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How Nigeria can forge an inclusive economic recovery

While increases in poverty and economic inequality are possible, they are not inevitable.



As of this writing, the spread of COVID-19 in many African countries has been more contained, and the death toll lower, than some had expected in 2020. The economic fallout of the pandemic for Africans, however, will be different and could be more dire than for the rest of the world.

Sub-Saharan Africa accounts for more than half of the world’s populations living at or below the poverty line. A recent World Bank scenario estimates that COVID-19 could push up to 40 million people in Sub-Saharan Africa into extreme poverty, seriously eroding the progress that African countries have made to reduce deprivation during the past two decades.

When the pandemic was declared in April 2020, BCG counseled African governments to develop comprehensive plans in response to the health care crisis and take on broader economic and societal challenges. We continue to believe that the best course for African leaders is to accelerate economic policy reforms and investments that accentuate inclusion and position countries for a stronger post-pandemic recovery.

Indeed, Africa’s economic recovery from the COVID-19 crisis depends on how effectively governments will be able to balance urgent actions to stabilize economies with the structural reforms needed to stimulate sustainable economic development initiatives. An inclusive approach to economic recovery can protect the most vulnerable populations in the short term and improve their prospects in the long term. Select initiatives in Nigeria present a case in point.

The pandemic’s economic fallout in Nigeria

Nigeria is the largest economy in Africa and one of four African countries included on BCG’s Middle Billion list of rapidly transforming developing countries where local entrepreneurs attract global investment, especially in emerging tech-driven industries. Yet almost 83 million people—40% of the country’s population—live below the country’s poverty line of $381.75 per household, per year, according to the 2018–2019 living standards survey by Nigeria’s National Bureau of Statistics.

World Bank 2021 projections for SubSaharan Africa as a whole warn of protracted economic flux throughout the year. Even with a modest rebound from recession, there is a risk that a steep drop in per capita income could push tens of millions more people into poverty. South Africa and Nigeria, the continent’s most populous country, face the most severe setbacks, according to the projections. Lower oil prices, combined with pandemic-related factors, add to the strains on Nigeria’s economy and the risks for its most vulnerable citizens.

These concerns prompted the Nigerian government to undertake a wide range of activities to stimulate economic growth with a focus on economic inclusion. Specifically, Nigeria aims to leverage public-private partnerships to create economic opportunities for marginalized populations.

In June 2020, Nigeria’s government revised its economic sustainability plan to double down on stimulus investments and policy interventions in order to revive the growth of bedrock industries (such as oil, tourism, and aviation), and accelerate growth in emerging businesses in other industries (such as small and midsize enterprises and alternative energy) that promote economic inclusion and opportunity. Specifically, the government is focusing on expanding mobile smartphone service, digital financial services, and home-based solar electricity for low-income households.

Mobile Money and Telcos connect

Using cash and paying bills in person have historically been the norm, especially among the unbanked populations. This has changed since COVID-19. From the early days of the pandemic, leading contactless payment startups in Nigeria launched initiatives to encourage consumers and merchants to sign up for their services. As BCG has written, financial institutions in Africa were the first to introduce mobile payments.

In Nigeria, the push for cashless transactions has prompted mobile money providers to leverage the networks of telecommunications companies in order to sign up mobile money customers. This is important because most poor Nigerians own a cell phone, but they don’t have a bank account.

The percentage of the adult population with access to financial services in Nigeria grew at a compound annual growth rate (CAGR) of 6% from 2008 to 2012 but by only 1% from 2012 to 2018, according to an annual survey by Enhancing Financial Innovation & Access, a financial-sector development organization. This low rate persisted despite meaningful reforms implemented by the Nigerian government before the pandemic to accelerate financial inclusion.

