E-Financial
Nigeria Navigates Through Choppy Global Macroeconomic Waters
By Lukman Otunuga, Senior Research Analyst at FXTM,
The Nigerian economy continues to display resilience against heightened geopolitical risks in the form of trade uncertainty, Brexit, volatile oil prices and global growth fears.
Nigeria’s encouraging economic growth in the third quarter was one of the bright spots in the emerging market universe. GDP defied the slowing trend seen in other large economies to grow by 2.3 percent from upwardly revised 2.12 percent in the second quarter and 2.1 percent in the first quarter.
Lukman
What is helping to support the country’s growth in the face of growing risks to the global economy?
The Nigerian state’s drive and ongoing quest to diversify the economy has broadened its potential to earn from economic activity other than the commodities sector. It could be said that in this case, state policy is creating new opportunities for economic growth through diversification, slowly leading to less reliance on the Oil sector.
The same cannot be said for inflation, which jumped to 11.61 percent in October thanks to Benin border closures. Although the closure is intended to put an end to smuggling, it has also dampened trade and hiked inflation.
Still, on an annual basis, growth in the manufacturing sector recorded the fastest growth in 2019 by expanding 1.1% during the third quarter. Given how the value added by the manufacturing sector is roughly 8% of GDP, this should support the improving sentiment towards Nigeria. It is worth keeping in mind that growth in the manufacturing sector has escaped many other economies because of the pressure from trade disputes between the US and China.
Nigeria’s outlook still influenced by China
If Nigeria’s economy is displaying resilience against depressed Oil prices and trade uncertainty, some of the credit goes to the healthy relationship with China. Total trade with China was worth over $10 billion in 2018 and $3.1 billion in the third quarter of 2019.
The Naira/Yuan swap deal gets around the trade hindrance of a strong USD by allowing importers of Chinese goods to settle payments in Yuan instead of Dollars.
According to the half-year report by the Central Bank of Nigeria (CBN), this has had the effect of increasing liquidity and reducing foreign exchange pressure. It’s also likely to have reduced exposure to the effects of the US-China trade dispute. In addition, the interest rate incentive for deposits in Yuan in Nigeria is not inconsiderable after the CBN left rates unchanged at 13.5 percent.
Having said that, China’s economy cooled to six percent in Q3 and this may start impacting Nigeria’s export sales if the slowdown deepens. Nigeria’s exposure to a slowdown in China may be significant when we remember that three-quarters of its 2017 mineral exports went to the Asian giant. And this is just one example.
A further slowdown in China could also impact Nigeria’s borrowing for much-needed infrastructural projects. The state has borrowed $6.5 billion from China since 2002 and relies on these funds for development. Indeed, around 80 percent of Nigeria’s funding comes from China. Other than that, Chinese companies’ investments in Nigeria hit $20 billion according to Ye Shuijin, the president of the China Chamber of Commerce in Nigeria.
While the Naira/Yuan swap deal may cushion the local economy from the global effects of the US-China trade dispute, a trade deal between the world’s largest economies would be good for Nigeria.
Looking ahead to 2020, other external factors influencing the outlook for Nigeria’s economy are Oil prices, interest rate developments from the Federal Reserve and Brexit. Domestically, I’m watching for more positive signs that Nigeria is diversifying, breaking away from Oil reliance to more sustainable sources of growth. Already, growth in the non-Oil sector rose to 1.8 percent annually, adding 1.6 percent in Q2 on an annual basis, reflecting quickening growth in the agriculture and industrial sectors.
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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