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Table of Contents

Executive Global Nigeria Kenya Global

Summary Economy Macroeconomic Macroeconomic Consumer
Outlook Outlook Outlook Outlook
2 3 6 12 19

Nigeria Global Energy Nigeria Energy Kenya Energy SSA

Consumer Outlook Outlook Outlook Risk Outlook
Outlook
24 29 32 43 50

Nigeria Nigeria Financial Kenya Financial Nigeria Kenya

Risk Outlook Services Outlook Services Outlook Fintech Fintech
Outlook Outlook
56 58 66 73 80

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Global Macroeconomy
GLOBAL MACROECONOMY

Global growth will decelerate but not stall

• Amidst the cooling inflation in advanced economies, particularly in
the U.S,central banks are expected to contemplate rate cuts in
early 2024.

• However, with the prevailing consensus that inflation won’t return

to target levels until at least 2025, central banks are refraining from
hasty rate cut decisions. These choices will have notable impacts
on Africa’s economic trajectory.

• Geopolitical risks, such as the escalation of the Israel-Hamas

conflict and ongoing Russia-Ukraine tensions, pose significant
threats to global economic stability. These conflicts risk disrupting
trade, particularly through the Strait of Hormuz, a critical channel for
20−30% of the world's oil consumption.

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GLOBAL MACROECONOMY

Africa’s growth trajectory will be determined by regional disparities

• Africa’s growth narrative is multifaceted, defying the notion of a
monolithic ‘one Africa’.

• The IMF projects that Africa will grow by 4.0% in 2024 from 3.3% in
2023, the second highest growth rate globally after Asia (4.8%).
Meanwhile, the AFDB is more conservative, projecting a growth rate
of 3.8% for Africa in 2024.

• East Africa will continue to show higher growth rates than the rest of
the continent but looming debt defaults threaten growth
prospects. Still, Rwanda, Tanzania, Uganda, and Kenya will be key
drivers of growth in the region.

• Other bright spots to watch are Mozambique, Cote d’Ivoire and the
Democratic Republic of Congo which have shown steady growth,
partly owing to investments in sectors such as oil and gas and
critical minerals.

• Africa’s big 3 - South Africa, Egypt and Nigeria are predicted to

grow sluggishly, underperforming the continent’s average growth
rate.

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Nigeria Macroeconomy
NIGERIA MACROECONOMY

A pivotal year for Nigeria's economy

• 2023 witnessed substantial shifts, starting with a change in administration and followed by key economic reforms.

• These reforms were essential steps towards stabilising and reviving Nigeria's economy.

A change in
administration

Removal of fuel subsidy that The devaluation of the naira followed the
aimed to create fiscal space and consolidation of exchange rate
redirect resources to critical windows into the I & E window, allowing
sectors. market forces to dictate the exchange
rate. This step aimed to bolster investor
confidence.

₦238.11 ₦545.83 ₦466/$1 ₦770/$1

Average premium Average premium Official exchange Official exchange
motor spirit (pms) motor spirit (pms) rate pre-reform rate post-reform
price pre - subsidy price post - subsidy (June 2023)
removal removal (June 2023)

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NIGERIA MACROECONOMY

Monetary policy outlook

Post FX liberalisation, multiple rates have remained in • The CBN’s commitment to a tight monetary policy, with
a policy rate at 18.75%, is underscored by its use of
Nigeria’s FX market Open Market Operation (OMO) auctions.
Exchange rates (₦/$)
• Despite these measures, Nigeria grapples with high
headline inflation at 28.2% (Nov’23), indicating
negative economic returns and the need for
continuous policy interventions.

• Stears projects an average annual inflation rate

between 27.59% to 31.85% for 2024, considering the
current economic climate and the depreciating naira.

• We anticipate the CBN will maintain orthodoxy and

continue its tightening policy in the near term to
address inflationary pressures.

• Immediate action on dollar illiquidity is crucial for

effective inflation management. In the longer term,
enhancing productivity, a task for fiscal authorities, will
be key.

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NIGERIA MACROECONOMY

Nigeria’s fiscal deficit is projected to narrow in 2024

• Fiscal deficit as a percentage of GDP will remain above the

2023 budget assumptions 2024 budget assumptions 3% threshold specified in the Fiscal Responsibility Act, but
will likely narrow in 2024 to 3.9% from 6.1% in 2023.
Fiscal deficit Fiscal deficit
₦11.6 trillion ₦9.2 trillion • The deficit is expected to reduce on the back of improved oil
production, tax income, exchange rate gains emanating from
trade surplus’ and the fuel subsidy removal creating fiscal
space for debt servicing.
Oil price Oil price
$75pbl $78pbl • Risks loom on the government achieving its revenue target
of ₦18.3 trillion, 66% higher than 2023’s ₦11 trillion amid
ambitious oil production and price estimates.
Exchange rate Exchange rate
₦435.57/$ ₦750/$ • In 2023, oil production averaged 1.4mb/d, 17% below the
budget estimate of 1.69mb/d.

Oil production Oil production • Nigeria's revenue consistently falls short of projections, while
1.69mb/d 1.78mb/d the assumptions guiding national budget allocations remain
overly optimistic.

Inflation Inflation
17% 21.4%

Source: Budget Office of the Federation, Stears

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NIGERIA MACROECONOMY

Services continues to power Nigeria’s growth

• While traditional sectors like oil & gas show a rebound in
activity, the burgeoning sub-sectors within services are rapidly
reshaping the growth narrative.

• The services sector, commanding 52.7% of GDP, has shown

consistent growth since 2003 and will remain a driving force
behind Nigeria’s growth.

Financial Institutions & • Telecoms and financial services, in particular, are forecasted to
Telecoms: be significant contributors to future growth.
- Comprise >20% of GDP
- Have the highest growth rates
(30% and 8% respectively)

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NIGERIA MACROECONOMY

Risk Assessment

Probability Impact
Category Risk Comment
(0−5) (0−5)

Inflationary pressures include lingering effects of the petrol subsidy removal, naira
Inflation continues to soar 4 5 devaluation, high exchange rate from persistent FX scarcity, and higher production
inputs and operations costs.

Tepid oil output levels will decrease revenue and foreign exchange earnings, fueling
A decline in oil production 2 4 a weaker naira and wider fiscal deficits. Wider deficits will also lead to a higher debt
Economic to revenue ratio.

Though beyond Nigeria's control, volatile oil prices will have negative effects on
Volatile global oil prices 2 3 budget planning for the fiscal year 2024.

An ailing currency will continue to nudge imported inflation and taper Investor
Currency volatility & depreciation 4 5 confidence.

Already detrimental to the agriculture sector, should insecurity persist, it will

Insecurity in Northern Nigeria 3 4 continue to discourage foreign investors from setting up shop in Nigeria.
Geopolitical
Increased Sahel tensions will negatively impact cross border cooperation and
Exposure to coups in the Sahel 2 3 exacerbate insecurity in Northern Nigeria.

0 : no likelihood & no impact

1−3 : average likelihood & impact
4−5 : high likelihood & high impact

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Kenya Macroeconomy

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KENYA MACROECONOMY

2024: Higher stakes under the new normal

• 2023 was a paradigm shift for the Kenyan economy, especially with

$2 bn 5%
the Finance Act.

• Global monetary policy tightening, lean forex reserves, a bloated

debt burden, currency depreciation and high inflation negatively
impacted Kenya.
Kenya’s Eurobond The economy will remain
repayment will set the resilient, growing above the • Between 2013 and 2023, total public debt grew 5× to $69 billion,
tone for the fiscal year. SSA regional growth average increasing debt-to-GDP ratio to 64% from 40%.
of 4%. Growth will be driven by
agriculture and services.
• In 2024, we expect Kenya's fiscal and monetary policy authorities to
laser focus on debt management, revenue generation, price stability
(exchange rate and inflation), and investment inflows.

The key indicators to watch are: the Eurobond repayment, GDP

$21.5 bn*
•

6.4%
growth rate, revenue (actual & estimates), exchange rate and
inflation.

Kenya will enhance revenue Stears forecast for average

mobilisation in 2024. Current inflation in 2024, lower than the
revenue estimate for 2024 is 7.8% average in 2023.
up 16% to KES 3 trn ($21.5 bn) Inflation will be driven by food
from its 2023 estimate. and fuel prices.

