Industry Report V0.3

INDUSTRYREPORT 2016MBA 13

NIGERIAAGRICULTUREFINANCIAL SERVICES

FMCGOIL & GASTELECOMMUNICATION

INDUSTRY REPORT 2016 | TABLE OF CONTENTS1

Country Profile 2

Agriculture 8

FMCG 25

Oil & Gas 34

Financial Services 16

Telecommunications 41

Country Profile

INDUSTRY REPORT 2016 | NIGERIA3

NIGERIA IN FIGURES

OVERVIEW

OUTLOOK FOR 2016 - 2018

Real GDP growth (%)

Population growth rate

Current account/GDP

CPI (y/y Dec.)

Monetary policy rate

Official fx reserves (in US$ bn)

N/US$ (end-period)

Bonny Light (end-period spoat; US$/b)

Population

Life expectancy at birth

Labour participation rate (% of total population ages 15+)

Telephone & Internet users

Business languages

6.2% (2014 E); 3.1 (2015 E)

2.47% (2014 E)

-3.3% (2015 E); -3.6% (2016 E)

8.0% (2014 E); 9.6% (2015 E); 10.5% (2016 E)

11% (2015)

29 (2015 E); 25(2016 E)

197 (2015 E)

35 (2015 E)

177,155,754 (July 2014 E); Age 15 - 64: 52.9%

Total population: 52.62 years; male: 51.63 years; female: 53.66 years (2014 E)55.9% (2012)Main lines in use: 183,290; Mobile cellular: 138.96 million (2014 E);Internet users: 97 million (2015 E)English, Hausa, Yoruba, Igbo, Fulani

- The economy is likely to grow modestly in 2016: details of the government economic plan have been stated clearly in the Medium Term Expenditure Framework (MTEF) for 2016-2018. Fiscal policy aims at stimulating economic activity in order to engender growth above levels experienced in 2015.

- The Central Bank of Nigeria (CBN) has reiterated its stance on no further devaluation of the nation's currency even in the face of stiff criticism from local and international investors and financial experts. In aligning its policies with the fiscal policy objectives of the Buhari administration, interest rates are likely to remain low at the inter-bank level while it looks for ways and means to encourage lenders to advance more loans to the real sector.

- The development of critical infrastructure such as roads

and power are likely to receive a major boost this year given the proportion of the budget (30% of the 2016 budget) allocated to capital expenditure and the eagerness of the administration to resolve issues slowing the completion of existing projects such as the Lagos-Ibadan expressway.

- Inflation has continued to maintain its levels above CBN's threshold of 9% driven largely by the rise in food prices, especially imported items; the cost of transportation and the scarcity of foreign exchange has also contributed to increased price levels in the country.

- The security situation in the North-east has improved slightly following the dissipation of the Boko Haram elements by the Nigerian Army. However, Boko Haram fighters continue to spread terror in the city by targeting populated areas such as local markets.

Political OutlookIn 2015, APC achieved a great feat by winning the last general elections with majority seats in the National assembly making it the second political party to lead Nigeria in the last 15 years. APC rode to victory on the mantra of “Change” and a promise to reverse the economic misfortunes of the country. Unfortunately, this period is marked by changes in the global economic environment which have had adverse effects on the local economy. The sustained low level of low oil prices has caused the current administration to seek other sources of finance its expansionary budget. President Buhari's war against corruption is modestly yielding results while he continues to take steps to ensure a more transparent and effective management of the NNPC in order to maximize the use of the country's oil resource. The APC is gradually stabilising in the formation of its political structures while the PDP, the main opposition

party is still grappling with the challenges of defeat and reorganization. The president's stance on the rule of law is firm and the renewed fight against corruption has set the tone for the polity and how business would be conducted hence forth.

The government's priority areas are security, diversification of the economy, prudent management of government, generation of revenue, job creation and anti-corruption. The Buhari administration has spared no effort in the fight against Boko haram especially since assuming office one of his first activities was to move the headquarters of the Military base to the Northeast. Some measure of success has been achieved as the insurgents have been largely dissipated although they still find ways and means to harm hapless civilians in the North-eastern region.

The economic plan of the government is expansionary. It Fiscal and Economic Policy Outlook

is aimed at revamping critical infrastructure in the country; diversification of the productive base of the economy and improvement in the competitiveness of the non-oil sector. Government's plan for the next 3-4 years, as contained in the Medium Term Expenditure Framework (MTEF), is to ensure macroeconomic and fiscal stability; social and infrastructure development. The 2016 budget of N6.04 trillion which is aimed at fostering large scale economic activity is hinged on an expected N3.82 expected government revenue and a deficit of N2.22 trillion. Capital expenditure is about 30% of the total budget compare to 16% in the 2015 budget. Although there are concerns about the rising level of debt in the country after the exit from the Paris club debt, the country's debt/GDP at about 12% is considered among the lowest in the world thus creating an opportunity for the government to assess loans from the international community.

Real GDP grew by 2.84% (year-on-year) in Q3 of 2015 compared to 2.35% in the preceding quarter and 6.23% in the corresponding quarter of 2014. Aggregate GDP stood at approximately N24 trillion; higher by 6.02% when compared to the third quarter of 2014. With this expansionary budget, government expects the economy to grow at 4.37% in 2016, and a 10% increase thereafter till 2018.

The Fiscal policy for 2016 focuses largely on achieving the following: ensuring macroeconomic stability; formulating policies to avail the real sector cheap access to long-term financing to allow them plan reliable growth strategies for the long-term; ensure prudent borrowing while improving revenue generation and collection; recovery of looted public funds and blocking leakages in the public sector. Treasury Single Account (TSA) has been implemented in order to accurately keep track of government cash balances and revenue inflows from MDAs; and the Integrated Payroll and Personnel Information system (IPPIS) in order to ensure seamless payment to civil servants and to block any possible leakages that could arise from the existence of ghost workers.

Although the expectation of the positive outcome of the 2016 budget is high, there are issues surrounding how the budget will be funded. Oil prices are trending between $25 and $34pb in the international market; and if this is sustained, government oil revenue target for 2016 (which is benchmarked at $38pb) might not be attained. On the other hand, international Development Finance Institutions such as the World Bank and African Development bank (AFDB) have expressed willingness to fund the deficit; talks with the Chinese government has also been resumed on certain capital projects such as the railway transport projects which it intended to fund through its export-import bank.

Government also plans to improve tax administration in order to realise its non-oil revenue targets for 2016. The plan to improve on tax administration involves strategic engagement with tax payers; simplifying tax administration and reducing tax evasion. Federal Inland Revenue Service (FIRS) is likely to raise VAT by 100% (from 5- 10%).

Fiscal Policy and Strategy

Other means include the recently introduced stamp duty charge and the proposed security tax on the profits of Corporate organizations.

The $25 billion Infrastructural Fund set up by the administration and managed by the Nigeria Sovereign Investment Authority (NSIA) has been put in place to guarantee the development of infrastructure in the country. This is in addition to the Public-Private Partnership model, adopted by previous governments, to ensure timely execution and the realisation of public projects. It is also keen on inclusive growth whereby the growth in GDP is championed by the combined increase in output and productivity of both large Corporates and MSMEs and which would translate to economic development.

The introduction of Zero-based budgeting framework portrays government's commitment to ensuring efficient management and accountability in its use of public funds. This is also in line with the current tightening measures by government due to the dwindling revenues as a result of the fall in the price and demand for crude oil which makes up about 70% of government's revenue. Chances are that after the House of Assembly passes the budget by the end of February and approves the Medium Term Expenditure Framework, investment by firms in the economy is likely to increase.

The monetary authorities are still grappling with the twinissue of price stability and a weakening currency. At the MPC meeting held in January, the monetary authorities maintained policy stance by keeping MPR unchanged at 11% with an asymmetric corridor of +2/-7. Liquidity ratio and Cash-Reserve Requirement (CRR) was retained at 30% and 20% respectively. This decision is largely due to CBN's determination to ensure that Deposit Money Banks lend to the real sector. The initial easing activity by the apex bank was to stabilize the financial system in the wake of the Treasury Single Account (TSA) and withdrawals of the J.P. Morgan delisting of Nigeria and this has largely been achieved. And now the emphasis on lending to the real sector which the CBN is calling on Deposit Money Banks (DMBs) banks to approach this as a patriotic duty.

Rates at the inter-bank market and across different money market instruments continue to remain low reflecting the level of liquidity in the banking system. Official exchange rate still remains N197/USD with the CBN reiterating its stance on not devaluing the currency any further. However, the monetary authorities have underscored the importance of improving foreign exchange to the market.

2015 was the year set for the attainment of the eight Millennium Development Goals (MDGs) and Nigeria has made some progress however not sufficient to lift it from its Low Human development Status. In the past 15 years, over N 3 trillion has been spent annually on MDGs which is the total sum from the contributions of the three tiers of government. Factors that may have contributed to the non-attainment of these goals include social inequality, youth

Monetary Policy

Social and Human Development



unemployment and dearth of skilled workers and insecurity. These trouble points are still features of the country and more targeted effort at all levels of society is needed to effectively address these problems.

Extreme poverty has been significantly reduced from its height in 1996 of 65.6% to about 45.5% although recent estimates from the World Bank put it at 33.1% short of MDG target 21.4% by 11.7%. In 2012, Nigeria was able to make significant advancement in an area closely related with this goal which is the hunger reduction. Nigeria was able to reduce hunger by 66%; however, the concentration of hunger by geopolitical zones, urban and rural areas may leave room for improvement in many areas especially in the North East and North West regions of the country. Net enrolment in basic education declined from 60% in 1995 to 54% due to Boko Haram activities which destroyed many schools; however there good policies in place that should grow enrolment numbers when Boko Haram activities are curtailed. Nigeria has made improvement in literacy rate although marginally from 64.7% in 2000 to 66.7% in 2014; infant mortality rate has reduced from 191 deaths per 1000

live births in 2000 to 89 deaths per 100 live births. Maternal health has also improved with maternal mortality rate falling from 1000 deaths per 100,000 live births in 1990 to 243 per 100, 000 live births in 2012. However, not much progress was made to promote gender equality and women empowerment. The high growth rates of between 6-7% recorded in the last 3 years, was not sufficient to reduce the incidence of poverty in the country as according to the Harmonised Nigeria Living Standards Surveys (HNLSS) 2010, over 100million people are living in absolute poverty; unemployment rate is on the rise (8.2% in the second quarter, up from 7.5% in the previous quarter) and human development as measured by the Human Development Index still remains low.

A lot more attention has to be paid to social development in Nigeria with concerted efforts by all stakeholders to the achieve these goals. Government has made commitment to development of infrastructure in the area of health and education however the formulation of policy targeted at sustaining these initiatives is essential to ensuring their sustainability.

Agriculture

INDUSTRY REPORT 2016 | AGRICULTURE7

Before the oil boom in Nigeria, the Nigerian economy thrived on agriculture, but with the advent of crude oil, attention quickly shifted from agriculture to oil and gas sector and the search for white collar jobs left the agricultural sector desolated. It was never imagined that those left to attend to the agricultural sector would be raking in millions of naira as agricultural products now sell not only locally but in the international market.

In spite of the oil, agriculture remains the base of the Nigerian economy, providing the main source of livelihood for many Nigerians. The sector faces many challenges, notably an outdated land tenure system that constrains access to land (1.8 ha/farming household), a very low level of irrigation development (less than 1 percent of cropped land under irrigation), limited adoption of research findings and technologies, high cost of farm inputs, poor access to credit, inefficient fertilizer procurement and distribution, inadequate storage facilities and poor access to markets have all combined to keep agricultural productivity low (average of 1.2 metric tons of cereals/ha) with high post-harvest losses and waste. The agricultural sector covers the following: fishery, forestry, crop production and livestock.

CROP PRODUCTIONIndustries in the Crop Production subsector grow crops mainly for food and fiber. The sub-sector comprises establishments, such as farms, and is primarily engaged in growing crops, plants, vines, or trees and their seeds.

