Forex Glow-Up, MTN’s Big Plans and Econ Decoded
Behind the screens and beneath the surfaces
The CBN has a shiny new toy and MTN is thinking big. We explore exciting new moves in the Nigerian market and how innovation shakes things up. Plus, a quick guide to understanding economic policies that act as the brakes or gas pedals for the economy—read on for insights and takeaways.
Macro Economics
New Month, New System
On Monday, 02 December 2024, the CBN’s website got an upgrade. But that was not all; the CBN also upgraded its Electronic Foreign Exchange Trading Platform (EFEM). The new system runs on Bloomberg BMatch, a system currently used in Kenya and Angola. BMatch is an electronic foreign exchange system that allows for spot foreign exchange trading. The system will enable anonymous bids to be placed, and the identities of the transacting parties will only be revealed after the transaction has been settled. Only authorized parties (banks, licensed IMTOs, and others as specified by the CBN) can trade on the platform. The platform will allow for better transparency into Forex transactions, automate transactions, and improve the CBN’s oversight of the Forex market.
So What?
The new system introduced by the CBN is an example of using technology to address structural issues. We have repeatedly mentioned that the core of Nigeria’s challenges are structural in nature. The foreign exchange market in Nigeria has been plagued by a lack of transparency, which has been a major driver of the liquidity issues we see in the market. This new system, which allows for improved visibility into transactions, will hopefully go a long way in ensuring that the “true value of the Naira” comes to bear. Additionally, the potential for authorized bureau de change operators to access forex from the system will help drive some black-market activity to the EFEM platform. This will hopefully reduce the gap between the official and unofficial rates in the long term.
However, as we have said before, the true long-term solution will be the successful coordination with the fiscal policy arm of the government and the improvement of Nigeria’s domestic production capacity.
P.S: the new website is nice, you should check it out.
Market Highlights
MoMo’s Big Move
MTN’s mobile money platform, MoMo, has officially applied for Point-of-Sale (PoS) and payment licences in Nigeria. This move signals MTN’s ambition to deepen its presence in Nigeria’s rapidly growing fintech market, where players like OPay, Paystack, and Flutterwave dominate. MoMo, which launched in 2022 after receiving a Payment Service Bank (PSB) licence, already offers basic banking services such as deposits, withdrawals, and transfers. With these new licences, MTN MoMo aims to expand its services, positioning itself as a key competitor in Nigeria’s digital payments ecosystem.
The licences will allow MoMo to deploy PoS terminals to merchants, enabling cashless payments for goods and services. Additionally, the payment licences will facilitate broader integrations with online platforms, putting MoMo in direct competition with Paystack and OPay, which are already major players in merchant and retail payments. This strategic expansion builds on MTN’s existing strength as Nigeria’s largest telecommunications provider, with over 80 million subscribers—a ready customer base for its fintech ambitions.
So What?
MTN MoMo’s application for PoS and payments licences represents a bold step in diversifying its revenue streams beyond telecommunications (with all the ‘shege’ the telecommunication industry is facing do you blame them?). As Nigeria continues to embrace a cashless economy, the payments sector has become a hotbed of competition, with startups and traditional banks vying for dominance. By leveraging its telecom infrastructure and extensive distribution network, MTN MoMo could rapidly scale its payment services.
However, the competition is fierce, with the likes of Moniepoint and Opay who already hold a large market share. To succeed, MTN MoMo will need to innovate and offer competitive pricing, seamless user experiences, and robust security.
This move underscores MTN’s broader fintech ambitions, as it seeks to position itself not just as a telecom giant, but as a major player in Africa’s digital economy.
Learn Finance
Brakes or Pedals: Economic Policies
When the Central Bank of Nigeria (CBN) raises the Monetary Policy Rate (MPR) to tackle inflation, that’s an example of contractionary monetary policy. Similarly, recent tax hikes by the government are examples of contractionary fiscal policy, aimed at slowing down rising prices.
The idea is simple: contractionary policies are used to cool the economy when it’s overheating or when inflation is getting out of hand. Think of it as hitting the brakes. Raising taxes or hiking interest rates reduces how much people and businesses spend, helping to keep prices under control.
On the flip side, expansionary policies are like pressing the gas pedal. They’re used during tough times—like recessions—when the economy needs a boost. Cutting taxes or lowering interest rates puts more money in people’s pockets, encouraging spending, investment, and job creation.
Both fiscal policy (what the government does with taxes and spending) and monetary policy (how central banks manage money and interest rates) can act as either brakes or gas pedals, depending on what’s needed. For example, if the government cuts spending, that’s contractionary. If it spends more on things like infrastructure, that’s expansionary. Similarly, when the CBN raises interest rates, it’s trying to cool things down, while lowering rates means they’re trying to heat things up.
In our recent digest, we discussed how the CBN raised the MPR (monetary policy rate) and the government raised capital to finance critical projects. These are examples of contractionary and expansionary policies, bet you can guess which is which!
The next time you hear or read about a tax increase, increased government spending, or a change in interest rates, think about it: is the government trying to slow things down or speed them up? Understanding this makes it easier to figure out what’s going on in the economy and how it might affect you.
Felt really smart after digesting this.. Thank you once again A.D for the amazing newsletter🎉