*Converted using Kes 139.8/$: the average

exchange rate in 2023.
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KENYA MACROECONOMY

Fiscal policy: Kenya is expected to repay its $2 billion Eurobond in June 2024

Scenarios Assumption Implications Comments

A debt buy back With expected dollar inflows from the The debt buy back will ease the Kenya reversed plans of a $300 million debt-buy back
between 15−50% IMF, World Bank and Trade Eurobond repayment burden in December 2023 but made interest payments of
of the $2 billion. Development Bank, the Kenyan ahead of June 2024. $68.7 million.
government is likely to embark on a
With over $1 billion inflow expected in Q1’2024 from
buyback in Q1’2024. Resilient growth, moderating
multilateral and bilateral lenders, the government may
inflation and a less aggressive
reconsider the buy-back. However, the bets are on the
currency depreciation will
government solely depending on external financing to
persist.
foot the repayment.

A reserve If external funding delays until A fiscal crisis could emerge. The A full drawdown of $2 billion is less likely due to
drawdown of $2 Q2’2024, Kenya may likely drawdown KES will come under attack, with commitments from multilateral and bilateral lenders.
billion. from its already lean reserves to repay monthly depreciation of around
the Eurobond debt. 2−3%. The government is expected to depend on external
finance to repay the Eurobond debt.
Inflation will spiral on the ailing
shilling with growth prospects
dwindling on higher operating
costs.

A debt default If external funding delays until A further downgrade of Kenya’s A default is unlikely with international support. Plus, the
Q2’2024 and Kenya is unable to draw sovereign credit rating to “junk government plans to boost revenue to avert this
from reserves, a debt default is status”. scenario at all costs.
unavoidable.
Macroeconomic instability will
follow suit.

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KENYA MACROECONOMY

Fiscal policy: The Kenyan government will focus on revenue mobilisation

Revenue mobilisation will be anchored to:

Taxes
• Higher PAYE contribution
• Improved tax collection from corporates and their subsidiaries.

Exports & Remittances

• Tea, coffee and horticulture exports which jointly account for ~30% of
Kenya’s export earnings to pick up.

• Inbound remittances particularly from the US, accounting for over 50% of
inflows to rebound.

Reducing deadweights
• A quick follow-through of the privatisation bill.

• 6 to 10 state-owned-enterprises to be privatised across agriculture, energy

and the finance sector.

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KENYA MACROECONOMY

Monetary policy: The CBK will maintain orthodoxy to achieve price stability

Kenyan shilling will likely cross the KES 160/$ mark

in H1’ 2024
Exchange rate (KES/USD)

Source: CBK, Stears Africa FX Monitor

• Inflation targeting is the new approach towards price stability.

○ Inflation averaged 7.8% in 2023, up from 7.6% in 2022.
○ Stears forecasts inflation between 6% and 7.4% in 2024, within the CBK’s target range of 5±2.5%.
• The shift towards more orthodox monetary policy measures alongside the CBK’s surprise rate hike by 200 basis points in December 2023, and is
expected to slow the shilling’s depreciation ahead of the Eurobond repayment in June 2024.
○ The currency is expected to cross KES 160/$ in H1’2024.

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KENYA MACROECONOMY

Where will opportunities emerge in 2024?

Trend What we are seeing Likely macro implications Opportunities

Above average growth The EAC attracts 20% of Africa’s FDI, Kenya is seen as a gateway to the FMCGs and Telcos like EABL & Safaricom
performance in the East with Kenya as a top destination. rest of East Africa. benefit from the broad-based growth in
Africa region East Africa.

Increasingly diversified Renewed SEZ drive to support Broad-based growth across real As the global economy rebounds
economy manufacturing sector growth. sectors will keep supporting GDP prospects emerge in the finance and
growth. hospitality sectors.

Rising GDP per capita Kenya’s GDP per capita is 30% Rising GDP per capita indicates a Hockey stick growth in GDP per capita in
higher than the SSA average, though rebound in future consumer other East African countries like Ethiopia
lower than Asian counterparts like spending and sizeable market point to other prospective consumer
India. potential. markets.

Positive real rates of return Compared to other top economies The expected moderation in Expected slowdown in global monetary
on investment in Africa (Nigeria, South Africa, Egypt inflation amid relatively favourable policy tightening will keep yields on Kenyan
and Ghana), Kenya has the highest interest rates, could boost investments attractive, cheery news to
positive real rates of return on investment inflows to Kenya. emerging market investors.
investments.

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KENYA MACROECONOMY

Risk Assessment
Probability Impact
Category Risk Comment
(0−5) (0−5)
Kenya is unlikely to default on its Eurobond maturity, but should it happen,
Eurobond default on dollar illiquidity 1 5 the impact on the economy will be detrimental.

Persistent inflationary pressures 3 4 Unexpected inflationary shocks will squeeze consumer wallets further.

Currency depreciation will persist, but a closer alignment of the KES to its
Continuous currency depreciation 4 5 fair value enhances investor appeal.
Economic
To keep external funds flowing, the government will improve efforts to be
Fiscal mismanagement 1 3 fiscally prudent and responsible.

Nationwide protests on public Protests will disrupt business activities, likely reducing output and
discontent amid high living costs
2 4 disincentivizing new investments.

The slowdown in global monetary tightening will cool the debt burden on
Global monetary policy tightening 2 3 developing economies like Kenya.

Domestic insecurity risk (Al Shabaab, war Revenue from tourism/hospitality sector is under threat in the face of
on the rift)
3 5 domestic insecurity attacks.

Widespread geopolitical tensions in the Export earnings to be negatively impacted if tensions spread to key export
Geopolitical Middle East
4 4 destinations like Egypt.

Russia-Ukraine war extends until Though the impact of the war is tapering, a higher refined petroleum
year-end 2024
3 2 import bill persists.

0 : no likelihood & no impact

1−3 : average likelihood & impact
4−5 : high likelihood & high impact
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Consumer outlook:
Global+SSA

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CONSUMER OUTLOOK: GLOBAL+SSA

2023 consumer landscape: unhappy consumers, closed wallets

• The coronavirus pandemic, astronomically high commodity

39% 46.0
prices, global monetary tightening, and food protectionism
shaped the consumer landscape in 2023.

• World inflation is projected to average 6.9% in 2023, the

highest level since 1996.
of global respondents The IPSOS Global Consumer
said they would spend Confidence Index has
less money in 2023, • However, bright spots exist in the consumer landscape in
remained below 46 through
compared to 25% that 2023; the first time since 2015.
2024.
said they would spend
more. • Global inflation is expected to slow to 5.8% in 2024 from 6.9%
in 2023, pointing to reopened consumer wallets.

6.9%
The 2023 global inflation forecast would be the second-highest
yearly average since 1996.

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CONSUMER OUTLOOK: GLOBAL+SSA

In 2024, global consumer spending will pick up

Top five consumer optimistic countries Top five consumer spending sectors

1 Indonesia

2 India
Housing
25%
3 Mexico

4 Singapore
Food & Non-alcoholic
5 Brazil 17%
Source: IPSOS Global, Stears Beverages

• Emerging markets in Asia and Latin America are highly optimistic about consumer 14%
Transport
spending in 2024.

• Housing, food, transport, restaurants and culture will gulp over 50% of global
Restaurants & culture 13%
consumer spending in 2024, largely reflecting bias for essential goods as
consumers recover from the 2022−2023 inflation surge that eroded savings.
6%
• Increased social spending expected, particularly among older generations (baby
Health
boomers), signalling that brand strategies should not solely focus on the younger
generation.
Source: WDL, GWI, Stears
• Rising demand for AI (e.g voice assistants) to enable global consumption decisions.

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CONSUMER OUTLOOK: GLOBAL+SSA

The African consumer will be distinct from global norms...

>$20/day Upper segment consumers

5%
33 mn people • A small yet affluent class with annual salaries ranging
$10,000 to $1 million.
• Spending is unlocked through access to credit, savings,
and disposable income.
• Have a strong preference for quality, convenience and
luxury goods.
$2−20/day
33% • Pivotal for the growth of high-end brands in Africa.
218 mn people

<$2/day Entry-level consumers

62%
409 mn people • Includes a significant ‘floating class’, spending $2−$4
daily.
• Consumers are rapidly urbanising and key in informal
markets, engaging in trades like retail and construction.
• Market participation is enhanced by innovations like
mobile money platforms.

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CONSUMER OUTLOOK: GLOBAL+SSA

...and more price-conscious

• SSA’s GDP per capita underscores a consumer market deeply rooted in price

$4,970
consciousness, reflecting heightened focus on affordability.

• Purchasing patterns favour essential goods and value-for-money products.