In 2018, for example, the government issued payment services guidelines for financial service providers and telcos seeking to expand their customer bases among the unbanked, especially in rural areas. However, it took some time for the Central Bank of Nigeria (CBN) to issue the licenses that telcos need to operate as a payment service bank (PSB). In August 2020, the CBN licensed three new PSBs, which can now offer high-volume, low-value digital transaction services, such as remittances, microsavings accounts, and withdrawals. Extending the reach of mobile banking services to rural unbanked populations could also allow the government to deliver social welfare benefits directly to those citizens’ bank accounts.

Pay-as-you-go solar service

The Nigerian government is aiming to install new home solar power systems and minigrids for 5 million low-income households by the end of 2023. Many of those households—which either rely on small, inefficient generators for electricity or have no power source at all—will need to use PAYGo, an installment financing option offered with mobile money bank accounts, to purchase the installation kits for these systems. Customers with an existing mobile money account may apply and qualify for a PAYGo loan more easily than others.

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Our analysis shows that a PAYGo loan would make solar kits affordable for about half of the 31 million households that do not have reliable electricity and may also consider to be in a low-income bracket. What’s more, we found that 3.2 million out of 17 million households currently using kerosene and candles as their lighting source could afford the monthly PAYGo payments based on their current spending on lighting, plus about 10% of their nonfood budget.


We expect that the scaling of mobile money accounts, along with home solar power kits financed with installment loans, will have a sustained economic impact on low-income populations well beyond any 2021 recovery. A recent USAID research brief estimates that 15% to 30% of PAYGo solar customers will create a credit history for the first time when they purchase a solar home system with a PAYGo plan. That credit history could, in turn, lead to other loans for large expenses, such as school fees, which can consume up to 40% of a family’s annual income. Credit histories are also a critical driver of growth for small-business enterprises and first-time business entrepreneurs. The USAID brief also noted advantages for providers: PAYGo solar customers generate more than twice as much revenue per user for a mobile money provider than the average customer.

A stronger recovery and future

While increases in poverty and economic inequality are possible, they are not inevitable. As we see it, the economic hardships caused by the pandemic give governments a chance to examine the strengths and shortcomings of past policies and strategies and address the current structural inequities in their economies. Linking economic inclusion initiatives across several industries could also have positive, and enduring, multiplier effects. Time will tell whether Nigeria’s inclusive recovery plans succeed. All African governments, and the policymakers who are working with them, must look beyond the crisis to ensure that the resources deployed today build a better foundation to achieve a more equitable future.

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About the author

Tolu Oyekan is a partner at Boston Consulting Group. He leads the firm’s work on total societal impact across West Africa and is a core member of BCG’s Corporate Finance & Strategy practice. You may contact him by email at [email protected].

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Traders’ Voice…Nigeria’s surprising Q4 2020 GDP growth

The fourth-quarter GDP performance was magical and unexpected, but there is still enough room for worry.



Let us do a quick exercise before diving into this week’s note. Need you to raise five fingers up.

  • Put a finger down if you were not shocked by the Q4 GDP output.
  • Put a finger down if you expect a FY GDP of -1.92% YoY or less.
  • Put a finger down if you expected Nigeria to be out of a recession in Q4 2020.
  • Put a finger down if you expected the agricultural sector to experience its strongest output in 16 Quarters.
  • Put a finger down if you expected that the agricultural and service sector will outperform in Q4 2020.

If you still have all five or four fingers up, you are not alone in this as the Q4 2020 GDP figures came as a shock, beating consensus expectation of another decline in Q4 2020. If you have all your fingers down, I would like to know where you got your crystal ball. Nigeria’s Gross Domestic Product (GDP) grew by 0.11%(year-on-year) in real terms in the fourth quarter of 2020, representing the first positive quarterly growth in the last three quarters. Overall, in 2020, the annual growth of real GDP was estimated at –1.92%, (vs IMF’s -3.2% YoY). To avoid responses like, “it’s the Lord’s doing”, we will be diving into the sectors that were responsible for this growth.