ANIMAL PRODUCTION/LIVESTOCKIndustries in the Animal Production subsector raise or fatten animals for the sale of animals or animal products. The subsector comprises establishments, such as ranches, farms, mostly the Fulani cattle herdsmen in the northern part of Nigeria, primarily engaged in keeping, grazing, breeding, or feeding animals. These animals are kept for the products they produce or for eventual sale. The animals are generally raised in various environments, feeding on anopen range pasture. Livestock industry development is constrained by low productive breeds, inadequate access to

feeds and grazing lands, frequent farmer – pastoralist conflicts, lack of processing facilities and low value addition and low technical inputs in the management of the animals, including diseases. The livestock sector can create new opportunities for farmers and provide more affordable and healthier diets for future generations.

Industries in the Forestry and Logging subsector grow and harvest timber on a long production cycle. This subsector the legal planting and felling of trees (timber).

This subsector involves harvesting of fish and other aquatic animals from their natural habitats and is dependent upon a continued supply of the natural resource. The harvesting of fish is predominant. The Nigeria fisheries sub-sector contributes about 3%-4% to the country's annual GDP and is an important contributor to the population's nutritional requirements, constituting about 50 percent of animal protein intake. In addition, the sub-sector generates employment and income for a significant number ofartisanal fishermen and small traders. Although capturefisheries has now been declining, Nigeria has a big potential in both marine and fresh water fisheries includingaquaculture. In spite of this high potential, domestic fish production still falls far below the total demand, which was estimated at 2.2 million metric tons per year in 2008. As a result, the country imports about 60 percent of the fish consumed. Even though agriculture still remains the largest sector of the Nigerian economy and employs two-thirds of the entire labour force, the production hurdles have significantly stifled the performance of the sector. Over the past 20 years, value-added per capita in agriculture has risen by less than 1 percent annually. It is estimated that Nigeria has lost USD 10 billion in annual export opportunity from groundnut, palm oil, cocoa and cotton alone due to continuous decline in the production of those commodities.

FORESTRY

FISHERY

AGRICULTURAL INDUSTRY IN FIGURES

INDUSTRY ANALYSIS USING PORTER’S 5 FORCES

Contribution to GDP

ANNUAL FIGURESACTIVITYSECTOR

% OFGDP

Agriculture

Crop ProductionLivestockForestryFishing

17.541.750.230.47

15,812,5701,573,052

207,739425,250

14,862,3241,399,484

187,950366,793

14,071,2351,251,931

170,159322,671

12,484,8491,115,601

153,045284,329

11,683,896979,564135,720249,711

12,035,7581,240,766

160,473349,974

7.8612.5711.2314.24

2015* 2014 2013 2012 2011 2010Y/YGrowthRate

*2015 figures are for Q1, Q2 and Q3

Foreign Direct Investment in the Agricultural Industry ($’000)

Agriculture 17,101 318 40,100 24,850 15,075 219 833 8,194 2,675 50 95,100 500Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2013 2014 2015

Capital Import Report, Nigeria Bureau of Statistics

Agriculture in Nigeria has greatly improved in the past few years because of the advent of technology and other necessary infrastructures. Initially, most Nigerian farmers merely engage in subsistence farming to provide food for their family while very little is made available in the market. Growth in agricultural output has no doubt been on the rise as farmer are stepping away from subsistence agriculture and embracing modern civilization - investing in large scale farming and ultimately increasing agricultural products. The industry will be studied under three major divide which are the Crop production, Livestock farming, and the Fisheries farming.

1. The inputs required such as the seeds are available only from a small number of suppliers. These inputs are mostly imported and distributed by the government and some other licensed private individuals. The inputs generated by the farmers locally are not sufficient for exports farming or large scale farming and hence limits their production capacity.

2. The seeds required are unique, difficult to generate, require a high level of technology in some cases and hence making it costly to make and reducing the number of suppliers and hence making it expensive to switch from one supplier to the other.

3. Most of the farmers do not have direct access to the suppliers and where they do, the volume they buy at a time is not significant, as they are not the largest and only buyer.

4. The farmers cannot negotiate on the price as they do not understand the technology or the process of making this seeds in huge volumes.

1. There is little or no infrastructure to help the sellers in the preservation of their produce hence creating price crash as the farmers want to sell as much as they can of

CROP PRODUCTION

Bargaining power of suppliers is high.

Bargaining power of buyers is low

their produce while it's still fresh and most farmers do not have the access to sell directly to the consumers. The middle men dictate the prices. Most farmers have little idea of how much these produce are sold to the final consumer.

2. The product is not unique and farmers are more than the middle men who sell to the final consumer.

3. The quantity bought also portrays the middle men as large companies to the farmers. The Agric industry has many small farmers supplying the product and buyers or middlemen are few and large in size. Hence, they have little negotiating power as the farmers and several competing farmers are trying to sell similar products to one large buyer.

1. This is because the cost of startup especially as an investor is high. The machines and equipments needed to start up is expensive, access to the seeds is also on the rise.

2. Government intervention in agriculture also helps with the starting up through the tax holidays, grants and loans, subsidies and research institutes.

3. There are no permits or licenses patent to any farmer or company for the production of certain produce and hence everyone can participate.

4. Customers have very little loyalty for the farmer as many a time the produce come out the same with the same quality.

5. The farming process is easily learnt for some types of produce but a bit more complicated for some other types of produce.

6. The customers do not lose anything switching from one customer/supplier/farmer to another.

Threat of new entrants in the sector is medium

Threat of substitutes for the produce is low



1. The product doesn't offer any real benefit compared to other products. What will hold your customers if they can get an identical product from your competitor?

2. It is easy for customers to switch.

3. Customers have little loyalty as price is the customer's primary motivator.

1. One farmer or many small farmers have incentive to enable them grow and expand through the grant and subsidies, the tax holidays and reduction export duties.

2. There are high fixed costs of production and this is not relative to the number of farmer products harvested. The companies are pushed to produce larger volumes and hence compete with each other on price.

3. Products are perishable and need to be sold quickly due to lack of supporting infrastructure and storage systems.

4. The products are not differentiated and hence farmers have to compete on price.

5. Customers can easily switch between products.

1. The inputs required such as the animal infants and the feeds are available to the farmers.

2. Most of the farmers have direct access to supplies and are not always under pressure to buy inputs.

3. The farmers can negotiate on the price.

1. The farmers need little or no infrastructure to help them in the preservation of their produce.

2. The product is fairly unique and demand is higher than the supply of this produce.

3. The quantity bought by consumer or middle men is also small due to lack of storage and infrastructure for transporting from place to place before it gets to the final consumer.

1. This is because the cost of startup especially as an investor is not too high.



4. Customers have very little loyalty for the farmer.

Rivalry among competitors is high

LIVESTOCK FARMING

Bargaining power of suppliers is low

Bargaining power of buyers is low

Threat of new entrants in the sector is high:

5. The farming process is easily learnt for some types of rearing.




3. Customers have little loyalty because price is the customer's primary motivator.


2. There is a low fixed cost of production, however, farmers are sometimes pushed to produce larger volumes and hence compete with each other on price.

3. Products are not perishable.



1. The inputs required such as the feeds and fingerlings are available only from a small number of suppliers. The inputs generated by the farmers locally are not sufficient for exports farming or large scale farming and hence limits their production capacity.

2. The feeds and fingerlings required are unique, difficult to generate, requires a high level of technology in some cases and hence making it costly to make and reducing the number of suppliers and hence making it expensive to switch from one supplier to the other.

3. Most of the farmers do not have direct access to the suppliers and where they do the volume they buy at a time is not significant, as they are not the largest and only buyer.

4. The farmers cannot negotiate on the price as they do not understand the technology or the process of making this feeds in huge volumes.

1. There is little or no infrastructure to help the sellers in the preservation of their produce hence creating price crash as the farmers want to sell as much as they can of their produce while it's still fresh and most farmers do not have the access to sell directly to the consumers. The middlemen dictate the prices. Most farmers have little idea of how

Threat of substitutes for the produce is low.

Rivalry among competitors is medium

FISHERIES FARMING

Bargaining power of suppliers is high

Bargaining power of buyers is medium

RECENT EVENTS much these produce are sold to the final consumer.

2. The product is not unique and sellers are more than the middlemen who sell to the final consumer.

3. The quantity bought also portrays the middle men as large companies to the farmers. The Agric industry has many small farmers supplying the product and buyers or middlemen are few and large. Hence, they have little negotiating power as the farmers and several competing farmers are trying to sell similar products to one large buyer.

1. This is because the cost of startup especially as an investor is not too high.



4. Customers have very little loyalty for the farmer.

5. The farming process is easily learnt for some types of rearing.




3. Customers have little loyalty because price is the customer's primary motivator.


2. There is a low fixed cost of production, however, farmers are sometimes pushed to produce larger volumes and hence compete with each other on price.

3. Products are not perishable.



Threat of new entrants in the sector is high

Threat of substitutes for the produce is low.

Rivalry among competitors is medium

November, 2015: President Buhari launches N20bn loan for rice farmers

http://www.vanguardngr.com/2015/11/buhari-set-to-launch-n20bn-loan-for-rice-farmers-on-Tuesday/

October, 2015: AfDB unveils plan to empower Nigerian women in agriculture

http://www.afdb.org/en/news-and-events/article/afdb-unveils-plan-to-empower-nigerian-women-in-agriculture-14890/

October, 2015: Lifting of the ban on the importation of rice.

The recently launched N20 Billion naira Anchor Borrowers' Program (ABP) which is an initiative of the Central Bank of Nigeria is aimed at creating an Ecosystem to link out-growers(Small Holder Farmers) to local processors. The ABP will enable the government to loan local farmers at a single-digit interest rate of 9.0% to address the issue of poor funding.

The office of the Special Envoy on Gender (SEOG) and the Department for Agriculture and Agro-industry (OSAN) of the African Development Bank (AfDB) commissioned a report, “Economic Empowerment of African Women through Equitable Participation in Agricultural Value Chains”. The study, which was launched in Abidjan, Côte d'Ivoire, in August 2015, identifies opportunities for women in four subsectors including cocoa, coffee, cotton and cassava sectors in Côte d'Ivoire, Ethiopia, Burkina Faso and Nigeria, respectively.

According to the report, Nigeria represents Africa's top producer of cassava with 53 million tons in 2013 – about 20% of global cassava (approximately USD 16 billion in value); however, the country only exported USD 1 million worth of the staple. The global production of cassava was valued at USD 51 billion in 2013 – the highest production value (USD 35 billion) of the four sub-sectors featured in the report, but signifying the lowest export value (approximately USD 1-2 million).

“Nigeria is the largest producer of cassava in the world, but that doesn't mean anything if we don't lift women out of poverty. I want us to be the largest processor of cassava in the world as well, and this can be done by adding value to our products and moving women up the value chain,” said Akinwumi Adesina, President of the African Development Bank.

The Nigeria launch of the report took place in Abuja on October 19, 2015, with the AfDB's Country Director for Nigeria, Ousmane Dore, calling on partners to act on the findings.

“Our objective for commissioning the study was for the African Development Bank to play a decisive role in contributing to the economic empowerment of African women in agriculture,” said Dore. “This event is a call for all our esteemed stakeholders to join forces in a discussion on to how to take this work forward.”

The comptroller-general of Customs, Col. Hameed Ali (retd), has ordered the immediate removal of rice from import restriction list and the re-introduction of import duty payment at land borders.



The public relations officer of Customs, Mr Wale Adeniyi, who made this known in an interview with the News Agency of Nigeria (NAN) yesterday in Abuja, said that the restriction was only applied at land border stations before now, adding that the customsboss had lifted restriction on rice at border stations.

Adeniyi said that all rice imports through land borders by rice traders would attract the prevailing import duty of 10 per cent, with 60 per cent levy. He added that rice millers (preferential levy) with valid quota allocation would also attract duty rate of 10 per cent with 20 per cent levy on rice importation.

