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Nigeria mobile money revolution delayed by scarcity of licences

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In late 2018, Nigeria said it would allow non-financial companies to apply for mobile banking licences — part of a money revolution aimed at transforming Africa’s biggest economy and unlocking the continent’s largest unbanked population.

The move would permit mobile telecoms providers including MTN and rival Airtel to tap into the roughly 60m Nigerians who lack bank accounts, in a country where most transactions are made using cash.

But two years after Nigeria’s central bank announced the new regime, little has changed and neither Airtel nor MTN has received a licence — although two smaller telcos and a payments company were granted licences in August. Observers blame the delay on lobbying by banks that are wary of ceding any territory to mobile providers. The central bank declined to comment.

“I don’t think [banks] fully understand how telcos participate in mobile money — that we essentially expand the pie and everyone gets a bigger piece,” says one industry executive who did not wish to be named. “There’s a sense that telcos are coming to have their lunch, so there’s fightback from the banks.”

Raghunath Mandava, chief executive of Airtel Africa, says receiving the licence that his company applied for in 2018 would “dramatically change financial inclusion in the country. For us, the business could be very big.”

He pointed to Kenya, a country with a $95bn annual gross domestic product, where mobile money operator Safaricom’s M-Pesa — which holds a virtual monopoly — earned close to $790m in revenues in the fiscal year that ended in March.

“We look at it as [about] 1 per cent of GDP should be the revenue of all the mobile money operators together — what share each of us will get is something else,” he says. “But the GDP of Nigeria is about $400bn . . . that means someday it should be a $3bn-$4bn business for all the telcos.”

The administration of President Muhammadu Buhari and the central bank under governor Godwin Emefiele have made financial inclusion for Nigeria’s 200m people a priority. As the country enters its second recession in five years, with rising inflation and high unemployment, the need to expand savings and lending for Nigeria’s many poor has become more pressing.

Nigeria’s central bank wants to avoid some of Kenya’s drawbacks — in particular M-Pesa’s virtual monopoly — by forcing banks and telecoms groups to work closely together, and to ensure that phone companies are regulated in the same way as financial services groups.

M-Pesa is the dominant mobile money operator in Kenya © Daniel Irungu/EPA

In an August circular, the central bank said it would grant more licences. However, the bank requires that companies — including mobile operators — set up separate corporate entities with minimum capital of N5bn ($13m), which is likely to exclude some smaller contenders.

Despite the lack of progress on licences, some steps towards financial inclusion have been taken by digitally savvy Nigerian banks, with mobile-to-mobile and SMS-based transfers now commonplace.

Lagos’s fintech companies — which attracted nearly $400m in funding in a single week last year — provide an alternative form of banking through their own agent networks and mobile payments infrastructure.

These include TeamApt, a payments start-up whose 60,000 agents principally act as ATMs for people in places where cash machines are unavailable, using debit card point-of-sale devices and a mobile application called Moniepoint.

“In Nigeria, there’s an explosion of agents — take a tour outside of Lagos, I guarantee that every 10 metres you will find a [point of sale terminal] sign in most populated areas,” says Tosin Eniolorunda, TeamApt founder.

Telecoms companies such as MTN have even broader operations across Nigeria, with its agents selling phone credit recharge cards in nearly every town and village in the country.

Usoro Anthony Usoro, who heads mobile money at MTN, argues that its large agent network is only part of the reason why it is well positioned to capitalise on mobile money if its licence is approved.

“It starts with the ability to deliver services efficiently at the last mile [via agents], but financial services is also a business of trust so having a brand that customers can trust and rely on is very important,” he says.

“[Educating customers about mobile transactions] is also very important and that’s one of the things telcos and MTN know how to do very well,” Mr Usoro adds.

Nonetheless, without the issuing of more licences, the government is likely to find it more difficult to achieve Mr Buhari’s goal of bringing millions more Nigerians into the financial system.

Without that increased inclusion, there will be negative consequences for savings and tax collection in an economy already struggling with a low oil price and poor infrastructure.



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Oil hits highest price since April 2019 before moderating

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The price of crude oil briefly hit its highest level for more than two years on Monday, lifting shares in energy companies, as traders banked on strong demand from the rebounding manufacturing and travel industries.

