E-Financial
Fed Makes Emergency Rate Cut, What Does this Mean for Nigeria?
By Lukman Otunuga, Senior Research Analyst at FXTM,
The Federal Reserve caught markets completely off-guard this week by lowering interest rates by 50 basis points.
It’s the first unscheduled, emergency rate cut since October 2008 and also marks the biggest one-time cut since then.
Rising concerns over the coronavirus outbreak impacting economic growth have forced central banks across the world to ease monetary policy with the Federal Reserve joining the squad. According to the Fed, “the fundamentals of the U.S economy remain strong. However, the virus poses evolving risks to economic activity.” This emergency rate cut certainly opens doors to further rate cuts in the future which is good news for emerging markets including Nigeria.
Lower US interest rates may provide an opportunity for the Central Bank of Nigeria to ease monetary policy in an effort to stimulate consumption which accounts for 80% of GDP. These efforts may be complicated by inflation which rose for the fifth straight month to 12.3% in January 2020. Although one of the central bank’s objective is to achieve price stability, a rate cut in the face of the coronavirus outbreak could support economic growth in 2020.
Sentiment towards the Nigerian economy has improved over the past few weeks amid positive economic fundamentals and encouraging Q4 GDP data. However, falling oil prices, global growth concerns and questions whether Nigeria will meet its oil revenue goal have fostered a sense of caution.
On the bright side, Nigeria reclaimed its title as the largest economy in Africa after South Africa entered a technical recession. Unstable domestic conditions inspired by power cuts weighed heavily on output and business confidence in South Africa with shaky global conditions compounding to the pain. While Nigeria was able to expand 2.55% in Q4, South Africa’s economy went the other direction by contracting 1.4%.
It remains uncertain whether Nigeria will be able to mirror a similar expansion in Q1 of 2020 due to severely depressed Oil prices and slowing global growth. The commodity has dropped over 20% since the start of the year and could weaken further on demand side fears. Given how roughly 90% of export earnings and over 50% of government revenues are from crude exports, this certainly presents significant risks to economic growth.
The government needs to find other sustainable revenue sources to reduce exposure to external risks. It is widely known that diversification remains the key to Nigeria’s woes but this requires massive investments in infrastructure and time. There has been a push to expanding the tax base to raise non-oil revenues, but it remains to be seen whether this will have the desired results. Value added tax (VAT) has been increased from 5% to 7.5%. This could line the government’s coffers but it may come at the expense of rising inflation.
All eyes will be on the OPEC meeting this week which is expected to conclude with the cartel initiating deeper supply cuts. While such an outcome could push oil prices higher, the upside will most likely be limited by demand side uncertainties fuelled by the virus outbreak.
Titan Trust Bank has selected Oracle FSS for its core and digital banking technology, it is understood.
The start-up bank recently obtained its license by the Central Bank of Nigeria (CBN).
It’s understood that Temenos and Infosys also competed for the deal.
The shortlist came down to the two most widely installed international core systems in Nigeria, Infosys’ Finacle and Oracle FSS’s Flexcube.
The Nigerian banking sector has seen a great deal of upheaval over the years, with many mergers, start-ups and closures. Flexcube is a well respected name since the late 1990s (the pioneer was Access Bank, now one of the country’s top five banks) and has been a commonly selected platform since then.
The new bank is believed to be one of five to have gained regulatory approval of late (Globus Bank is another).
Local media sources say the new licences stem from the Central Bank’s desire to attract new investments into the sector and better serve the country’s 50 million+ unbanked and under-banked citizens.
Titan Bank is said to be headed by a former executive director of Heritage Bank (which is a Finacle user).
Oracle FSS did not respond to request for comment.
International Monetary Fund (IMF), has appointed Tony Elumelu, Nigerian billionaire and group chairman of Heirs Holdings, owners of United Bank of Africa, to its advisory council on entrepreneurship and growth, convened by Kristalina Georgieva, the fund managing director.
The announcement was disclosed in a statement on Friday.
According to the statement, the IMF advisory council comprises global business leaders, policymakers, and academics dedicated to identifying and addressing regulatory barriers to entrepreneurship.
The IMF said Elumelu will be instrumental in ensuring that Africa’s entrepreneurship is central in policy making.
“Elumelu, Africa’s leading advocate of entrepreneurship and whose Foundation has funded, mentored, and trained over 25,000 African entrepreneurs since 2015, champions entrepreneurship as the engine for the economic transformation of Africa,” the statement reads.
“A self-made entrepreneur, Elumelu’s embracing of entrepreneurship is fundamental to his concept of Africapitalism, his belief that Africa’s private sector can and must play a leading role in the continent’s development, making long-term investments that deliver social and economic value.
“Elumelu will be instrumental in ensuring that Africa’s entrepreneurial potential is central to global economic policy making.”
Speaking at the inaugural meeting of the advisory council on March 26, Georgieva said the appointees would share their experiences on how macroeconomic and financial policies “can provide a supportive environment for innovation, entrepreneurship, and productivity — key ingredients for a thriving private sector and strong economic growth”.
Africa’s Micro, Small, and Medium Enterprises, fintech industry, scaling remittances, and cross-border payments will be the driving forces behind the continent’s digital ballooning payments system, which is estimated to reach $1.5 trillion by 2030.
This is according to a MasterCard-commissioned study by Genesis Analytics, which states that the digital payments economy is growing faster on the continent.
This comes as the World Bank says Sub-Saharan Africa has shown significant growth in financial inclusion over the past decade, much of it driven by mobile money account adoption.
Dimitrios Dosis, president, Eastern Europe, Middle East and Africa at MasterCard, comments: “Africa is filled with immense possibilities, and its people have the potential to shape the global economy in the decades ahead.
“MasterCard remains deeply committed to driving digital transformation across the continent, working closely with entrepreneurs, merchants, banks, start-ups, telcos, and governments. By increasing our investments, expanding innovation, and fostering inclusion, we are helping build a more connected and accessible digital future.”
The payment technology company went on to say as a longstanding technology partner to Africa, its continues to strengthen its commitment to the continent’s digital growth through strategic investments, public-private partnerships, and innovation initiatives that drive financial health and economic growth.
In addition, it says trends in Africa signal a strong shift towards digital transactions, with businesses and consumers increasingly embracing contactless solutions, further accelerating economic participation and financial accessibility across the region.
“For over five decades, MasterCard has worked alongside African governments, businesses, and communities to advance financial inclusion and economic development.
“With Africa projected to host nine of the world’s 20 fastest-growing economies, we are focused on leveraging our expertise and a technology to support the continent’s continued digital transformation.
“Our investments today will help build a more resilient economy for the future,” says Mark Elliott, division president, Africa, MasterCard
By fostering collaboration with key stakeholders, MasterCard says it aims to enhance digital connectivity, expand economic opportunities, and enable millions of people and businesses to thrive in the digital economy.
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