• Entry level consumers will drive demand, while the upper segment's preferences
Sub-Saharan Africa’s GDP per capita (PPP) will improve will evolve to include more refined tastes geared toward luxury and convenience.
compared to compared to 2023 ($4,798) but remains
significantly below the global average,
• Inflation projected at 13% in 2024, down from 15.8% in 2023 but still high
compared to the global average (5.8% in 2024).

• Countries like Kenya might see a gradual increase in consumer spending as

inflation slows, but overall, spending will be cautious and value-driven.

• Despite broader economic pressures, the upper income consumer is expected

to maintain brand loyalty and continue their consumption of luxury goods,
offering opportunities for high-end brands.

• The rise in individual loans will likely enable consumer spending.

• Promotional offers and sales are expected to attract more consumers, especially
those who are price sensitive.

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Consumer outlook:
Nigeria

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CONSUMER OUTLOOK: NIGERIA

The Nigerian consumer market in 2024: The Hollow Middle

• Price sensitivity, risk aversion, cyclicality and delayed gratification will shape the consumer landscape in Nigeria.

• Stears forecasts a baseline inflation of 30% (average) in 2024, more than double the SSA average and 5× the global average of 5.8% in 2024.

• The real income squeeze will shrink the middle-income consumer group, deepening the stratification towards two extreme ends of the consumer
spectrum.

• Sticking to supply side reforms like the FX liberalisation is expected to unlock productivity and support future spending beyond 2024.

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CONSUMER OUTLOOK: NIGERIA

Nigerian consumer profiles

Entry-level Profile Consumer Behaviour/Trends

consumers • Monthly income: <₦ 1 million monthly • Includes a significant“floating class” earning ₦0−150K
monthly.
• Share: makes up 90% of Nigeria’s
consumer class. • Price sensitive, with proclivity for sales/promotional offers.

• Characteristics: 9−5 workers, daily • Food takes up over 50% of income, with a strong preference
wage earners, and informal sector for cheaper substitutes.
players like petty traders and • More consumers will empty into this consumer class as living
bricklayers. costs rise .
• Spending will be enabled with access to credit financing like
BNPLs, trade-in etc.

Upper Profile Consumer Behaviour/Trends

Segment • Monthly income:₦1 million and above • Price-conscious, value-driven, brand-loyal, quality-focused,
consumers monthly. and increasingly risk averse.
• Share: makes up 10% of the consumer • Lipstick effect: consumers will maintain luxury demand (e.g
class. travel, clothing) but with a budget constraint.
• Characteristics: CEOs, HNIs etc. • Access to credit financing supports spending.

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CONSUMER OUTLOOK: NIGERIA

Consumer trends to watch out for in 2024

Strong wallet consciousness Rising demand for smaller More frequent trips to
and price sensitivity. Balancing product sizes, stores, accompanied by
their budget is the primary aim. i.e. Sachetisation. smaller basket sizes.

Increased down-trading to Frequent trips (higher foot Neighbourhood stores are

lower-value brands or traffic) to stores to make gaining ground due to
products. unit purchases. convenience. Every
pharmacy is a variety store.

Strong preference for sales

and promotions to stay on
their indifference curve.

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Where will opportunities emerge in 2024?

Trend What we are seeing Likely implications Opportunities

Young Nigeria has a young population A thriving working-age population A young population signals potential growth in the
demography wherein consumers between 25−54 points a lucrative workforce, consumer market and more disposable income to
years make up over 50% of the beneficial for output growth. unlock spending on consumer goods.
spending population.

Social Social media is becoming a strong The rise in e-commerce will A strong social media presence and e-commerce
commerce tool for product/brand discovery, support consumer spending opportunities for consumers will likely support brand
price comparison, and brand among the entry level and upper discovery and engineer product-market fit for
affiliation, especially among the segment consumers. businesses.
younger generation.

Income A shrinking middle income class. Consumers prioritising necessities Easier market segmentation and targeted product
stratification over luxury items. differentiation to support revenues.

Consumer A rise in consumer financing solutions Credit will help drive consumption Persistent inflation to drive demand for consumer
financing like BNPL and SNPL. as consumer wallets remain financing, especially among the upper class and higher
battered. income earners within the entry level segment with
steady monthly salaries.

Brooding Rising migration from more expensive Increase in consumer spending A potential increase in Nigeria’s consumer market size
consumer cities like Lagos to neighbouring from the brooding markets, and diversified spending mix.
markets states like Ogun and Oyo. supporting business prospects.

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Energy - Global

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ENERGY - GLOBAL

Global oil prices: The law of demand and supply

• Road transport accounts for over 40% of global oil demand, • Russian production and exports continue to find buyers
followed by petrochemicals worldwide, although Russia’s revenues have been considerably
lower than a year earlier
• China accounted for more than 50% of global energy
demand growth but the economy is changing. China is also • Concerns about weaker demand and prices have prompted a
the largest e-mobility market, accounting for the highest series of output cuts from Saudi Arabia and OPEC+, which will
volume of sales globally, reducing oil demand from road continue into 2024
transport. • However, the US has been a formidable contender against
• China’s oil and gas demand is expected to stay stable before OPEC, increasing oil production despite OPEC+’s supply cuts
slowly declining from 2025/2026. and ultimately driving prices lower.
• 2024 oil prices to range from $70 - $80, lower than 2022
and 2023 average prices

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ENERGY - GLOBAL

Natural gas boosts clean energy funding in developing countries

• Developing countries have historically fallen behind countries like
China and the US in terms of clean energy investment. The African
continent as a whole recorded $10 billion in 2022, compared to $28
billion in Japan.

• According to the IFC and IEA, annual clean energy investments in

emerging economies will need to hit $ 2.8 trillion by the early 2030s
to meet rising energy needs and align with the climate goals set out
in the Paris Agreement. For context, $770 billion was raised in 2022.

• However, following the Russia-Ukraine crisis, natural gas has been

classified as a clean energy source by the EU and will play a
significant role in the energy transition.

• Liquefied natural gas (LNG) has now become a base source of

supply for Europe, with its share of total energy demand in the
European Union rising from an average of 12% over the 2010s to
close to 35% in 2022, similar to the contribution from piped gas from
Russia before it invaded Ukraine.

• This presents an opportunity for emerging economies like Nigeria,

Mozambique and Tanzania to raise more funding for natural gas
projects and ultimately raise clean energy investment.

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Energy - Nigeria

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ENERGY - NIGERIA

Context: The Intersections of the Nigerian Energy Market

• Nigeria’s energy market is broad but sub-sectors are
interrelated. As a result, the issues plaguing specific sectors
tend to spill over into others.

• Vandalism and theft in upstream oil have affected gas

production, given Nigeria’s reliance on associated gas. This
adds to the supply shortages caused by the domestic price
cap in the gas sector.

• As a result of gas shortages, liquefied natural gas (LNG) exports

and liquefied petroleum gas (LPG or cooking gas) production
have been affected.

• Given that over 50% of Nigeria’s domestic gas goes to the

power sector, the non-profitability of companies in the power
sector has spread to gas companies as power companies are
unable to make timely payments for gas supplies.

• Further, off-grid energy companies providing alternatives to

the grid have a reduced market potential caused by non-cost
reflective tariffs in the power sector.

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ENERGY - NIGERIA

Indigenous oil firms assume control of onshore oil production

IOCs will continue with onshore divestment plans

• Due to Nigeria’s poor operating environment, fears of declining demand, vandalism and theft and the global energy
transition, IOCs are divesting from less profitable assets in Nigeria—onshore and shallow water

• This will continue into 2024, and we expect more progress with announced exits and acquisitions such as Oando-Agip
and Seplat-Mobil

IOCs remain focused on deep offshore oil and gas

• Deep offshore is more secure, cheaper in terms of taxes and has lower operating costs.

• Nigeria’s current unit operating cost ranges from $15 (deep offshore) to $25 (onshore/shallow waters)

Afrexim Bank remains the financier of choice for acquisitions by local companies

• The exit of IOCs like Shell, Agip, ConocoPhillips, and ExxonMobil from onshore oil has created opportunities for local oil
and gas companies to buy up assets from exiting IOCs while expanding to other African countries.

• Afreximbank, which is partly owned by African governments and financial institutions, remains the primary financier of
choice for these acquisitions

• This will continue into 2024 as the appetite for Nigerian oil and gas projects remains low from other financiers due to the
operating risks and FX liquidity issues from local commercial banks

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ENERGY - NIGERIA

Challenges persist for upstream gas in 2024

NLNG’s Force Majeure shifts investment prospects to Floating LNG and LPG
• For over a year, NLNG’s force majeure has derailed the country’s ability to attract gas investments.

