Nigeria, a dynamic economy with an established energy sector and a growing tech industry, faces both challenges and opportunities in its finance sector. The country's push for financial inclusion, economic reforms, and the need to stabilize the economy are key areas of focus. Let's delve into the details.
Financial Inclusion: Expanding Access to Financial Services
Nigeria’s push to bring all citizens into the financial system through bank account ownership has expanded the country’s capacity to mobilize domestic capital to fund projects. Increased internet access and smartphone availability have helped to spur a decade-long boom in financial inclusion in Nigeria, with 64% of the adult population now having access to bank or non-bank accounts compared to less than a quarter in 2008.
The rise has led to “greater savings” and more frequent financial activity by consumers, thereby “increasing capital formation and making it easy for us to mobilize capital for development,” Doris Uzoka-Anite, Nigeria’s minister of state for finance, said at Semafor’s Next 3 Billion stop in Abuja on Wednesday. About 43% of Nigerian adults save formally, per Global Findex, a mark the government plans to improve on, the minister said.
Higher transaction volumes captured on digital channels increase the data points available for policymakers to more accurately determine interest rates, forecast inflation, raise bonds and issue commercial papers, she said. Rising bank account ownership in Nigeria mirrors a global trend. In sub-Saharan Africa, 58% of adults now have accounts that grant access to the financial system compared to less than 30% in 2011, according to the World Bank’s Global Findex database.
With the exception of the Middle East and North Africa, sub-Saharan Africa still lags behind other low and middle income regions on financial inclusion, raising the urgency for more action especially to increase trust, experts say.
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Economic Reforms and Stabilization
For many Nigerians, 2024 was a year of struggle. The country’s inflation rate surged for the third consecutive month in November to reach 34.6%, the highest level in over 28 years, according to data from the statistics agency.
President Bola Tinubu’s decision to allow the naira to devalue and cut fuel subsidies in a bid to boost economic growth have been likened to bitter medicine for an economy long in need of reform. In an exclusive interview, finance minister Wale Edun, who has coordinated the reforms since assuming his position in August 2023, tells African Business why he thinks that the economy is about to turn the corner - and why sticking the course will allow Nigeria to reap the rewards in 2025 and beyond.
Edun stated, "Without any doubt, I am very optimistic about our nation’s economic trajectory, not only in 2025 but beyond. In the year ahead we expect to see an acceleration of economic growth coupled with a reduction in the rate of increase of prices. These expectations are reflected in the Medium Term Expenditure Framework and the Fiscal Strategy Paper approved by the legislature."
In 2025, the issues around economic stability will be largely resolved. Perhaps the biggest issue with stabilising our economy is to reduce inflation and keep it low. We are clear that very significant progress will be achieved in this regard in the months ahead.
The current downward trend results from the combination of enhanced domestic refining capacity provided by the Dangote refinery, stable exchange rate, and our policy to sell crude oil to domestic refiners in naira. These have all contributed to the turnaround in fuel prices. We expect to see further reductions in the year ahead as the combination of factors above is further strengthened by additional refining capacity from government-owned refineries and the BUA Group becoming effective. We also expect a significantly slower increase in food prices to contribute to lower inflation.
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The reforms, as we have always contended, were inevitable if we are to unlock the potentials of this country and make the growth and development progress we need. The challenge with reforms of this nature is that the costs must be borne before the benefits manifest.
Investors remain focused on transparency and predictability. There has been some debate regarding Nigeria’s foreign exchange reserves, reported to be around $40bn - levels last seen in the late 2010s. Building trust capital is fundamental to restoring the confidence of all stakeholders - domestic or foreign.
Beyond the fiscal arrangements, the Central Bank of Nigeria (CBN) has sharply improved on its regulatory work to enable confidence in all facets of our financial architecture. Recently it introduced the Bloomberg Electronic Foreign Exchange Matching System to ensure efficient price discovery. This system enables a credible and transparent process in that market that will help anchor stakeholder expectations and thus enhance market predictability.
Foreign reserves stood at $42bn on 14 December. While this is an area for CBN commentary, I am happy to see the steady improvement in our reserves. This is perhaps not surprising given that the surplus on our current account balance has continued to improve with portfolio investor inflows and remittances.
Without doubt the benefits are beginning to manifest. We are seeing green shoots that give us hope for further and significant movements along our chosen direction of travel. My responses to earlier questions already provide a sense of some of the improvements. To be clear, notwithstanding the reform measures, the economy in Nigeria did not at any time stop growing.
