‘Why Nigerian companies are investing in Ghana’

Charles Ugwu, Minister of Commerce

Obviously, year 2007 has been a remarkable year in the history of Nigeria insurance industry.

The year was characterised majorly, by the continuation of the consolidation and recapitalisation programme of the insurance sub sector of the nation’s economy which officially was scheduled to end by February. However, due to several reasons, the exercise was concluded less than one month ago.

History has it that since the inception of organised insurance business in Nigeria way back in 1921, (although the market and by extension, its practitioners have continued to make conscious efforts to improve on their products and service offering) the government has never shown such an interest in ensuring that the industry grows and live up to the standard of its counterpart around the world. However, the journey to the nation’s insurance rebirth started as far back as 5th September, 2005 , as part of the economic reform agenda of the then president, Olusegun Obasanjo.

The consolidation programme in the insurance industry followed the same programme in the banking sector, mandating all insurance companies to shore up their capital base if they wanted to remain in business. Obviously, that was the major event that consumed the industry for nothing less than 27 months.

It will be recalled that the Federal Government, through the former minister of finance, Ngozi Okonjo- Iweala, announced a new capital base for all the categories of insurance businesses in Nigeria . The decision of government was borne out of the fact that the industry has suffered a great set back and with little to add to the gross domestic product of the nation’s economy, owing to the poor capital base. Therefore, the government made it mandatory for all life companies to shore up their capital base to N2 billion, general companies were mandated to increase theirs to N3 billion, while re-insurance companies to N10 billion. The exercise, which was scheduled to end on 28 February, 2007 was concluded as planned. Out of the 168 insurance and re-insurance companies that set out for the exercise, the National Insurance Commission (NAICOM), on 28 February announced that only 43 general, 26 life and 2 reinsurance companies were able to make it till the end. Ninety seven companies have failed in their bid. By calculation, only about 40 per cent of all insurance and reinsurance companies that existed in Nigeria pre -consolidation were able to recapitalise.

While the industry and the Commission were still basking in the euphoria of the successful exercise that was described perfect by some experts, especially the system adopted by the commission to separate its composite business to Life and General businesses successfully, the exercise met its waterloo when some big shot in the industry raised eyes brow and faulted the whole exercise. This led to the suspension of the commissioner, who was later dismissed, while a panel was set up to review the whole exercise. It will also be recalled that in 2007, following the fate of the erstwhile Commissioner for Insurance and Chief Executive of NAICOM, Emmanuel Chukwulozie, another man was announced in person of Mr. Fola Daniel to hold the forte. The technical committee and the presidential committee were also set up for the purpose of looking into the exercise.

The report of the panel, however, is the thrust on which the industry is currently based on. Recently, the commission, through the minister of finance, announced that only 49 out of the initial 71 companies announced in February were duly certified to carry on with the business of insurance in Nigeria, while the companies that separated their business had been advised to maintain the composite businesses. It was quite interesting to note that shortly after the previous announcement, the insurance stock of the floor of Nigerian Stock Exchange market went up, while it suffered downward trend when NAICOM announced the suspension of the whole exercise, promising a holistic look into it.

Obviously, a major merit of the whole exercise in the insurance sector is the rise in the level of awareness about insurance, as investors that hitherto never bothered to know about insurance are now becoming interested as can be seen in the numbers released on capital market activities both in the primary and secondary markets. Making use of a simple time series analysis to analyse the insurance stocks on the floor of the Nigerian Stock Exchange in the post -recapitalisation era, it will be observed that the effect is of no little measure in the history of the Nigeria insurance industry at large. For instance, by August 2005, 22 insurance companies were listed on The Exchange’s Daily Official List with a total market value of N28.94billion. However, by February 2007, being the deadline for the recapitalisation programme, the number of listed insurance companies increased to 25 with a market value of N91.9 billion, despite that many of them at that time had their prices placed on either technical or full suspension (frozen).

