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Cash is no longer king – Digital Money as a lever during a pandemic

Nigeria’s inability to leverage digital technology systemically is not just a low-income people issue.



Security in digital and online money transactions

Olugbenga GB Agboola

As a result of the economic crisis created by the pandemic, almost 1.6 billion informal economy workers (representing the most vulnerable in the labour market), out of a worldwide total of two billion and a global workforce of 3.3 billion, have suffered massive damage to their capacity to earn a living. This is due to lockdown measures and/or because they work in the hardest-hit sectors.” – ILO Monitor: Covid-19 and the World of Work. 3rd Edition.

Shut land borders and airspaces are gradually opening back up, and we have seen economic activities pick up after it all came to a pause due to the COVID-19 pandemic. It’s clear that survival is dependent on good health and a working economy. The cost of the restricted movements because of the global lockdown phases are still being tallied but the World Bank envisions a 5.2% decrease in global GDP with most countries expected to face recession in 2020. That’s not hard to imagine, considering that at the end of the first half of April, 81% of the world’s workforce were affected by workplace closures, according to the United Nations. As expected, the impact is most severe in low-income countries that have more workers in the informal sector. Low middle-income countries such as Nigeria average more than 80% of the population in the informal sector. In a large city like Lagos, this sector comprises more than two-thirds of the working population.  In a recent World Bank country update which suggests that there could be a rise of vulnerable Nigerians by five million by the end of 2020. With a new globally-sanctioned lifestyle that emphasizes physical distancing to slow the virus’ infection rate and flatten the curve, where does this leave Nigeria?

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The New Normal

Following the introduction of the cashless policy by the Central Bank in 2012; the initiative was implemented to move Nigeria and Nigerians further to a Digital Age and to mop up cash in the economy. It was also encouraged in an effort to manage inflation. Since COVID, there has been a monumental increase in the adoption of digital payment methods, an estimate of which resulted in a 365 percent increase in online activities. This increased drive has been spurred as a result of innovative financial technological solutions from Fintechs such as Flutterwave who is able to facilitate payments for businesses and encourage last-mile payments.  While this is remarkable, only sustained and prolonged usage can move the country close to the targeted financial inclusion goal of providing  60 million unbanked adults with formal financial services by year-end 2020.

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READ: Mastercard offers Jumia $56m ahead of unusual IPO on NYSE

So how do we sustain the tempo?

The voluntary migration to electronic channels for financial transactions during the pandemic points to the fact that policies and penalties alone aren’t enough. Electronic channels enabling businesses and consumers the opportunity to adapt to the new normal without the disadvantage of steep learning curves. The alternative(s) need to be more accessible, easy to use and secure – the kind of features that make Flutterwave preferred.

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Days before the lockdown was to begin in March, there was panic purchase all over the country which resulted in inflation of prices. Unknown to a lot of these sellers, it was the calm before the storm. Lockdown meant restricted movement and soon a lot of customers couldn’t visit their favourite shops. Local dispatch bikes came to the rescue but this applied only to existing customers as there was no way of recruiting or servicing new customers.

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As a business, we saw that a lot of our merchants were significantly impacted by these lockdowns – specifically in the transportation and travel sectors. For the others that were not, we noticed they weren’t making their usual daily turn over. We were concerned and thought of ways to support all businesses: Enterprise & SMEs. For our small businesses, we responded by organising webinars and launching a campaign #KeeptheLightsOn and also built Flutterwave Store – an SME store platform. We set it up for businesses whose physical stores do not offer essential services and so had to shut down during the lockdown, and also for those who had no physical or online stores. What we have seen since doing that, is that businesses who sold only in one part of town before, for example, in Lekki, started receiving orders from not only other parts of the country but different continents all together –  giving rise to another problem of delivery. Kate is one of our new merchants who sells handmade handbags out of Akure. When she got orders for three units from a buyer in San Francisco, she was so ecstatic she called her friend who helped set up her page on our platform. Before then, the farthest Kate had sold her goods was in Lagos via an aunt who often visited her mum. We have restaurants shipping orders across states and this is good. The entire transaction is electronic and this is also good. However, to scale to full adoption of mobile money and digital payments, financial inclusion has to be at the front and centre.

