission has recovered N17.51 billion from employers that refused to remit deducted monthly pensions from their workers’ salaries to their Retirement Savings Accounts with the respective Pension Fund Administrators.
This was disclosed by the Commission in its 2020 second quarter report which was released on Friday.
Out of the N17.51 billion, the principal contribution was N8.89 billion, while the penalty imposed on the employers was N8.63 billion.
The report read, “Following the issuance of demand notices to some defaulting employers whose outstanding pension contribution liabilities had been established by the recovery agents, 16 of the affected employers remitted the sum of N261.33 million representing principal contribution of N152.79million and penalty of N108.54million during the quarter. This brought the total recoveries made from inception as at June 30, 2020 to N17.51billion.”
According to the report, one batch of NSITF lump sum payment application totalling N225,442.72 was however received on behalf of five NSITF members during the quarter.
It said the application was processed and five members’ contributions were transferred to their bank accounts.
Consequently, it added, the cumulative sum of N2.94billion had been paid into the bank accounts of 36,551 NSITF contributors as lump sum/one off payment from inception to June 30.
For the quarter ended June 30, the commission said it processed monthly pension payments totalling N62.25million in respect of 3,629 NSITF pensioners.
As of June 30, it said the total pension payment to NSITF pensioners amounted to N4.73billion.
The commission added that it reviewed the request for the payment of attributable income to eligible NSITF members and granted a “no objection” for payment of N2.92billion to 165,954 eligible NSITF members whose NSITF contributions were refunded to their RSAs or bank accounts as of December 2018.