Current statistics indicate that there are 27 insurance companies listed on The Exchange. Obviously, the insurance stock has increase considerably unlike pre consolidation time. So far in 2007, the Council of The Nigerian Stock Exchange had approved the listing of more than four new Insurance companies and two merger applications, after the exercise. In terms of market liquidity, the market has witnessed increased liquidity of insurance stocks only dwarfed by the banking sector attributed to the increased issued shares by the sector. Between January 2000 and September 2005, activities from the secondary market indicated that the insurance sector recorded transaction volume of 3.1 billion valued at N6.21 billion.

The icing on the cake is the large capital gains recorded by most insurance stocks. The statistics on the sector gives Nigerians courage that the industry is poised to improve on its competitive edge in the financial services sector and global insurance markets. As it had been seen in the results being released by the consolidated banks, it is likely to witness enhanced earnings by operators in insurance sector. In 2005, the Central Bank of Nigeria indicated that the sector’s gross premium increased steadily from N37.8 billion in 2002 to N49.3 billion while assets base stood at N171.9 billion. According to projections of NAICOM, gains expected from operators’ increased capacity would see the local market growing its gross premium income to N450 billion by 2010. Also, it is being projected that the insurance sector would earn well over N50 billion from oil and gas business by 2008. The regulator’s projections are based on additional income to the sector arising from increased risk retention capacity that will facilitate the underwriting of big-ticket businesses. Big-ticket risks had, for many years, been completely out of reach of local insurers because of the poor capitalisation profile of the local insurance market.

The local content policy had been introduced in the oil and gas sector, which was designed to encourage the insurance of at least 45 per cent of oil and energy risks by Nigerian insurers and local value added. With the availability of more capital, operators can form strategic alliances and pools to rake in additional premium income from the hitherto elusive sector. Without mincing words, there are indications that insurance businesses in subsequent year, most especially, 2008, being the immediate year after the conclusion of the exercise, will skyrocket. From all indications, many of the successful companies will approach the capital market again to raise more funds.

Mr. Clinton Justus Uranta, the Managing Director, Niger Insurance Plc, said that the industry would definitely seek to raise more funds. He said that the industry would not necessary wait for the government to push it again before it knows what best for it. Speaking on the positive outlook that the industry is wearing, Uranta said, “I will like to say that our industry is now stronger than ever, our industry is looking forward than before and the reason behind all these is very simple, when you have more money in your pocket, you can talk boldly”.

SMEs and ineffective government support

Practical sustenability of initiatives is a challenge confronting the government in developing SMEs in the country, says Sulaimon Adesina in this analysis

Motorcycles are fast becoming commuters’ choice of transportation in Nigeria. In the last five years, surveys reveal that about one in thirty unemployed youths have turned commercial motorcyle riders in the South Western part of the country, a 3.3 per cent contribution to the employment statistics of the concerned areas. Motorcycle riders in Nigeria maximise the hire purchase option with sellers, paying off the purchase price, together with the interest, on an agreed, often monthly, instalmental basis.

Five out of 20 or twenty five per cent commercial motorcycles contacted said they were able to complete the payment within a year, and 10 in 20 a 50 per cent of them strug gled to pay off within 18 months of purchase. More than half agreed that with the arrangment, they have been able to meet daily domestic needs, with a little savings. Some of the comercial motorcyle riders are literate. As in other nations of the world, small and medium investments are proving to be economic boost for people in Nigeria.

Increasing number of people are coming up with genuine business ideas and the results are encouraging. Many more societies, including the economically successful nations, are channelling resources towards the development of small and medium scale businesses. The impact of the sector in the economic turn-around of Japan, China, Britain and even African neighbours of Ghana, Kenya and South Africa is one of great relevance.

In many of these societies, the iniatives come from the government which partners willing individuals, often in the grassroot. Private institutions and persons, at times, lend supportive hands. Just as the surge in the number of micro investments in Nieria in the last few years portends a bright future for the nation, the hope of a visible and realistic growth of the sector has remained in the pipeline. Nigerians have the ideas, but the facilities which make initiatives work are not performing. The activities of the Nigerian government in this directive leave much to be considered.

