The payments industry in Nigeria continues to demonstrate its promising growth with the recent data from the Nigeria Inter-Bank Settlement System (NIBSS) showing solid growth across the various e-payments mechanisms in the first 5 months of 2020 (January – May 2020). NIBSS Instant Payment (NIP) transactions recorded a healthy 17.3% y/y and 47.7% y/y growth in transaction value and volume to N48.7tn and 615.3m respectively. For POS transactions, total transaction value and volume grew 44.0% y/y and 50.0% y/y respectively to N1.6tn and 228.9m respectively. The most impressive growth was recorded in Mobile transactions category where transaction volume and value grew 567.5% y/y and 364.7% y/y to 41.1m and N853.7bn respectively.

Explore Economic Research Data From Nairametrics on Nairalytics

The sustained growth in e-payments transaction volume and value in Nigeria evidences increased adoption of technology in payments and cash transfers by the Nigerian populace. This is driven by increasing internet & mobile penetration as well as investment by banks and other payment-based fintechs investment in payment technology infrastructure. Furthermore, we note that the Central Bank of Nigeria (CBN) announced reduction to the fees payable on mobile and internet payments/transfers. We think this has had a mild impact on increased usage of these platforms. In addition, with the onset of the pandemic the use of physical cash in settling payments and bills has been discouraged. Thus, we think e-payments benefitted from significantly from this.

Going forward, we expect the e-payments industry to continue to record significant growth even beyond the pandemic as many of the new methods of transacting will be sustained in our view. In our opinion, the e-payments sector of the fintech ecosystem is expected to serve as the growth frontier of the new decade in Nigeria as highlighted in our 2020 Nigeria Fintech Sector Report (See CSL_Nigeria’s Fintech Industry 2020; Growth Frontier of the New Decade). Consequently, we expect banks and payment fintechs like Interswitch & Paga to benefit significantly from the e-payments revolution.

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

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.

Introduction

The massive macro-financial shock caused by Covid-19 has continued to ravage the global economy putting all systems and nations under severe financial instability never seen in history. Stock Markets around the world have been pounded and ravaged, and oil prices have fallen to an all-time low. Nigeria is not spared from this crisis.  Total revenue expected to be realised from the 2020 National budget was N8.42trillion. However, following the Covid-19 pandemic, revenue projection was reduced to N5.16trillion. This represents a drop of close to 40% or N3.26trillion. Key sectors like manufacturing, maritime, aviation, hospitability and the creative industry, collapsed resulting in huge financial and job losses. The World Bank 2020, Global Economic Prospects, June 2020, forecast that the Covid -19 pandemic will plunge all countries into the worst recession in history.  GDP of advanced economies are projected to shrink by 7 percent. The outlook for emerging market and developing economies is bleak as they are forecast to contract by 2.5 percent. This would represent the weakest showing by this group of economies in at least sixty years. The crucial issue is – How do we avoid and or minimize the impact of inevitable recession on our economy?

Explore Economic Research Data From Nairametrics on Nairalytics

The first and critical policy action is to harmonize fiscal and monetary policy.  Fiscal policy must be expansionary. In other words, big spending is required to massively stimulate the economy. This is called Keynesian economics named after the economist John Maynard Keynes.  Keynesian economics served as the standard economic model in the developed nations during the latter part of the Great Depression, World War II, and the post-war economic expansion (1945–1973). American President, Franklin Delano Roosevelt used the Keynesian economic model by spending massively on public works programs to get America out of the great depression. The mantra for Nigeria is to spend big to get out of recession. We acknowledge the government has adopted an expansionary policy by borrowing massively but we must have a clear strategy. First, we must determine our Public Sector Borrowing Requirements (PSBR). Additionally, we will need to identify an inventory of Public Sector Spending Requirements (PSSR). The PSBR and the PSSR should be indexed to identify funding gaps. Additionally, an inventory of government assets should be created as we have many wasting assets that can be converted to cash. Using the abandoned Federal Government Secretariat in Lagos as the index case, informed valuers believe it has a forced market value of N100 Billion. This can build the East-West Road. Abandoned projects abound, Ajaokuta Steel, Aladja Steel, the Newsprint at Iwopin, the various steel rolling mills around the country, the Onitsha Port, etc. It is believed these assets are worth at least N15, trillion yet untapped. These wasting assets, if sold will boost fiscal policy immensely. Turning to Monetary Policy, we clearly need a very flexible monetary policy with interest rates pegged at no more than 5% (Single-digit) to create a framework for quantitative easing and open market operation (OMO).