“Over the years, importation has been restricted to the seaports because border authorities have found it difficult to effectively monitor and control importation of rice.

Governor el-Rufa'i made this known while declaring open an international workshop on biofuel production technology, which took place at the National Research Institute for Chemical Technology (NARICT), Zaria.

Represented by the Permanent Secretary of the state Ministry of Science and Technology, Dr. Madina Shehu, el-Rufa'i said the government intends to upgrade that initiative into a full scale commercial outfit. “In line with this initiative, the state government is on the process of constructing another plant at Unguwan Mu'azu to produce bio-diesel from Jatropha Curcas,”.

The Director General of NARICT, Professor Idris Bugaje, in his remarks, advocated for inclusion of biofuel training at the undergraduate, National Certificate in Education (NCE), National and Higher National Diploma levels in order to address the country's renewable energy challenges. The don said it is imperative for the country to give emphasis to research on biofuel in view of the fact that renewable energy plays critical role in national growth and development of countries world over, adding that the sector can create job opportunities to the army of the country's unemployed youths.

Bugaje urged the federal government to prioritize the completion of the Petroleum Training Institute, Kaduna, which was started by late President Umaru Yar'adua, but abandoned after his death. He also called for the renaming of the institute to Petroleum and Biofuels Technology Training Institute (PBTTI) in order to expand the mandate of the institute to include biofuel.

Syngenta Nigeria Ltd., a seed company, on Tuesday launched a new pesticide product known as Ampligo and two tomato hybrid seeds for use by Nigerian farmers.

Speaking at the launching in Abuja, DrShachi Sharma, Director, Syngenta Nigeria Limited, said it was part of the company's commitment to play a leading role in the transformation of Nigerian

http://leadership.ng/news/465635/customs-lifts-ban-on-rice-import-across-land-borders

July 2015: Kaduna State is now producing fuel from sugarcane

September 2015: Syngenta launched Ampligo to combat Tuta Absoluta

http://www.dailytrust.com.ng/daily/index.php/agriculture/58833-kaduna-is-now-producing-fuel-from-sugarcane-el-rufa-i

agriculture. Sharma said that the pesticide was not only the best in the world, but it was simple and provided solution against many insects destroying crops.

``Ampligo is a simple and fast acting crop protection product for use any time against insect pests, especially against Tutaabsoluta. Tutaabsoluta is a deadly pest, that if not controlled can destroy up to 100 per cent of tomatoes in the field.

``Thousands of Nigerian farmers have suffered great loss due to this pest and Ampligo is here to provide an effective solution to their problem. ``Ampligo works against a wide variety of sucking and biting pests in vegetables, potatoes and field crops, giving up to 21 days protection,'' he said. Sharma further stated that Syngenta Ltd., was also launching Chibli, a tomato hybrid variety for farmers, who grow for both home and industrial use. He said that the variety was grown well across multiple agro-ecological zones and had high solid content, suitable for tomato paste processors.

Sharma said 'Kilele,' a second hybrid tomato variety, had high quality hybrid that could be harvested over a 10-week period compared to the local varieties that spent just four weeks. ``This long harvesting period extends farmers' sales window and increases their ability to optimize their return,”

The food items banned from Europe till June 2016 are beans, sesame seeds, melon seeds, dried fish and meat, peanut chips and palm oil. The European Food Safety Authority had said that the rejected beans were found to contain between 0.03mg per kilograms to 4.6mg/kg ofdichlorvos pesticide, when the acceptable maximum residue limit is 0.01mg/kg

The EU had warned Nigeria that the banned food items constituted danger to human health because they “contain a high level of unauthorized pesticide“. It said it had issued 50 notifications on this to Nigerian beans exporters since January 2013. The pesticide contained in the food items is applied when the products are being prepared for export.

Bauchi State Director in the Federal Ministry of Agriculture, Alhaji Mohammed Yusuf, has described as successful the 2013/14 E-Wallet System of fertiliser allocation and distribution in the country.

To this end, he said, the Federal Ministry of Agriculture is soon to introduce the National Agricultural Payment Initiative (NAPI) as a boost to the e-wallet system geared to biometrically capture the data of all farmers under the scheme

“There is also this new programme that is coming up, the National Agricultural Payment Initiative (NAPI) in which we are going to capture biometrical data of all farmers which is an improved version

http://www.nannewsnigeria.com/seed-company-launches-pesticide-new-tomato-hybrids-farmers

EU bean ban hits Nigeria's farmers

http://www.vanguardngr.com/2015/08/eu-barns-nigeria-from-exporting-beans-melon-seeds-dried-fish-meat-others-containing-pesticide-concentrate/

September 2015: Federal Ministry of Agriculture is soon to introduce the National Agricultural Payment Initiative (NAPI)

INVESTMENT OPPORTUNITES

of the e-wallet system.”

“Under the new system, cards will be issued to farmers with national identification numbers. It is a smart card just like the ATM cards whereby at any given time farmers can access inputs without problem of network, they can go into banks and make transactions using Point of Sale (POS) machines, they can access loans, and so forth.”http://www.thisdaylive.com/articles/agric-ministry-introduces-new-measures-for-fertiliser-allocation/219855/

With renewed interest in the agricultural sector, currently over $8 billion in executed letter of intent (LOI) from over 30 private companies in the world have being attracted to the agricultural sector. During the 2014 world economic forum key issues of relevance to this sector was unfolded. The Staple Crop Processing Zones (the country has completed fourteen such zones) and the partnership for high energy nutritious food drew attention to the sector. Nigeria is getting launched back into agriculture on a global level. The country seeks to add 20 million tons to food supply and create about 3.5 million jobs via agriculture. Mckinsey estimates $ 263bn USD by 2030 in the agricultural sector.

The agricultural potential of Nigeria is barely being tapped and this explains the inability of the country to meet the ever increasing demand for agricultural produce. Although the agricultural sector remains a dominant employer of labour, serious investment is needed across the board to enhance production and increase the contribution of the sector to GDP. Investment is required in the following priority activities:

The market for the production of livestock and fisheries has got a huge potential and continues to grow on a yearly basis. The cost of start-up is very low and the business can be scaled progressively upwards depending on the change in demand.

The opportunities in the food processing is enormous as the average demand for processed consumables is on the increase due to changing life-style due to significant increase in the middle income level earners. Similarly, investing in preservation and storage facilities will improve the shelve life of the products thereby reduce and preventing loss of products due to spoilage. This is a significant value add to the farmers which will be embraced to improve efficiency.

A strategic alliance with the manufactures either directly or through the Manufacturers Association of Nigeria (MAN) will guarantee a ready market for the agricultural produce and simultaneously help industries to have direct and cost effective access to these raw materials.

Logistic within the country is facing a lot of challenges due

1. Livestock and fisheries production

2. Food processing, preservation and storage

3. Supply of agricultural produce as raw materials to industries

4. Transportation and logistics support

to dilapidated infrastructures and this presents an opportunity for investment. An agricultural producelogistic company will go a long way to helping farmers and meeting the needs of moving produce from the farms to the market.

The availability of the right variety of seedling is a major issue that has affected the Nigerian agricultural industry. This situation has made local agricultural produce less competitive in the international market. Partnering with established seed producing companies as a distributor is an opportunity that will meet the needs of the farmers and ensure this seedlings get to the very rural communities. The availability of the right tools that will support best practices and boost the yield of farmers is a bane in the local agriculture industry and this represents an opportunity for investors.

This ensures round the year farming and is especially needed for regions with a continually changing weather condition. This will also help areas with flooding and drought with an effective irrigation system

The enormous rain forest of Nigeria is a proof of the supportive weather condition enjoyed by the forestry; this promotes availability of timber for furniture, paper and other manufacturing industries.

This is an untapped area that will grow as the average life style of Nigerians improves as a result of increase in the middle-income earners. The society is gradually beginning to appreciate beautification of the interior and exterior of houses with flowers and ornamentals. The demand is projected to increase overtime.

The huge population of the country provides a ready market for agricultural produce; this ensures food security and also promotes the provision of industrial raw materials to ready and available market. The population of Nigeria is expected to grow significantly and this will lead to more demand for agricultural produce.

5. Agricultural inputs supplies and machinery

6. Green-house and water resources development

7. Optimization of timber and wood processing activities

8. Growing of flowers and ornamentals for commercialpurpose

9. Large-scale crop production



VALUE CHAIN ANALYSIS

INDUSTRY CHALLENGES

The process remains largely unchanged irrespective of the sub-sectors. Some processes are integrated by some companies, while the necessity of some products causes them to skip certain steps. This has been tabulated below according to the different areas of the industry to identify the players in each point of the value chain.

INPUTPRODUCERS FARMERS

AGRODEALERS

AGROPROCESSORS

TRADE &EXPORT

FORESTRY

FISHERY

LIVESTOCK

CROPPRODUCTION

Licensed growers Licensed growersLicensed growersand fallers andlumber companies

Lumber companies, furniture companies, paper companies, pharmaceuticals

Furniture retail companies, lumber companies

Feed manufacturers, cage producers, veterinary doctors and medicines

E.g. Obasanjo Farms, Sebore Farms, Anadariya farms, Jovana Farms

Usually individuals, farmers associations, processors

Butcher houses, meat factory, poultry eggs, lactose related products, restaurants & fast food outlets

Retail outlets, superstores, food markets, restaurants, fast food outlets

Feed manufacturers,Pond builders

E.g. Ojemai Farms, Jovana Farms


Food companies, packaged food companies



Food and drink companies, packaged food and drink companies


E.g. Dengula Farms, Ajanla Farms,

Fertilizer, chemicals, seed makers, equipment manufacturers

Knowledge Gap

Getting Credit

Inadequate Storage Facilities

One major challenge of the agricultural sector in Nigeria is the knowledge gap that exists in the industry. This had led to rejection and wastage of various agricultural products. This challenge could be traced to the poor preservation techniques, seedlings planted, the crude for agro processing techniques, certification and standardization of products, the value chain of various agro products etc.

Access to credit facilities has been a major issue in the agricultural industry in Nigeria today. Due to the nature of the industry, creditors find it a high risk to invest in the Agricultural sector. Credit where available comes at very high rates which erodes the farmer's margin and defeats the purpose of the investment.

Lack of Safe and efficient storage system to ensure continuous supply of agricultural commodities in the market also contributes to the inadequacies of storage systems. This is very inadequate and ineffective. Even if the total production of food seems adequate at the aggregate level, it will not lead to significant improvement in food security unless the food is available for consumption at the right time and in the right form.

Whereas food must be consumed on a daily basis, production has a different specific time profile. Storage and processing are critical in ensuring that the commodities produced at a particular period are available for consumption whenever and wherever they are required. A significant quantity of products harvested in Nigeria perishes due to lack of storage and processing facilities. Simple, efficient, and cost effective technologies for perishables, such as roots, tubers, fruits and vegetables, are not as highly developed in the country compared to the storage technologies for cereal grains and legumes. Consequently, post-harvest food storage losses are very high, approximately 40 per cent for perishables, compared to cereal grains and pulses at about 15%. Traditional storage facilities have certain deficiencies, including a low elevated base giving easy access to rodents, wooden floors that termites could attack, weak supporting structures that are not moisture-proof, and inadequate loading and unloading facilities.