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Unlike Kate, a lot of micro-businesses are unable to move their businesses or payments online because they run cash in-cash out systems. This means they rely on the proceeds from daily sales to restock for the next day and to cater to their daily needs. They cannot afford the luxury of next day settlements, which is the current method employed in digital payments systems. The inability to save a substantial amount over a period of time also means they are unable to scale their businesses unless there is a credit intervention. The majority of those in this population block are not served by traditional financial providers and have been excluded from accessing basic services including loans. All these factors contribute to the distrust of many low-income individuals in formal financial institutions.  While a portion of these sectors are able to find comfort in the service lines of MicroFinance Institutions, a larger percentage, due to their business models are still unable to access the necessary financial facilities to grow their businesses.

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Nigeria’s inability to leverage digital technology systemically is not just a low-income people issue; it is one that cuts across all sectors; from education, to agriculture, commerce and healthcare, and will take a while to change. For example, the Federal Government under its National Social Investment Programme Conditional carried out its Conditional Cash Transfer programme by physically distributing money to vulnerable households across states as a way of cushioning the effect of the pandemic. It would have been a good opportunity to leverage this exercise (which began in 2013) to deepen digital money adoption among the underserved.  A case in point is in Abuja, where although there are 5000 beneficiaries, only 190 people were reached in a day. This means there needs to be a systemic change starting from the top. It’s also important to note that while the current pandemic affects everyone, it has a disproportionate impact on the lower-income population, a segment that is already socio-economically marginalised.

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Another opportunity for the government to improve on its 2020 initiatives including financial inclusion can include further partnerships with the Fintech ecosystem as a delivery agent for these policies. For instance, the Central Bank of Kenya partnered with Safaricom, Kenya’s largest telco, to waive transaction fees on money transfers less than $10. This resulted in a deepening of mobile money usage and adoption as the Central Bank reported more than $1.5 million additional users pivoted to mobile money and 80% of 80% of transactions were within the band of the fee waiver – a clear indication of adoption of low-income households. Following this, the Bank expanded the initial 3-month waiver to run through the end of 2020. By working with Fintechs and Banks, the Central Bank will be able to provide an opportunity to grow both adoption of digital services while providing an opportunity to improve on the identification of Nigerians aside the use of the BVN (Biometric Verification Number)

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In March 2019, in a similar move to increase digital adoption, Ghana implemented policies and initiatives that saw a rise in active mobile money accounts – almost 15m users. While the adoption of mobile money is novel in Nigeria, alternative payment channels are not unfamiliar to the average Nigerian or the Financially vulnerable Nigerian. Experts argue that by focusing on the vulnerable and building financial solutions benefitting their case studies, there could be similar growth recorded as its sister countries. Some argue that cost of service is critical to scaling digital money which is usually solved by scale; but scaling digital payments will only be spurred via partnerships. The stakeholders such as the government should create policies that prioritise and incentivize young businesses to scale and succeed. Bundling of services, providing tax rebates, and implementing zero fees on businesses of a certain age or transaction volume threshold will serve to fast track financial inclusion of the vulnerable in the society.

Nairametrics frequently publishes articles from experts such as financial analysts, economists, researchers and investors. We also feature articles from guest writers and bloggers who wish to push their views and opinions through our platform. To get your articles on Nairametrics, kindly send an email to [email protected] and we will publish it within 24 hours of approval by our editorial team.

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Trump or Biden? How the US Presidential election will impact the stock market

A Trump victory will see a stock market bump, as traders buy shares to cover their Put options.



US stocks are falling and volatility is going to increase as the US election head to a close on November 3rd. However, this is a systematic fall, meaning every stock in every sector is falling. Every sector save for a few healthcare stocks is down – irrespective of earnings. Why would Amazon stocks fall, even as demand is up?  This is a big market “tell” that the market sell-off has nothing to do with fundamentals.

Image 1 shows the Standard & Poor 500 index stocks categorized by sectors and industries.

