• Thursday, December 07, 2023
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Morgan Stanley sees high returns in Nigeria’s mobile banking, consumer market

Analysts see high yields from Nigeria’s mobile banking, consumer market

Nigeria’s telecommunication sector and consumer segments offer a unique opportunity for investors if the reforms of the Tinubu government result in a rise in income, says analysts at global investment firm Morgan Stanley.

In an investor note, the firm said new policies, including the removal of fuel subsidies and the unification of the naira’s exchange rate, could fuel economic growth.

“Should incomes rise, investors can watch for opportunities in mobile banking, data usage, and consumer goods,” said Steven Quattry, executive director of the firm with over 19 years of industry experience.

According to the expert, the telecom sector offers a unique opportunity due to low mobile data penetration and usage levels.

“By one estimate, Nigerian internet usage is one-tenth of South Africa’s. Additionally, last year’s regulatory changes that allowed telecommunications operators to receive banking licenses have enabled a growing mobile-money market. This presents an opportunity for providers of telecommunications-led mobile-money services, which are still in the early stages of growth.

Read also: Nigeria’s mobile money agent outlets hits 6-yr high – IMF

This assessment is based on Nigeria’s high mobile phone ownership estimated at over 85 percent and where over half of the population is without bank accounts, thus opening an opportunity for mobile money accounts. Only 10 percent of the population is estimated to have mobile money accounts.

“Should mobile money penetration levels in Nigeria climb to the 75 percent to 95 percent levels seen in Senegal, Ghana, and Kenya, it would drastically increase financial inclusion and present an attractive investment opportunity, particularly in telecom operators,” notes Quattry.

The second investable opportunity in a number of consumer segments is likely to arise as well, the analysts noted.

The analysts said: “Historically in emerging markets, as GDP per capita has risen to the $2,000 to $5,000 range, households have had ample income to cover essential needs, enabling them to gradually afford more discretionary purchases.

“For example, when GDP per capita in China rose from $1,000 to $4,000, the demand for automobiles rose at an even greater rate, from one million vehicles to more than 17 million.

“Such a dynamic in Nigeria could help the consumer goods market grow 150 percent from an estimated $240 billion in 2023 to about $603 billion in 2030. This could present investment opportunities in several sectors, including packaged food and beverages, household and personal care products, education, healthcare, and even durable goods like appliances and transportation.”

Read also: How banking agents became so powerful

While these projections point to a positive outcome, the reality for Nigeria is a tad different. Headline inflation grew to 27.33 percent in October, mainly due to the continued depreciation of the naira and higher food and fuel prices, according to the National Bureau of Statistics.

The Consumer Price Index report released by NBS on Wednesday, which measures changes in many goods and services, showed that inflation rose to a new 18-year high of 27.33 percent from 26.72 percent the previous month.

The NBS report also revealed that food inflation, which constitutes 50 percent inflation rate, rose to 31.52 percent in October, the highest in 18 years, from 30.64 percent in September.

In an economy where the bulk of consumer spending goes to food and consumer spending has been shrinking due to low revenues, naira depreciation and stagnant wages may struggle to translate to real returns for the consumer segment in the near term.

“Please there is no near-term opportunity in the domestic mass market. Exports of any kind (including services) are definitely yes. But don’t go and lose your shirt betting on the (now broken) oil-fueled, household consumption growth model that worked for 2 decades post-1999.” Seun Smith, an economist, posted on X.

However, the Nigerian economy has huge export potential, especially for services, the analysts said.

“By some estimates, 125 million Nigerians speak English, which is more than the populations of the UK, Canada, and Australia combined. A large pool of English speakers underpins successful service-export industries such as the Philippines’ business process outsourcing sector, which generates more than $35 billion per year in hard currency, equating to roughly 10 percent of Nigeria’s expected GDP in 2023.

Read also: Here are Nigeria’s top seven trillionaire market cap companies

The report also cites the Nigerian music and film industries as another potential avenue for service exports.

“Nigeria is home to two of the most well-known “Afrobeats” artists, in a music genre that has amassed more than 16 billion plays on popular streaming platforms.

“Meanwhile, the Nigerian film industry, affectionately known as “Nollywood,” produces around 2,500 films per year and is attracting investments from major global media companies. By 2030, Africa’s film and music industries—which are dominated by Nigerian productions—could be worth $20 billion dollars and create 20 million jobs,” the report said.