Infrastructure in this instance is construed to include physical infrastructure, such as roads and railway system, educational and health facilities, social services such as potable water and electricity and communication system. Agricultural performance in Nigeria is greatly impaired by the low level of development of infrastructure. In the rural

Infrastructure inadequacies

areas where majority of the smallholders operate, inadequate infrastructure constitutes a major constraint to agricultural investment, production and trade. In many parts of the country physical and marketing infrastructure is poorly developed, storage facilities are rudimentary and access to information and markets is highly restricted. The situation represents the urban bias in the pattern of development in the country. Infrastructure inadequacy is mirrored by restricted access to the markets, which limit the availability of agricultural products in many areas, and reduces farmers' income. The Infrastructure constraint has persisted due to government neglect, poor governance, poor political leadership, poor maintenance culture and poor funding. In terms of road facilities, the efforts of the Agricultural Development Programs, the Directorate of Foods, Roads and Rural Infrastructure, the National Agricultural Land Development Authority and the Petroleum Trust Fund have not been sustained to ensure good road networks in the rural areas where the bulk of agricultural activities take place. In addition, the railway system that is expected to provide relief has been comatose for years thereby restricting the movement of agricultural inputs and outputs to the road transport system. The constructed roads do not often last for more than three to five years before they start to crumble due partly to poor maintenance culture. As regards educational and health facilities, these are largely urban-biased. Supply of potable water has not been adequate for a majority of rural dwellers. Electricity supply is often epileptic and communication system is still poor. Although recent expansion of the Global System of Mobile Communication (GSM) infrastructure and Internet services has improved the communication situation somewhat, the services are urban-biased and too expensive for the average people

The productivity from the seed our farmers plant today is much less than it used to be. This has severely affected the productivity and profitability of the crop production sector.

Technical constraint in Nigeria affects both the upstream and the downstream segments of agriculture. The constraint manifests in poor technology, poor quality of raw materials and inadequate supply of modern inputs. The main causes of the constraint include low support from government, poor government policy, poverty, low level of awareness, lack of adequate research and increasesin the prices of inputs. Poor government support and poor government policy prevent the emergence of innovations from research institutes, thereby curtailing the level of available technically feasible and efficient agricultural practices. Even when they are available, there seem to be communication gaps between farmers (end-users of research efforts) and the researchers. The existence of unified agricultural extension system notwithstanding, there is still poor coordination between researchers, extension agents and farmers. This situation is worsened by the low extension-farmer ratio, which hovers around 1 to 1000. The poverty incidence among farmers, which is the highest in the economy, also contributes to the persistence of technical constraint in Nigeria. Thus,

Quality of seed/raw material

Outdated agricultural technology

farmers are unable to take up new innovations aimed at boosting their productivity and, by extension, their output. The low level of productivity translates to a vicious cycle of poverty, thereby leading to low level of production. The technical constraint is further sustained by high input prices, which is a consequence of inflation in the economy as well as the dependence of the agricultural economy on foreign inputs.

The political climate in Nigeria is such that every new administration will change the policies enacted by their predecessor and this instantly destabilizes the system. Earlier attempts at improving agricultural production in Nigeria such as the operation feed the nation, the green revolution program and other laudable interventions in the agricultural sector emphasized increased production without commensurate efforts at post-harvest management and industrial utilization. Most of them handled the various aspects of the post-harvest system such as processing, packaging, marketing, storage, distribution and transportation in isolation from one another. There was no effort to make the system comprehensive and holistic in its management. Also, industrial utilization of agricultural commodities is constrained by inadequate linkage of agriculture to industrial sector. Each program followed haphazard implementation that creates more problems without achieving anticipated goals. Although, most of the programs yielded seasonal increases in agricultural output, inefficient and ineffective post-harvest management and generally low level of industrial utilizations have always resulted in substantial agricultural wastages, food losses, reduction in available food, restriction in its spread over the year, and also reduction in employment and rural income. The difficulty confronting the local industrial utilization of agricultural commodities is how to initiate and sustain the momentum for diversification of raw agricultural commodities into agro-industry for transformation into high value added products in order to realize and optimize high growth potential that undoubtedly exists in agricultural commodities. This remained worrisome by the dilapidating state of rural infrastructures that hampered effective linkage of agriculture to the industry. This undoubtedly makes investment unattractive to the private sector and thus limiting agricultural development in the country. Excessive dependence on a narrow range of products as sources of income and foreign exchange earnings bring about a number of unfavorable consequences on the economy. Firstly, it exposes farmers unduly to the vagaries of climate, pests and diseases and to price fluctuations. Secondly it leads to fluctuations in farm income and government revenue. Thirdly, it contributes to environmental degradation. Fourthly, it may result in failure to take advantage of complementarities (e.g. between livestock and crops) and has negative effects on diet, food security and welfare of Nigerians. In addition, an adverse international term of trade facing the primary agricultural commodity sector is a further constraint to growth of the sector. There is a clear need to diversify production and export

Inconsistent agricultural policies/ Inadequacies in past policies and programmes



RECOMMENDATIONS

base, both horizontally and vertically, from low value added to high value added products. High growth potentials and opportunities available in diversifying agricultural commodities to agro-industry for generation of high value added products had been limited and thus underexploited in Nigeria due to irregular supply of raw materials from the agricultural sector to the agro-industrial firms.

Development of Farm Estates:

Provision of appropriate seedlings:

Investment in research and development:

Some state governments like Ogun, Lagos, Osun and Abia states have commenced plans to create/revitalize the farm estates in their states. However, there is the need for private investors to step into this opportunity. Farm estates are large allocations of land designated for the use of farmlands. Land is divided and allocated to farmers who cultivate these lands. Amenities are provided for the famers such as a market for their produce, accommodation for the farmers and farm workers, banks etc. In turn, the farmers can leverage off themselves, agricultural institutions and related agencies such as Institute of Agricultural Research and Training (IAR&T), National Institute for Horticulture (NIHORT), Cocoa Research Institute of Nigeria (CRIN), International Institute of Tropical Agriculture (IITA), and Forestry Research Institute of Nigeria (FRIN)

A fruit is only as good as the seed planted. One of the major problems being faced by exporters of agricultural produce is the quality of products being exported. The issue of food quality needs to be addressed and one of the ways to do this is to provide farmers with quality seedlings. Certain species of products being cultivated in Nigeria do not meet the international standards on food quality hence produce exported by Nigeria gets rejected by European countries. Also this would help facilitate better storage of food and livestock produce and prevent wastage.

The significance of research and development as a driver for innovation cannot be over emphasized. Despite having arable land in Nigeria, we have not gained economies of scale and as such the level of activity in the agricultural sector in the country is yet to translate to earnings. We export raw materials of low value, the buyers of our exports process our raw materials reaping both the byproducts and the main export. We end up importing finished products made from our raw materials at exorbitant prices losing both ends. We keep giving away our competitive advantage remaining in the vicious circles of poverty. Again some of our seedlings do not meet international specifications and their shelf life is very low. For instance, the specie of tomato, pineapple and palm kernel planted in Nigeria has a lower acceptance level and as such commands less earnings in the global market. A huge investment in research and development by the private sector in agriculture would lead to insight into the market demands, value chain of the various products as well as developinginnovative technological advancement and efficiency promotion in the sector.

Promoting education and training: The transfer and communication of knowledge in the agricultural sector would help ensure more effectiveness and productivity in the sector. The business world should seek to find a link with the academic world to ensure that the required information and skill set needed for agro-businesses to thrive is transferred and as such applied in businesses. As illustrated in above, R&D coupled with training would not only ensure productivity of the agricultural sector but also increase the earnings recorded by the sector and its contributions to GDP. We will stop exporting our raw materials and rather export finished products hence we gain competitive advantage and adequate returns on investment.

Financial Services

INDUSTRY REPORT 2016 | FINANCIAL SERVICES17

The Nigerian financial system encompasses various institutions, instruments and regulations. According to Central Bank of Nigeria (1993), the financial system refers to the set of rules and regulations and the aggregation of financial arrangements, institutions, agents that interact with each other to foster economic growth and development of a nation. The financial system plays an important role in the organization and apportionment of savings for industrious purposes. It also assists in the diminution of risks faced by businesses in their production processes, improvement of portfolio variation, and protection of the economy from external shocks (Nzotta, 2004). In addition, the system provides connections for various sectors of the economy and supports a high level of specialization and economies of scale.

The Nigerian financial system can be categorized into two sub-sectors: the formal and informal sectors. The informal sector has no formalized institutional framework, no formal structure of rates and comprises the local money lenders, thrift collectors, savings and loan associations and all forms of “Isusu” associations (Nzotta and Okereke, 2009). According to Olofin and Afangideh (2008), this sector is poorly developed and not integrated into the formal financial system, therefore, its exact size and effect on the economy remain unknown and are a matter of speculation. The formal sector on the other hand comprises of bank and non-bank financial institutions. Bank financial institutions are the deposit-taking institutions. As financial intermediaries, they direct funds from surplus economic units to deficit ones in order to expedite trade and capital formation. They include central bank, commercial banks, development banks, co-operative

and commerce banks, etc. while, the non-banks financial institutions include; the money markets, capital markets, insurance companies, pension fund administrators, etc. These institutions are not deposit-taking institutions, butsome perform intermediation functions of directing fundsfrom surplus to deficit units for economic activities, e.g. Money and Capital markets. The regulatory institutions in the financial system are: the Federal Ministry of Finance, Central Bank of Nigeria as the apex institution in the money market, the Securities and Exchange Commission (SEC) for the capital market, the National Pension Commission (PENCOM) for pension fund administrators; Nigeria Deposit Insurance Corporation (NDIC), and National Insurance Commission (NAICOM).

In many countries, the insurance industry is a major driver of financial activities and actively plays an increasing role in stable and efficient risk diversification thus, contributing vastly to economic development. However, in the case of Nigeria, the insurance sub-sector appears to be playing a passive role in economic development- trailing behind in major policy reforms required for harnessing the huge economic potential that remains largely untapped in the industry. In addition, the sector has attracted relatively large volumes of foreign private investments in recent years owing to the nation's population, its emerging middle class and lingering low insurance penetration. Putting these together, a solid justification can be formed for focusing on this industry. This report will explore the industry's current status, a discussion of weaknesses and opportunities that exist and recommendations going forward.

INDUSTRY ANALYSIS: NIGERIAN INSURANCE INDUSTRY

REGULATORY ENVIRONMENT

MARKET STRUCTURE & INDUSTRY PERFORMANCE

Nigerian insurance activity is regulated by two main Acts and supervised by NAICOM. The Insurance Act, No. 1 of2003 (IA) governs the licensing and the operation of insurers, reinsurers, intermediaries and other providers of related services. Insurers must be established as limited liabilities companies under the Companies and Allied Matters Act, 1990, with the exception of the National Insurance Corporation of Nigeria (NICON) and Nigeria Reinsurance Corporation.

The National Insurance Commission Decree, No. 1 of 1997 (NA) established NAICOM as the supervisory institution with power of inspection, remedial and enforcement actions, and composition of fines. Functions of NAICOM include licensing; approval of premium rates, commission rates and policy terms and conditions; and protect policy holders and beneficiaries to insurance contracts.

The Nigerian insurance sector comprises of insurers, reinsurers, brokers, agents and loss adjusters. According to NAICOM, there are 41 insurers, 2 reinsurers, 420 brokers,

2450 agents and 50 loss adjusters.

The Nigerian Insurance Industry contributes less than 1% of the nation's gross domestic product in a country of about 180 million people. This performance has been blamed on the nation's low income per capita ($1092 per annum). However, although 70% of Nigerians are poor (National Bureau of Statistics), the population's top 20% -responsible for 59% of national consumption expenditure.

2010

2012

2011

2013

2009

LIFE NON-LIFE TOTAL ASSET GROWTH

-

0%

6%

14%

12%

586,459.54

585,015.79

621,095.14

710,627.24

793,879.74

388,350.69

391,741.60

407,432.22

497,799.43

526,277.81

198,108.85

193,274.19

213,662.92

212,827.81

267,601.93

In spite of the challenging landscape of insurance in the country, the industry recorded N319.1 billion in 2014.

From the available records, the total assets of the insurance sector rose from N488bn in 2008 to N793.6bn at the end of the first quarter of 2015.


