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THE NIGERIAN ECONOMY AND 2017 OUTLOOK FOR THE FINANCIAL SERVICES INDUSTRY

Posted on: 23 Jun 2017

Nigeria’s economic recovery from the current recession will depend largely on the stability in the oil-rich Niger-Delta region of the country.

The CEO of Nairametrics Mr Ugochukwu Obi-Chukwu asserted this as the keynote speaker at the Nigeria-South Africa Chamber of Commerce May breakfast meeting in Lagos.

Focusing on the theme “The Nigerian Economy and 2017 Outlook for the Financial Sector”, Mr Obi-Chukwu noted that with the Q1, 2017 GDP economic growth report showing a fifth consecutive contraction at -0.52%, policy steps by the government from the fiscal to monetary sides will be critical.

He said with stability so far in the region, oil production had gained to about 2ml bpd and the international crude oil price is currently $53 per barrel, which remains favourable for Nigeria in revenue terms.

The Chartered Accountant listed President Muhammadu Buhari, Vice-President President Prof Yemi Osinbajo, Senate President Dr Bukola Saraki, Mrs Kemi Adeosun (Minister of Finance), Senator Udoma Udo Udoma (Minister of Budget and National Planning) Mr Godwin Emefiele (Governor,Central Bank of Nigeria) amongst others.

Assessing the government efforts so far since the recession, he highlighted the following as key steps taken by the current administration, namely; passage of 2017 record budget N7.1trl, Executive orders on Ease of Doing Business, Fast-tracking budget process and Using Made-In-Nigeria, Introduction of the Central Bank Forex windows, Oil sector deals i.e crude oil swap deals and RBOT process for refineries.

Others are the Eurobond issuance, launch of the ERGP, Social Investment Plan (N41bl expenditure so far), Increase in Amnesty spending for Niger-Delta (N35bl), Focus on Agriculture, Intervention funds for Bank of Agriculture and Development Bank.

Looking at the Forex policy of the Central Bank of Nigeria, the Nairametrics boss agreed with the fact that the several FX windows from the CBN, had to an extent addressed the issues of the market. He added that through the CBN’s Anchor Borrowers programme, we were able to provide financing for many hundreds of thousands of farmers. Local production is said to have almost tripled as we are now producing about 5 million tons. Nigeria imported over 580,000 tons in 2015 and by 2016 we were importing only 58,000 tons. Efforts are on top gear to increase wheat production, maize, grains.

He expressed optimism that the market will eventually yield to a single window, while giving his opinion that the clamour for the “floating of the naira” to solve liquidity issues, may not suffice at the moment.

The Federal Government has provided support for states – about 2/3 that could not pay salaries, Payment of 25% Paris Club refund. In the area of anti-corruption a total of 41 recoveries were reported with the overall sum of recoveries standing at N169, 634,722,600, $260,900,000 and £2,101,800. They have recovered over N50 billion in 2017 alone.

Other key achievement of the government are Eurobonds

  • $1 billion raised in February – Over subscribed by 7 folds
  • Another $500m raised in March 2017

Fiscal Discipline

  • 60% of workers registered with IPPIs electronic payroll and personnel information system
  • 58,350 ghost workers have been removed from payroll saving N92.4 billion between January 2016 and April 2017.

Free Trade Zones

  • N50 billion set aside to improving existing FTZs – Lekki, Ogun Guangdong, Calabar & Kano

Power

  • N701Bn CBN Facility as a payment guarantee for Nigeria Bulk Electricity Trading company to guarantee payments to the Power sector and in turn improve Power supply. Rate is 10%
  • FEC also approved that FGN continue discussions with the World Bank Group (WBG) with the objective of securing financial support of $2.5 billion for the power sector
  • FG permits electricity customers with 2megawatts consumption level per month to buy power directly from the generation companies

On the Financial market, Obi-Chukwu noted that despite the recession in 2016, the total profit of banks soared to about N421bl. According to him “There has been a giant shift to e-business”, which he stressed was the next level of transformation for the financial services market.

According to him, Nigeria is a leading investment destination in the African Fintech space. Average monthly transactions have surged from $5mn in 2011 to $143mn in 2016

Growth is driven by a shift towards a cashless economy, e-transactions, and proliferation of mobile technology. The sector is becoming crowded, as players seek to assert their position and ward off existential threats.

  • Robust Government support signifies presence of enabling environment for further growth.
  • Retail banking and Funds Transfer are most at risk of disruption at 92% and 85% respectively – PWC
  • A lot of room still exists for:

Financial inclusion products:

    • mobile money, insurance, provision of credit
    • There will be a stronger shift towards cashless transactions, and possibly towards contactless payments

Transactions facilitation:

    • payments, e-transactions (domestic and overseas), recurrent billing, and even platforms for investing.

Store of value:

    • Following the fluid state of Nigerian Forex Policy, there has been a lot of interest in funds transfer solutions and borderless savings accounts as a means to preserve the value of money
    • Crypto-currency is still not widespread, although gaining popularity as a store of value following Naira decline.

He also itemized the challenges facing Nigeria’s Insurance Industry & Fintech Trends:
Challenges & Potential Approach

  • Challenges faced by the Nigerian insurance industry include
    • low penetration levels,
    • lack of consumer trust,
    • low implementation of compulsory insurance and
    • lack of adequately skilled professionals

The above challenges mean that current number of policy holders is only 3 million out of the population of over 175 million people (less than 2%)

  • Some of these challenges can be overcome by attempting to adopt similar technology which the Nigerian banking sector appears to be successfully deploying. Examples include
    • Fintech driving a shift from fixed platforms to mobile transactions
    • Penetration into informal sector by adopting agent banking (in banking, examples are Interswitch, PAGA, Innovectives LLC, etc.)
    • Regulator led initiatives (i.e. in banking, the cashless policy has contributed to growth in total banking assets of +$150 billion)
    • Leveraging Automation to complement for lack of skilled professionals (e.g. Chat Bots for customer service, Artificial Intelligence for back office claims processing)

The Informal Sector remains a large untapped sector for the Nigerian insurance industry

  • This sector accounts for ~58% of GDP and 80% of the labour force
  • However this sector has significant insurable assets, a large population of exposed individuals, as well as, the need for short term insurance products.
  • Specifically, The informal sector owns insurable assets such as Mobile Phones, Colour TVs, Fridge/Freezer, Vehicles
  • The informal sector is also exposed to insurable events such as Death of a Relative, Serious Illness of household member, theft of household properties, loss of jobs, business failure.
  • Currently for most individuals, the planning and coping mechanisms remain sub-optimal.
  • A recent EFInA survey which sought to determine how the informal market reacted to losses from insurable events, results were startling
  • Do nothing (49%), Use personal savings (24%), Seek donations (10%), borrow from friends (13%). Nigeria’s Insurance Industry & Fintech Trends should Leverage the lessons from banking industry

The banking sector’s financial inclusion drive has yielded remarkable results and some of the highlights are below.

Clearly by tapping into the informal sector, Nigerian banks have seen increased engagement with their clients thus creating a new revenue stream which continue to grow.

  • There is no reason why this cannot be replicated in the Insurance Industry

The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.

Giving the outlook for 2017 financial services, he said the key focus of banks should be exploring and harnessing the opportunities in Fintech, Blockchain and Cryptocurrencies, which he believed will revolutionize the industry.