E-Financial
What does Brexit Mean for the Nigerian Economy
By Lukman Otunuga, Senior Research Analyst at FXTM
After more than 1200 days after Britain voted to leave the European Union, the country still remains in the trading bloc, pondering exactly how to leave. Although the October 31 “do or die” Brexit deadline has been extended to January 2020, this is simply kicking the can further down the road. With the United Kingdom set for general elections on December 12, this will certainly not be a quiet Christmas for Britain and the Pound.
It will be unwise for investors to rule of the possibility of the United Kingdom crashing out of the European Union next year given the unpredictable nature of Brexit. The seismic tremors created from such an unfavorable development will ripple far beyond the borders of Britain, with everyone across the globe feeling the heat including those in Africa.
Given how Brexit adds to the growing list of geopolitical risk factors straining investor confidence, appetite for emerging market may diminish if the UK leaves the European Union without a deal. It is not only appetite for emerging markets that will be under threat but trade and diplomatic relations with Britain and Europe following the divorce. It must be kept in mind that trade deals with the UK and African countries are negotiated through the EU which plays a middle man. With the agreement becoming void when Britain departs from Europe, this presents significant disruptions and economic risk to African nations who trade with the UK.
Britain’s top trading partners like Nigeria, Kenya and Egypt will most likely be punished by a no-deal Brexit. The UK was Nigeria’s 6th largest trading partner last year with total trade roughly $5 billion. In 2018, Nigeria exported £2.23 billion worth of Oil to the UK, an improvement over the level of £1.1 billion in 2017. But with the UK’s economy exposed to downside risks, the outlook for Nigeria’s Oil sales appears less promising.
Nigeria’s Oil sales in the UK and Europe face another challenge. Over and above the UK’s declining economic circumstances is increased competition from the US Light Sweet Crude Oil industry. In August, Oil sales slowed to their lowest level of the year because US Shale Oil flooded European markets. In July, Nigeria’s Oil sales to the US fell to zero as US president Donald Trump’s administration powered up its energy dominance policy. It is essential for Nigeria to regain market share in the UK and Europe, which accounts for 46% of its crude Oil sales.
As demand and supply side challenges grow, Nigeria could benefit from closer relations with the UK government, which points out that it has extensive experience in building and managing oil industry infrastructure. A trade deal which secures the UK as a guaranteed buyer of Nigerian crude Oil could certainly support demand in the long term.
As part of its post-Brexit strategy, the UK government hopes to revive its relationships with the Commonwealth markets and has already begun talks with Nigeria to improve bilateral ties. In one example, the UK provided credit and finance worth £1.25 Billion to facilitate British companies to export goods to Nigeria, resulting in £76.5 billion worth of trade in the last 10 years.
During the second quarter of 2019, British Foreign Minister Jeremy Hunt visited Nigeria promising a big pool of funds which could be invested in infrastructure. In other developments, the two countries launched an economic forum to explore mutual investment interests. The governments are already discussing the introduction of Naira-backed financial instruments in the UK and expanding cooperation in the insurance sector.
To wrap up, Nigeria’s post-Brexit relations with the UK are faced with several headwinds which could blow off course the priority to maintain and increase investments in the development of its Oil-and-Gas industry infrastructure. On the upside, it is positive that trade talks with the UK are deepening and there are pre-existing diplomatic and trading relationships which go back many decades.
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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