COMPETITIVE ENVIRONMENT

PRODUCT RANGE

Barriers to Entry (High)

Bargaining Power of suppliers (Medium)

Bargaining Power of Buyers (Medium)

Sources of entry barrier in the industry are few but highly significant and they include: capital requirements and the industry's feature of regulators. As at 2003, the minimum capital for insurance companies was 150 million Naira, 200 million Naira, 350 million Naira and 350 million Naira for life insurance, general insurance, composite insurance and reinsurance, respectively. In 2005, this was increased to strengthen the inefficient and rather weak industry and companies were given 18 months to implement this. The new minimum capital became 2 billion Naira for lifeinsurers, 3 billion Naira for general insurers and 10 billion Naira for reinsurers. The sector is highly regulated through the issuing of licenses by the National Insurance Commission (NAICOM), whose function is to ensure effective administration, supervision, regulation and control of insurance business in Nigeria.

There are different categories of suppliers. They include:

- Suppliers of Capital comprise of investors (both private and public). There are numerous suppliers in this category and are not as concentrated as in the industry to which they sell to. This category is one of the industry's most important suppliers.

- Suppliers of Infrastructure: this category features few suppliers and they are as concentrated as the industry to which they supply. They are also as important as the suppliers of capital.

The following conditions contribute to industry buyers' power:

- Higher proportion of buyers being corporate bodies,

owing to statutory obligations. - Products purchased from the industry most times represent a significant percentage of the buyers' cost.

- Profits earned from this sector are very high.

- Buyers' ignorance of the roles and importance of insurance; scope of benefits as well as terms and conditions of policies.

In this industry, the threat of substitute is very low, considering that there are none.

The intensity of rivalry can be attributed to the following reasons: slow industry growth and lack of differentiation in product offerings. Over the years the industry has experienced lingering growth, evidenced by a penetration of 0.6% compared to the 3.3% African average. In addition, there are quite a number of players in the industryand their survival depends on the ability to capture market share thus, contributing to intensity of rivalry. Furthermore, products are perceived as commodities and customer choices are determined by price.

Threat of substitutes (Low)

Industry Rivalry (High)

Available products in the industry include compulsory and non-compulsory products. Compulsory products are hose made compulsory by law with the aim of providing protection to third parties and the general public. Compulsory insurance is of six types: - Builders Liability – under the Insurance Act 2003/under the Lagos State Building Control Law 2010 - Occupiers Liability – under the Insurance Act 2003 and Lagos State Law - Employers Liability – (Group Life) – under the Pension Reform Act 2004 - Employers Liability – under the Workmen's Compensation Act 1987

- Healthcare Professional Indemnity – under the NHIS Act 1999 - Motor 3rd Party Liability – under the Insurance Act 2003

This is a type of insurance that all owners or contractors of buildings under construction (more than 2 floors), must purchase to provide compensation in event of bodily injury, death and property damage to workers at construction sites and affected members of the public following collapse of the building and other construction risks. A penalty fee for non-compliance is N250, 000 plus 3 years imprisonment, record of conviction, sealing-off and demolition of the building are the penalties provided under the Federal and Lagos State laws.

This is a type of insurance that all owners or occupiers of public buildings, are required to provide under the National Insurance Act 2003 and the Lagos State Building Control Law 2010. A “public building” is any building that is not 100% used by the owner for residential purposes according to the Nigeria Insurance Act 2003. Public buildings include tenement houses, hostels, residential buildings occupied by tenants, lodgers or licensees, and any other building to which members of the public enter and exit for the purpose of educational, recreational or medical services (e.g. schools, cinemas, hospitals, malls, petrol stations, etc.).

Occupiers Liability Insurance provides compensation in events of bodily injury, death and property damage to the business users and members of the public in case of building collapse, fire, earthquakes, storm or flood. The penalty for non-compliance is N100, 000 plus 1 year imprisonment, and sealing-off or demolition of the building under the federal and the Lagos State laws.

This is a type of insurance that all employers of labour with more than 4 employees are required to have (stated under the Pension Reform Act 2004). The law requires the employers to have insurance that will provide for compensation in the event of death, disappearance, disability, or critical illness suffered by staff while in service and to subsidize pension provision in the event of mental or physical disability. This law applies to both public and private sector employees. This means that employees (and their families) have the right to demand compensation and payment from their employers in the event of injury or death. The penalty for non-compliance with this law is N250, 000, record of conviction. In addition, the business premises may be sealed up.

This type of insurance focuses on factory workers (including domestic servants and apprentices) and all other categories of employees. The law requires employers to have insurance that will provide compensation for workers that suffer from injury, contract diseases or die in the course of employment. This means that employees (and their families) have the right to demand compensation and payment of medical expenses from their employers if they

Builders Liability Insurance

Occupiers Liability Insurance

Employer's Liability (Group Life) Insurance

Employer's Liability (Employee's Earlier Compensation) Insurance

suffer injury, sickness or fatality while working for the employer. It also protects employers from the risk of large claims for injured employees. The penalty for non-compliance is twice the amount that would have been paid as premium.

This is a type of insurance that all medical professionals, institutions and centres are required to have under NHIS act 1999 section 45. The law requires all medical institutions registered under the NHIS and working therein. It provides compensation for the NHIS patients who suffer Death, Sickness, Permanent Disability, Partial Disability and Injury from mistakes, negligence, errors of commission or omission of medical practitioners and institutions. The penalty for non-compliance with the law is Personal prosecution for involuntary murder and/or revocation of the permit of medical institution.

This is a type of Insurance that is compulsory for all owners of Motor vehicles whether private or commercial. The law states that “no person shall use or cause or permit any other person to use a motor vehicle on a road unless a liability which he may thereby incur in respect of damage to the property of third parties is insured with an insurer”. Motor vehicle 3rd party liability provides compensation in the event of death, bodily injury, and property damage to members of the public. The penalty for non-compliance is a fine of N250, 000 or imprisonment for 1 year or both.Non-compulsory insurance products are not required by law. They include but are not limited to the following: - Fire/Special Perils Insurance – This covers damage or loss to property resulting from about 26 perils including Fire, Flood, Earthquake, Lightning, Explosion, Riot, Storm, Civil Commotion, etc. - Burglary or Theft Insurance – This covers damage or loss to property as a result of burglary or theft.

- Accident, Death & Disability Insurance - This covers economic loss to the insured (and relatives) as a result of personal bodily injury, disability or death.

- Child's Education Insurance – This insurance provides for primary, secondary and/or tertiary education of children whether the parents are dead or alive.

- Household Contents Insurance – This covers loss or damage to clothes, shoes, jewelry.

- Goods-In-Transit Insurance – This covers loss or damage to goods being transported from one place to the other either by rail or road.

- Life Protection Insurance – This covers Income, Mortgage, etc.

- Professional Liability/Product Liability Insurance – This type of insurance covers one's business or product by providing for economic loss in the case of claims by consumers/clients.

Healthcare Professional Indemnity Insurance

Motor 3rd Party Liability



RECENT EVENTS

Takaful Insurance and Strategic Partnerships for Retail Insurance

NAICOM and Federal Mortgage Bank Of Nigeria (FMBN) Strengthen Partnership

Selling an insurance policy to the average Nigerian was almost impossible some years ago but, this has improved slightly over the years. This slow progress can be attributed to factors such as religious beliefs, size of disposable income, perception of insurance, degree of financial literacy, etc. Patronage largely came and still comes from corporate bodies and government agencies. Retail has experienced growth but still has a long way to go. The industry is still broker-dominated, as insurance brokers play a central role in the sector, accounting for as much as 70%-90% of industry revenue. Brokers act as intermediaries between the corporate organizations and insurance companies; underwriting contracts and contracting the underwriting policy to insurance companies. Although regarded as significant influencers, their activities have been fingered to be contributing to stifling insurance penetration.Over the years, insurers have made efforts to improve the retail segment. According to Auwalu Muktari (Group Executive Director, Royal Exchange Plc) with the coming of retail businesses set up by the various underwriters and micro-insurance, insurance awareness will get to the common man at the grassroots and it will be embraced as a way of life. Many insurance companies are re-strategizing and working towards capturing the retail market segment. This has led to the birth of new products to meet the needs of the underserved market. Some of these newer insurance products include micro insurance, designed for low-income consumers. These products feature policies that are easy to understand, low premiums and room for customization as well as simple collection and claims processing.

In 2015, NAICOM introduced Takaful insurance as part of efforts towards promoting inclusive insurance participation in Nigeria. “Takaful” is an Arabic word meaning “guaranteeing each other” or “joint guarantee”. It is a practice where individuals in communities guarantee themselves against loss or damages. Takaful insurance is said to be the opposite of conventional insurance hence, the commission's perceived attractiveness to Nigerians irrespective of religion. While conventional insurance entails insuring assets without losses, Takaful insurance ensures reimbursement of extra funds made by the insurer to contributors if no losses were recorded at the end of the year.

The dynamics in the retail market is also undergoing changes as underwriters now seek to directly promote and distribute their products to consumers via strategic partnership with corporates, community-based organizations, micro-finance banks, non-governmental organizations, religious organizations and other employers of labour.

In 2015, the National Insurance Commission (NAICOM) and the Federal Mortgage Bank of Nigeria (FMBN) agreed to work together towards ensuring that all mortgages are

properly insured. Both regulatory agencies further agreed to enforce compliance with Section 5(2) of the NHF Act, which "prescribes that every registered insurance company shall invest a minimum of 20 percent of non-life funds and 40 percent of life funds in real property development of which not less than 50 percent shall be paid into the NHF through FMBN."

The landmark partnership would provide mutual benefits to both parties by helping on one hand, to boost insurance penetration and the other hand, provide scarce funds required by the National Housing Fund to enable it try to bridge the huge housing deficit.

The Commissioner for Insurance/Chief Executive, National Insurance Commission (NAICOM), Mr. Mohammed Kari, the agency would adopt the name-and-shame policy in trying to restore sanity to insurance practice in the country. He said the proposed strategy would among other things deter bad behaviour among operators in the industry. He stated that the chief executives of all insurance companies in the country had agreed to the policy which would have names of defaulting operators publicized to keep them “away from doing bad.” He also argued that NAICOM had been able to restore some measure of consumer confidence in the industry through recent policy initiatives including an outright directive to settle all legitimate claims. He also said some of the recent negative publicity about the industry was largely based on perception. He said: “You find the majority of people that tell you insurance is not good don't even have an insurance policy, it's just what somebody told them or what they've heard and they amplify it without having a personal experience.”

The International Labour Organization (ILO) has helped Nigeria and 15 other countries in developing their markets through its Impact Insurance Facility to garner an all-inclusive insurance and sharing of good practices among African countries. The ILO has in tandem with this, substantially supported market development activities in Tanzania, Morocco, Kenya, Mozambique, Ethiopia, Zambia, Senegal, Ghana, Pakistan, Indonesia, Bangladesh, Colombia, Dominican Republic, Peru and Brazil. It was in the course of this that the organization entered into partnership with African Reinsurance Corporation (Africa Re). The team leader of 2016 ILO's Impact Insurance Facility, Mr. Craig Churchill said the ILO has substantially supported market development activities in those 16 countries. He said that the partnership between the ILO's Impact Insurance Facility and Africa Re will develop the capacity of insurance providers to offer valuable insurance products to the financially excluded population, and is enabling the insurance sector, governments, and their partners to realize their potential by promoting impact insurance. He recounted that ILO's Impact Insurance Facility in 2015, witnessed an exciting transition after years of pushing the frontiers of inclusive insurance by supporting innovations, adding, “We switched gears and started to proactively promote the

NAICOM to Adopt Name-and-Shame Policy for Erring Insurance Operators

The International Labour Organization (ILO) impacts insurance in Nigeria, 15 other countries

experiences of leading insurance providers, and the lessons they have learned, to enable others to follow suit without reinventing the wheel or stumbling over the same obstacles. “It would allow us to compare countries and identify the most promising strategies for particular ones. We have therefore designed a country-scoring tool which assesses insurance markets in terms of both quality and scale.” Throwing more light on the partnership, Mr. Michal Matul, Chief Project Manager of the ILO's Impact Insurance Facility said the partnership between the ILO's Impact Insurance Facility and Africa Re will develop the capacity of insurance providers to offer valuable insurance products to the financially excluded population, and will promote cross country collaboration and sharing of good practices among African countries. “We are thrilled to collaborate with Africa Re to extend better insurance coverage to more low-income households, small enterprises and smallholder farmers. We believe that Africa Re's relationship with the insurance industry and governments across the continent will provide a strategic entry through which we can jointly promote the impact insurance agenda,” said Matul.