Brent crude crossed $75 a barrel for the first time since April 2019 before falling back slightly, while energy shares were the top performers on an otherwise lacklustre Stoxx Europe 600 index, gaining 0.7 per cent.

The international oil benchmark has risen around 50 per cent this year, underscoring strong demand ahead of next week’s meeting of the Opec+ group of oil-producing nations.

US manufacturing activity expanded at a record rate in May, according to a purchasing managers’ index produced by IHS Markit. Air travel in the EU has reached almost 50 per cent of pre-pandemic levels, ahead of the July 1 introduction of passes that will allow vaccinated or Covid-negative people to move freely.

“This is a higher consuming part of the year,” said Pictet multi-asset investment manager Shaniel Ramjee, referring to the summer travel season. “And the oil market is pricing in strong near-term demand that is better than previous expectations.”

In stock markets, the Stoxx Europe 600 dipped 0.3 per cent while futures markets signalled Wall Street’s S&P 500 share index would add 0.1 per cent at the New York opening bell.

The yield on the 10-year US Treasury was steady at 1.494 per cent. Germany’s equivalent Bund yield gained 0.02 percentage points to minus 0.154 per cent.

Equity and bond markets have consolidated after an erratic few sessions since US central bank officials last week put out forecasts indicating the first post-pandemic interest rate rise might come in 2023, a year earlier than previously thought.

US shares tumbled last week, while government bonds rallied, on fears of tighter monetary policy derailing the global economic recovery.

Wall Street equities then bounced back on Monday, with a follow-on rally in some Asian markets on Tuesday, as sentiment got a boost from more dovish commentary from Fed officials.

Fed chair Jay Powell, in prepared remarks ahead of congressional testimony later on Tuesday said the central bank “will do everything we can to support the economy for as long as it takes to complete the recovery”.

John Williams, president of the Federal Reserve Bank of New York, also said that the US economy was not ready yet for the central bank to start pulling back its hefty monetary support.

Jean Boivin, head of the BlackRock Investment Institute, said that “the Fed’s new outlook will not translate into significantly higher policy rates any time soon”.

“We may see bouts of market volatility . . . but we advocate staying invested and looking through any turbulence,” Boivin added.

The dollar index, which measures the greenback against trading partners’ currencies and has been boosted by expectations of US interest rates moving higher before other major central banks take action, was steady at around a two-month high.

The euro dipped 0.1 per cent against the dollar to purchase $1.1901, around its lowest level since early April. Sterling also lost 0.1 per cent to $1.3909.



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Wall Street rebounds as markets adjust to Fed rate rise outlook

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Wall Street stocks bounced back and government bonds softened on Monday following tumultuous moves last week after the Federal Reserve took a hawkish shift on interest rates and inflation.

The S&P 500 added 1.2 per cent in early New York dealings. The share index’s resurgence came after it posted its worst performance in almost four months last week in the wake of Fed officials signalling the central bank could raise rates to tame inflation sooner than investors had expected.

The yield on the benchmark 10-year US Treasury bond dropped sharply last week as investors viewed the Fed as ready to control surges in inflation that erode the returns from fixed interest securities. On Monday it rose 0.02 percentage points to 1.472 per cent.

Fed policymakers on Wednesday projected that interest rates would rise from record-low levels in 2023, from their earlier median forecast of 2024. James Bullard, president of the St Louis Fed, told television network CNBC on Friday that the first rate increase could come as soon as next year as inflation grew.

However, Gregory Perdon, co-chief investment officer at private bank Arbuthnot Latham, urged caution. “The facts are that the Fed hasn’t done anything yet. Wall Street loves to climb the wall of worry.”

Fed officials’ statements last week prompted fears of rapid policy tightening by the world’s most powerful central bank that could derail the global economic recovery from Covid-19. Investors also backed out of so-called reflation trades, which had involved selling government bonds and buying shares in companies that benefit from economic growth, such as materials producers and banks.

On Monday, however, energy, basic materials and banking stocks were the best performers on the S&P 500. The technology-focused Nasdaq Composite index was also up, gaining 0.7 per cent in early dealings.

The Russell 2000 index of smaller US companies, whose fortunes are viewed as pegged to economic growth, gained 1.7 per cent. Europe’s Stoxx 600 share index rose 0.7 per cent, with materials stocks at the top of its leaderboard.

The yield on the 30-year Treasury briefly fell below 2 per cent on Monday morning for the first time since February 2020 before bouncing back to 2.065 per cent.

