Over the past decade, Renewable energy has been projected by some of its ardent supporters, such as environmentalists and climate change champions, to phase out Oil. Fossil fuels are seen to be the bane to climate change. Last year when Nigerian Senator, Ben Murray-Bruce proposed an Electric car bill at the Nigerian Senate, many Nigerians called his proposal a “misplaced priority.” That event underlines the problem the world faces with switching to renewable energy.
Is Oil dangerous? Perhaps. According to the Intergovernmental Panel on Climate Change (IPCC), fossil fuel emissions are the principal cause of global warming. A 2018 research shows that, “89% of global CO2 emissions come from fossil fuels and industrial activities. The research also shows Coal as the dirtiest of the fossil fuels and responsible for over 0.3C of the 1C increase in global average temperatures – making it the single largest source of global temperature rise.
“Oil releases a massive amount of carbon when burned – approximately a third of the world’s total carbon emissions. There have also been several oil spills in recent years that have a devastating impact on our ocean’s ecosystem.
“Natural gas is often seen as a cleaner energy source than Coal and Oil. However, it is still a fossil fuel and accounts for a fifth of the world’s total carbon emissions.”
With these revelations above, it is evident that the world can no longer rely on Oil for the sake of the world’s health. However, certain factors make this phasing out implausible. First, 95% of the fuel demands of the transportation sector are provided by Oil. Think of every means of transportation we have. Think of cars, trailers, trains, buses, marine vessels, and airplanes, that rely on petroleum fuels. The transition to renewable energy would take some systematic and systemic approach with the will of countries and mega-corporations.
And there lies the most prominent problem. Interests. The United States, which is the largest producer of Oil, has not shown enough desire to reduce the use of Oil. The President, Donald Trump, has once called “climate change” a hoax, which manifested in his viral exchanges with Greta Thunberg, the teenage girl who has championed the global movement for climate change. The American Government has always supported its energy industry and the oil economy. Lots of jobs will be lost if the energy industry suffers. The sole reason why Donald Trump reached out to Saudi Arabia and Russia to save the oil markets a few months ago was to protect the energy industry in America. Exxon, Chevron, and the other shale oil companies have invested billions into drilling and exploration, so how then will they support a cause that ruins their business profitability.
Talk of Saudi Arabia and Russia, both countries’ budgets depend heavily on Oil. Russia has one of the world’s largest natural gas reserves, would it not be counterproductive to support renewable energy? This scenario applies to OPEC’s other members, the world’s most influential cartel in the energy space. In a bullet commentary released last year, OPEC said, “There is a mistaken public perception that renewables are the only solution to the climate challenge and that the oil and gas industry is the only or main source of pollution. This is not the case and does not match the views of either scientists or experts.”
If there is any evidence of how the United States and OPEC+ cannot cope with a reduced demand for Oil would be the Coronavirus-era we are in. The series of diplomatic interventions, budget revisions, budget deficits, revenue losses, company bankruptcies, and an increase in unemployment because of the fall in oil prices make you wonder if renewable energy can make its transition.
However, it seems Europe and the United Kingdom are keen on climate change and renewable energy. In the United Kingdom, in a 2019 research, Renewable energy sources provided more electricity to UK homes and businesses than fossil fuels for the first time. The renewables record was set in the third quarter of 2019 after its share of the electricity mix rose to 40%. Other European nations have shown the political will to support renewable energy.
The world needs Oil and has, over the years, been oil-dependent. Renewable energy would not phase out Oil like Thomas Edison’s light bulb phased out the candle industry unless the world superpowers allow it.
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, Wealthdotng, 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.
Could we ever see $100 oil again?
JP Morgan Chase had predicted that oil prices would shoot up as high as $190 a barrel in 2025.
Christyan Malek, JP Morgan’s head of oil and gas research for EMEA, in an interview with CNN, said, “the reality is the chances of oil going toward $100 at this point are higher than three months ago,”. The claim follows an earlier bullish prediction by the investment bank in March, about oil prices shooting up as high as $190 a barrel in 2025.
Have we seen $100 oil before? Yes. The chart above showed oil nations in some years enjoyed oil at levels above $100. Current fundamentals do not favour $190, which could be overreaching by JP Morgan. Brent Oil has not seen $100 for a barrel since 2014, with $145 the highest point the industry has seen in the last 20 years.
But how possible could reaching $100 be given how the world has changed. On the demand side, we have a pandemic that could change how the world interacts. This issue might be corrected when a vaccine comes to the fore. Life would surely resume and come back to normal, just a few corrections and adjustments from the travel and tourism sector.
