Big Moves & Big Prices📈
It’s a mixed bag out there—think soaring bread prices and exciting tech unicorns!
Welcome to a brand-new month! Is it just us, or does it feel like the holiday spirit is creeping in a bit early? 🎄
Whether you’re still wrapping your head around price hikes or marveling at Moniepoint’s big win, this issue has something for you. Grab a snack, settle in, and let’s break down the highs, the lows, and everything in between.
Here’s what’s cooking in our latest Digest!
PS: We’ve got a poll at the end, don’t forget to vote!
Macro Economics
Why your morning toast costs an arm and a leg 😭
In the past few months, prices of stuff have skyrocketed, with many doubling or tripling. The increase is driven by several factors and reflects the current sentiment on the state of the Nigerian economy. Everybody can relate to this, down to our very precious and most popular food commodity, bread. Recent reports say the costs of bread-making ingredients have doubled over the past year, making it really tough for bakers to keep up. As a result, we’re seeing bread prices jump by 40-80%. The main culprit? The devaluation of our currency, as many of these ingredients, like wheat flour and sugar, are imported.
It’s been nearly a decade since we last enjoyed single-digit inflation. The World Bank recently highlighted major policy missteps that led us down this challenging path in the most recently published Development Update. The monetary and foreign exchange systems were unclear and inconsistent, leading to problems like multiple, overvalued exchange rates. Tax revenues were very low, and a large part of the country's oil income was spent on petrol subsidies. This overvalued exchange rate created a big parallel market and led to significant revenue losses, damaging confidence and investment. In 2022, the combined cost of these subsidies resulted in large fiscal deficits, which were financed by borrowing from the Central Bank (Ways and Means Loans), leading to even more economic problems like inflation, currency depreciation, and rising poverty.
On a brighter note, significant reforms have recently been introduced to stabilize the economy. The government has removed subsidies, unified the exchange rate, and raised interest rates. While these changes are vital for economic recovery, they have also put additional pressure on households and businesses in the short term, contributing to rising inflation.
So what?
This a tough road to recovery, should we keep our hopes up? This is the burning question on the mind of every Nigerian right now. But it’s not just about holding onto hope or being patient. For us to really see growth that lasts, it needs to be inclusive and lift our poorer citizens.
We still believe that tackling poverty and addressing the root causes of our issues is key. Initiatives like productive job creation, boosting non-oil revenue, cutting down on governance costs, and redirecting funds to targeted, pro-growth, and pro-poor projects can make a big difference. We have seen recent efforts of the current government to address some of these by launching cash transfers for vulnerable households and imposing a 25% personal income tax on wealthy citizens in a bid to reduce inequality and increase tax revenues.
For reforms to work, they need time. The nature of the reforms Nigeria will face to address the economic distortion of the previous government is going to require longsuffering and for this to work, the government must lead with compassion and show a clear understanding of the cost the citizens are bearing for its actions. The success of any reform program is determined by what is done and how it is received.
Market Highlights
A Unicorn🦄… In this economy
On Tuesday, Moniepoint announced that it had raised $110 million at a $1 billion valuation. This makes Moniepoint the 9th unicorn to emerge from Africa since 2016. The round was led by Development Partners International, with Google’s Africa Investment Fund, Verod, and Lighthouse also participating. This follows the $55 million Moniepoint raised in 2022, led by QED investors at a valuation of over $800 million.
Moniepoint, as we know it, started in 2019, growing from an agency banking business to now offering business and personal banking services, as well as business credit and operations support. According to the company, Moniepoint processed over 800 million transactions with a monthly transaction value of over $17 billion.
The raise comes in a market where startup funding in Africa is down 38% in the first three quarters of the year compared to 2023. The company plans to use the new capital to drive expansion across Africa, with speculations of M&A activities planned, including acquisitions in Kenya.
So what?
Moniepoint, in its current form, started in 2019 with the creation of the Moniepoint product (Agency Banking) and Monnify (payments processing). Before that, the company was a technology service provider to Nigerian banks under the name TeamApt. Moniepoint was well-positioned to capitalize on the cash crunch crisis of early 2023 and has since become a household name.
The best way to characterize where the company is and where it is going is to borrow from the QED team. QED breaks the company’s strategy into two acts. Act one was the growth of its agency banking and acquiring (POS) footprint in Nigeria. Act two was the pivot towards more encompassing products with a focus on value-added services like invoices, payroll, personal banking, and credit to businesses. QED stated that the focus of their investment was to help with the second act, especially the growth of Moniepoint’s credit business.
However, as we see it, a new act, call it Act Three, has begun. The $110 million will be the foundation of the company’s expansion strategy. The company’s CEO, Tosin, has expressed a desire to expand to “the rest of the world” with a focus on the UK, EU, and Latin America. Tosin believes that Moniepoint can solve the same problems that they have solved in Nigeria in those markets, effectively looking to become the Square of the rest of the world.
Raising $110 million is a feat in and of itself; raising that in a market that has seen a 70% devaluation of its currency in the past year is simply mind-blowing. We think the success of the company’s long-term vision will be predicated on its ability to grow its Nigerian business and successfully launch in its target markets. Moniepoint may decide to partner, acquire, or launch a new subsidiary, depending on the market it targets. Whatever the approach, it must be apt.
Learn Finance
Lock-up period: Shares held hostage
Imagine a successful company that has been operating privately for a notable period decides to go public. Early investors, (think insiders, employees, or those who invested very early), may pick on this as an opportunity to potentially make profits by selling their shares in the open market. This is a great opportunity for these investors but can have a severe impact on the company and new investors. A huge sell-off after going public often puts downward pressure on the price per share of the company, effectively leading to losses for new investors.
What can be done to prevent this? There’s a phenomenon termed lock-up period, a predetermined timeframe where investors are restricted from selling or redeeming their shares, ranging from 90 to 180 days. While it’s not a must-have, it is usually applied to IPOs, hedge funds, or private equity investments.
The purpose of a lock-up period is to stabilize the stock or investment by preventing early, rapid selling, which could negatively impact the price or value. By holding onto the shares during this period, investors provide the company shares, and time to establish itself, balancing the supply and demand in the market.
We see an example of rapid share price decline majorly as a result of huge sell-offs in the recent listing of Aradel Holdings, an energy group listed on the Nigerian Exchange Limited by way of a Listing by Introduction. According to The Guardian, the company got listed on the 14th of October and has lost almost a trillion Naira in market capitalization. Two days after its listing, the price of the company shares appreciated from N703 to N820 but currently sits at N550.
In this case, early investors and short-term investors looking to make a profit took advantage of the high value of Aradel’s stock but huge sell-off shares caused a massive loss for the market. In a scenario with a lock-up period, early investors would have had to wait before selling, allowing the share price to stabilize in the market post-listing.
Lock-up periods help create a more genuine market valuation for an asset. When early investors can’t sell right away, it reduces the chances of wild price swings, whether it’s inflated highs or sudden crashes.