Investors last week had taken profits on reflation trades that had become “crowded” and “expensive”, said Salman Baig, portfolio manager at Unigestion.

Baig added that, following the initial shocks after the Fed meeting, markets would probably return to betting on “a cyclical recovery as economies reopen”.

Other analysts said the bond market reaction had been too pessimistic, predicting a broad-based economic slowdown in response to Fed rate increases that had not happened yet.

The fall in long-term yields “is only justified if the Fed is making a policy error, choking the economy”, said Peter Chatwell, head of multi-asset strategy at Mizuho. “We think this is far from the truth — the Fed has simply sought to prevent inflation expectations from de-anchoring.”

Elsewhere in markets, the dollar index, which measures the greenback against other major currencies, dropped 0.3 per cent after gaining almost 2 per cent last week.

Brent crude, the international oil benchmark, rose 0.9 per cent to $74.18 a barrel.

Additional reporting by Tommy Stubbington in London

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Saudis agree oil deal with Pakistan to counter Iran influence

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Saudi Arabia has agreed to restart oil aid to Pakistan worth at least $1.5bn annually in July, according to officials in Islamabad, as Riyadh works to counter Iran’s influence in the region.

Riyadh demanded that Pakistan repay a $3bn loan last year after Islamabad pressured Saudi Arabia to criticise India’s nullification of Kashmir’s special status.

But the acrimony between the two longtime allies has eased after Imran Khan, the prime minister, met Saudi Crown Prince Mohammed bin Salman in May.

News of the oil deal with Pakistan comes as Saudi Arabia embarks on a diplomatic push with the US and Qatar to build a front against Iran, said analysts. Riyadh lifted a three-year blockade of Qatar in January in what experts said was an attempt to curry favour with the newly elected Joe Biden.

Pakistan had shifted closer to Saudi Arabia’s regional rivals Iran and Turkey, which, along with Malaysia, have sought to establish a Muslim bloc to rival the Saudi-led Organisation of Islamic Cooperation.

Khan has developed a strong rapport with President Recep Tayyip Erdogan, encouraging Pakistanis to watch the Turkish historical television series Dirilis Ertugrul (Ertugrul’s Resurrection) for its depiction of Islamic values.

Ali Shihabi, a Saudi commentator familiar with the leadership’s thinking, said that “bad blood” had accumulated between Riyadh and Islamabad, but recent bilateral meetings had “cleared the air” and reset relations to the extent that oil credit payments would restart soon.

A senior Pakistan government official said: “Our relations with Saudi Arabia have recovered from [a downturn] earlier. Saudi Arabia’s support will come through deferred payments [on oil] and the Saudis are looking to resume their investment plans in Pakistan.”

The Saudi offer is less than half of the previous oil facility of $3.4bn, which was put on hold when ties frayed.

But Fahad Rauf, head of equity research at Ismail Iqbal Securities in Karachi, said: “Any amount of dollars helps because time and again we face a current account crisis. And with these prices north of $70 a barrel anything helps.”

Pakistan’s foreign reserves were more than $16bn in June compared with about $7bn in 2019 before it entered its $6bn IMF programme.

Robin Mills at consultancy Qamar Energy said: “Saudi Arabia and Pakistan are allies, but their relationship has always been rocky. And the Pakistan-Iran relationship is better than you might think.”

Mills said that the timing of the Saudi gesture was “interesting” given that Iran was preparing to step up oil exports with the US considering easing sanctions.

“The Saudis are on a bridge-building mission more generally. They have sought to mend fences with the US and there is also the resumption of relations with Qatar,” he said.

Ahmed Rashid, an author of books on Afghanistan, Pakistan and the Taliban, said that there were a variety of factors that might have spurred Riyadh to restart the oil facility.

It may be “partially linked to the American need for bases” to launch counter-terrorism attacks in Afghanistan from Pakistan, he said, but added that its priority was probably to prevent Islamabad from falling under Tehran’s influence.

Rashid pointed out that Pakistan was caught between China, which has invested billions of dollars in infrastructure projects, and the US.

“Pakistan has to play it carefully, it is dependent on China for the Belt and Road, dependent on the west for loans,” said Rashi. “This is a very complex game.”

Anjli Raval in London and Simeon Kerr in Dubai



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