Economy exceeds expectations despite upheaval
The year 2021 can be seen as another momentous year in the Nigerian financial industry. Recovering from the after-effects and fears of recurring waves of the Covid-19 pandemic, the Nigerian economy as well as the financial system has experienced ups and downs during the year.
Coming out of its second recession in five years, the Nigerian economy was initially expected to grow by around 1.1% in 2021, but the economy had exceeded the expectations of many international organizations, including the International Monetary Fund (IMF) reviewing the growth projections for the country. at 3.5% for the whole year.
The revised growth projections are not unrelated to the faster recovery of the economy propelled by a reduction in new cases of Covid-19 infections, the improvement in the global price of oil as well as a resumption of economic activities. .
The Nigerian economy is expected to return to positive growth, driven by higher consumer spending compared to 2020, government interventions and the base effect. On an annual basis, the Nigerian economy grew by 4% in the third quarter of 2021.
Growth in gross domestic product (GDP) in the third quarter of the year was slightly lower than the five percent recorded in the second quarter of the year due to the gradual weakening of the base effect, the economic expansion being driven by the non-oil sector which grew 5.4 percent. The oil sector, on the other hand, continued its negative growth trend, falling 10.73 percent in the quarter.
While the service sector grew 8.41 percent, growth in agriculture slowed further to 1.2 percent in the quarter and the industrial sector shrank 1.6 percent due to the contraction of the oil sector.
Inflation figures which started the year at around 16% had passed 18% in May as food prices rose, but fell as price increases slowed. In November, inflation had fallen for eight consecutive months to 15.40% from 15.99% in October.
Meanwhile, annual core inflation that excludes agricultural commodity prices hit 13.85 percent, the highest since April 2017. Food inflation, which had exceeded 23 percent, also slowed to 17 percent in November 2021.
However, there was no improvement in the real interest rate in 2021 compared to 2020 despite the downward trend in the inflation rate. The interest rate, which gradually recovered at the start of the year, fell from May 2021. The average real interest rate in 2021 was -9.9% against -9.8% in 2020.
The banking sector also had its own excitement when the Central Bank of Nigeria reversed its policy of selling foreign exchange to bureau de change operators and giving commercial banks the role of meeting all foreign exchange needs.
The umbrella bank also decided to increase remittances by offering an incentive of N 5 for every dollar donated into the country through its Naira4Dollar program. With the policy, the CBN says remittances to the country have improved dramatically, from around $ 20 million per week to around $ 100 million by October 2021.
A major achievement that has put the country on the global map is the launch of 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, eNaira, the
Also during the year, the CBN took a major stand against cryptocurrencies, ordering banks to freeze accounts involved in any way in trading or holding cryptocurrencies.
According to the Governor of the CBN, Mr. Godwin Emefiele, cryptocurrency operations are dangerous, opaque and violate applicable law. He said that since cryptocurrencies were issued by unregulated and unlicensed entities, this was contrary to the mandate of the Bank, as set out in the CBN Act (2007) declaring the Bank as the issuer. legal tender in Nigeria.
“Cryptocurrency is not legitimate money because it is not created or supported by any central bank. Cryptocurrency has no place in our monetary system at the present time and transactions of Cryptocurrency should not be made through the Nigerian banking system, ”Emefiele added.
Meanwhile, the flagship cryptocurrency, Bitcoin had experienced a slump during the year after billionaire Elon Musk overturned his decision to accept Bitcoin as a payment method for Telsa cars, citing environmental reasons. The cryptocurrency’s value had risen from over $ 50,000 to around $ 25,000 within weeks before its pickup began.
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 Union Bank’s major investors to purchase an 89.39 percent stake. Led by ex-banker and former CBN vice-governor, Tunde Lemo, Titan takes over Union Bank’s majority stake from Union Global Partners Limited, Atlas Mara Limited and other shareholders.
The umbrella bank also gave in-principle approval during the year to two telecommunications giants, MTN Nigeria and Airtel Africa, to start operations as payment services banks (PSBs). The AIP will enable the two companies to acquire the necessary infrastructure to offer banking services such as accepting deposits, sending remittances, processing payments and mobile wallets.
For analysts at Cordros Research, the broad reach of telecommunications players, as evidenced by the industry’s 191.95 million active telephony subscribers as of October 2021, offers them a significant opportunity to accelerate financial inclusion.
Analysts said until 2018 the country relied heavily on a bank-led approach, as telecom operators acted as a facilitator (since users use cell phones) for financial services provided by banks. “The downside of this framework was the low penetration and uptake of mobile money services, which limited the achievement of Nigeria’s national financial inclusion target of 80% financial inclusion by 2020 . “
“The Central Bank of Nigeria (CBN) has demonstrated its commitment to empowering mobile network operators to foster financial inclusion in the country. According to the results of the most recent Enhancing Financial Innovation & Access (EFInA) survey, around 38.1 million Nigerian adults, representing 35.9% of the 106 million adult population, are financially excluded.