READ ALSO: Dark Clouds loom for investors as stocks fall 8% in first half of 2020

Quantitative easing (QE) makes borrowing easy for business. QE makes burden on business lighter. OMO flood the economy with liquidity.  A harmonized fiscal and monetary policy will lay the foundation to rebuild the economy.  Three requirements to avoid a recession are Job creation, revenue mobilization and control of cost of governance.  If we get the macroeconomic environment right, which is the alignment of fiscal and monetary policy, it will release economic energy to create Jobs estimated at between 5 and 6 Million, year on year. With respect to revenue generation with the right framework, massive funds can be generated and pumped into the economy. With respect to cost of governance, everybody knows it is far too high. In the revised 2020 budget, 73.5% of total expenditure are for salaries and debt servicing, while only 26.5% are for capital expenditure.  This is unsustainable. We cannot continue to borrow to pay high recurrent bills. Rather we must invest in capital expenses to reflate the economy. The Government has taken steps to implement the Orosanye report but there needs to be a timeline for implementation. Corruption is a leading cause of high cost of governance. It is important to review anti-corruption strategies to reduce public corruption. Tackling the menace of big government and public corruption will give us more balanced revenue to debt profile. With the macroeconomic framework highlighted above, we can now review some critical factors that can help grow the economy and avoid recession.

READ ALSO: Top 10 risks Nigerian businesses will face in 2020/2021 – Report 

Diversification of the Economy

This is one area government needs to urgently activate because of the massive budget deficit. Nigeria runs a mono –cultural economy as 85% of her revenue is derived from crude oil exports.  As a result of the price shocks occasioned by COVID -19, crude oil receipts have gone down and are no longer able to sustain the economy. The total revenue expected to be realised as stated in the 2020 budget is N8.42trillion, including a deficit of N2.17t. However, following the COVID -19 pandemic, fiscal deficit has grown from N2.17t to N5.37t, which must expectedly be financed by fresh borrowing. We are now running a deficit budget and borrowing massively. Unless we diversify the economy, we will continue to borrow to the point where it becomes unsustainable. Many governments have paid lip service to diversification, but this is the time to develop a very strong policy on diversification. We must follow the example of the United Arab Emirates which diversified its economy by reducing dependence on oil receipts from 100% to only 35% by going into service and smart industries.  Some of the sectors to diversify our economy into are Agriculture, Transportation, Aviation/Space, Rail and road transportation, Maritime, Hydrocarbons, solid minerals, information technology and entertainment.

Trade policy

Nigeria has no trade policy which is why it is a major dumping ground for foreign goods. We spend billions of dollars importing basic food commodities that can grow locally. We must grow what we eat.  We need to reverse this with a robust trade policy. Trade policy refers to the rules and regulations on imports, exports, tariffs, duty etc. Trade policy rests on a tripod of critical factors – import substitution, tariffs, border enforcement and compliance.  We need to enact trade remedies legislation and a trade Expansion Act.  These legislations will impose anti-dumping duties on non-essential products. There are also special duties and measures we can impose on exports into Nigeria which are subsidized by a foreign country. The trade remedies legislation will prohibit imports if it is adjudged that they will cause material injury to local industries, for example by impeding local growth.  It is also important to enact legislation that will support the recently established Nigerian Office for trade negotiation (NOTN). It is crucial that the office is elevated to ministerial level.  We need to establish a National Customs and Border Enforcement Services. This Border Enforcement Services will need new legislation to merge immigration and customs services. The Border Enforcement Service will replicate the US Customs and Border Enforcement Agency. The merged service will reduce duplication and proliferation of agencies at the borders. To comply with ECOWAS protocol and the African Continental Free Trade Agreement (AfCFTA), the border closure policy should be replaced by a border enforcement policy. A strong trade policy will help create millions of jobs, grow local industries and expand the economy.