NCRIB Set To Re-enlist 21 Delisted Broker by NAICOMIn January 2016, the President of the Nigerian Council of Registered Insurance Brokers (NCRIB), Mr Kayode Okunoren, announced the re-enlisting of 21 of its

members de-listed from practice in 2015.According to him, the council had opened dialogue with the National Insurance Commission (NAICOM) on the issue. He added that NCRIB is determined to restore the businesses of its de-listed members to make them contribute to nation building.

He applauded NAICOM's efforts at sanitizing and repositioning the insurance sector but argued that more was expected from the regulator. “This council is not opposed to NAICOM's plan to sanitize the industry but we are not happy that the final and official list of de-listed companies did not get to NCRIB before being published.

“It is only 21 out of the 108 delisted brokers that are registered members of NCRIB. “I said and repeat, 80 per cent of delisted brokers are not members of NCRIB and we don't have members that flaunt regulatory requirements.” Okunoren said, however, that the council had kicked off the first phase of its engagement with NAICOM to bring delisted members back to reckoning. “All things being equal, we expect them to be back in business by March.”

He appealed to NAICOM to ensure sustenance ofcommunication channels with the council. “In other words, our members should be notified in good time on any aspect of compliance in which they are on the wrong path.''

OPPORTUNITIES IN THE INSURANCE VALUE CHAIN

Val

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Val

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Su

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Data Analytics

Company Infrastructure (Finance, IT, Risk Management)

Reinsurance

Human Resources Management

Product/ServiceDevelopment

- Underwriting- New Products- Product Management- Delivery Channels- Research- Prevention & - Mitigation

Marketing& Sales

- Promotion- Target Markets- New Customers- Cross Selling- Up Selling

PolicyAdministration

- Transaction Processing- Payments

Claims/BenefitsManagement

- Claims Submissions- Claims Settlement- Payment- Fraud

AssetManagement

- Portfolio Management- ALM- Risk Analysis

The Insurance Value Chain

Opportunities identified in the value chain are as follows:

Competitive success in the insurance industry globally is based on the innovative efforts of today designed to favorably influence the operating models, processes, products and customer relationships in the future. Availability of operational support options permits businesses to compare providers, analyze the insurance value chain and identify efficiency, enhancement and organizational transformation opportunities. Outsourcing is one mechanism to achieve these gains. An outsourced claims management process can transform an insurance

Outsourcing of Claims management process

company, but it necessitates careful planning, partnering, transition and execution with great skill.

Outsourced processes are typically offered through either “full service”, “prime vendor with subcontractors” or “selective” outsourcing arrangements. Outsourcing organizations can gain process capabilities through joint ventures, groups and other resource-pooling models. Further, an organization that offers an internally-built to the marketplace in effect creates an independent profit center, responsible for delivering services internally and externally.


KEY CHALLENGES

RECOMMENDATIONS

IT infrastructure

Social media for Marketing and Customer Relationship Management

Communication and information technologies have had astonishing impacts in developing countries. Subscriptions for mobile phones in developing countries grew from a few hundred million at the beginning of the century to three billion in 2008, and in Africa there are on average 40 mobile phone subscribers per hundred people. The spread of the internet is lagging behind mobile phones but is showing similar growth trends.

The internet, mobile phones and chip cards have the potential to reduce costs and increase the outreach of micro insurance throughout the supply chain. Agents and clients can submit applications electronically, policies can be automatically generated and distributed online, and electronic/automated premium payments will all further increase efficiency. For example, Tata AIG in India already provides online information, application forms and premium calculators for its micro insurance products. Additionally, Microcare in Uganda provides online client registration and application forms. A significant benefit in the move from paper-based to electronic processing is the quick generation of detailed data, which allows for better mortality and morbidity studies, better pricing and broader understanding of the risk within a particular market. If used effectively, it can offer the potential to create products that are better fitted for a market. Clearly if micro insurance is to reach massive numbers, technological innovation will make it happen.

Social media can be used in:Researching products: With the growth of internet usage and activity on social media, countless lives are “going” digital. In view of this, consumers are tending to conduct price comparisons when researching products (including insurance). They're also asking questions through social media, to their connections and friends, seeking advice on benefits, reliability of insurers, etc.Obtaining quotes: Some insurers are using new technology like phone applications to generate, buy and renew insurance quotes. Service policy: Social media allows for interaction with customers, and vice versa. This can enable insurers learn more about their customer's needs and educate them about the best policies, the benefits of their current policies etc.

Renewal/Terminate policy: Websites can be used to fulfill consumers' renewal and termination needs, thus the same potential is available for insurers to use social media as a means to improve renewal numbers.

Over the years, the Nigerian insurance sector is largely focused on corporate businesses. The retail insurance market is limited with a key barrier to the expansion of this market, being a lack of trust. Since 1987, the government has made 6 products mandatory, including

third party motor, health care indemnity, group life, builders' liability and occupiers' liability; yet enforcement of compulsory insurance is a big challenge. Of concern is the high incidence of fake compulsory insurance, such as third party motor vehicle insurance. These products are sold by companies that have not officially registered as insurance companies and therefore will not make any insurance pay-out. In principle, they only sell the insurance certificate so that motorists can show their certificates and are not liable for fines. Earlier research (World Bank, 2008) estimated that 60-80% of all motor vehicle insurance policies were provided in this way and recent industry conversations and press articles suggest that the practice is still rife.Seemingly comfortable in the corporate niche, the insurance market has generally been relatively slow to innovate and to meet the challenges of expanding the market to the low income segment. In addition, the large-scale roll-out of insurance products is complicated by the absence of a well-established payment infrastructure. Most premiums are collected on an annual basis and collecting premiums in cash is reportedly the single biggest challenge facing the retail insurance market. Due to the challenges of cash collection (most notably getting customers to make cash premium payments on a regular basis), insurers typically have a preference for direct debit collection. In Nigeria, however, direct debits are not feasible at scale, since only 30% of the population are banked.

According to the financial inclusion theory, drivers of exclusion relate to either usage or access factors. Access barriers include: physical proximity, affordability, eligibility, appropriate product features/terms and regulation. Should either of these criteria not be met, it will not be possible for the person to access the service. Usage barriers involve the exercise of judgment by individuals on the value of the product and its ability to meet their needs based on their experience and knowledge. Sometimes a person may have access, but still choose not to use financial services. Usage drivers may include: the level of financial literacy; the value proposition of the formal product; relative cost (e.g. compared to informal alternatives); the “hassle factor” (e.g. of filling out forms); and perceptions of and lack of trust in formal products and institutions.In a survey by ELFINA, usage barriers accounted for 84% of reasons for not being insured. Of this, 36% cited lack of knowledge of benefits as the reason for being uninsured. This suggests the essential need for a massive orientation of consumers if insurance penetration is to improve.

Strategic investment in IT infrastructure is required in order to achieve bigger scale and leverage the potential in the country's population. Consider the Indian and Ugandan examples stated earlier (opportunities in the value chain).

Intensification of Consumer Orientation Campaign

Strategic Investment in IT infrastructure


Strategic Partnerships

Social media for Market Research and Customer Relationship Management (CRM):

The banking industry has conducted strategic partnerships with other industries such as telecommunications, mortgage, automobile retail, etc. in a bid to increase deposits and interest income. The insurers can also tow this route by exercising creativity in partnerships in a bid to increase premiums.

Industry players should consider using social media monitoring to listen to find out what's being said about their products. This will help to assess both the positive and negative perceptions of the products and how this influences the research stage of the customer value chain. If they're not being talked about perhaps, this is an indicator that marketing and promotional activities need to be reassessed.Insurers should consider enabling current and prospective customers' access to price and data information on the go, considering the continual increase in use of mobile devices. This could be particularly valuable for travel and car insurance companies.Insurance companies need to assess the best way for engaging with their market and audience. The best way to do this is to come up with a social media management plan and a content strategy that is personalized, useful, relevant and targeted.Social media can be particularly valuable in disseminating useful information that could help to reduce claims. Claim handlers could also mine Facebook, Twitter and other social networks to assess the legitimacy of claims based on the data, comments and conversations of the claimant.One of the main benefits of social media is the potential to gather valuable CRM data. For the insurance industry this could be information like renewal dates, policy types etc. If this information is gathered then engagement could revolve around not only acquiring new customers, but targeting them before their renewal date to encourage them to renew the policy, or change to a different one, rather than terminate.


The Fast Moving Consumer Goods (FMCG) sector of theNigerian economy has faced a lot of challenges in the lastthree years and no significant improvement has beenexperienced up till February 2016. The challenges whichare a direct result of unfavourable macro-economic factorshave grossly reduced this sector records of losses by mostkey factors – depreciating Naira, delay in appointment ofministers to run the economy, the adamant governmentposture concerning devaluation, falling oil prices and non-payment of workers' salaries.

KEY PLAYERS

COMPETITIVE ANALYSIS - PORTER’S FORCES

Changes in consumption pattern can be measured byconsumer price index (CPI), which shows changes inprices paid by consumers for a basket of goods andservices. Given the recent uncertainties rocking theNigerian economy, it would be pertinent to consider the

The performance of FMCG firms is inextricably linked tothe aggregate spending power in the economy, and withthe Nigerian economy hit by these macro-economicfactors, FMCG firms have particularly been hurt badly.This report unravels the ills this sector has suffered inrecent past and a way forward in the near future, up till2020

price index in the face of inflation and other realities.

The graph below shows the trend of CPI betweenOctober 2014 and September 2015.

To thoroughly review the industry, the Porter's Five Forcesframework would help us get a good understanding of thefive basic areas – barrier to entry, bargaining power of

buyer and supplier, intensity of rivalry and threat ofsubstitutes.

Barriers to entry: Entry into the FMCG industry ishampered by high capital required for equipment and land

procurement and maintenance, government regulations forthe industry (NAFDAC and SON), the technical skills and

INDUSTRY REPORT 2016 | FMCG28

the expertise required is also high. However, with the rapidentry to market of small indigenous companies, themultinationals cum big players constantly lose market shareto the small players in the rural areas. We consider thebarrier to entry medium.

Bargaining power of suppliers: Raw materials used inthis industry are dependent on the agricultural sector. Asimple analysis of the agricultural industry reveals that theindustry has few regulations and as such, there are noestablished structures for pricing. Buyers of this industry,like players in the FMCG industry, are therefore at libertyto dictate prices that are favourable to them. Also, becausethere is a proliferation of suppliers in the Agriculturalindustry, there is competition between the suppliers andthere exists, no monopoly among these suppliers. All thesecontribute to reducing the bargaining power of suppliers.

Bargaining power of buyers: Buyers in the FMCGindustry include distributors (wholesalers and retailers) andindividual buyers (customers). In its sales to Businesses anddirect-to-customers, FMCG companies are faced with theissues which arise based on the proliferation of the differentbrands of FMCG products in any given territory. Thisproliferation ensures that switching costs from one brandto another are very low for customers. This therefore entailsthat customer retention is usually low for the industry andas such, players in this industry constantly seek methods ofretaining customers including price reductions, concertedefforts on marketing and advertisement. All these lead tohigher costs of operation and lower revenues for thebusiness. This may translate to low margins for theindividual business and the industry as a whole. Therefore,the high bargaining power of the customer is largely due tothe existence of several brands of any one product.