Another key indicator that shows the market’s hand is the “VIX” – the trading symbol for the CBOE Volatility Index – that measures the implied volatility of the S&P 500 index. The VIX is muted, it’s up slightly – but nowhere near the levels seen in March and July of this year. What this tells us is that the market is less fearful. In other words, this is a planned sale by institutional investors not driven really by COVID-19 or stimulus fears.

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Why are all sectors in the market falling? The answer is simple; Investors are hedging against a Joe Biden victory in November.

Joe Biden‘s tax plan calls for an across the board tax hike on income, including Capital Gains taxes. This means if you filed as a single, bought the US Stocks in 2016 by buying the Vanguard Total Stock Market Index Investor (VTSMX), your return in 2019 would have been 52.2%. This return would have triggered a capital gains tax of 20%, if your income exceeded $441.451 as a single filer.

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Donald Trump on the other hand will tax long-term capital gain at 39.6$% on income above $1m. The maths is simple, investors that have made money in the stock market under the Trump tax cuts have an incentive to sell their stocks today or buy a Put option – to take in cash today and wait.

If Biden wins, they pay Capital gains taxes at the lower 20%; if Trump wins, they already have banked on their cash.

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Can you see the opportunity?

If Trump wins, these investors have to buy back those shares. Thus, a Trump victory and the Republican Party retaining the Senate will see a stock market bump, as traders buy shares to cover their Put options.

This is a simple play – if you think Trump will win, buy the market and go bullish.

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October PMI reveals rebound in economic activities

Manufacturing PMI has remained below 50 index points for the past six consecutive months.



Manufacturing: Activity levels pick up albeit readings still below water

According to the Purchasing Managers Index (PMI) data released by the Central Bank of Nigeria (CBN) for the month of October, activity levels in the manufacturing and nonmanufacturing sectors strengthened even as readings remained below 50 index points. Specifically, the manufacturing PMI expanded to 49.4 in October from 46.9 in September, indicating slower contraction compared to the prior five months. Similarly, the nonmanufacturing PMI strengthened to 46.8 in October from 41.9 in September, halting two months of consecutive contraction in the index. That said, we note that Manufacturing PMI has remained below 50 index points for the past six consecutive months while NonManfacturing PMI has been below 50 index points for the past seven consecutive months.

Across the key indices in the manufacturing PMI, save for Supplier delivery time (-1.7) which recorded some deterioration, the remaining four indices in the manufacturing sector improved in October; Raw materials/WIP Inventory (+3.2), New orders (+4.8), Production level (+2.7) and Employment level (+1.9). We think the deterioration in Supplier delivery time reflects the impact of the nationwide unrest and peaceful protests on logistics and distribution channels of manufacturing firms. Furthermore, we note that while Employment
level and Raw material inventories improved in October, they remain below the 50-point mark which reflects weak labour employment and FX illiquidity challenges impacting ability to import critical raw materials. The data further revealed that, of the 14 surveyed subsectors in the manufacturing sector, six (compared to four in September) reported growth while 8 (compared to ten in September) contracted.

For non-manufacturing PMI, all four of the key metrics recorded improvement albeit they all remained below the 50-point mark. Across all the indices; Business Activity (+5.0), Level of new orders (+8.3), Employment level (+2.6) and Inventory level (+3.2) showed decent improvements. We think the decent recovery in Non-manufacturing PMI was driven by sustained recovery in activities of service-based organisations in the face of reduced covid19 restrictions.

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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Traders’ Voice: Trading during a curfew

The NSEASI finally crossed into positive territory YTD this month after suffering a major blow from the Covid-19 induced sell-off.



Excerpt from my dairy (21/10/2020)
“Hmm! How did we get here? What did I miss? How did we go from a historical peaceful protest to reports of
violence and looting? 2020, haven’t you done enough already? Oh lord, I know I don’t normally pray for
Nigeria, but please protect everyone stranded in Lekki. The night started on Twitter. Pictures of the cameras
being taken down was shared. Theories of conspiracy, the unsafe location and ‘get out of there’ tweets were being tweeted all at once, but no one saw this coming. I couldn’t believe it was daybreak when I looked outside the window as my eyes were still wide open and my heart still kept beating fast as if I had just come back from a morning jog. I took some time out, talked to some of my loved ones I couldn’t reach before and it gave me some level of comfort and ease. I decided I had to keep it cool and focus on work. Then it hit me like a ton of bricks. The first gunshot I heard this year. I heard it once, twice, thrice, and then I couldn’t keep count anymore.