• Getting feedstock gas to NLNG should be the top priority, but the window for gas investment is narrowing, and
this should be done while exploring other opportunities. We expect more investment in LNG from private players.

The FG is unlikely to remove the cap on gas due to the knock-on effect it will have on electricity prices

• With gas-for-power priced at $2.18/mmbtu compared to the $3−$4/mmbtu market price, the incentive for
flaring lingers and gas supply remains an issue.

Upstream oil & gas projections:

• Nigeria’s oil production will remain volatile in 2024, with a base of 1.4 million barrels per day, excluding condensates.

• Long-term, deep offshore investments could increase production to 2 million barrels per day within 4 years.

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ENERGY - NIGERIA

Stunted deregulation in downstream Oil

The petrol subsidy has returned

• We expect official petrol pump prices to be artificially fixed (with ±

5% variance) until the exchange rate stabilises or the Dangote
refinery begins producing in commercial quantities.

• Deregulation sparked positive sentiment in downstream

companies—MRS’ share price gained 755.64% yoy. The return of
implicit subsidy and temporary abortion of cost-reflective pump
prices will dampen sentiments in 2024.

Petrol consumption has halved y-o-y

• Nigeria’s monthly petrol imports have declined 50% year-on-year.

Import volumes should remain below 40 million litres per day in
2024 as smuggling arbitrage remains minimal.

Nigeria finally resumes oil refining

• The Dangote refinery will commence refining in the 1st half of 2024
but will not reach full capacity until 2025.

• While state owned refineries are still under rehabilitation, we

expect growth from modular refineries as projects are completed
in 2024.

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ENERGY - NIGERIA

Petrol subsidy removal amplifies the significance of downstream gas

Compressed natural gas (CNG) is a cheaper alternative to petrol

• The Federal government plans to sell CNG for ₦230/kg.

• The cost-efficiency of CNG, compared to petrol post-subsidy, has created a viable market for the product.

• Companies like Axxela, with CNG processing plants, already supply CNG to power plants and could tap into a bigger market
in the transport sector. However, upstream gas issues must be addressed.

Power sector still facing gas shortages.

• Vandalism and theft in upstream oil will continue affecting gas supply volumes to the power sector.

• Non-cost reflective tariffs and the resultant liquidity crisis in the sector, are also contributing to gas reliability issues.

Downstream oil & gas projections:

• We expect prices to remain relatively fixed until the exchange rate is stabilised or the Dangote refinery starts producing in commercial
quantities.

• Downstream gas has become a bright spot as Nigerians seek cheaper alternatives to petrol.

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ENERGY - NIGERIA

Progress in Nigeria's power sector remains sluggish

Electricity tariffs will remain non-cost reflective due to government intervention

• Current electricity tariff model is based on January data: Inflation at 21.8% (Oct: 27.33%) and FX rate at N480 (Dec 5:
₦952/$) .
• Estimated tariffs using prevailing rates: ₦100/kwh vs current max of ₦70 kwh.

• Pressure to manage consumers’ cost of living will defer tariff revisions beyond 2024.

State electricity markets begin to take shape but more clarity is needed

• Investors will look out for viable off-takers, availability of resources, regulatory certainty, and a clear policy and development
timeline they can work with.
• Rivers, Plateau and Oyo are rushing to pass electricity laws, but we won’t see viable state markets in 2024.

• States need technical support for demand studies, regulations, policy formulations and a clear jurisdictional split between
state and Federal electricity markets. DFIs will be eager to work with states on shaping these policies and provide technical
support.

Movement towards bilateral PPAs and the gradual expiration of NBET

• NBET’s licence is up for renewal in 2024 and the two creditworthy discos are already moving towards bilateral contracts
in 2024 while the others will follow as their fundamentals improve.
• This implies a more reliable electricity supply backed by contracts but requires cost-reflective tariffs to be fully
effective.

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ENERGY - NIGERIA

Progress in Nigeria's power sector remains sluggish

Privatisation of 8 government owned power plants

• C8 IPPs are still government-owned enterprises and BPE is looking to privatise.

• We expect invitations for bids and selection of winners to happen in 2024.

Conversations about TCN’s split progress but no tangible actions expected.

• NERC has mentioned moves to separate the Market Operator and the System Operator, two arms of the Transmission
Company of Nigeria.

• This is unlikely to happen in 2024 due to more pressing priorities listed above.

Power sector projections:

• Reliable power supply from Nigeria’s grid is still a long-term ambition. Non-cost reflective tariffs make it impossible for companies in the
sector to invest in infrastructure or attract funding to the sector.
• Long-term, state electricity markets in states like Lagos and Anambra offer a glimmer of hope provided that regulatory frameworks are
optimally developed and past mistakes are avoided.

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ENERGY - NIGERIA

The rising cost of diesel amplifies the allure of off-grid electricity

Funding to Nigeria's renewable energy #1 Commercial & Industrial (C&I) Companies

startups has dwindled since Daystar's exit Rising diesel costs enhance the appeal of off-grid gas
Amount raised per quarter ($ million) solutions for consumers.

• Diesel prices have quadrupled since February 2022, due to the

Russia-Ukraine crisis.

• As a result, companies, industries and estates have recorded

significantly higher power costs, causing them to consider
off-grid alternatives like gas and solar.

• While non-cost reflective grid tariffs will slightly dampen

consumer sentiments, C&I customers are equally as
concerned about the unreliability of the grid.

• The FX devaluation and poor macro environment have also

caused a surge in naira pricing of renewable energy
components, which will cause higher operating costs for
off-grid solution providers and steeper entry barriers for new
entrants.

Source: The Big Deal Database • We expect the 2023’s slow funding trend to continue in 2024.

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ENERGY - NIGERIA

The rising cost of diesel amplifies the allure of off-grid electricity

#2 Retail and Mini Grids

• Similar to C&I, diesel prices and an unreliable grid have increased the attractiveness of off-grid energy solutions for retail customers.
However, low purchasing power and non-cost reflective grid tariffs are still significant blockers. Further, pay-go solutions aren’t as
widespread in the retail space. Ultimately, there will be a slight uptick in consumer demand.

• Retail companies will keep struggling to attract funding because of poorer commercially viability than C&I nor are they improving energy
access to rural consumers like mini grids.

• Achieving productive use of energy will continue to be a major concern for mini grid developers in 2024.

• Mini grid developers have historically attracted funding from DFIs, governments and grants and this won’t change in 2024 as the long-term
commercial viability is yet to be proven to investors.

• 2024 will bring small ticket raises and fewer new entrants due to FX devaluation, higher operating costs and poor macro condition

Off-grid power projections:

• 2024 will bring an uptick in renewable energy demand from Nigerian businesses and consumers due to higher diesel costs and the
continued unreliability of the grid.

• However, we don’t expect exponential growth due to non-cost reflective grid tariffs which remain cheaper than off-grid solutions, higher
costs of off-grid solutions due to FX devaluation and higher operating costs.

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ENERGY - NIGERIA

Where will opportunities emerge in 2024?

Trend What we are seeing Likely implications Opportunities

Local companies International oil companies Local oil companies acquire onshore Local oil companies can increase their production
acquire IOC assets exit Nigeria’s onshore oil assets capacity through acquisitions.
sector IOCs focus on deep offshore assets

Petrol subsidy removal Petrol prices have doubled Reduced petrol consumption Compressed natural gas, autogas and electric
creates a bigger market since the petrol subsidy Demand for cheaper alternatives vehicles are viable, cheaper alternatives to petrol and
for gas removal in June 2023. Reduced incentive for cross-border there’s a bigger market opportunity with the subsidy
smuggling removal.

State electricity A new electricity Act was States can operate their own State governments need support from consultants
markets take shape signed in June 2023. electricity markets and experts to create regulations and frameworks for
Increased competition in the power viable electricity markets.
sector

Rising diesel costs make Diesel prices have quadrupled Reduced diesel consumption Renewable energy and off-grid gas companies can
off-grid solutions more since January 2022 Demand for cheaper alternatives provide electricity alternatives to a larger market.
attractive

Acquisition of state Government needs to raise Sale of state owned enterprises 8 power plants are still owned by the government and
owned power plants revenues will be put up for sale to the highest bidder.

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Energy - Kenya

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ENERGY - KENYA

Upstream oil progress remains slow but promising

2024 outlook and beyond

2012 15%
• We expect approval of the FDP from the ministry & ratification by
parliament in 2024.

