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Digital Finance to Add $3.7tr to Emerging Economies’ GDPs



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  • Digital Finance to Add $3.7tr to Emerging Economies’ GDPs

It is estimated that digital finance could add about $3.7 trillion to emerging countries’ gross domestic product (GDP) by 2025, if is widely adopted, and represents a six per cent increase above business as usual.

In low-income countries with very low financial inclusion rates, such as Nigeria, Ethiopia, and India, GDP could increase by as much as 12 per cent. Financial inclusion facilitates the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society.

Through digital finance, access to financial services can be expanded to other sectors, including agriculture, transportation, water, health, education, and clean energy.

However, entrepreneurship, investment and economic growth suffer when savings are stored outside the financial system, and credit becomes scarce and expensive.
Fortunately, a recent report by the McKinsey Global Institute (MGI), said digital technologies especially with mobile phones can rapidly fix this problem and foster faster, more inclusive growth.

Mobile phones and the Internet are believed to be capable of reducing the need for cash and bypass traditional brick-and-mortar channels like banks.

MGI said this dramatically reduces financial-service providers’ costs, and makes their services more convenient and accessible for users – especially low-income users in remote locations.

The report informed that digital finance can boost GDP in several ways. Nearly two-thirds of the expected growth would come from increased productivity, because businesses, financial-service providers, and government organisations would be able to operate much more efficiently if they did not have to rely on cash and paper recordkeeping.

Another one-third would come from increased investment throughout the economy, as personal and business savings were moved into the formal financial system, and then mobilised to provide more credit. The remaining gains would come from people working more hours – the time they would have spent travelling to bank branches and waiting in queues.

As for financial inclusion, digital finance has two positive effects. First, it expands access. In emerging markets in 2014, only about 55 per cent of adults had a bank or financial-services account, but nearly 80 per cent had a mobile phone. That 25-percentage-point gap could be closed by making mobile banking and digital wallets a reality.

But a gender gap will also have to be closed: worldwide, about 200 million fewer women than men have mobile phones or Internet access.

Secondly, digital finance reduces costs: MGI estimates that it would cost financial-service providers 80-90 per cent less – about $10 per year, compared to the $100 per year it costs today – to offer customers digital accounts than accounts through traditional bank branches.
Understandably, using purely digital channels thus makes it feasible to meet the needs of low-income customers. Financial inclusion becomes profitable for providers even when account balances and transactions are small.

With digital finance, as many as 1.6 billion unbanked people – more than half of whom are women – could gain access to financial services, shifting about $4.2 trillion in cash and savings currently held in informal vehicles into the formal financial system.

According to MGI, this would allow for an additional $2.1 trillion to be extended as credit to individuals and small businesses.

It disclosed that businesses could also save on labour costs to the tune of 25 billion hours yearly, by swapping cash transactions for digital payments. And governments could take in an additional $110 billion yearly– to invest in growth-enhancing public goods like education – because digital channels make tax collection cheaper and more reliable.

To bring this to fruition in Nigeria, experts in Nigeria’s ICT space have called for accelerated broadband deployment and availability of smart phones.

Speaking to The Guardian on phone, the President, National Association of Telecommunications Subscribers of Nigeria (NATCOMS) Chief Deolu Ogunbanjo, described the news as a good one for Nigeria.

Ogunbanjo said Nigeria needed to get its National Broadband Plan (NBP) moving, stressing that the country must do everything to go digital.

He advised government to ensure that the planned data price hike never materialise, “as this will definitely prevent so many people from coming online,” adding that subscribers are ready to go digital any time.
On his part, the Director-General, Delta State Innovation Hub (DSIHUB), Chris Uwaje, noted that there are many angles to the MGI’s report, which include the need to create jobs and improve the level of national infrastructure.

Uwaje, a former President of the Institute of Software Practitioners of Nigeria (ISPON), said it can be deduced from the report that smart phone will take over the reins of things as far as digital transformation is concern.

He said digital economy speaks to all youth, saying the process will enable Nigeria to drive financial inclusion.

According to him, we still import innovation and technology in Nigeria, “it has become important for us improve on our local content development. Digital economy is a basket, people will put in money and some will utilise it. It is a nation that creates that will benefit most.”

Uwaje said Nigeria must establish a technology bank, which will be able to sponsor innovations and others. He said the MGI report is looking at creativity.

