Visa has confirmed that it has acquired a stake in Interswitch, one of Africa’s biggest fintech companies. The deal is subject to regulatory approval and is expected to close in the first quarter of 2020. Once completed, Visa will join firms like the IFC, Helios Investment Partners, TA Associates as shareholders. Both companies declined to disclose how much equity was acquired, neither did they reveal how much was paid. Sky News had reported on Monday that Visa acquired a 20% stake in Interswitch for $200 million. In a press release on Tuesday, both companies confirmed that Interswitch is now valued at $1 billion. Interswitch has been one of the biggest fintech companies in Nigeria since it started in 2002. Setup with backing from different banking industry players, the company emerged at a time when technology adoption was nascent in Nigeria and the telecom industry was just newly privatised.

Nigeria’s Senate has introduced a bill seeking to establish a federal agency to check hate speech in the country. The bill, sponsored by a former Senate spokesperson, who is now the Deputy Senate Whip, Sabi Abdullahi, passed first reading on the floor of the Senate on Tuesday. Titled the “National Commission for the Prohibition of Hate Speeches (Earn, etc) Bill 2019, a similar bill sponsored by Abdullahi in the previous Senate prescribed among others, death by hanging for anyone found guilty of the offence.

Countries within the ECOWAS sub-region have started rejecting Nigerian cargoes, apparently, as a form of retaliation against the land border closure of the country. This is coming despite revenue increases the Nigerian Customs Service said it has achieved with the on-going partial border closure. The Vanguard quoted exporters as saying that the border closure is gradually crippling their businesses. The CEO of Multi-mix Academy, an export-oriented institution, Obiora Madu said Nigerian exports within the ECOWAS region are decreasing due to the border closure but did not offer any numbers on the extent of the loss. Madu added that outbound cargoes are now subject to more stringent examinations, which has led to a drop in export volumes and increased clearing times. The CEO of the Institute of Export Operations and Management, Ofon Udofia said Unilever and Dangote which supply goods to the Benin Republic, looking for alternatives to transport these cargoes. Udofia said the waterways are not yet feasible as Nigeria doesn’t have any national vessels that ply the West African coast and shipping costs increase as international shipping lines charge extra for Nigeria originating shipments.

The Beninese President, Patrice Talon has said that Francophone countries in West Africa want more control over the management of their currency and plan to move some reserves from France. The eight members of the West African Monetary Union “unanimously agreed” on ending a decades-old model whereby their foreign-exchange accumulation is kept at the French Treasury, Talon told Radio France Internationale. Their currency, the CFA Franc, is pegged to the Euro, and its convertibility is guaranteed by the former colonial ruler. Established after the Second World War, the CFA Franc’s use frequently triggers debate about the region’s continued economic dependence on France and the view that the currency is artificially strong and curbs the region’s competitiveness. Its supporters cite the region’s low inflation and the currency’s stability relative to other African countries as reasons for its continued use. Talon did not give a date but said “everyone is already there,” in response to a reference to French Finance Minister Bruno Le Maire’s openness to a reform of the currency. “Psychologically, with regards to the vision of sovereignty and managing your own money, it’s not good that this model continues, ” he said. The regional central bank will manage the reserves and distribute them to partners around the world, including Japan, Europe, China and North America, Talon said. Côte d’Ivoire, with an economy of about $40 billion, is the biggest economy in West Africa’s CFA Franc zone. Six additional countries in Central Africa use the same currency model.

Commentary

  • Visa’s investment in Interswitch is the kind of success story that builds and deepens the market. Interswitch was built from scratch within the Nigerian market, created a whole new industry and then expanded into other African markets. The business still possesses significant growth upside as Nigeria’s market is still chronically under-served. In 2018, the company said there were only 11 card transactions per adult in Nigeria, a puny figure compared to figures from other emerging markets like South Africa (92 per adult, population 58 million) and Brazil (126 per adult, population 209 million). Such numbers point to Nigeria’s huge potential, but also to the country’s lack of financial inclusion. But having grown from a project within Telnet in 2002 to a unicorn, it is no surprise that just before its eagerly anticipated IPO, investors of the calibre of Visa are still taking positions. It presents to new businesses in Nigeria a clear, value creation driven path to such results that anyone can follow. There is a lot of work still to be done, and we are confident that private sector companies such as Interswitch can do it.