• Securing a strategic partner after approval of FDP will be a challenge for

Tullow Oil.
First large scale crude oil 585 million barrels (approx. 15%)
reserves worth 4 billion is commercially extractable. • Although the plan is for Kenya to start oil export by 2027 and produce
barrels discovered in 120, 000 barrels per day, securing investment partners in this climate
Oil classified as high quality, light
2012
and sweet with low sulphur will be a challenge.
meaning low production costs.
• Kenya stands to earn roughly $0.3 billion from oil exports per month
which is about 90% of its current oil import costs of $0.33 billion.

100% 2023
Exit of Total Energies & Africa Tullow Oil submitted the Field
Oil left Tullow Oil to control Development Plan (FDP) to the
100% stake in the oilfields. Ministry of Energy & is awaiting
Tullow Oil lacks financial approval and ratification from
capacity and is looking for parliament.
strategic partners

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ENERGY - KENYA

Demand for fuel declines while gas demand grows

Fuel consumption declined with subsidy removal LPG growth policy to accelerate transition to clean cooking

5.49% 4.03% 23% 35%

January - June 2023
January - June 2023 Percentage of Kenyans
consumption of diesel Target share of population
consumption of super petrol currently relying on LPG as the
reduced by 4.039% relying on LPG as primary
reduced by 5.49% compared primary cooking fuel.
compared to the same cooking fuel by 2030.
to the same period in 2022.
period in 2022.

2024 outlook 2024 outlook and beyond

• Fuel import deal between kenyan government and • Kenya targets universal access to clean cooking services
Saudi/UAE refineries to continue beyond FY 2024/25. by 2030 and has put this measures in place to wean off
70% from dirty fuels;
• Fuel prices will decrease as oil demand declines despite
OPEC+ cuts. ○ LPG exempted from VAT, schools & public
institutions to transition by 2025, new housing
• VAT increase & inflation will reduce consumption of fuel developments to have gas reticulation
by over 5% in 2024. infrastructure and provide free gas cylinders to 4.4
million people in 3 years.
• We expect the stabilisation fund to continue as long as
fuel prices keep increasing. • We expect price to reduce and consumption to
increase by about 14% in the next few years as per the
USA International Trade Association projection.

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ENERGY - KENYA

... and disruptive technologies

Technology Overview Outlook

Currently over 2,000 electric vehicles, 75% being motorcycles & Price decline for EVs as Finance Act 2023 benefits such as VAT
Electric vehicles 35 e-mobility companies. Kenya targets 5% of all newly registered exemption,excise duty reduction from 20% to 10% takes effect and
vehicles being EVs by 2025. also local production and assembly peaks.

Electric motorcycles will command bigger share of Pay-As-You-Drive financing solution to make electric buses
sales followed by buses, taxis and personal cars. affordable.

Electric vehicles are up to 8× less expensive to operate than ICE As more transition happens, we expect fuel consumption to decline in
vehicles. the long run.

Over 2,000 vehicles converted and this is expected Taxis will lead in conversion as they stand to benefit from
Conversion of to increase as fuel prices goes up. more mileage. Government expected to regulate the sector as it
petrol cars to LPG costs about KES 120 compared to petrol expands its tax base.
LPG at KES 217 per litre.

Over 250,000 households access LPG More households are expected to join due to the growing availability
PAYGO models through PAYGO systems. of affordable PAYGO financing options, increased taxation, shrinking
for LPG income levels; and government initiatives that promote the adoption
of clean cooking technologies.

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ENERGY - KENYA

Kenya’s electricity sector is open to investors in 2024

Key things to watch out in 2024

89% 77% • Tariff prices will rise in 2024 given fuel price hike in 2023.

• Government to focus investment on renewables with battery

energy storage systems to stabilize the grid.
Renewables account 89% of
generated electricity 77% of the total population is • Private investors to join the distribution of electricity to retailers.
providing a potential market electrified, urban 97.5% and
for companies to reduce rural 68.2%.
• Partnership with directorate of criminal investigation to crack
their carbon footprint. down on vandalism and theft to boost investor confidence in
electricity distribution.

• Investment in upgrading the grid system to reduce transmission

and distribution losses.

21% 161% • Kenya Power to transfer transmission lines to KETRACO and

offset dollar loans.

Total installed captive power

Tariff prices have increased by
increased from 133.5 MW in 2018
21% and 27% for domestic &
to 349.8 MW in 2022, a 161%
commercial customers
increase mainly due to lack of grid
respectively.
reliability & increase in tariff
prices which encouraged the
switch from grid.

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ENERGY - KENYA

Off-grid and mini grid electricity accelerating universal electrification

Solar energy Overview 2024 outlook

Kits • Over 23 million people are connected to off-grid • Households to transition to larger solar energy kits
solar products, as households move beyond basic lighting needs.

• Increased sales of SHS bundled with appliances • Sale of SHS through PAYGO models to dominate.
such as TVs during covid 19 as households sought
to follow news. • Sales of solar home systems to increase as
government combines effort with private sector to
• PAYGO sales increased from 50% in 2019 to 62% in supply 250,000 SHS in 14 counties.
2022.

Overview 2024 outlook

Mini-grids
• Mini grids are cost effective in reaching the rural • Development of more 136 solar-powered
unelectrified population. mini-grids for rural households.

• Currently over 12 million people have no access to • We expect retrofitting of diesel mini grids with
electricity with over 90% of this being rural. solar and wind.

• There are over 180 mini grids in kenya, with • We expect increase in productive use of
renewable based accounting for over 60%. electricity as government & mini grid developers
focus on boosting revenue generation.

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ENERGY - KENYA

Where will opportunities emerge in 2024?

Trend What we are seeing Likely implications Opportunities

Transition to electric Increased funding to support e-mobility sector. Faster transition to electric Pay As You Drive financing, battery swapping,
vehicles Reduced VAT and excise duty on EV vehicles. 8.3% vehicles. charging infrastructure . Local assembly of
market share in new vehicle sales e-vehicles.

Battery energy Government prioritizing energy storage systems for Intermittent renewable Carbon credits financing and development
storage systems grid stability with World Bank funding support energy projects with battery
storage to be given priority.

Mini grids and solar Mini grids and solar home systems used to electrify Solar powered mini grids will Sale of solar home systems. Financing and
home systems rural households with World Bank funding support be given priority. development of mini grids.

Bulk tariff and Private investors allowed to purchase electricity in bulk Improved efficiency and Retail of electricity units. Public-private
distribution of and distribute to retailers. reduced illegal connections partnerships.
electricity

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SSA -
Governance Risk
SSA-GOVERNANCE RISK

SSA trends, outlook and implications

Trend Outlook Implications

Declining satisfaction with Contentious elections may lead to greater unrest Elections not perceived as free and fair are triggers for coups, and
democracy further instability

Succession for long-time Sudden death or overthrow of another authoritarian Greater political instability and insecurity is
leaders comes into focus. leader could throw a country or region into chaos a disincentive for investment. Countries with heightened insecurity
More coups also likely. Insurgency in the Sahel continues to pose and/or ageing/ unpopular leaders will see greater policy instability
challenges for coastal WA states as new leaders come to power
over the next few years

African countries will African countries will attract climate related Companies involved in climate adaptation
continue to seek a greater investment, but the extent of that investment and mitigation will see opportunities for expansion, as money from
say in global issues like depends on policy frameworks and the ability to the Loss and Damage Fund begins to flow
climate justice execute.

Resource nationalism Countries will drive a harder bargain on resource Companies in the extractive industry who invest in some in-country
more prominent extraction, as they will be courted by global powers beneficiation, should be more secure from political interference.

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SSA-GOVERNANCE RISK

Regional focus on West Africa

Country What we are seeing Likely implications

Ghana • Economic mismanagement, high inflation and high-profile corruption cases Ghana’s long-term political stability will
have led to widespread discontent in the country, which indicates the NPP come to the fore and help the country get
will lose power in 2024. back on track.

• In the short term, the necessary adjustments will be painful.

• Economy remains fast growing, with manageable inflation

Côte d’Ivoire Cote d’Ivoire has had greater political
• Reconciliation between major political rivals stability recently, and this should continue if
the process of replacing Ouattara in 2025
• Big win for ruling party in local elections proceeds without a hitch.