Meanwhile, the report citing Kenya as example, noted that new mobile-money services are already demonstrating digital finance’s potential. For instance, M-Pesa, which transforms one’s phone into a mobile wallet – has leveraged powerful network effects to bring about a vast expansion in the share of adults using digital financial services.

It disclosed that the share grew from zero to 40 per cent in just three years, and had risen to 68 per cent by the end of last year.

However, for improved performance, across board, everyone needs a mobile phone with an affordable data plan. While businesses can help, the Institute posited that it is incumbent upon governments and non-governmental organisations to extend mobile networks to low-return areas and remote populations.

Besides, it said that governments must also ensure that networks between banks and telecommunications companies are interoperable; otherwise, widespread use of mobile phones for financial services and payments would be impossible.
Governments must establish universally accepted forms of identity as well, so that service providers can control fraud.

In emerging economies, one in five people are unregistered, compared to only one in ten in advanced economies. Nearly 20 per cent of unbanked women in emerging countries do not have the documentation necessary to open a bank account. Even when people have recognised identities (IDs), they must be amenable to digital authentication. Digital IDs that use microchips, fingerprints, or iris scans could prove useful and are already gaining popularity in emerging economies.

According to it, it is also important for governments to implement regulations that strike a balance between protecting investors and consumers, and giving banks, retailers, and financial-technology and telecommunications companies room to compete and innovate.

“Because regulations often shut out non-bank competitors, governments should consider a tiered approach, whereby businesses without a full banking license can provide basic financial products to customers with smaller accounts. A good model for this is the United Kingdom’s “regulatory sandbox” for financial-technology companies, which imposes lower regulatory requirements on emerging players until they reach a certain size.

“Financial inclusion is vital for inclusive economic growth and gender equality, and it has assumed a prominent role in global development efforts, with the World Bank aiming for universal financial inclusion by 2020. With billions of people in emerging economies already using mobile phones, digital finance makes this goal achievable,” MGI stated.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.

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Africa Renewable Energy Fund II Secures €125 Million First Close With SEFA and CTF Investments



Solar energy - Investors King

The Africa Renewable Energy Fund II has achieved its first close at €125 million, following a joint investment of €17.5 million from The Sustainable Energy Fund for Africa and the Climate Technology Fund through the African Development Bank.

AREF II, a successor to the original Fund, is a 10-year closed-ended renewable energy Private Equity Fund with a $300 million target capitalization. The Africa Renewable Energy Fund II, managed by Berkeley Energy, invests in early-stage renewable energy projects, thereby not only de-risking the most uncertain phase of power projects, but also promoting increased green baseload in Africa’s generation mix.

The Sustainable Energy Fund for Africa and the Climate Technology Fund will each contribute roughly €8.7 million to mobilize private-sector investment into Africa’s renewable energy sector. The Sustainable Energy Fund for Africa will also contribute financing to the AREF II Project Support Facility, which funds technical assistance and early-stage project support to improve bankability.

Other investors include the U.K’s CDC Group, Italy’s CDP, the Netherlands Development Finance Company (FMO) and SwedFund.

“We are proud to be associated with Berkeley Energy and other like-minded investors, and look forward to AREF’s continued success and leadership in promoting sustainable power development on the continent,” said Dr. Kevin Kariuki, the African Development Bank’s Vice President for Power, Energy, Climate and Green Growth.

In 2012, the African Development Bank selected Berkeley Energy, a seasoned fund manager of clean energy projects in global emerging markets to set up AREF. AREF II has a sharper strategic focus than its predecessor on “green baseload” projects that will deliver firm and dispatchable power to African power systems through hydro, solar, wind and battery storage technologies.

Luka Buljan, Berkeley Energy’s Managing Director, said: “We are very excited to have reached this milestone with strong support from our backers. The catalytic tranche from the Sustainable Energy Fund for Africa and the Climate Technology Fund will assist in mobilising private institutional investors up to full fund size of €300 million. We now look forward to concluding the fundraising and delivering projects that will provide clean, reliable and affordable energy across African markets.”

“AREF is intertwined with the Sustainable Energy Fund for Africa’s history and success, and we have worked closely over the last decade to create precedents in difficult markets and challenging technologies. We look forward to continued collaboration to accelerate the energy transition in Africa,” said Joao Duarte Cunha, Manager for Renewable Energy Initiatives at the African Development Bank and Coordinator of the Sustainable Energy Fund for Africa.