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An area that has been of concern is our financial system - especially the market for foreign exchange. The new team at the CBN led by the Governor, Yemi Cardoso, has instituted a wide range of reform measures which have reversed the adverse impression about the safety and reliability of our financial system.
In the energy sector, we continue to work towards improving availability and access to electricity and the production of oil and gas. We are seeing new investments which will go a long way towards enabling improved production. In December Shell Nigeria announced investment in the Bonga North Field.
The legislature is presently considering a set of bills that will be transformational in their impact on the finances of government. What we have done thus far has resulted in government revenue as a share of national output rising to 13% in Q2 2024 compared to the average of 8% in previous years, reducing the government deficit and thus the proportion of resources devoted to debt service.
In the immediate term we will concentrate on addressing our pain points around enabling protection for vulnerable citizens, sharply improving food supply, reducing costs, and supporting key sectors to grow even faster than they are presently doing. As I have noted, we still have a way to go in reaching the most vulnerable in our society. The cash transfer programme has reached approximately one-third of the intended recipients. This is far from satisfactory.
It is also very important for us that output in the energy sector - oil and gas, and electricity - improves considerably. Nigeria has industrial ambitions and these cannot be realised without energy input. In my view, we need to consider various options for stimulating investment in the energy sector.
At the heart of our thinking around the next steps is to drive rapid, sustained, inclusive and sustainable growth in our economy. As a government, our aim as we begin to reflect on the successor to the current National Development Plan is to get output growth of 7% by 2027 while keeping inflation down, exchange rates stable and interest rates within limits that enable funding of organisations needing external capital.
Any development that narrows access to capital, be it for government or non-government operators, is a source of concern. It is important to note that notwithstanding your comment about slowing foreign direct investment (FDI), data indicates that FDI growth exceeds export growth, with the gap projected to widen.
One of the key outcomes of Covid-19 is the trend towards increasing regionalisation of supply chains. Producer nations are realising the importance of being situated closer to markets and thus investing in the creation of hubs to serve a collection of markets. For me, the importance of this is that Nigeria must in some respects improve its attractiveness to investment. I deliberately speak of investment, as opposed to foreign investment. It is important that the economic environment becomes such that domestic wealth holders find the home arena more attractive.
To be attractive to investment, the quality and quantity of our labour force must be such as to enable cost-effective production. In this regard, the ongoing work around the curriculum in the education sector is very important. The issues around the need for regulatory certainty cannot be overlooked.
We are clear about the importance of being able to produce for the domestic and international markets. We will be unable to benefit from the opportunities inherent in the AfCFTA if... The Minister of State for Finance, Dr. ”President Bola Ahmed Tinubu has given us a clear directive to work hand-in-hand with the private sector to remove every obstacle standing in the way of enterprise growth,” Uzoka-Anite said.
”These reforms may be painful in the short term, but they are necessary to secure lasting prosperity,” she noted. ”When the government opens its doors to dialogue, it sends a clear message that policy is not made for the people but with the people,” she said. “While the government can design the framework, it is entrepreneurs who build the future,” she added.
#WEFAfrica: Nigeria Still Sees Growing Investors Interest Despite Challenges -- Okonjo-Iweala Pt.2
The Role of Women in Finance and Leadership
Ngozi Okonjo-Iweala, a pioneer in economics, finance, and diplomacy, has served as a managing director of the World Bank and the first woman to hold the position of finance minister in Nigeria, as well as foreign minister. She emphasized the importance of belief in oneself and a strong focus on results.
Okonjo-Iweala stated, "I think the qualities have been a belief in myself, a strong focus on the results that I need to deliver in that field and just being very clear on the objectives of what we need to get. You know, it's not easy, but I think it's doable if you're sure of yourself and you're clear on results."
When asked about managing differently than men, Okonjo-Iweala highlighted the importance of making her team feel essential to the results and working for a higher purpose. Every time I managed a team, I always made them feel that whatever they were doing, they needed to look at the bigger picture.
Okonjo-Iweala's experience and insights provide valuable lessons for women in leadership positions and highlight the importance of perseverance and a clear vision.
Key Economic Indicators
The following table summarizes key economic indicators for Nigeria:
| Indicator | Value/Description |
|---|---|
| Financial Inclusion | 64% of adult population with bank or non-bank accounts |
| Inflation Rate (November 2024) | 34.6% |
| Foreign Exchange Reserves (December 14) | $42 billion |
| GDP Growth (Q3 2024) | 3.5% |
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