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Economy Surpasses Expectations Despite Upheavals

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The year 2021 can be said to be another memorable year in the Nigerian financial industry. Recovering from the after-effects and the fears of recurring waves of the Covid-19 pandemic, the Nigerian economy as well as the financial system had in the year seen some ups and downs.

Coming out of its second recession in five years, the Nigerian economy had initially been expected to grow by around 1.1 per cent in 2021 but the economy had surpassed expectation with many international organisations including the International Monetary Fund (IMF) revising growth projections for the country to 3.5 per cent for the full year.

The revised growth projections is not unconnected with the faster recovery of the economy propelled by a reduction in new cases of Covid-19 infections, improved global oil price as well as a pick-up in economic activities.

The Nigerian economy is expected to return to positive growth, driven by the higher consumer spending relative to 2020, government interventions and the base effect. On a year on year basis, the Nigerian economy expanded by four per cent in the third quarter of 2021.

Gross Domestic Product (GDP) growth in the third quarter of the year was slightly lower than the five per cent recorded in the second quarter of the year due to the gradual fading out of the base effect, with the economic expansion was driven by the non-oil sector which grew by 5.4 per cent.The oil sector, on the other hand, continued in its negative growth trend, declining by 10.73 per cent in the quarter.

While the services sector expanded by 8.41 per cent, the growth of agriculture slowed further to 1.2 per cent in the quarter and the industrial sector declined by 1.6 per cent due to the contraction in the oil sector.

Inflation figures which started the year around 16 per cent had risen beyond 18 per cent in May as food prices shot up but had subsided as increase in prices slowed. By November, inflation had declined for eight straight months to 15.40 per cent from 15.99 per cent in October.

Meanwhile the annual core inflation which excludes the prices of agricultural rose to 13.85 per cent, the highest since April 2017. Food inflation which had risen beyond 23 per cent had also slowed to 17 per cent by November 2021.

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However, there was no improvement in real interest rate in 2021 relative to 2020 despite the downward trending inflation rate. Interest rate, which picked up gradually at the beginning of the year declined from the month of May 2021. Average real interest rate in 2021 was -9.9 per cent compared to 2020 figure of -9.8 per cent.

The banking industry also had its own excitements as the Central Bank of Nigeria went back on its policy of selling foreign exchange to bureau de change operators and giving commercial banks the role of meeting al foreign exchange needs.

The apex bank also moved to increase remittance by giving an incentive of N5 for every dollar remitted into the country through its Naira4Dollar scheme. With the policy, the CBN says remittance into the country had improved significantly from around $20 million per week to around $100 million as at October 2021.

One major achievement which put the country on the global map is the launch of the eNaira which makes the country one of the first three countries in the world to launch a Central Bank Digital Currency (CBDC). With the launch, the eNaira, the

Also in the course of the year, the CBN had taken a major stand against cryptocurrencies directing that banks freeze accounts that are in any way involved in the trading or holding of cryptocurrencies.

According to the CBN Governor, Mr. Godwin Emefiele, the operations of cryptocurrencies are dangerous, opaque and contravenes the existing law.  He said given the fact that cryptocurrencies were issued by unregulated and unlicensed entities made it contrary to the mandate of the Bank, as enshrined in the CBN Act (2007) declaring the Bank as the issuer of legal tender in Nigeria.

“Cryptocurrency is not legitimate money because it is not created or backed by any Central Bank. Cryptocurrency has no place in our monetary system at this time and cryptocurrency transactions should not be carried out through the Nigerian banking system,” Emefiele added.

Meanwhile, flagship cryptocurrency, Bitcoin had seen a meltdown in the course of the year after billionaire Elon Musk had recinded on his decision to accept Bitcoin as payment for Telsa cars citing environmental reasons. The value of the cryptocurrency had crashed from over $50,000 to around $25,000 within a matter of weeks before it began a pickup.

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Another major event in the industry is the takeover of Union Bank Plc by Titan Trust Bank, one of Nigeria’s new commercial banks. Subject to regulatory approvals, Titan had reached an agreement with the core investors in Union Bank to buy 89.39 per cent stakeholding. Led by an ex-banker and former deputy governor of the CBN, Tunde Lemo, Titan is taking over the majority shareholding of Union Bank from Union Global Partners Limited, Atlas Mara Limited and other shareholders.

The apex bank had also in the year given an approval in principle to two telecommunications giant MTN Nigeria and Airtel Africa to commence operations as Payment Service Banks (PSBs). The AIP will enable both companies to acquire the necessary infrastructure to offer banking services such as acceptance of deposits, remittances, payment processing and mobile wallets.

For analysts at Cordros Research, the broad reach of telco players evidenced by the industry’s active telephony subscribers of 191.95 million as at October 2021 presents them with a significant opportunity to accelerate financial inclusion.

According to the analysts, up until 2018, the country was heavily reliant on a bank-led approach as telcos played the role of a facilitator (since users make use of mobile phones) for financial services delivered by banks. “The drawback of this framework was low penetration and uptake of mobile money services, which has limited the achievement of Nigeria’s National Financial Inclusion target of 80 per cent financial inclusion by 2020.”

“The Central Bank of Nigeria (CBN) has demonstrated its willingness to enable mobile network operators to drive financial inclusion in the country.” According to Enhancing Financial Innovation & Access (EFInA) most recent survey results, about 38.1 million Nigerian adults, representing 35.9 per cent of the adult population of 106 million are financially excluded.

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