Going separate ways🚶♂️
Chaka settles with SEC, Telco and mobile go separate ways and Nigeria’s Railway system resurgence
Hello there,
What’s the most fascinating thing you heard this week?
Daniel: For me, It was the world’s first 3D-printed school that opened in Malawi. A whole school!
Bright: It's actually the same for me. That’s one huge project I'm excited about.
You:?
The fall out ends
In Nigeria, when the regulators come after your business. It’s either they win or win - no that wasn’t a typo. Read: Lagos bike ban, crypto ban and the Twitter ban - if that counts.
On the 19th of December 2020, it seemed like it was Chaka’s turn - a Nigerian investment tech company that lets people buy and sell stocks of over 4,000 companies around the world.
The Securities and Exchange Commission (SEC) - the regular of Nigerian capital markets - put out a notice that implied that Chaka was operating outside the boundaries of the law. A sign that the regulator had started paying attention to that sector.
Six months down the line, this story has ended differently. After lots of discussions and uncertainty, they found a middle ground: Chaka, which now became a consultant to the regulator was granted a license to operate its platform. The license costs ₦5m ($12,500) 👀
Big picture: In the past year, squabbles between regulators and Nigerian companies haven’t ended well. The government tends to use the approach of the ban first, then understand later.
It’s good to see this issue resolved in a different way. A pointer to the fact that there’s a different way to do things. While we’re optimistic that this is progress, there’re still sentiments that it might end in tears.
In other related news, the SEC has hinted that starting from Q3 2021, fintech platforms with no defined framework will have to go through an incubation program – The regulatory Incubator program – to legitimately operate.
Going separate ways
It’s happening in Ghana, Kenya, Nigeria and now Uganda.
What’s happening?
Regulators are asking telcos to separate their mobile money units from telecom businesses.
Huh?
Earlier in the week, Airtel Uganda announced the separation of its Airtel Money unit from its telecom business. The former will become a new company.
The reason: In Uganda’s case, it started in 2015 when a commercial high court ruled that telcos operating mobile money in Uganda were illegal. The reason was that the companies were registered as telcos and not as financial institutions, which means the Bank of Uganda did not license them. A fair reason considering that financial institutions are held to a higher standard which reduces the risk of financial crime/misappropriation which could significantly affect many lives.
Zoom out: A reminder that Mobile money - technology that allows people to receive, store and spend money using a mobile phone - is trendy in Africa. Last year, Sub-Saharan Africa added 43% of all new global mobile money accounts - the most users last year.
As per Airtel Africa’s recent financial report for the year ended March 31, 2021, the biggest growth it saw was its mobile money unit which grew by 35% from $311 million in the previous year to $401 million.
Last month Ethiopia granted a telecom license, excluding a mobile money license. A week after it launched its own mobile money service.
In April, both MTN and Airtel hinted that they’ll run their mobile money units/list as separate entities to allow it to earn a proper valuation. MTN is eyeing a valuation of $5B, while for Airtel something close to $3B.
Who needs a bank account when you have a phone number?
Nigeria’s Railway system resurgence
If you want to move around in Nigeria, your most popular and feasible options are to go by road or air. In some cases you’ll have to travel by water and on rare occasions, you might opt to go by Rail.
But Nigeria’s railway system has been barely functional for a long time, especially after the Nigerian Railway Corporation declared bankruptcy in 1988. In recent years, there have been different efforts to revive the Railway system. A couple of construction projects here and there:
A $3bn Port-Harcourt-Maiduguri line to connect the oil-rich southern city to one of the regions worst-affected by the Boko Haram insurgency.
A $2bn rail line linking Nigeria to Maradi, in northern neighbour Niger.
What’s the story?
The National Bureau of Statistics (NBS) released a report on how the Nigerian Railway Corporation has performed in the past two years.
The summary: Revenue generated in the first quarter of 2021 is up despite a 50% decline in the regular number of passengers and cargo.
The numbers: The total revenue made by the Nigerian railway corporation in the first quarter of 2021 surged by 33% to stand at ₦926.72 million compared to ₦698.4 million recorded in Q1 2020. It was a 92% increase compared to ₦481.57 million recorded in the previous quarter (Q4 2020).
The reason: The price of rail transport has increased to make up for the loss in amount of passengers and cargo.
Why it matters: Transportation often costs as much as 30-50% of the price of goods and services in Nigeria. A markup that increases the overall price of goods and services. The progress in developing the Nigerian railway system means that there’ll be less reliance on the road, it should also reduce the cost of transportation.
Does the increase in price to shore up revenue defeat this purpose?
Dig Deeper: Read the Rail Transportation report [PDF]
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“The correct lesson to learn from surprises: the world is surprising.“
— Daniel Kahneman