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Crude Oil

FG Earned $34.22B From Crude Oil and Gas in 2019 – NEITI



Crude oil - Investors King

The Nigeria Extractive Industries Transparency Initiative (NEITI) on Thursday released its 2019 oil and gas industry audit report, which shows that Nigeria earned N34.22 billion from the oil and gas industry in 2019.

The audit, conducted by Adeshile Adedeji & Co. (Chartered Accountants), an indigenous accounting and auditing firm, reconciled payments from 98 entities. They include 88 oil and gas companies, nine government agencies and the Nigerian Liquefied Natural Gas (NLNG).

The 2019 figure is an increase of 4.88 percent over the $32.63billion revenue realised from the sector in 2018. A breakdown of the earnings showed that payments by companies accounted for $18.90billion, while flows from federation sales of crude oil and gas accounted for $15.32billion.

The report further showed that 10 years (2010-2019) aggregate financial flows from the oil and gas sector to government amounted to $418.544billion, with the highest revenue flow of $68.442 recorded in 2011, while the lowest revenue flow of $17.055 was recorded in 2016.

According to NEITI, the total crude oil production in 2019 was 735.244mmbbls, representing an increase of 4.87 percent over the 701.101mmbbls recorded in 2018. Production sharing contracts (PSCs) contributed the highest volumes of 312.042mmbbls followed by Joint Venture (JV) and Sole Risk (SR) which recorded 310,284mmbbls and 89.824mmbbls respectively. Others are Marginal Fields (MFs) and Service Contracts (SCs) which accounted for 21,762mmbbls and 1,330mmbbls respectively.

The report also showed that total crude oil lifted in 2019 was 735.661mmbbls, indicating a 4.93 percent increase to the 701.090 mmbbls recorded in 2018, with companies lifting 469.010mmbbls, while 266.650mmbbls was lifted by the Nigeria National Petroleum Corporation (NNPC) on behalf of the federation.

Analysis of crude oil lifted by NNPC showed that 159.411mmbbls was for export, while 107.239mmbbls was for domestic refining. 97 percent of the volumes for domestic refining (104.475mmbbls) was utilised for the Direct Sale Direct Purchase (DSDP) programme while the remaining 3 percent (2.764mmbbls) was delivered to the refineries.

NEITI reported that the value of the 2019 domestic crude oil earnings was N2.722 trillion. Of this figure, N518.074billion was deducted for Petroleum Motor Spirit (PMS) under-recovery by the NNPC.

This figure was N213.074billon above the approved sum of N305billion for under-recovery in 2019. Similarly, the sum of N126.664billion was incurred by the Corporation as costs for pipeline repairs and maintenances which showed a difference of N96.378billion from the approved sum of N30.287billion for that purpose.

The report also pointed out that N31.844billion was also deducted for crude and product losses due to theft.

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Crude Oil

Oil Prices Drop on Stronger U.S Dollar



Crude oil - Investors King

The strong U.S Dollar pressured global crude oil prices on Thursday despite the big drop in U.S crude oil inventories.

The Brent crude oil, against which Nigerian oil is priced, dropped by 74 cents or 1 percent to settle at $73.65 a barrel at 4.03 am Nigerian time on Thursday.

The U.S West Texas Intermediate crude oil depreciated by 69 cents or 1 percent to $71.46 a barrel after reaching its highest since October 2018 on Wednesday.

Energy markets became so fixated over a robust summer travel season and Iran nuclear deal talks that they somewhat got blindsided by the Fed’s hawkish surprise,” said Edward Moya, senior market analyst at OANDA.

The Fed was expected to be on hold and punt this meeting, but they sent a clear message they are ready to start talking about tapering and that means the dollar is ripe for a rebound which should be a headwind for all commodities.

The U.S. dollar boasted its strongest single day gain in 15 months after the Federal Reserve signaled it might raise interest rates at a much faster pace than assumed.

A firmer greenback makes oil priced in dollars more expensive in other currencies, potentially weighing on demand.

Still, oil price losses were limited as data from the Energy Information Administration showed that U.S. crude oil stockpiles dropped sharply last week as refineries boosted operations to their highest since January 2020, signaling continued improvement in demand.

Also boosting prices, refinery throughput in China, the world’s second largest oil consumer, rose 4.4% in May from the same month a year ago to a record high.

This pullback in oil prices should be temporary as the fundamentals on both the supply and demand side should easily be able to compensate for a rebounding dollar,” Moya said.


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