The bane to reaching $100 price levels, is the supply side. The rise of shale oil is the albatross on the neck for bullish prices. Shale oil, which has suffered a downturn of recent, appears to be going through a tough recovery patch. The sector is in dire need of financial support as we have seen a lot of bankruptcies been filed across that industry. This scenario forms the basis for Oil bulls. Sawiris, Holding Chairman and CEO of Orascom Investment told CNBC in an interview last month.
READ ALSO: OPEC’s influence on the Oil Markets
“I actually believe that in, let’s say, 18 months from now, the oil will hit $100″. He further added, “The shale industry will vanish for at least one year, and restarting is going to be difficult because banks will be very reluctant to finance them back because they know that they’re very vulnerable. He cited that even traditional oil, many of the U.S. facilities have closed.”
Let us analyze what makes JP Morgan so upbeat about prices. Their reason is in one hypothesis, which is the cyclical nature of the industry. This theory presumes that the oil market produces a lot of oil when the demand for it increases. Consequently, supply begins to outstrip demand for various reasons, which would lead to the collapse of prices. The markets in its knee-jerk manner, especially from the OPEC oil cartel, would cut production to limit supply and props up higher prices. Classic economics point out that less supply with increased demand leads to high prices. This cycle is evident in the oil markets, hence the rise and fall of prices, as seen in the charts.
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But one thing JP Morgan overlooked would be the continuous rise of renewable energy. The growth of renewable energy has underestimated despite European countries working on transiting to this new form of energy. Bullish Oil prices might suffer a huge setback. Nigeria would want a $100 price for the commodity to happen. The economy needs it as diversification seems to be lagging. But our policymakers might have to wait for all fundamentals to make this happen.
Oil markets need airlines to resume
Now we have Oil markets leeching on a relatively insignificant demand for travel.
Summer 2020 is here, and without the interference of COVID-19, this would have been one of the busiest summers in history. For the first time, we had a European Soccer Tournament hosted across different countries in Europe. Spain, Holland, Romania, Denmark, Hungary, Ireland, England, Russia, and a few countries, to mention a few, are all in line to host the world for this spectacular tournament. Many people (including myself) were planning on trips to Europe to watch some of the tournament’s exciting games. Another tournament scheduled to hold in Tokyo this summer was the 2020 Olympics. Think about what that would have meant for the Asian markets. Think about the demands that would have generated across the board.
The Dubai Expo 2020, a once in a lifetime event, was going to be the largest ever celebration hosted in the Emirates. The event was primed to welcome 190 participating countries and millions of visitors from across other continents. Think about tourism to Dubai usually, think about tourism to Dubai if this event were to hold (without COVID-19), and now think of it not even holding at all.
The demand for travel was primed to reach its zenith this year. That would have meant a lot for the aviation industry, airlines, and, most importantly, Oil markets. Now we have Oil markets leeching on a relatively insignificant demand for travel. Jet fuel demand averages about 8 million barrels per day. As a result of the pandemic, The International Energy Agency expects demand for jet fuel and kerosene to fall by 2.1 million bpd on average in 2020.
According to an article in Reuters, Per Magnus Nysveen, Head of Analysis at Rystad Energy said, “Jet fuel consumption will be impacted for a longer time and maybe not recover fully even next year. The reason is that travelers remain concerned about long-haul vacations, and businesses get used to online meetings”.
We are now faced with a travel industry that is more precautionary of a virus, so this means fewer travels and social distancing in aircraft. Although a few people are acting oblivious to the pandemic by carrying on with their summer plans, travels are still below pre-pandemic levels. American Airlines and United Airlines have also decided to ditch social distancing, as seen in an article on Forbes. American Airlines said in its press statement last week.
“As more people continue to travel, customers may notice that flights are booked to capacity starting July 1. American will continue to notify customers and allow them to move to more open flights when available, all without incurring any cost,” Nysveen added.
Albeit, that statement caused a lot of criticism from some members of the public, it is evident the airline is trying to salvage some revenue after the dilapidating effect the pandemic had on the airline industry just as the pandemic hurt Oil markets.
Now the Oil markets need airlines to rally. In the diagram below, some resistance is formed above the $43 mark, albeit worries over a second wave of the coronavirus surfacing in most American cities. A massive sell-off happened at Wall Street last week on the back of these concerns. The Oil bulls need momentum to reach the $50 price level, and that would only be possible if airlines resume in full capacity.
The markets have reached their current levels on the backdrop of OPEC production cut and hopes of a reopening economy. If airlines begin to operate pre-pandemic capacity, we would be in store for a rally in prices. But when would airlines begin operating at pre-pandemic capacity? That remains the question the Oil markets have no answer to.