The 2020 fourth-quarter GDP numbers were a sort of “wow moment” for most people, as the real GDP growth rate surprisingly climbed back into the growth region. Had anyone posited an expectation of a GDP recovery in the final quarter of 2020, many would have causally likened such an outlook to a futile attempt to build castles in the sky. Especially with all the events that took place in 2020, ranging from the Covid-19 pandemic, EndSars protest and, not to forget, the level of insecurity witnessed in the country. Nevertheless, it can be observed that the growth recorded was largely hinged on the non-oil sector recovery, as it rode on the back of improved economic activities to record a growth rate of 1.69%. This number represents an improvement when compared to the preceding quarter’s performance, which stood at -2.51%.

We will resist the temptation to lean into unproven narratives of statistical manipulation but rather attempt to demystify the GDP numbers by identifying the activity sectors that spurred the reported growth. An examination of the performance of the sectoral trinity, consisting of Agriculture, Industrial, and Service, helps provide a sense of meaning to the reported growth. In the review quarter, the Agriculture and Services sectors grew by 3.42% and 1.31%, respectively, and these two sectors jointly contribute 81.23% to the GDP of the country, hence, driving the overall GDP growth.

The growth recorded in the agricultural sector is the highest seen in sixteen quarters, but we unfortunately, cannot attribute the improved performance to the huge influx of funds that the fiscal and monetary authorities have been pumping into the sector through schemes like the Anchor Borrowers’ Programme. Rather, the lid placed on food importation via the border closure and the limitations on FX access for certain categories of food importers tipped the scales of demand and supply in favor of domestic agricultural players. Also, agricultural growth was underpinned by a 3.68% and 2.38% improvement in crop production and livestock subsectors, respectively. So, you can seek solace in the agricultural sector growth when next you go food shopping and are faced with soaring prices. For the service sector, the improvement was driven by the growth in the Information and Communication (14.70%) and Real Estate (2.81%) sectors, both of which jointly account for 40% of the service sector. The real estate performance marked the end of a six-quarter decline.

The GDP recovery offers no thanks to the oil sector, as it only deepened its downtrend. The oil sector in the fourth quarter of 2020 recorded a real growth rate of -19.76%, which makes the -13.89% recorded in the second quarter of the year look somewhat good. The blame for this poor oil performance can be largely attributed to lower production levels, as we recorded a YoY production decline of 22.00%, with oil production averaging 1.56mbpd in the review quarter as against 2.00mbpd recorded in the corresponding quarter of 2019. The explanation for the drop in production can be traced to domestic production disruptions, as well as output limitation by OPEC+. Back in 2017, a recovery in the oil sector was instrumental to the emergence of the country from the recession, but over the years, the non-oil GDP contribution has gradually encroached into the oil sector’s quotient, increasing from 91.21% in the second quarter of 2017 to 94.13% in the fourth quarter of 2020. This helps provide more meaning to the recent GDP growth seen, as a non-oil recovery weighs more on the performance of the overall GDP, while the oil sector’s impact gradually diminishes.

The fourth-quarter GDP performance was magical and unexpected, but there is still enough room for worry. The weak recovery recorded is expected to be the first of many tepid growth rates, and such economic sluggishness should last through 2021. The structural problems of the economy remain, hence, the chances of the economy recording sustainable growth seem bleak.

All Yields are heading north…

It seems we are not the only country experiencing a rise in fixed income yields. The yield on the United States benchmark 10-year Treasury notes climbed to a one-year high of 1.36% on Monday. Since the beginning of February 10-year yields have risen about 26 basis points, on track for their largest monthly gain in three years. Unlike the Nigerian fixed income yields which have been on the upward trajectory largely due to a sharp decline in the market liquidity chasing excess supply of securities. The rise in US Treasury yield has been hinged on inflation expectations as the vaccination programme gains momentum while stimulus expectations continue to drive a positive outlook for the economy in the near to medium term. The stock market also felt the brunt of the fast rise in yields as the S&P 500 was down 0.22%, while the Nasdaq Composite slumped 1.53% on Monday. However, the Dow Jones Industrial Average rose 0.39% or 144 points.

