Hello <<First Name>>,

Nigeria in Numbers—Stears Data’s insights into some of the actions in Nigeria over the month. We provide you with data and analysis so you can understand what these developments really mean and how it affects individuals and organisations. 

Enjoy reading and share with friends and colleagues in your network! 

Stears Data | Economy | Business

54% of Nigerians disagreed with the statement: ‘In the last 3 months, you earned about the same amount every week’—an indicator of income volatility.
In the South-East, the picture is even grimmer as nearly two-thirds of people living in the South-East reported volatile incomes.
At the state level, Kwara (85%), Edo (78%), and Anambra (75%) had the highest share of respondents that disagreed with the headline statement.
When we analyse poverty and consumer spending power, we often focus on wealth (how much people have) or income (how much people earn). But estimates of how much people earn are incomplete without clarity on how frequently they receive this income. Individuals with volatile incomes are likely to be worse off than individuals with lower but less volatile incomes, simply because the latter are more able to smooth out consumption and respond to shocks. Moreover, income volatility itself could be a symptom of poverty, as we will see shortly.

Thus, estimates of income volatility—like the data provided here—gives a richer perspective of household income, which is particularly useful in countries like Nigeria where income data itself is sparse.

Looking at the relationship between income levels and income volatility perfectly illustrates the usefulness of the latter.

We would expect income level to be positively correlated with income volatility, i.e. wealthier Nigerians to have stabler incomes.

We can check this by cross-referencing this data on income volatility with data on median income earned within the last six months across Nigerian states (also available in our data catalogue). A simple correlation between median income and the share of respondents that strongly agree that their income is stable is 0.30—positive, but weak.

Other computations give reason to accept this result, though. The correlation between median income and the share of respondents that agree that their income is stable is positive but weaker at 0.17. Furthermore, the correlation between median income and the share of respondents that disagree that their income is stable is -0.43—negative and relatively strong.

Our conclusion is simple: as expected, poorer individuals also have more volatile incomes, meaning they are also more likely to face cash shortages.

This result has significant policy implications. That said, a crucial next step would be determining whether income volatility is a cause or symptom of poverty (or both).

Next time, perhaps.
This data has been sourced from Stears Data, The Human Account.  You can view our growing data inventory or contact the Stears Data team.
8 years

That is how long it has been since the Nigerian economy grew as fast as it did in the second quarter of 2021 (Q2 2021). The economy recovered from a 6.1% contraction between Q2 2019 and Q2 2020, growing 5% between Q2 2020 and Q2 2021. 

These are pretty good numbers on the surface; Nigeria’s economy looks set to chart a healthy post-pandemic growth path. Dig deeper and you discover not just cracks, but entire fault lines. 

It is easy to get swept up in the excitement (or pessimism) and forget what Gross Domestic Product (GDP) measures. It is the simplest and most useful economic statistic: it adds up everything produced in the country in that period (in this case, in Q2). By comparing what we produced in this quarter (Q2 2021) with the same quarter in previous years (Q2 2020, Q2 2019, etc.), we can objectively gauge whether the economy is producing more, without worrying about seasonal effects like harvests or festive seasons. This explanation is important because the 5% statistic tells us that the Nigerian economy produced 5% more in Q2 2021 than it did in Q2 2020. 

Wily readers would have spotted the problem already: 2020 is a terrible comparison year. 

The chart below shows the output (GDP) of the Nigerian economy during each April-June period since 2010. The last second quarter the Nigerian economy produced as little as it did in 2020 was in 2014, before the seismic shift Nigeria’s growth trajectory wrought by the 2014 oil crisis and subsequent foreign exchange scarcity. 
With this context, Q2 2021 GDP growth is much less impressive. We can go further though. 
GDP in Q2 2021 is much less than the corresponding period in 2019 and only slightly higher than in 2018. Essentially, even with 5% GDP growth in Q2 2021, the Nigerian economy only returned to its 2018-levels of productivity. 

