The Nigerian Communications Commission (NCC) has suspended accepting new applications for MVNO (mobile virtual network operator), a wireless communications services provider that does not own the wireless network infrastructure over which it provides services to its customers.

“This temporary suspension is necessary to enable the commission to conduct a thorough review of several key areas within these categories, including the current level of competition, market saturation and current market dynamics. The public is invited to note that during the suspension period commencing on 17 May, new application for the aforementioned licences will not be accepted.”

For NCC, this is a good call since the core value proposition of MVNO in Nigeria remains foggy. MVNO works in markets where major telcos over invest on capacities, and then wait for customers to come along. In other words, you build a system which can serve 1000 people but you have currently 500 people in the system. To handle the investments, you will be happy to welcome minor players which can help you find those extra 500 people. 

Those minor players may have regional affinity, niche customer services, and other things which can differentiate them, and in the process they can onboard new telco customers as their own, even though your network powers everything. In the US, you have Cricket Wireless, Safelink, etc, operating under AT&T and Verizon infrastructures.

But in Nigeria, I do think our core telcos are operating at over-capacity. In other words, if they have built for 500 customers, they possibly have 2,000 using them, thereby creating a scenario where MVNO makes no sense.

Why should adding more customers be a playbook when existing customers cannot enjoy decent services. Whenever I am in Nigeria, I get all the three core SIMs  but even with that, it is alway a struggle once you are out of Abuja and Lagos. In  a situation where the focus should be expanding core capacity, giving licenses to pad more frustrated customers whose calls or data cannot get through will not make sense. For that, this NCC call is solid!

The Central Bank of Nigeria (CBN) has increased the Monetary Policy Rate (MPR) by 150 basis points from 24.75% to 26.25%, marking the third consecutive hike in an effort to combat the nation’s soaring inflation. 

This decision was made during the 295th meeting of the CBN’s Monetary Policy Committee (MPC) held on May 20th and 21st, 2024.

The MPC’s decision to raise the MPR comes against the backdrop of Nigeria’s inflation rate, which surged to 33.69% in April 2024. CBN Governor Yemi Cardoso, who also serves as the chairman of the MPC, announced the committee’s resolutions on Tuesday. Cardoso highlighted the critical need to address inflationary pressures, which are largely driven by escalating food prices, transportation costs, infrastructure challenges, insecurity, and exchange rate volatility.

“The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) held its 295th meeting on the 20th and 21st of May 2024 to review recent economic and financial developments and assess risks to the outlook,” Cardoso stated. “Decisions of the MPC. The committee’s decisions are as follows: 1. Raise the MPR by 150 basis points to 26.25% from 24.75%.”

Despite the significant increase in the interest rate, the MPC decided to retain other key monetary parameters. The Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBs) remains at 45%, while the liquidity ratio is held steady at 30%. The asymmetric corridor around the MPR is maintained at +100 and -300 basis points.

Cardoso stressed that the primary focus of the MPC is to achieve price stability and curb the rising inflation that has heavily burdened Nigerians. He noted that the inflationary pressure is predominantly fueled by food inflation, exacerbated by high transportation costs, infrastructure deficits, security issues, and exchange rate challenges.

The Economic Backdrop

The recent rate hike occurred amid widespread economic difficulties characterized by soaring commodity prices and an increasing cost of living. The economic strain is largely attributed to the removal of fuel subsidies last year and the floating of the naira, which have pushed the cost of goods and services to historic highs. Despite facing protests and pressure from labor unions, President Bola Tinubu has urged for patience, expressing confidence that the government’s reforms will eventually bear fruit.

In recent months, the CBN has also targeted the operations of cryptocurrency exchanges, including Binance, as part of its strategy to combat the falling value of the naira. While these measures initially led to an appreciation of the currency, the gains have stalled recently.

Addressing the volatility in the foreign exchange market, Cardoso attributed the recent depreciation of the naira against the dollar to “seasonal demand” for the greenback. He said that such volatility is common in any functioning foreign exchange market and reflects the dynamics of demand and supply.

“Members further observe the recent volatility in the foreign exchange market attributing this to seasonal demand—a reflection of the interplay between demand and supply in a functioning market system,” Cardoso said. He reiterated the CBN’s commitment to maintaining a transparent FX market through a willing-buyer, willing-seller model.

Skepticism and Criticism

The CBN’s strategy of continuously hiking interest rates has been met with skepticism from some economists and analysts. Kalu Aja, a financial analyst, questioned the efficacy of this approach saying: “So if inflation gets to 35%, CBN will keep hiking to 30%? The strategy must be dynamic.” 

Aja pointed out that the inflation problem is rooted in supply-side and structural issues, which interest rate hikes alone cannot resolve.

Analysts argue that while the CBN’s focus on fighting inflation is understandable, the underlying issues such as insecurity, infrastructure deficits, and economic policies need to be addressed comprehensively.

“CBN has chosen to fight inflation. I can’t fault them; it is in their handbook. Let the Federal government fight bandits to bring down the prices of food,” Aja noted.

Future Outlook

There is a prevailing sentiment among analysts that the CBN might continue to hike rates in the future. However, many believe that without addressing the fundamental issues stoking inflation, these rate hikes will not achieve the desired result. 

The consensus is that Nigeria’s inflation challenge is supply-side and structural, necessitating a multifaceted approach that goes beyond monetary policy adjustments.