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SSA-GOVERNANCE RISK

Regional focus on East Africa

Country What we are seeing Likely implications

Ethiopia • Uneasy truce between government and TPLF rebels. There have also been BMI/Fitch ranks Ethiopia in the bottom 11
battles with rebels from the Amhara region. on the security component of its
Sub-Saharan Africa Coup Risk Index.
• There are tensions with its neighbours around securing port access to the Red Without fixing that, its growth is unlikely to
Sea to bolster Ethiopia’s economic fortunes, as well as the building of a new take off.
dam on the Blue NIle

Rwanda • Kagame is set to win another term in 2024, enabling him to lead the country till Policy stability is largely guaranteed as
2029 when he will be 71. No signs of any succession planning. long as Kagame remains at the helm. He
has adopted a Western-oriented,
• Rwanda is an emerging guarantor of regional/continental security, which is pro-business stance that has not
improving external legitimacy. However, tensions with the DRC remain a wavered.
recurring issue.

• Visa-free travel should improve investment opportunities.

Kenya • Cost of living and new taxes have led to protests Kenya remains a good place for business,
but must keep a close eye on Al-Shabaab
• Trying to be a hub on the African continent with visa-free access to the north.

• The Ruto administration aims to privatise 26 GOEs to open up the economy.

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SSA-GOVERNANCE RISK

Regional focus on Southern Africa

Country What we are seeing Likely implications

South • The state of South Africa’s governance is laid bare by the extent of its This potential coalition could further
Africa power outages and the performance of its state-owned enterprises more complicate the ANC’s attempts to govern,
broadly. because many of the EFF’s policy positions
(like land expropriation) could further drive
• The ANC has fumbled its once unassailable position, to the point where it away investment and hamper economic
will likely be forced into a coalition with the EFF after the 2024 elections. growth.

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SSA-GOVERNANCE RISK

Key elections in SSA in 2024

Country Date Likely outcome Likely implications

Senegal February 2024 Ruling BBY coalition should win, but the prospect of Victory for BBY’s Amadou Ba will see a
opposition politician Ousmane Sonko not being on the continuation of the Macky Sall’s policies
ballot will cause short-term unrest. The rest of the
opposition is divided.

South Africa May 2024 The ANC will win again, but support for them will further A potential coalition between ANC and
decline EFF could lead to policy instability. Cyril
Ramaphosa also appears to be on his
way out.

Ghana December 2024 The NDC look set to take over from the NPP, based An NDC win should see a return to more
on the ruling party’s handling of the economy, many sensible spending in Ghana in 2025
scandals and historical precedent

Rwanda August 2024 Kagame to win without opposition Policy continuity assured under Kagame,
but tensions with the DRC will persist.

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Nigeria -
Governance Risk
NIGERIA - GOVERNMENT RISK

Where will opportunities emerge in 2024?

Trend What we are seeing Likely implications

Administration very Reforms could stall due to pushback from labour The federal government has made many pledges to improve the
focused on attracting unions and political In-fighting. Tax reforms could be business environment for investors. 2024 will be a test of those
foreign investment the next big battleground in 2024. pledges.

Declining trust in Public trust in the integrity of the courts is on the Loss of trust in court pronouncements could see aggrieved parties
institutions decline, as is trust in the legislature to check the resort to violence, increasing social unrest.
executive.

Lopsided appointments Minor cabinet shake-up likely in 2024, to Certain ministries may change focus with new leadership. This could
causing frustration among re-invigorate administration and placate certain lead to some policy inconsistency.
other stakeholders groups.

Opposition parties likely to A merger of opposition parties is highly likely in If an opposition merger happens in 2024, the administration will
merge 2024/2025. switch to election mode much earlier than normal, with governance
taking a back seat.

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Nigeria -
Financial Services
NIGERIA - FINANCIAL SERVICES

2023 Financial performance overview: resilience amidst turbulence

• Nigerian banks recorded a stellar performance in 2023

Gross Earnings Expenses despite the challenging operating environment.
95.7% growth in gross earnings Surging inflation and increase
• The impressive performance was primarily driven by
across the industry.* in personnel expenses raised
growth in net interest income and non-interest income,
expenses.
as Nigerian banks benefited from a rising interest rate
environment, growth in loans and FX revaluation due to
banks’ long net open positions in foreign currency.

Profitability Asset quality

174.3% increase due to higher net Non performing loans increased by

interest & non interest income. 0.3 percentage points.

Capital Cost of Risk

CAR remain above minimum
regulatory requirement. Cost of risk deteriorated
across bank under coverage.

* Only FBN, Zenith, UBA, Stanbic and Fidelity were included in the computation.

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NIGERIA - FINANCIAL SERVICES

2023 Financial performance overview: resilience amidst turbulence

Nigeria banking sector registered remarkable growth between 2022 and 2023
Select tier 1 and tier 2 banks performance - (y/y change)

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NIGERIA - FINANCIAL SERVICES

Key events that shaped Nigeria’s banking sector in 2023

CBN Policies
• The naira redesign policy allowed for more deposits in the banking system in Q1 2023, leaving banks with a huge capital
base and allowing for more investment opportunities.

• The MPC raised MPR by 125 basis points between January and July 2023. The increases meant higher interest rates on bank
customer loans, which increased their net interest income.

• In June 2023, the CBN announced operational changes to the Nigerian FX Market. The reform saw the naira devalued by
39.75% between June and September 2023. The devalued naira led to higher FX revaluation gains.

• Removing the ₦2bn per bank cap on remunerable funds placed at the SDF means banks can deposit excess funds at the
CBN with rates around 15.75%.

CBN Regulations
• The CBN released the Open Banking Guidelines to improve data sharing across banks and other financial institutions.

• On June 27 2023, the CBN, in furtherance of its efforts to standardise operations in payment systems, released the Contactless
Payments Guidelines.

• CBN reviewed Cash Reserve Ratio for merchant banks from 32.5% to 10%.

• The CBN released the Guidelines for the regulation of representative offices of foreign banks in Nigeria.

SDF - Standing Deposit Facility

MPC - Monetary Policy Committee
MPR - Monetary Policy Rate

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NIGERIA - FINANCIAL SERVICES

Key events that shaped Nigeria’s banking sector in 2023

Wins and Investments

• Access Bank PLC purchased Standard Chartered PLC's entire operations in Angola, Cameroon, Gambia and Sierra Leone.

• Fidelity Bank completed the acquisition of Union Bank UK PLC.

• Launch of CBN Afrigo card (Africa’s first domestic card scheme). The AfriGo card should reduce the dominance of foreign card
schemes (i.e VISA and Mastercard) in Nigeria’s payment card market.

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NIGERIA - FINANCIAL SERVICES

2024 outlook: Continued growth momentum

Moderated Profits Increased interest rates on fixed-income securities

• To ease inflationary pressures, the CBN will continue to apply • Stears expect the CBN to raise short-term interest rates, aiming to
contractionary measures attract foreign investments and maintain price stability, as
evidenced by recent trends in interest rate auctions
• Tightening liquidity situation could result in a higher cost of funds
and interest rates on loans which could threaten asset quality. • Our analysis indicates that this will intensify competition among
banks for customer deposits, with individuals likely to invest more in
• We expect that mid-tier banks will face increased vulnerability to short-term securities, yet overall, banks are expected to see more
loan defaults, primarily due to their exposure to consumer and positive than negative impacts
manufacturing sector loans
• While the banking sector may benefit, our view is that local private
• We also expect tighter liquidity measures and increased deposit investments are likely to suffer, as companies may avoid taking on
costs to moderate banks' profitability in 2024 debt due to the higher borrowing costs

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NIGERIA - FINANCIAL SERVICES

2024 outlook: Continued growth momentum

Digital Banking Penetration
Customers are tilting towards online transactions
• In the last six to seven years, the Nigerian banking sector has
Volume of E-Payment Transactions
contended with competition from Fintechs and mobile money
(millions)
operators (MMOs)

• Although it seems that banks are currently in a more advantageous

position compared to six or seven years ago in competing with
fintechs

• We maintain the view that the ongoing trend of consumer

preference for digital transactions will compel banks to deepen their
digital services continuously
v
• Looking ahead to 2024, as banks seek to reduce the cost of funds
and attract low-cost deposits, we foresee a growing trend wherein
traditional banks will increasingly allow fintechs leverage on their
infrastructure

• We also anticipate banks exploring novel approaches to deepen

customer relationships and foster a greater sense of financial
empowerment. We note that personalisation will be a pivotal
strategy to demonstrate long-term value. Banks will also look for
opportunities to produce insurance and micro-credit products.

