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SVB’s fall is sending jitters across the globe including Nigeria

Many analysts thought that the days of global financial contagion ended in 2008 after the collapse of Lehman Brothers and the subsequent financial bailout. The rigorous scrutiny of banking system buffers and stress tests by regulators has reinforced this view. The emphasis on proper governance and transparent reporting made investors comfortable accepting banking stocks without reservations. Alas, with the surprise unravelling of SVB, America’s 16th largest bank, we now know that market risks are ever-present and a clear danger to safe and sound financial systems.

However, what’s more jarring is the potential exposure of African startups, especially fintechs to the SVB saga. In February 2023, African startups raised $696 million. Of this, fintechs raised $591.7 million, a whopping 85%. Fintechs are currently the darling of Nigeria’s tech ecosystem, and if they get burnt from this SVB fiasco, the fragile, yet promising tech and digital innovations sector could be under severe threat.

Meanwhile, the investment climate in Nigeria remains cloudy. The gubernatorial elections have been postponed to March 18, 2023, compounding the lingering political uncertainties following the keenly contested and contentious presidential election results. This, combined with the ongoing cash crunch, will continue to weigh on investor sentiment, negatively impacting output and aggregate demand in the country.

The gig economy — a blessing or curse?

Another important yet overlooked aspect of today’s world is the gig economy, which accounts for a third of the world’s workforce, according to the ADP Research Institute. With an estimated global market size of $310 billion, the gig economy seems to be fast emerging as the new working-class norm. With a combined unemployment and underemployment rate of 56.1% in Nigeria, the gig economy is becoming increasingly popular. While this emerging trend calls for corporates to rethink their workforce plans, tremendous fiscal opportunities remain untapped due to its informal nature. Onboarding the workforce in the gig economy into the formal sector will not only boost government tax revenues but also guarantee the inclusion of the workforce in the gig economy in social security schemes (including pension and health insurance).

In this edition of the FDC bimonthly publication, the FDC Think-Tank analyses these issues and their economic implications and provides several other interesting public policy discussions.

Enjoy your read!