Nigeria is set for further growth in fintech, with investments in foreign exchange and digital payment services prominent. David Bee, Head of Global Markets at Crown Agents Bank, highlights the benefits of new and innovative technology to financial services in the country – and the potential benefits for corporate treasurers.
Foreign direct investment (FDI) and portfolio investments in Nigeria more than doubled in 2017, rising to US$12.2bn – an indication of rising confidence in the country's long-term economic prospects, coupled with the growing sophistication of the Nigerian capital markets. In the same period, some US$3bn of investments was transferred between financial assets, fostered by money market instruments. This diversity of inflow clearly reflects Nigeria's high growth, high opportunity environment.
As the appetite for increasingly diverse investment flows into the country continues, growth in demand for foreign exchange rises in tandem. Yet, for this growth to continue unimpeded, the twin challenges of currency illiquidity and volatility must be addressed. New technology with respect to the provision of foreign exchange looks to be one way to ensure smooth investment flows into and out of the country.
And it's here that the digitalisation of the FX market is feeding optimism. New online currency trading platforms have helped fill the gap for local African currencies, such as the Naira. These modern currency trading technologies (a good example is Crown Agents Bank's ‘EMpowerFX' platform which offers access to over 500 currency pairs, with live integrated news feeds to track market fluctuation) have improved the speed and efficiency of delivery. In turn, this has generated greater liquidity at more competitive prices, which helps ensure access to local funds – and ensures that central and local commercial banks have a ready supply of G10 currencies.
Additionally, organisations – whether development agencies, NGOs, or commercial corporations continuing to work and invest in Nigeria – remain dependent on the niche FX market and the right transaction counterparties to secure liquidity to help offset working in a sporadically illiquid and volatile local currency market.
Money transfers: a driver for Nigeria's fintech future
Alongside developing FX technology, digital money transfer services in the country are also evolving – thanks to the rise of fintech. In fact, Nigeria's fast-growing population, coupled with rising smartphone ownership puts Nigeria in near pole position in Africa as a serious fintech player. There are significant opportunities for new digital low-cost financial services providers (particularly of digital money transfers), which continue to drive financial inclusion and help fuel growth.
The digital money transfer segment is significant; both for providers and for the Nigerian economy – the largest in Africa. Remittances, for instance, were worth US$22bn in 2017, accounting for 5.6% of Nigeria's GDP and tracking higher than the country's oil revenues, according to the central bank.
Moreover, the high cost of remittances (with an average cost of 9.4% for sending US$200 to the country, according to the World Bank) offers newer FX providers an opportunity to provide secure and cost-effective money transfers to a ready client base.
The opportunities are huge. In a median income country such as Nigeria, with 41% of the population currently unbanked, leaders in cross-border payments innovation, such as Interswitch (an Africa-focused integrated digital payments and commerce company), are looking to deepen their market reach.
Certainly, the technical capabilities of newer offerings are revolutionising payments and collections at the corporate and banking level – challenging both local incumbents and global providers with disruptive solutions highly-geared towards local market needs. All of this is great news for treasurers operating in the country; or those helping their organisation to expand into Nigeria.
Looking to the bigger picture, the upcycle in oil prices will encourage investors in Nigeria in the medium term. And while the run up to next February's elections might bring short term challenges for investors, the country nonetheless offers immense long-term potential.
Key is the effective harnessing of the opportunities that technological innovation can bring, with benefits across the financial range from foreign exchange to payments. Arguably, then, now is the time to be challenging your banks on their capabilities in the country – and asking how they plan to keep pace with new entrants.