Weak 2021 growth is not an isolated concern, either; the trend of GDP growth is also troubling. To illustrate this, we split the 2010-2021 period into equal halves of six years and calculated the average annual growth rate (technically, the compound annual growth rate) in each six-year period. Between 2010 and 2015, the Nigerian economy produced 4.1% more output each second quarter—Q2 2015 GDP is 27% higher than Q2 2010 GDP. But between 2016 and 2021, the Nigerian economy produced just 0.04% more output each second quarter—Q2 2021 GDP is only 3% higher than Q2 2016 GDP. 

So, even with a 5% year-on-year growth in Q2 2021, the Nigerian economy is only producing 0.04% more between April and June than it did in the previous year. 

Stagnant growth.
₦107 billion

Zenith Bank, Nigeria’s most profitable bank, was one of the first of the Tier One banks (Zenith, Access, First Bank, GTBank, and UBA) to release its financial results from the first half of 2021, posting a profit of ₦107 billion ($262 million).

Commercial banking is extremely profitable in Nigeria. Last year, even with a global pandemic and the Nigerian economy shrinking by 2%year-on-year, Nigeria’s five largest banks posted a combined profit larger than ₦645 billion ($1.6 billion). For comparison, MTN Nigeria and Dangote Cement, the largest publicly traded companies in Nigeria, combined for a $1.2 billion profit last year.

Even beyond the coronavirus pandemic, Nigerian banks have posted these impressive numbers against an unfavourable backdrop of:

Poor macroeconomic performance in recent years. The Nigerian economy only grew by 2% in total between 2017 and 2020.

  1. Restrictive regulations. In pursuit of its objectives to preserve the foreign exchange rate and stimulate economic growth through commercial lending, the Central Bank of Nigeria has policed Nigerian banks pretty heavily in the last few years, going as far as mandating how much they should lend to the general public or face large fines.
  2. A shallow pool of customers. Nigeria still has a financial inclusion problem (roughly a third of Nigerians are completely financially excluded), which means that most Nigerians do not regularly access banking services and Nigerian banks are only serving a fraction of the market.
  3. The constraints outlined above may explain the tepid sentiment around commercial banking in Nigeria—despite sustained and impressive profitability. Even on the Nigerian Stock Exchange, Nigerian banks are significantly undervalued.
Looking at price-to-earnings (P/E) ratios, a measure of the listed share price relative to the company’s earnings, shows that Nigerian banks have more conservative valuations than similar publicly listed companies. The P/E ratios across Nigeria’s largest banks are significantly less than companies like MTN Nigeria and Dangote Cement—in other words, the share prices of these banks are low relative to their earnings.

It is a peculiar situation, and one that contrasts sharply with the excitement over digital banks (neobanks) in Nigeria. At the start of August, Kuda Bank, one of Nigeria’s leading neobanks, announced a $55 million fundraising for its Series B. The announcement was startling for two reasons. First, it came barely months after Kuda announced its $25 million Series A. Second, the fundraising gave Kuda Bank an implicit valuation of $500 million (₦205 billion).

Optimists argue that the valuation is based on the belief that Kuda Bank (and other neobanks) can crack problem 3) and expand the market in a cost-effective way by leveraging technology more efficiently than incumbents. Given how profitable these incumbents have been while addressing a slice, fortune awaits the bank(s) that can serve the entire pie.

That said, critics argue that solving problem 3) only gets you so far if 1) and 2) remain. There is no point serving 150 million customers if the unit economics don’t add up.

There is a strong case to be made either way. But given the numbers Nigerian banks have posted for years, investors can be forgiven for taking a punt at disrupting the space to accrue extraordinary returns. 
The best decisions start with data
Talk to us about data today
Forward to a friend Forward to a friend
Share on LinkedIn Share on LinkedIn
Tweet it Tweet it
Copyright © 2021 Stears, All rights reserved.

Want to change how you receive these emails?
You can
update your preferences or unsubscribe from this list