Source: CBN, Stears - 2020 figures shows Jan-Aug only

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NIGERIA - FINANCIAL SERVICES

Where the opportunities will emerge in 2024

Trend What we are seeing Likely bank implications Opportunities

CBN is showing commitment to Release of open banking and Increased investments in digital Improved digital and targeted
driving digital innovation contactless payment guidelines. banking subsidiaries. product offerings

Increasing number of Small and Sparsity of funding for SMEs. Increased competition for banks as Partnerships with SMEs
Medium-sized Enterprises (SMEs) SMEs look to fintechs for funding. Incubation programmes

Stricter regulations on fintechs and Tightening of regulations around There will be more prevalent Deepened bank-fintech
high infrastructure development fintech product offerings. opportunities for banks to lend partnerships.
costs fintechs their infrastructure.

A significant proportion of the Focus on digital banking leaving Potential for banks to increase Banks should rely on their
population still remained unbanked out the unbanked population. customer base. established infrastructure and
extensive networks to tap into the
offline payment market.

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Kenya -
Financial Services
KENYA - FINANCIAL SERVICES

2023 performance overview: Sustained growth

• The banking sector registered sustained growth in 2023 amidst
Interest income Expenses a challenging macroeconomic environment characterised by
high inflation, rising interest rates and the Kenya shilling
20.1% growth in loans and High inflation & investment in
depreciation.
advances technology raised expenses
• Credit risk remained elevated with gross non performing loans
to gross loans ratio increasing to 15.0% as businesses and
households grappled with high inflation and sustained FX
pressures.
Profitability Asset quality
7.39% decline due to NPLs stock increased by 1,449
increased expenses basis points

Capital Funding
Banks were well capitalised. Overall liquidity decreased
Core capital increased to to 49.7%
Kes 856.1

* Performance for 9 month period 2023

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KENYA - FINANCIAL SERVICES

2023 performance overview: Sustained growth

The Kenyan banking sector registered sustained growth in 2023

Select tier 1 banks performance - (y/y change)

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KENYA - FINANCIAL SERVICES

Key events that shaped Kenya’s banking sector in 2023

Introduction of the FX code
• The FX code was introduced in March 2023 allowing commercial banks to trade forex in an easier marner as long as they are
within the CBK’s compliance requirements .

• This has effectively shaped the market and reduced forex disparities between the CBK official rate and the industry rate.

• Banks have continued to reap from the high FX revenues driven by the speculation on the shilling value as a result of the
increased buying and selling spreads.

Approval of risk based lending models

• The CBK has been developing a risk based lending model to enable banks price loans based on the anticipated risk of each borrower.

• This represents a shift from the negative listing of defaulters and toward a new credit score rating system that does not deny
borrowers credit based on the quality of their credit bureau reference ratings.

• By May 2023, the CBK had authorised 33 of the banks' models

Reinstatement of the interest rate corridor

• The interest rate corridor is the standard lending and deposit rate at which commercial banks can borrow and deposit with the CBK.

• The CBK uses this corridor to manage short-term liquidity and ensure that the monetary policy transmission mechanism is effective
through short-term interest rates.

• Effectively, CBK introduced an interest rate corridor around the central bank rate (CBR) set at ± 250 basis points.

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KENYA - FINANCIAL SERVICES

2024 outlook:
Navigating uncertainties through adaptive strategies and innovation
Growth amid uncertainty
• Banks will continue to leverage on the devaluation speculation and profit on
currency spread resulting in a notable growth of non interest income originating
from FX sales.

• In 2024, the shilling will continue to depreciate although less aggressively as the
global interest rates hikes is at a temporary pause.

• The risk based lending models which allows for risk based profiling of borrowers
will result in a growth in interest income with increased loan disbursements.

A fragmented industry
• The growth of fintech companies targeting lending, payments & mobile banking
continue to intensify competition in the industry.

• Banks will continue to explore partnerships with MPESA & other Fintechs as they
continue to innovate their digital product offerings.

• The rapid growth of Fintech has prompted regulatory challenges.

• The CBK will continue to adapt their frameworks to accommodate technological

advancements while ensuring consumer protection and financial stability.

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KENYA - FINANCIAL SERVICES

2024 outlook:
Navigating uncertainties through adaptive strategies and innovation
Enhanced operational efficiency
• Banks will continue to leverage technology and data and analytics to enhance efficiency and ensure greater service delivery.

• The investment in technology is driven by the operational risk that continues to remain elevated due to increasing cyber security risks.

• Large banks will continue to accelerate their efficiency driven by rationalising expenses to maintain optimal performance.

Preparation for regulatory shifts

• 2023, was characterised by regulatory changes domestically and globally including a change in monetary policies that affected the sector.

• Ensuring that the infrastructure is adaptable to evolving regulatory requirements is critical for maintaining compliance and operational
efficiency.

• Banks continue to monitor and analyse regulatory developments, both domestically & internationally as they prepare for any regulatory
changes.

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KENYA - FINANCIAL SERVICES

Where the opportunities will emerge in 2024

Trend What we are seeing Likely bank implications Opportunities

CBK is encouraging market Tier 1 banks are seeking expansion across Increased number of transactions in Continued market expansion
consolidation the East Africa region through the banking sector across Kenya
acquisitions and Eastern Africa

Accelerated ecosystem Banks are continuously exploring Growing digital penetration across Partnerships with Fintechs and
partnerships partnership opportunities with Fintechs products and support technology providers
for Fintech expansion

Increased innovation around SME are struggling with access to Increased competition with Increased innovation and
SME support funding due to the high interest rate Fintechs in providing funding to financing solutions for SMEs
environment SMEs

Growth of bancassurance Banks are growing the bancassurance Increased non funded income Collaboration and partnerships
business segment business segment with Insurers to increase
penetration for life and general
insurance

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Nigeria - Fintech
NIGERIA - FINTECH

Nigeria has historically led fintech funding on the continent

• Nigerian fintechs have enjoyed special attention from

investors

• But Nigeria’s dependence on foreign VC capital means

funding has been volatile and subject to global shocks (i.e
COVID-19 and rising interest rates)

• In the short-run, asset light startups could possibly survive

this volatility since funding rounds cover 12−18 months
runway

• However, this could mean longer-term sustainability risks

for asset-heavy startups i.e B2B commerce, e-commerce

• Nigeria urgently needs to diversify its funding sources.

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NIGERIA - FINTECH

Ground zero: Nigerian Fintechs are building from scratch

• Nigeria’s last-mile financial infrastructure is only partially

African fintechs are building foundational layers of the built (i.e ATMs, POS, mobile apps,USSD)
financial stack
Share of cumulative African fintech equity funding, 2020−2023 Q3
• Wide digital financial infrastructure gaps exist (i.e direct
debits, credit scoring, lender blacklists, national ID)

• Hence, there’s still latent opportunity for building basic

financial products (i.e payments and lending)
African fintechs are
• Sophisticated services such as insurance, pensions, wealth
primarily focused on
basic financial products management won’t take off until the foundational layers
are in place.

• Furthermore, it creates opportunities for infrastructure

providers that help fintechs build products more efficiently

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NIGERIA - FINTECH

Key events that shaped Nigeria’s fintech market in 2023

Cautious investors pull back
• Rising global interest rates & naira depreciation cause investors to pull back
• Fintech funding dipped -76% between 2022 and 2023
• Investors chase profitability over ‘growth at all costs’

Cautious consumers spend less

• Nigeria’s middle class is thinning out
• Businesses witness reduced foot traffic

A forced ‘leap forward’

• CBN’s cash redesign experiment was a golden moment for digital payments
• New real time payments record set in March 2023 (₦48.3 trillion via 1.18 billion transactions)
• A few payments behemoth emerged as heroes

The silent killer - Fraud

• There were multiple high profile fraud cases suffered by fintechs in 2023
• GTCO reported an 84% increase in fraud incidents in its 2022 financial reports

Change of guard
• Necessary policy U-turns (i.e naira payouts) by CBN
• BVN and NIN linking mandated from April 2024 which could reduce fraud but disadvantage rural and urban
poor that lack BVN and NIN
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NIGERIA - FINTECH

2024 outlook: Laser focus on the bottom-line - Payments

Cost-management is a matter of survival in the current funding winter.

Super Agents
• The cost of POS devices has shot up given the naira devaluation
• Super-agents will roll back agent acquisition to focus on monetizing their most profitable agents and
merchants
• Kippa shut down its KippaPay agency service in November 2023

Cross Border Payments

• Rapidly expanding into new markets is more challenging as capital is scarce
• Operators will scale down expansion ambitions and double down on high-margin offerings
• Chipper Cash scrapped its Europe and Middle East expansion earlier this year and launched Chipper ID

Card Issuers & Processors

• Fx-denominated network fees for international card networks (i.e Mastercard, VISA, AMEX etc) are more
expensive due to a weaker naira
• This will drive demand for local card networks like Verve

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NIGERIA - FINTECH

2024 outlook: Laser focus on the bottom-line - Lending & Infrastructure

Cost-management is a matter of survival in the current funding winter.