Threat of Substitutes: Key segments in the FMCGindustry are household care, personal care and food andbeverages. Especially for the household care and the foodand beverages segments, FMCG products are consideredessential for daily living. Products such as bathing soap,body cream, toothbrush, toothpaste, beverages and milkare included in this category. For most of these products,their substitutes are within the agricultural sector. Forinstance, chewing stick is an alternative for toothpaste and

toothbrush, fruit is an alternative for fruit drinks, softdrinks and confectionaries, palm wine for alcoholic drinks,shea butter for body cream and so on. Certain otherproducts within this industry generally have substitutesthat are within the same industry. For instance, as analternative for sanitary pad, toilet paper or tissue, which isanother product of the FMCG industry, can be used. An informal study of the purchasing patterns ofconsumers have shown that, consumers purchaseagricultural products for other purposes (example is thepurchase of fruit for healthy living), rather than assubstitutes to FMCG products. Also, due to increasingurbanization and the ensuing fast paced environment,consumers have a tendency to focus on products and mealsthat require little or no processing time rather thanagricultural products that may be time consuming toprocess and/or use, e.g. chewing stick, pieces of materialused instead of sanitary pads, etc. Following this analysis,it is safe to say that despite the existence of potentialsubstitutes to FMCG products, these substitutes have littleeffect on the industry, as such, the threat is considered aslow.

Intensity of rivalry: Since the beginning of the discoveryof the growth potential in the African market with SouthAfrica and Nigeria at the Centre of it, numerous FMCGcompanies have been established in Nigeria. Currently,there are over 100 FMCG companies in Nigeria givingroom for intense rivalry for margins, market share andcustomers.

CHALLENGES IN THE INDUSTRY

Many local and multinational consumer companies arealready thriving in Africa and delivering handsome returnsto their shareholders. However, to succeed, consumercompanies must address five major challenges, some ofwhich are usual to businesses operating in other emergingmarkets.

- Heterogeneous market structure: Nigeria has severalmarkets with large disparities in the demographics; there isa large difference in the spending power and consumerbehavior, so a one-size-fits-all approach will not work in allthe markets.

- Varying affordability levels: Ninety-five percent of thepopulation and 71 percent of the income remain at thebase of the pyramid. Companies thus will not be able tobuild sizable businesses through premium goods alone;they will have to reinvent their business models to deliverthe right products at the right price point.

- Underdeveloped distribution and route to market:Modern trade is still nascent in most of Africa. Thetraditional mom-and-pop shops, open markets, umbrellavendors, and the like dominate the retail scene, making upmore than 85 percent of the trade volumes. Poor roadsand infrastructure can make delivering products toconsumers a daunting task, so companies must buildstrong sales and distribution networks by leveraging a mixof third-party, wholesale, and direct-distribution models.


- Nascent categories: In Africa, many categories still arenot fully developed. Data about consumers' needs andbehavior are scarce, making it harder to develop specificconsumer insights. Competing in Africa therefore is not ashare game. Rather, companies need to bring a market-development mind-set, investing in consumer educationand nontraditional marketing techniques.

RECENT EVENTS

Companies in the FMCG sector have seen their bottomline crumble as a result of the macroeconomic challengesprevailing in the country. Firms in the industry have beenfacing challenging times since 2015; with the continuousdepreciation the Naira and the steady inflation, the inabilityof state governments to pay workers' salary and the recentthreat of a 45% hike in the price of power supply, theplayers have had a hard stone to grind. Investor confidence,though quite unpredictable, Nigeria is yet to witness anyform of capital flight despite the macro-economicheadwinds which has reduced investor value in the financialmarkets. The oil price slump which the government solelydepend on for its purchasing power is said to be the first ofheadwinds prevalent in the country – as at the time of thisreport, the oil price had fallen to as low of $25 barrel.

VALUE CHAIN

- Talent shortages: Despite the abundant workopportunities, talent remains scarce across Africa. Trulycompeting and winning in the long term, however, willrequire local know-how and talent. Local capability-buildingprograms, attractive career paths, and apprenticeshipopportunities will be critical to achieving long-term success.

Furthermore, the decline in the country's foreign reservesled the CBN to shore up the value of the fast weakeningnaira. The devaluation of the naira followed, which led tohigh rise in the cost of imported raw materials. Prior to this,FMCG firms faltered on high energy costs and theinsurgency in the northern part of the country. This can beseen in the plunge in FMCG firms' net profit for 2014financial year and even the first quarter of 2015.

Cadbury Nigeria for instance posted a loss of about 90%in the first quarter of 2015, Nestle also recorded a top linedecline of -17.6% which is its lowest top line in 13 quarters.Dangote Sugar's after tax profit fell by 29 percent. Thispoor performance of these FMCG firms can be attributedto the low purchasing power in the economy.

INBOUNDLOGISTICS(QualityControl,Scheduling)

OPERATIONS

(Manufacturing,production,packaging,maintenance)

OUTBOUNDLOGISTICS

(Dispatch,Shipmenthandling,Delivery)

MARKETING& SALES(Market Research,Sales Strategy,Promotions etc)

POST SALESSERVICES

(CRM,CustomerService)

GENERAL MANAGEMENT, ACCOUNTING & FINANCE

HUMAN RESOURCES, STAFFING & CAPABILITY BUILDING

TECHNOLOGY & RESEARCH & DEVELOPMENT

PROCUREMENT & SUPPLY CHAIN MANAGEMENT

MARGIN

OPPORTUNITIES EXISTING IN THE VALUE CHAIN

To win in the FMCG sector, companies have to lookbeyond core activities of the industry. Special attentionmust be paid to four key areas:

a. Market research for consumer insight: Companies in this sector need to give a keen focus to their marketing function, using it as a tool for sustainable competitive advantage. Companies that will win must be at the fore of observing consumer behaviours and making changes to attributes of their products that suit the changing consumer requirements.

b. Capability Building: Human resource is the biggest competitive asset in the arsenal of any business that seeks to survive in the new global competitive landscape. Companies need to revive their commitment to growing and constantly developing their talent pool that not only adapts to the changing operating climates, but is also actively involved in shaping the market

dynamics of the industry.

c. Supply Chain: A focus on improving companies' supply chains, due to the import dependency of the industry is expected to be a key priority for winners in this sector of the economy. Integration of supply chain into corporate strategy, investments in information systems, and coordination with marketing activities are key innovations that would be critical in delivering value to the supply chain of these companies. To stall future adverse effects of weak currency (Naira to Dollar depreciation), companies should consider strategic investments in the supply chain so that all raw materials can be sourced and produced locally.

d. Sustainability: Closely tied to supply chain management above is sustainability. At the fore of the campaign for sustainability is Nestle who have aided their suppliers through training and investment


CONSUMER INSIGHTS

NIGERIAN CONSUMER CHARACTERISTICS

IMPLICATIONS OF CHARACTERISTICS

RECOMMENDATIONS

support for them. They have also reached memorandum of understanding with the suppliers such that they would have a steady demand and supply beneficial to both parties. FMCGs should focus on developing the supply chain through backward integration thereby creating sustainable long term businesses for the society.

Owing to the unpredictable macro-economic environmentof Nigeria which has been facilitated by the drop in oilprices and the accompanying devaluation of the currency,change in Government and its accompanying drop ineconomic activities and investments, consumer spendingand effective purchasing power has greatly reduced.

The result of the analysis conducted as at January, 2015 byTrading Economics, which captures the prevailingeconomic situation in the country, shows consumerspending dropping from over 18 million in July 2014 to justa little over 15 million by January, 2015. A further drop of3 million was observed in July, 2015.

Correspondingly, this drop has led to reduced margins forfirms, especially in an industry characterized by its lowmargins, led to increased operational costs for industriesand a reduction of wages, as well as an increase in prices ofgoods and services.

With the reduction in consumer purchasing power on onehand, and the consistent increase in prices on the otherhand, there is a need to understand arising consumerbehaviour.

Generally, the consumers in Nigeria are: - price sensitive - increasingly seek convenience and speed of service - increasingly focused on value for money (in terms of a higher quantity for less price, good shopping environment and shopping experience) - increasingly health conscious - increasingly shop at neighbourhood kiosks or independently owned convenience stores - increasingly women due to an increase in the inclusion of women in the workforce which has led to higher salary earnings for women - increasingly have smaller family sizes - highly optimistic about their economic future - seek affordable and available products.

1. Inclusion of women in the labour force due to smaller family sizes and urbanization, has led to an increased consumer market in Nigeria.

2. Due to the fact that Nigerians are highly optimistic about their economic future, they are seen in most cases, to spend unlike rational consumers. Nigerians spend above their income levels, funded by friends, family, acquaintances and in rare cases, loans etc.

3. Due to the increasing demand for value for money, convenience and speed, consumers make the choice of shopping in nearby kiosks and open markets.

4. The price sensitivity of the Nigerian consumer entails that in the face of the prevailing economic situation, the added expense of added value on service is considered a luxury. Therefore, consumers may be less willing to pay for expensive products and increasingly willing to buy goods that are considered affordable.

5. Due to the fact that consumers seek available products, they may react to product stock-out by purchasing a similar available product.

To gain competitive advantage in this industry, werecommend that firms should focus on the followingeconomic trends;

- Growing population: Nigeria's population is expected to grow at 3% per annum. This means that by 2020, Nigeria's population will be about two hundred and ten million (210,000,000) people. This guarantees increase in revenues if a company plays its cards well.

- Growing middle class and the quest for quality and sophistication by the consumer. This growing middle class income earners will mainly be comprised of youths between the ages 18-40. This affords companies in the FMCG to channel their focus wisely in the market place because this middle class consists of about 40% of the population.

- Rate of urbanisation: It has been forecasted by United Nations survey that about 60% of Nigeria will be urbanised by 2050. Nigeria is said to add about 212 million people to its population by that time. With urbanisation comes better infrastructure thus the challenge of underdeveloped distribution routes would long be solved.

- Rapidly evolving shopping habits: With the spate of globalization, Nigerians are catching up with the trends of time and this has equally influenced shopping habits. A lot more people aspire to shop in recognized centres as well as identify with brands that appeal to them. Most Nigerians buy things, not for functionality but for status.


STRATEGIC ROAD MAP

- Growing family income especially with wives/mothers now active in the labour force. A McKinsey report shows that more African countries are fast out-growing the destitute level of income of less $1000 per year. The middle income level has expanded up $25,000 per year. This is good news for the FMCG sector.

- Ever-increasing health consciousness in the urban areas in Nigeria. Any FMCG company that overlooks the place quality assurance and management may not live to tell the story. This is especially so because of the rate information travels in this age because social media platforms. A product can lose its value once it loses credibility on the social media. So for companies to play profitably, they must watch out the health behaviour of the target consumer.

To develop a winning strategy, more recommendationswould be discussed in four (4) broad aspects:

(a) Customer Value Proposition (DPSM): To serve their customers satisfactorily, FMCG companies must lay emphasis on the channels and how the channels are managed; Distribution: FMCG companies must lay focus on the channels that deliver more value to the company and not just create presence. There are products manufactured and packaged for certain class of customers thus be treated that way. Pricing: Given the price sensitive nature of the majority of the Nigerian consumer, FMCG companies must focus on getting their pricing right. They must master and maintain a flexible pricing strategy. Shelving: A product that is not properly shelved loses value. Most buyers buy products that are in the eye level, thus, if your products don't get a good shelf share, such would lose sales over time. Merchandising: Another strategic sales focus for FMCG is merchandising. Companies that get their merchandising right will win in the market place all the time.(b) Key Resources: To get the entire sales strategy right, there must be qualified and well-trained sales personnel. Companies that invest in the capability development of its staff – especially sales and marketing stand the chance of having a long term winning strategy. Smart and well-trained personnel are the originators and drivers of successful companies. At the fore-front of this is Procter and Gamble, who is foremost in capability development.

(c) Key Processes: Branding cannot be over-emphasized in the FMCG sector. This starts from the quality of products that are made to the quality of packaging that it comes in. Many FMCG companies in Nigeria have learnt hard lessons from product lines that had quality issues. In recent times, many companies

(d) Sustainability: To win in this highly commoditized

market, companies would have to invest in the future of their businesses by supporting their supply chain. This would improve goodwill, profit sharing and a better society rid of unnecessary violence and unrest. Also, with the spate of globalization and ever increasing need for environmental protection, future-focused FMCG companies must pay attention to corporate social responsibility as this would be a major source of competitive advantage.