READ MORE: COVID-19 Intervention Fund: CBN disburses N107.45 billion to successful beneficiaries

Access to Capital

Capital is the oxygen and lifeblood of the economy. One of the areas where we can tap into capital is the Housing/property market. Eighty percent (80%) of Nigeria’s businesses rely on land and housing as collateral. Unfortunately, the slow administration of the Land Use Act in terms of consents and permits has meant that the banks have not accepted untitled property as collateral. This has caused incalculable damage to businesses in need of capital. A recent study shows that the housing inventory of Nigerian property exceeds six trillion dollars. Nigerian property and housing market is dead capital because 80% of them have no title or bad title and therefore not good as collateral for bank loans.  So creating the proper legal framework to make dead capital fungible (easily transferable) will create an instant credit market and enable Nigerians to borrow on their property. A Land Use Administration Act will introduce new rules to make the consent process more efficient and give confidence to banks to accept title documents as collateral. This process will create an instant credit market to drive the economy and will easily contribute at least 5% to GDP.

READ ALSO: Reps to investigate alleged illegal withdrawal of $1.05 billion from NLNG account

Government stimulus intervention

Because of COVID-19, the economy has taken a very big knock. It is the responsibility of government (like most western countries) to reboot the economy by supporting businesses with a business support fund of at least 50 trillion. We applaud the government for the injection of funds to support the economy. We note the following:

• Nigeria Economic Sustainability Plan (NESP), 12-month, 2.3 Trillion Naira ‘Transit’ Plan between the Economic Recovery and Growth Plan (ERGP) and the successor plan to the ERGP
• Ministry of Trade and Industry, MSME Survival Fund, The Guaranteed Off take Stimulus Scheme and the Credit Support to MSMEs and Priority Sector and
• Central Bank of Nigeria N10 billion loans and grants approved for various groups and organisations for pharmaceutical and healthcare-related research, under the COVID-19 intervention scheme.
• The Special Public Works programme expected to engage 774, 000 Nigerians to cushion the effect of COVID-19 pandemic.

It is a good start but not enough. The Government should look to ways and means by the CBN to inject at least 50 trillion into the economy. Government can intervene through a National Credit Guarantee Agency to support viable business proposals so they Business can easily access credit. Major economies of the world run on credit. The key is that the creditor is assured that he will be paid by government guarantee.  Another key institution is the Development Bank (DBN). Nigeria has a Development Bank, but unfortunately undercapitalized. The DBN needs to be properly capitalized to boost the economy.

Enabling Business Environment

The factors listed above will not work without an enabling business environment. The first step is to have an efficient legal and regulatory system.  For instance, the Nigerian judicature is based on the 1875 Judicature Act. The consequence is that cases take too long to resolve. It takes between 5 to 20 years to resolve simple contractual disputes. Investors, both local and international,  will not invest in a country where simple contractual disputes take between 5 to 20 years to resolve. We must give urgency to this sector and reverse legal failure. A speed of justice policy will reduce delays. In this regard, the National Assembly must consider enacting the Administration of Civil Justice Bill to ensure efficient administration of civil disputes.  Also, new methods of dispute resolution should be considered such as Alternative Dispute Resolutions, small claims courts, traditional and customary arbitration. Quasi-judicial administrative tribunals can be established for sectors, following the UK example. In England there are many administrative courts for Telecommunications, Taxation, Transportation, Insurance, Education, Financial Services, Trade, Investments, etc.

Discipline of Execution

Nigeria has a plethora of laws, regulations, guidelines and Executive Orders. The challenge is lack of implementation of these laws and regulations. Unless rules are enforced, Nigeria will not easily overcome recession. A vigorous government policy is needed to implement diversification, strong trade policy and access to credit etc. There needs to be timelines and harmonization of work of the various government agencies ministries.  Nigeria can generate 10 million Jobs and over N100 trillion with full compliance with policy implementation. This will help to mitigate the impact of the impending recession. The President must take charge and ensure vigorous implementation.

Conclusion

The story about diversification of the economy is an old argument going back 30 years and in fact, the Nigerian economy is actually diverse but the problem is lack of government consistency which has meant that although we have diversity, no revenue flows out.  We can only succeed if the twin administrative tools of power of focus and discipline of execution are applied. This presentation is made from the point of view of a development lawyer. It is up to the economists to draw what they can to mitigate the impending recession.

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.

READ MORE: FG’s conditional cash transfer programme gets more beneficiaries despite criticism

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.

Explore economic research data from Nairametrics on Nairalytics

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.