*Says telecoms, banking sectors were gainers from naira crunch, and industrial, FMCGs, breweries losers
The Managing Director/Chief Executive Officer of the Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, has declared that the collapse of Silicon Valley Bank (SVB) and Signature Bank in the United States of America would squeeze funding for financial technology (fintech) startups in Nigeria.
Rewane made this declaration on Wednesday, when he made a presentation titled “Global Tremor But No Contagion” at the Lagos Business School’s breakfast meeting.
He also revealed that the receding naira crunch that afflicted the Nigerian economy in the first quarter of 2023, produced gainers in the telecommunications and banking sectors and losers in the industrial, brewery and Fast Moving Consumer Goods (FMCGs) sectors. He noted that the total value of fintech start-up funding by venture capital jumped to $536.7 million in 2021 from $20.9 million in 2015 before it declined to $507 million in 2022.
“The SVB is a major financier of tech startups and venture capital in the United States of America. The collapse of SVB and the Signature Bank crisis will squeeze and restrain funding to fintech startups in Nigeria,” Rewane said, adding that, “Nigeria’s fintech space is likely to come under pressure.”
He also stated that the impact of the global financial tremor would be felt in the emerging markets where more than a quarter of the markets have been shut out of international bond markets “as investors adopt a ‘risk off’ approach to high-yield debt despite the ease in global financial crisis.”
He added that countries with restricted access to international debt markets might be constrained to resort to the International Monetary Fund, private market debt sales and currency devaluations.
According to Rewane, the cash crunch that was fueled by the implementation of the Central Bank of Nigeria’s naira redesign exercise also produced its gainers and losers and might significantly slowdown the country’s GDP growth to 1.25 per cent in Q1of 2023 due to the effect of cash crunch on aggregate demand.
He identified the gainers as operators in the telecommunications and banking sectors due to increased use of digital and fintech services and e-banking.
According to him, their average revenue growth rates were 25 per cent for telecommunications and 22 per cents for banking sectors with strong and minimal impacts on their share prices respectively.
He said: “Total value of e-payment transactions surged by 30.80 per cent in March, reflecting sustained use of digital payment channels despite the waning cash scarcity as improved banks efficiency contributed to the increase in total volume of transactions.
“Moreover, all e-payment channels recorded an increase in both value and volume of transactions.
“In April, total value of transactions is likely to rise further due to increased transactions ahead of Easter and Ramadan celebrations.”
He identified operators in the brewery, FMCG and industrial sectors as the losers of the induced cash crunch on the economy due to decline in consumers’ aggregate demand.
According to him, the brewery, FMCGs and industrial sectors respectively were projected to have recorded average revenue growth rate of 15 per cent, 20 per cent and 18 per cent respectively.
Rewane stated that the naira redesign saga revealed the, “potency of tips, the true size of the informal economy at 40 per cent of total GDP and cash as a catalyst of business transactions.”
He noted that sectors that were affected by cash crunch in Q1 included banking, agriculture, trade and manufacturing, adding that it might have, “reduced confidence in the banking system.”
He noted that decline in aggregate demand stalled production and income as lack of cash dampened consumer confidence and reduced sales for those in manufacturing and trading sectors. Therefore, “manufacturers in turn cut output as aggregate demand declined,” he said.
The chief executive of the FDC, however, noted that the naira was overvalued by 51.88 per cent at the current Investors and Exporters’ (I&E) forex rate of N462 per dollar against the parallel market rate of N750 per dollar.
Rewane, therefore, stated that Nigeria should either make the hard choice of realigning its multiple forex rates or to retain the current status quo.
According to him, realigning the foreign exchange rates would remove market distortions, increase inflation, enhance fiscal space and encourage more capital inflows into the Nigerian economy.
He, however, warned that Nigeria would, “harvest compounded fiscal problems and inefficiency in markets” operations.
Rewane referred to the EIU Outlook and said that, “Nigeria’s heavily managed exchange-rate regime will remain unstable and prone to dysfunction. Foreign-exchange supply will be too low to consistently clear the market while gap between the parallel and the official rates will continue to encourage illicit arbitrage;” adding that “speculative attacks will be frequent.”