  • The proposed bill on hate speech is similar to a previous bill introduced in the 8th Senate which was voted down after six months, amidst a popular backlash from Nigerians. Expectedly, its reintroduction has been as controversial, but the outcome may be different. The last time around, a reluctant Senate leadership moved to quash the bill after the backlash. Now, it appears to enjoy both legislative as well as executive support. Indeed, the information minister has spoken a lot in the last few weeks about “hate speech” and the need to censor it. Though it is still early days, there has been no official statement from the Presidency on the bill. It is our considered view that it would be in the Presidency’s best interest to distance itself from this bill as any other position will be viewed as supporting the repression of free speech. Already, the constant pledges from government officials to regulate social media as well as arrest of activists like Omoyele Sowore have invited comparisons with the infamous Decree No. 4 of the Buhari military regime of 1984-85. A reprisal is the last thing a fragile democracy needs.

  • The problem with using a one size fits all approach to deal with issues of a complex nature is that it elevates the likelihood of collateral damage. In the current case, Nigeria’s unilateral land border closure is damaging the spirit of ECOWAS cooperation while simultaneously hitting Nigerian businesses. Nigeria is a net exporter to Benin, Ghana and all of the West African sub region, as well as parts of central Africa, contrary to the colloquial belief of many Nigerians. For example, in 2018, Nigeria exported goods worth $120.16 million to Benin while importing only $75.34 million worth of goods from its closest neighbour. In the same year, Nigeria recorded $303 million in exports to Ghana while importing a mere $87 million. Whilst the Buhari administration may be justified in seeking to correct the circumstance which Nigeria finds itself – being a dumping ground for cheap goods and foodstuff as well as a source of cheap refined petroleum products, the means of execution remains the issue. The pressure is already mounting for Nigerian exporters and the longer this Abuja induced trade war continues, the more detrimental it will be for Nigerian exports to the region. What is more, once our neighbors find substitute sources for Nigerian goods – by no means a far-fetched possibility – a reopening of the borders might not necessarily translate to a return to the status quo. That, for Nigeria, would be a tragedy.

  • The management of the reserves of former French colonies has been a constant talking point in assessing the relationship of the CFA countries with France, a perception reinforced by the fact that the biggest companies in these countries are often French-owned. Additionally, the French military maintains deployments in at least four of these countries, helping to combat Islamist groups, and in some cases, explicitly protect French interests. There are two ways to understand this development. The first, a positive, is that the CFA zone, racked by bouts of political instability, derive the economic benefits of a stable and freely convertible currency and low inflation (circa. 1% in most countries). The problem with this arrangement is it perpetuates a neocolonial legacy in which these countries exchange their fiscal and monetary independence for convertibility and relative economic stability. The CFA monetary reserves in the French Treasury represent 50% of the countries’ net foreign assets and there are restrictions on how they are able to drawdown. Perhaps more time should be spent discussing the alternatives, especially the proposed single currency for the ECOWAS region – the Eco. For example, how will the Eco work, given that Nigeria comprises 70% of the region’s GDP and thus responding to Nigeria’s economic priorities would preoccupy the monetary policy of the region’s financial authority. The second approach is that severing monetary ties with France will inevitably lead to currency devaluation in the CFA zone which would see inflation spike, ending the economic stability these countries enjoy. This stability could be both a near term harbinger of political crisis and a catalyst for long term growth. In the end, the motivation for this move may be more psychological than economic and could be interpreted as a move by these countries to assert their sovereignty.