Digital Lenders
• Repaying fx-denominated loans is more expensive with a weaker naira and high interest rates
• Lenders will turn to local funding options
• Credit Direct Finance Company registered a commercial paper on FMDQ on November 2023

Buy Now Pay Later

• Merchants are struggling with weak consumer demand

• More merchants will embrace flexible payment options like BNPL or Save Now Buy Later

Financial infrastructure
• Building core payments or basic accounts infrastructure from scratch is capital intensive

• Fintechs would leverage Banking-as-a-Service providers to cut product development costs and time to
market

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NIGERIA - FINTECH

Where will opportunities emerge in 2024?

Trend What we are seeing Likely fintech implications Opportunities

Drying capital pools Foreign investors are Difficulty raising follow-on Debt
stepping away from rounds or seed capital Local investors
risky assets Crowdfunding

Weak consumer High inflation and a weak naira is cripping Slowing transaction revenues Buy Now Pay Later
spending power spending power Save Now Pay Later
Digital lending apps

Layoffs & Flailing fintech startups are downsizing or There will be more layoffs and Acquisitions
Shutdowns closing shop shutdowns in 2023 if funding Mergers
winter persists Available talent

High product Technical & developer resources are costly 3rd party providers will run Banking-as-a-service (accounts,
development costs non-core elements of savings, credit scoring, card issuing,
back-end infrastructure virtual accounts)

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Kenya - Fintech
KENYA - FINTECH

Kenya receives less priority from fintech investors

• Kenya claimed on average, 8% of fintech investments on the

Through Kenya is the least funded Big 4 market, continent between 2019−2023, compared to Nigeria’s
funding flow has been the least volatile (39%). Egypt’s (16%) and South Africa’s (20%)

• Kenya could be considered a lower priority destination for

fintech investments due to:

○ Kenya’s booming clean-tech sector may be clawing

funds away from fintech. Kenya has claimed 45% of
Africa’s clean-tech investment since 2019.

○ The consumer financial landscape may be less attractive

given Safaricom’s monopoly (97% market share)

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KENYA - FINTECH

Safaricom’s retail monopoly leaves fintechs focused on business-users

96.5% 7.4 million 22,053+

Safaricom has a near monopoly of 49% of Kenyan MSMEs face barriers Kenya has 22,053 financial institutions:
mobile money wallets in Kenya. Most accessing finance. This is higher than 39 commercial banks,
fintechs would struggle to compete the African average of 40% 14 microfinance institutions,
for the consumer market 22,000 SACCOs

Fintechs and banks won’t displace Safaricom’s well-defended consumer payment empire anytime soon. Thus, fintechs are focusing
on another critical user-segment: merchants, large enterprises and legacy financial institutions.

Safaricom’s future relevance will rest on its ability to partner with other financial institutions to deliver other sophisticated financial
services beyond basic payments i.e insurance, pensions, asset management etc.

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KENYA - FINTECH

Key events that shaped Kenya’s fintech market in 2023

Consumers feel the burn of Ruto’s taxes
• Newly introduced taxes in July 2023 is squeezing consumer spending
• Petrol VAT doubled (from 8% to 16%) + a 1.5% housing levy
• Kenyans staged protests in Nairobi to express dissatisfaction with rising living costs
• Lower income consumers have borne the brunt more than higher income consumers

Small merchants junk M-Pesa:

• Kenya’s tax authority (KRA) is using M-PESA records to aggressively enforce tax compliance
• Some smaller merchants have reacted by junking M-PESA and reverting back to Cash
• The impact on Safaricom is expected to be minimal given these merchants tend to drive smaller volumes

Digitizing Kenya’s broken B2B supply chains is costly

• Digitizing B2B supply chains requires capital intensive business models and capital injections is tougher during a funding drought.
• Twiga foods, an agri-supply platform recently raised an undisclosed amount in November 2023 to settle outstanding supplier debt
• These cash flow issues, complicated by dependency on volatile VC flows may prolong the path to profitability for Kenya’s B2B supply
chain players i.e Twiga Foods, Marketforce, Copia Global, Wasoko etc

Silicon savannah is open to business

• President Ruto made landmark decisions to position Kenya as an attractive startup ecosystem:
○ Startup Act is scheduled to go live in May 2024
○ Ruto has repealed visa requirements for foreign nationals (takes effect in January 2024

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KENYA - FINTECH

2024: Building deeper layers of the financial stack

Fintechs will extend into adjacent financial use cases i.e SMEs, enterprise-scale payments, remittances, and climate tech etc.

Payments Processors
• Foreign brands like VISA and MICROSOFT recently set up shop in Kenya.
• These multinational enterprises will require local payment solutions to accept local payments (i.e M-PESA),
creating opportunities for major payment gateways like Flutterwave, dlocal, PayU, Pesapal, DPO Group,
Tingg

Cross Border Payments

• Kenya’s $4 billion cross-border payments market is getting crowded
• Two new players entered the market in 2023: Lemonade finance and Flutterwave. Safaricom also
launched its remittance service in 2022
• Heightened market competition may crash fees for consumers, but squeeze margins for providers

Crypto
• Kenyans had Africa’s highest crypto usage with 8.5% penetration, compared to Nigeria’s 6.3% and South Africa’s
7.1% in 2021
• Unlike Nigeria, Kenya’s Central Bank has stopped short of an outright ban on crypto, though it announced
unpopular plans to tax digital assets. Players say the CBK is taking a ‘wait and learn’ approach prior to formalizing
regulations
• Crypto firms like Kotani Pay are betting on Kenya’s current semi-open crypto climate to pilot and scale various use
cases like remittances.
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KENYA - FINTECH

2024: Building deeper layers of the financial stack

Fintechs will extend into adjacent financial use cases i.e SMEs, enterprise-scale payments, remittances, and climate tech etc.

Climate Tech
• Kenya claimed on average 45% of Africa’s climate-tech investments since 2019
• Climate-based products aren’t directly financial products but are enabled by fintech products
(i.e payments, lending etc)
• New climate focused funds have been established i.e Equator’s $40 million, Catalyst Fund’s $30 million, Novastar’s
$300 million. More innovative climate startups will emerge in 2024 that fintechs can layer on financial services

SME Finance
• 49% of Kenyan MSMEs struggle to access necessary capital, above the SSA average (40%)
• M-PESA’s microloan options are undeserving these groups because they are small-value (<Ksh 50,000) with very
short tenures (i.e 30 days).
• Several Kenyan B2B lenders are financing informal retailers, wholesalers, farmers and micro-entrepreneurs. These
B2B lenders will provide competing alternatives with higher working capital limits and more flexible loan tenures.

Financial infrastructure
• Building financial software is a complex, time-intensive process for fintechs, banks and other financial institutions
(i.e SACCOs, microfinance institutions)
• This will create opportunities for back-office infrastructure providers who abstract the complexity of developing
and scaling financial products for the Kenyan market

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KENYA - FINTECH

Where will opportunities emerge in 2024?

Trend What we are seeing Likely fintech implications Opportunities

Less restrictive flow Kenya permits visa-free Influx of investors, founders, fund Distributed teams
of human capital travel for foreign managers into Kenya for conferences, Higher quality developer talent
nationals expos, fundraising etc would enrich Robust founder-investor networks & hubs
Kenya’s innovation ecosystem

Latent SME capital gap SMEs struggle to access adequate B2B lenders will offer higher-value, Lending infrastructure
credit due to limited collateral. flexible tenured loans to meet capital Credit data providers
Existing digital loans are suited for needs in select sectors i.e Agric, Credit bureaus
retail consumption, not Healthcare etc Commercial banks (as lenders)
businesses

Funding drought The funding slump is particularly B2B supply chain startups will seek Impact focused PE/VC
detrimental for capital intensive alternative options to raise bridge Firms Crowdfunding
startups digitizing B2B supply financing to survive this long funding Bank loans
chains winter

Climate-focused funds There’s been an uptick in the More climate startups will emerge, with a Ecosystem partnerships
number of climate- funds eager to need to embed basic financial Embedded finance
back Africa’s climate innovators functionality in their products Smart eco-friendly
ag-tech solutions

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