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Between a rock and a hard place
Is another Naira devaluation on the horizon?
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Data revenue is the present and the future
In 2019, the signs were on the wall for many telecom companies in Nigeria that the future of their business was in data revenue. While voice revenue has been and still remains the biggest driver of revenue, its growth is now firmly stuck in the single digits.
It’s been easy to see that telcos are leaning more towards increasing data revenue; Airtel calls itself the “smartphone network” while a ton of Glo ads focus on their cheaper data offerings. It has not only created an interesting race to get more Nigerians connected to the internet, but it has also helped the provision of 4G.
In its first-quarter report for 2022, MTN Nigeria shared that its 4G network now accounts for 76% of data traffic. The telco giant now has 35.9 million active data subscribers compared to 26.8 million subscribers in 2020.
Data revenue is still a relatively small part of MTN’s revenue. In Q1 2019, it represented just 16.6% of the company’s earnings. Even with its 59.2% growth in the first three months of 2020, it only accounts for only 22% of the telco’s ₦329.2 billion 2020 earnings. - TechCabal
This rise in MTN’s 4G coverage is also making subscribers use more data, increasing the contribution of data revenue to the company’s revenue. Today, data revenue accounts for 34.5% of MTN Nigeria’s overall revenue. It’s a big jump from the 22% in 2020.
Away from data revenue, here are some equally interesting bits from MTN’s Q1 2022 earnings report.
MTN Nigeria now has 800,000 registered MoMo agents, with 166k active agents. It’s a pretty big number and suggests that are now easily over 1 million mobile money agents in Nigeria. Between OPay, First and MTN, we could be looking at some 1.2 million agents.
The telco intends to use this extensive agent network to push its MoMo launch in Q2 now that it has been granted final approval by the CBN to run a Payment Service Bank. On the one hand, the telco’s number of agents and its experience with distribution (sales of recharge cards, SIM cards etc), is why some people believe MoMo will be serious competition to fintechs and banks. My thinking is that the limitations of the PSB licence may not make this prediction as straightforward.
Beyond competing with banks or fintechs, MTN will also face competition from Airtel Nigeria, another telco which has also just received a final PSB approval. It’s safe to say that Q2 2022 will see some action on the mobile money front.
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Emefiele is resisting a Naira float
In two reports on Nigeria, the World Bank has, among other things, recommended a single exchange window for Nigeria. The recommendation is sensible and straightforward: without clear FX policies, investors become wary. And Nigeria, with its multiple exchange rates, is as confusing as it gets; the exchange rate of the greenback is dependent on your source. If you can get it from the bank with Form M or Form A, then you’re looking at $1= N415, but if you’re locked out of the system, that’s a price of $1= N594.
While fx arbitrage is one of the biggest problems with multiple windows, there’s also the pressure on the CBN to meet FX demand. With dwindling external reserves and a struggle to raise revenue, Nigeria’s Central Bank is between a rock and a hard place.
In the past five years, there have been suggestions that the CBN float the Naira instead of the current system where it pegs the rate.
A currency devaluation may do little to fix Nigeria’s problems unless it follows the examples of emerging market peers Egypt, Argentina and Russia and embraces floating exchange rates.
Grappling with a recession, widespread dollar shortages, a budget funding gap and international lenders’ reluctance to provide loans, Nigeria has moved tentatively to devalue its currency.
The naira traded as low as 375 per dollar on Monday versus the official rate of 305, although that was still far stronger than black market levels around 450. - Reuters (2017)
Since this Reuters article, the CBN has devalued the Naira but has now predictably found itself in the same position. What’s the CBN avoiding by refusing a free float? A spiral in the exchange rate.
According to Emefiele, “Yes, they want us to freely float the exchange rate and you do know that this will have some impact on the exchange rate itself in the sense that when you allow that to happen, you will have some uncontrollable spiral in the country’s exchange rate.”
While Emefiele pushes back against a float, the elephant in the room remains this: when (not if) will the CBN devalue the Naira again? Let me know your estimated timeline in the comments and we’ll see whose prediction stands the test of time.
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What I’ve been reading
Amazon sees first loss since 2015 as shares tumble 10%
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