To effectively carry the functions of government to the ultimate beneficiaries, the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) was formed in 2003. The Central Bank of Nigeria, spured by the large entrants into the micro business financing sub sector, in 2005, issued the Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria . In large numbers, state governments- owed micro finance institutions continue to spring up. Governments at state and federal level in the country are opening up channels for development of small capital-based institutions, but the result seems not evident.

Ike Abugu, President and Chairman of Council of the Nigerian Association of Small and Medium Enterprises, at the Central Bank of Nigeria-organised international conference on Financial System Strategy (FSS 2020) in Abuja recently, described the efforts of the British government of Margaret Thatcher between 1979 and 1989 in the area of small scale development as one which yielded sustainable development. “In the decade between 1979 and 1989, the conservative government of Thatcher drastically cut corporate tax, promoted competition in merger policy, introduced loan guarantee scheme and many others schemes linking SMEs with technology generating institutions”, Abugu highlighted. But the micro enterprises guru was more concerned with the pratical reality of the Thatcher initiative. “The result was an average net increase of between 500 and 900 new firms each week since 1979 after deducting closures, and there was a rise of about one million in the number of self-employed people during the 1980s to more than three million by late 1988, over six times the increase in the previous 30 years and there was a great growth in the venture capital industry (from almost zero level in 1979 to more than 191 million)”, added Abugu.

The Nigerian government established SMEDAN with a mission “to facilitate the access of micro, small and medium entreprenurs/investors to all resources required for their development”. The authorities have facilitated incentives which have raised foreign direct investment, with the telecommunication sector most endent. The irony, however, is the little practical approaches put in place to realising long-term effects.

Ineffective monitoring of programmes and poor maintenance of physical structures put in place are big challenges the governmeny has to cope with. At the grassroot level, the SMEDAN is scarely heard of. The idea of small business is a picture of people with a little or no access to funds to develop their business initiatives. The welder in his small shop, the small scale farmer; even dwelling in the urban centre and the entreprenuers in the marketplace (who are the target beneficiaries of government efforts in the micro business sector) have no access to the facilities provided by SMEDAN. The SMEDAN organises seminars, conferences and trainings for those who have direct link to it.

In another society, the structural commitments of the Nigerian government is enough to yield appreciable dividends. All over the country, dedicated sites for entrepreneurship growth are unattended to. Many structure (buildings, mechinery) are rotting away unused. Yet, increasing number of small investors crave for facilities to translate their dream into reality.

A small scale businessman in South Western state of Oyo said there are more than five abandoned well-equipped sites for small scale business development in the state alone. He estimated that about 30 small businesses would be effectively sustained by the abandoned structure.

The government, he lamented, was not prepared to release them for the use of those who need such. There is also the problem of over regulation of the sector. A micro finance bank manager bemoaned the multiple taxation his establishment has had to grapple with in less than 10 months of operation. Abugu corroborated this position. The activities of state and local governments - multiplicity of taxes and high statutory fees, he said, are killing business initiatives in the country. “One of my members running a creche of 12 children was recently levied a sum of N100,000 for registration with Lagos State Ministry of Women Affairs”, he added. The government will do well to focus on protective policies for budding organisations.

When will the government analyse its efforts at small business development, towards undertaking corrective measures where necessary? The poverty index remains a potent yardstick to measure the rate at which citizens of a country are able to cope with economic challenges. The United Nations Development Programme (UNDP) has said about 90 per cent of the world’s businesses fall within the small and medium bracket, and collectively employ 60 per cent of the world’s workforce. Nigeria is ranked 105th and 117th out of 152 countries in business registrations and business licensing respectively, and according to Dr. Otive Igbazor, Country Director of Action Aid, 70 million Nigerians are living below the poverty level.

These are glaring yardsticks which reveal that the road to development of small enterprises in Nigeria is far. The authorities in Japan, China, and of course, Britain started somewhere. The time for the Nigerian government to sustain its programmes in this directive is trickling away.