What could ₦73k buy in 2014?
A wicked reminder of Nigeria's inflation problem
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This week, I saw a tweet that is a wicked reminder of how inflation has reduced the purchasing power of everyone who lives in Nigeria and earns in Naira. It’s not that we don’t see or read the inflation updates provided by the National Bureau of Statistics. But sometimes, numbers can feel pretty abstract. Tweets like this show in visceral detail that the last six years have made Nigerians poorer.
What could you have bought with ₦73k in 2014? For me, my first television — a 32” Toshiba — off Jumia for ₦39k. Also, a GoTV decoder for ₦5,500 with some change to spare for a ₦40k secondhand HP Elitebook. Today, you need “strong mind” to look up the prices of some of these things. In February 2021, I bought a work financed secondhand laptop for ₦250k. After that job, I needed a personal computer, but the prices were scary; no way I was going to put down ₦500-700k in one go.
The Nigerian reality means that most people have to put down large sums of money to buy phones, laptops, televisions and household items. There should be reliable credit solution for asset acquisition loans at this point. I’m not saying anything I haven’t said before. While a few organisations offer Buy Now Pay Later (BNPL) services, clear market leaders have not yet emerged. Internationally, popular BNPL giant — and I’m ignoring any protest that this is an unfair comparison — Klarna, is Europe’s most valuable startup ($45.6 bn).
The larger point is that someone needs to make a credit purchase product that is as defining for the segment as GTBank’s QuickCredit was for personal loans. A few weeks ago, I argued that Jumia could be that company.
Instead, OPay, with its recent $400 million war chest, is now on the scene, and if there’s anything the company has shown, it’s that they go all out. While there’s no real surprise that OPay is making the BNPL play, the bigger surprise is report of a Renmoney BNPL play.
Renmoney, which used direct sales agents to get customers for most of its existence, talked about a change of direction last year. It laid off 391 sales agents and said it was now focusing on using technology to grow its business. It’s not difficult to see where they’re coming from; digital bank, Carbon, disbursed ₦23 billion in loans in 2019 and didn’t need 391 agents to do that. In the same year, while Renmoney didn’t disclose its personal loan figures, it did ₦9 billion in business loans. The odds are that Carbon would have spent a lot less to get customers, and reviews like this claim that Renmoney’s process is longer.
Why hasn’t anyone cracked credit purchases or BNPL models in Nigeria? It’s pretty much the same reason why retail loans took forever to take off. Loan decision processes are still in their early stages, despite every digital lender claiming that their proprietary technology is the perfect sauce. This process of assessing a customer’s willingness and capacity to repay loans reflects in the risk appetite of lenders. Without knowing they’ll get their money back, no one will lend. Thankfully, customer profiling is improving — it took all of five minutes to get profiled for an asset loan from one bank last month — and with it will come the willingness of lenders to do more. For now, interest rates may remain high, but there’s no doubt that if Stanbic and GTCO are giving personal loans with 4-5% default rates, then asset acquisition is crackable.
Something else that’s showing some promise for the future is Godwin Emefiele’s struggle to achieve a stable FX exchange rate. Thanks to a new development, Emefiele may yet escape the consequences of some poor policies….
Godwin Emefiele may win this round, but at what cost?
Despite my best efforts, Godwin Emefiele made a return to the newsletter last week Sunday. At this rate, the Central Bank governor may be the Notadeepdive person of the year. While Emefiele has received knocks from me in the last month, recent news gives hope that he may have the last laugh.
Earlier in the week, Nigeria received a much-needed FX injection after raising $4 billion from institutional investors. What’s good, bad and bleh about the recent $4 billion Eurobond raise?
Nigeria gets money to fund its budget shortfall, with the country planning to borrow $6.1 billion for this purpose this year.
With the country struggling to get FX inflows, the $4.1 billion is vital to give the Naira stability.
CBN will be able to increase its supply of FX to the market, and this may translate to stability in the short-term.
Nigeria’s total debt rose from ₦32.22 Trillion in 2020 to ₦35.465 Trillion in June 2021. This new loan will raise it even further.
When you account for Ways and Means (CBN’s lending to the FG), that figure rises to ₦54 Trillion.
Nigeria spent 97.7% of its revenues on debt servicing in 2020, and as we continue to struggle with raising revenue, this figure will only rise.
With Nigeria’s revenue increasing by 15% — 2015-2020 and expenditure growing by 102%, — we are at risk of falling into a cycle of borrowing to repay loans.
In case you missed what this means for Emefiele, Bloomberg explains it perfectly: “Tuesday’s debt sale… provides the nation’s central bank room to boost the supply of dollars, a shortage of which had prompted the regulator to ration foreign exchange.”
It looks slam dunk that the CBN will be able to stabilise the FX market in the coming weeks, so let’s move on to what I read this week.
What else I’m reading
Abubakar Idris brings it home again, with this look into Nigeria’s fintech sector by numbers
On some days, you find writing that’s so good, it will get you to care about a subject matter you’ve never heard of before. This article on free diving is it.
My obsession with profiles continues, and this one, of Michael K. Williams, who plays Omar on The Wire, is commanding.
Writing about complex subjects with care is a skill. This story about the search for a missing boy is harrowing, yet careful.
And before you run off….
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It’s time to run along now. Have a good weekend people! I’m taking this Sunday off, so see you next week! Don’t forget to leave a comment.