US 10-Year Treasury vs S&P 500

Looking at the chart above, it seems the United States defied the theory that states that there is an inverse relationship between the yields in the fixed income market and the equities market, as yields in the fixed income markets and equities market had a positive correlation between the period of August 2020 to January 2021. (One word, Reflation Trade)

Reflationary trades involve buying assets exposed to faster economic growth, price pressures, and higher yields. Riskier equities tend to benefit at the expense of haven assets such as the U.S. Treasury. Equities that benefits are small caps and cyclical sectors such as banks and energy producers. It also includes cruise operators, airlines, and other travel and leisure companies that will benefit from an end to lockdowns. It’s the go-to trade when economies emerge from a recession. This begets the question, “would we see reflationary trades in Nigeria given that we just came out of a recession?”

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Spread Analysis (US 10-year yield, NIGERIA 31 and NIGERIA 49)


If U.S. Treasury yields continue to rise, central banks in emerging markets may need to hike rates to sustain foreign inflow. We might be looking at an end to the global central bank dovish stance sooner than expected. From the Eurobond perspective, the NIGERIA 31, NIGERIA 47, and NIGERIA 49 have traded at a three 3-year average spread of 670 bps, 650 bps, and 720 bps of the U.S. 10-year yield in the past 3 years.

Given the U.S. 10-Year yield current spread differential of 600 bps, 520 bps, and 650 bps between the NIGERIA 31, NIGERIA 47, and NIGERIA 49s, we expect a further rise in yields across the Nigeria sovereign papers.

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Real estate sector GDP positive in Q4 2020, but still in the woods

The real estate sector like many other sectors of the economy suffers deeply from a dip in macro economic conditions of the country.



Real Estate in Lagos

According to the Q4 and full-year 2020 GDP data released by the National Bureau of Statistics (NBS), real estate sector returned to positive growth of 2.81% y/y in Q4 2020 following six consecutive quarters of negative growth since the last positive growth posted in Q1 2019 (0.93% y/y).

The significant recovery in Q4 2020 reflects the full reopening of the economy as many residential and commercial projects began operations fully following the suspension of activities during the national lockdown. Overall, the real estate GDP FY 2020 contracted by 9.22% y/y which was well below our 2020 estimate of a 13.7% contraction.

The real estate sector like many other sectors of the economy suffers deeply from a dip in macro economic conditions of the country. In 2016, when the economy went into recession, the sector declined by 6.86% compared with the growth of 2.11% recorded in 2015.

READ: Where to buy Real Estate in Lagos in 2021

Subdued activities in the real estate and construction industry had a spillover effect on the cement sector where growth slowed drastically to 5.4% in 2016 from 22.1% in 2015 on the back of weak private sector investments and low government spending.

In 2020, as the pandemic ravaged the economy, the real estate sector was not left behind as the unprecedented crisis elevated vacancy rates in existing commercial properties, reduced average footfalls across retail centres and slowed the completion time of many residential developments and infrastructure projects in the country.

This led to an all-time high of a 21.99% contraction recorded by the real estate sector in Q2 2020. The impact of the restrictive measures put in place during the second quarter was apparent in the financial performance of two key cement players (Dangote Cement and Lafarge) as both top and bottom-line performances were pressured.

READ: How to own your home in 5 years without a mortgage

Looking ahead, we expect growth in the sector to remain weak due to a plethora of factors from high inflationary figures and devaluation which continue to pressure consumer purchasing power to little access to finance which has continued to undermine the demand for housing. Despite efforts geared towards improving mortgage financing or consumer credit, the rate of mortgage financing to housing development in the country remains very low compared to peers in the emerging market.

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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