Survival instincts set in; I shut all windows and doors and then the typical Nigerian in me came alive and I
started praying. I have never prayed so hard in years, even whilst executing clients’ trade orders. This will surely
be a day to remember.”

In spite of all the unrest and violence we all witnessed in most part of the country especially Lagos, the commercial hub of Nigeria, markets still witnessed a positive showing in the Bonds and Equities space WoW. This begets the question, “Is Nigeria’s financial market defying all rules of logic?”

Before I delve into this, we should let you all know that our heart is heavy and goes out to everyone who lost a
loved one or got injured during this traumatic period of unrest and also to all SMEs, corporate and government,
whose properties were vandalized and looted. I must say, it was extremely exhausting and heart-breaking to
watch people’s sweat go down the drain especially with how challenging this year has been already. Amidst the current unrest happening in our dear country, we would like to encourage everyone to keep staying safe and pray for our dear country.

Market defying logic…

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The equities market managed to close in positive territory last week despite the insecurity and unrest seen in
the country. The Nigerian Stock Exchange All Share Index (NSEASI) advanced by 0.13% WoW to close at
28,697.06 points as it witnessed gains on three (3) out of five (5) trading days of the week. The NSEASI YtD
improved further, climbing up to 6.91% YTD from 6.77% YTD in the prior week. However, we saw weakness
in investors sentiment, as market breadth closed at 0.80x (vs. 1.52x recorded last week) as the market recorded
twenty-eight (28) advancers against thirty-five (35) decliners in the week. The hunt for yield (Particularly from
a dividend perspective) coupled with the unattractive fixed-income yields and fairly robust system liquidity
continues to provide support in the equities market as the dip witnessed in the middle of the trading week was
met with sizeable bargain hunting activities across most sectors of the market.


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The Bond market also sustained its bullish momentum last week on the back of the liquidity improvement
coupled with the unmet bid at the monthly FGN bond auction. The Bond auction which held on October 21,
2020 (I know, right? I didn’t think it was going to hold too but I guess we still have a budget deficit to fund)
was relatively strong with a bid to cover of 5.24x as DMO sold NGN45 billion(as against NGN30 billion
offered) across the 15-Year and 25-Year papers, at stop rates of 4.97% and 6.00% respectively. Consequently,
yields declined by 69 basis points on average across the curve. By the way, speaking of defying the odds, did
you notice that even with everything happening the local sovereign bond yields remained lower than the
Nigerian Sovereign Eurobonds? (Not sure they teach this in school).

Three major hypothesis that have been confirmed this week are:

H1: Market liquidity has a significant impact on financial market performance in Nigeria

H2: Fundamentals may not necessarily impact financial markets as anticipated in Nigeria

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H3: The market can stay irrational longer than you can stay liquid.

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Nevertheless, we expect the impact of largely felt disruption and looting seen in the past week to put downward
pressure on the already depressed economy, with Lagos State alone estimating the cost of its damage to be
about a N1 trillion, although figures are yet to be confirmed (That is slightly above the entire state’s revised
budget at N920.469bn). As we continue to face economic challenges, with inflation on the rise, mounting
pressure on our reserves, weaker crude prices and declining FDIs and FPIs, the road to recovery seems more
distance than ever.

Where is the money?


The recent volatility seen across all dollar underlying assets coupled with the security crises-driven sell-off has
created entry point in the Nigeria Eurobond market which currently yield higher than the local FGN bonds.

Equities Market

The equities market has been on a rally this October 2020 as local investors resumed bargain-hunting as yields
remain depressed in the fixed income market. The NSEASI finally crossed into positive territory YTD this month
after suffering a major blow from the Covid-19 induced sell-off. NSEASI is currently up 6.91% YTD. We expect
the bullish trend to persist in coming weeks as investors will be looking to position themselves ahead of Q3
earnings as yields remain depressed in the fixed income market. Dividend yield remains the major play.

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