NIGERIA TODAY & IN THE NEAR FUTURE

A McKinsey report holds that Nigeria can live up to its economic potential and make growth more inclusive, which can bring more Nigerians out of poverty and up to the McKinsey Global Institute (MGI) “Empowerment Line”—a level of income and access to vital services that provides a decent standard of living. The Empowerment Line, we believe, provides a more realistic picture of well-being and development progress than common poverty measures, which tend to be based on pure income metrics, usually $1.25 per day in purchasing power parity terms in 2005 prices.

Among the major findings of this research: - Since 2010, Nigeria's GDP growth has been driven primarily by improving productivity, which has contributed 55 percent of total growth, more than labour-force expansion.3 Most GDP growth is coming from beyond the resources sector, which is now just 14 percent of GDP. However, historical weaknesses in the agricultural sector and a poorly functioning urbanization process have prevented most Nigerians from benefitting from this growth. Poverty has barely declined, and approximately 130 million Nigerians, or about 74 percent of the country's population, live below the Empowerment Line.

- Nigeria has the potential to expand its economy by roughly 7.1 percent per year through 2030, raising GDP to more than $1.6 trillion in 2030. This could move Nigeria from being the 26th-largest economy today to a top-20 economy by 2030 and would potentially make it bigger than the Netherlands, Thailand, or Malaysia. Trade and infrastructure represent the majority of the growth potential, likely contributing about a third of GDP expansion through 2030. In addition, we estimate that nearly 120 million Nigerians could move above the Empowerment Line and 70 million could be lifted out of poverty if growth can be made more inclusive than it has been.

- Nigeria is developing a large consuming class. By 2030, some 160 million Nigerians (out of a projected population of 273 million) could live in households with sufficient incomes for discretionary spending. That would be more Nigerian consumers than the current populations of France and Germany combined.6 Therefore, we estimate that sales of consumer goods could more than triple by 2030, to almost $1 trillion. To succeed in Nigeria's evolving consumer markets, companies will need to deal with a fragmented wholesale and retail


environment that favours local players. New players will need to manage distributors effectively and take a city- level view of markets.

RESOURCES i All pictures in this document were downloaded from Google Images ii United Nations Survey, http://esa.un.org/unpd/wup/highlights/wup2014-highlights.pdf iii McKinsey &Company, MGI_Nigerias_renewal_Executive_Summary.pdf


Oil & Gas

OIL & GAS INDUSTRY IN FIGURES

The Nigerian Oil and Gas industry is one of the most viable industries in the economy, responsible for over 70% of the country's revenue from exported products. In the past three decades, the industry has been of strategic importance to the country's economy as it accounts for about 90% of the country's total earnings from foreign exchange. The government-regulated Oil and Gas industry comprises three major sub sectors: upstream, midstream and downstream, with the involvement of local and international private-owned companies.

Ranked the 13th largest producer and 8th largest exporter of oil in the world, Nigeria's current production averages about 2.55million barrels of crude oil per day, with the selling price of Brent at about 34.5 dollars per barrel as at the third week of February, 2016. Currently, refineries are able to produce up to 6.76 million barrels per day from combined capacities of the three refineries in Kaduna, Porthacourt and Warri.

In 2010, the Federal Government of Nigeria passed the Nigerian Content Act in a bid to develop local content. Due to the resulting asset sharing amongst local and international players, there was significant growth in the industry, attracting about $5 billion in investment. However, due to global oversupply of crude oil and the rapid emergence of alternate forms of energy, this bloom in the industry has since waned significantly, with a

persistent decline in the price of crude per barrel, from >$100 in November 2014 to prices as low as $29 in 2016.

In addition to oil theft, vandalism and infrastructure gaps in Nigeria, this decline in crude oil prices has caused several International Oil Companies (IOCs) to suffer losses in investment. The IOCs have therefore sought to mitigate these risks by divesting from on shore assets to country's offshore concession, giving the indigenous companies the opportunity to acquire the unwanted assets and become key players in the upstream sub sector . Although the government is focused on growing local content, indigenous companies face similar challenges, even as they tackle the issues of funding while exploring the entire value chain of the oil and gas sector.

The downstream sub sector -the basis of this report- is particularly faced with high finance risks due to the current exchange rate volatility and irregular subsidy payments by the Federal Government. In other words, given the naira devaluation against dollars, banks are unwilling to fund the working capital that the players require to import refined crude products. Given that the bulk of these key players' revenue comes from subsidy, increase in petroleum imports at an expensive dollar rate will further reduce the already thin margins in the downstream sector.

INDUSTRY REPORT 2016 | OIL & GAS35

INDUSTRY ANALYSIS USING PORTER’S 5 FORCES

RECENT EVENTS

OPEC: Under Pressure With the dwindling price of crude oil, OPEC countries have reacted differently, causing the cartel not to function as it ought to. Saudi Arabia, Kuwait, Qatar and the UAE have been ranked as healthy states, with the capacity and wealth to increase or withold production- they are able to offer steep discounts to Asian crude buyers. The second group in OPEC has Algeria, Ecuador, Angola, Venezuela and Nigeria tagged as the declining producers, while the third group -comprising Iran, Iraq and Libya- is called “dysfunctional” (Iran, Iraq, Libya) because while they have the capacity to increase production, they suffer volatile economies due to their political climates.

NNPC RestructuringThe newly appointed Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) has started a restructuring process aimed at improving its processes and efficiency- the workforce is currently beingrightsized while projects and accounts are undergoing auditing.


RECENT GLOBAL TRENDS

VALUE CHAIN

VALUE CHAIN

The trends lead to a general conclusion that there is a need to increase efficiency and lower costs of exploration and production, mostly through automation and innovation.

Growth has slowed in China and the financial woes have continued in Europe. U.S. Energy Information Administration estimates that in 2014 the increase in the global supply of petroleum and other liquid fuels was almost twice the increase in consumption.

The European oil refining industry is experiencing a systemic crisis. Ongoing trends such as the decrease in US gasoline imports and the commissioning of new highly effective oil refineries in the Middle East and Asia will continue to have a long- term negative effect on European producers.

Maintaining oil production in Russia requires large-scale use of new technologies and supporting regulations. Projects currently planned are unable to compensate the production decline of brownfields. Without large-scale use of new technologies and supporting regulations, oil production in Russia will begin to fall in 2016-2017.

The Russian oil refining industry will undergo significant modernization but risks of gasoline deficits remain. Measures taken by the Russian government will promote modernization of domestic oil refineries but the situation concerning the automotive gasoline market will remain quite tense until 2016-2017.

Renewable sources, such as wind power, are becoming more economical and could crowd out fossil fuels. If wind is used for the production of one-tenth of the energy consumed globally, the production of up to one billion tonne of carbon dioxide can be reduced each year.

According to British Petroleum (BP), four-fifths of demand growth is currently attributed to emerging economies. But even their growing appetite for energy may subside at some point.

The development of extraordinarily efficient engines on equipment as varied as cars, earthmovers, and power plants have all combined to dramatically curtail the need for oil as electric cars begin to become more commonplace.

The development of horizontal drilling and hydraulic fracturing technologies have made profitable a significant amount of unconventional hydrocarbon reserves in the United States. This began with the active production of shale gas which led to the collapse of spot gas prices.

High oil prices in 2011-2012 forced many companies to start active drilling in unconventional reservoirs containing

Global economic weakness

Tougher fuel economy regulations

More viable forms of alternative energy

Efficient engines curtail the need for oil

Oil reserves- not so special anymore

liquid hydrocarbons. In 2011 the number of drilling oil rigs in the US exceeded the number of gas rigs. The United States increased its production capacity of oil and gas from Shale enabling it to cater for 90% of its energy needs in 2015 as compared to its 70% capacity in 2007.

The loss of the United States as a major buyer reduced the demand for crude oil significantly making suppliers tilt to other nations, with Asia at the top of the list. The reduced demand consequently caused the price of crude oil to fall steadily from $106.9 per barrel in July 2014 to $29 in February 2016.

The demand is still threatened as some countries in Asia - especially Japan- are making efforts to increase their reliance on natural gas and resume the use of nuclear energy.

The standard value chain for oil and gas sector runs through about five areas. It begins from exploration activities involving the search for oil resources, to production activities which entails exploitation of oil and gas.

Further activities include transportation of oil to refineries and finally to consumers, through various modes such as pipelines and vessels as well as road networks.

Refining involves the transformation of crude oil into finished products such as fuel, kerosene and diesel. The final stage is the distribution of finished products to consumers.

For natural gas, the activities also start with exploration just like in the case of oil, the next stage is drilling to bring gas to surface. Then the natural gas is processed before it is taken to the markets through various transportation means. The final stage is the distribution of the natural gas to the various consumers.

These activities in the oil and gas industry are presented in the charts below.

Along the value chain, opportunities exist in the refining of crude oil. Given the naira devaluation against dollars, importation of refined products will be more expensive, thus refining locally may lead to wider margins. In view of rapid development of alternate and more environmentally friendly sources of energy, as well as the increase in global oil production and exploration, the future demand for crude oil may fall. It is therefore important to develop alternate uses for crude oil by conversion to secondary and tertiary products.

There is clearly an opportunity in the gas sector. Nigeria has the largest natural gas reserve in Africa and exports the product to Europe through the NLNG. Further infrastructure

- Liquefied Natural Gas (LNG):


DOWNSTREAM SECTORS

development will however be necessary to facilitate business in this sector.

Nigeria is the third largest consumer of lubricating oils in the world, currently consuming about 386 million litres annually. There are 32 approved blending plants with a total installed capacity of 965 million liters per annum producing at 40% of installed capacity. The estimated market size was N250 billion in 2015, 175 billion in 2014 and N150 billion in 2013.

Major consumer segments include: - Automotive - Transport passenger cars, Buses, Trucks - Marine - Industrials - Manufacturing, Power generation, Agriculture, Construction ,Oil and Gas, Food and beverage

the current crop of refineries in Nigeria cannot meet the demand for petroleum products necessitating the importation of refined products. If marketers sourced their products from local refineries, the cost of products would be much lower; there would not be a need for the subsidy as competition would likely drive prices down to the benefit of the consumer. The current devalued exchange rate would offer an advantage for the export of these refined products as Nigeria's prices would be competitive in the international market.

Nigeria is the largest producer of LPG in West Africa and has an estimated reserves of 182 trillion cubic feet of gas. Nigeria has one of the lowest LPG consumption per capita in West Africa (1.1 kg) compared with other West African countries such as Ghana with 3.0kg; South Africa with 5.5kg; and Morocco with 44kg per capita. In Nigeria, 5% of households use LPG, 4% use electricity while 91% use biomass/solid fuels and kerosene for cooking. Only 8% of LPG produced in Nigeria is utilized domestically with 92% being exported.

With a potential consumption rate of 3.5 million metric tonnes, demand for LPG has been on the rise in the country necessitating an increase in its supply. The 250,000 metric tonnes of LPG supplied by the NLNG isinsufficient to cater for the needs of the country and marketers frequently experience shortages.

This offers an opportunity for entrepreneurs, investors etc. to become suppliers in this market which has the potential for high Return on Investment (ROI).

- Lubricants:

- Refining:

- Increased demand for Liquefied Petroleum Gas (LPG):

- Construction of petrochemical industries for transformation of crude into secondary and tertiary products that can be exported.

The downstream sector has different segments, including:

this is the first part of the value chain and it involves the transmission of crude oil and gas through pipelines or tankers to the refineries where they are processed. The Petroleum Product Marketing Company (PPMC) is responsible for distributing the crude oil to the country's refineries for processing.

at the refineries, crude oil is processed into other products such as fuels, lubricants and a variety of products which serve as input into the petrochemical industry. Nigeria has four refineries, one each in Kaduna and Warri with 110,000 and 125,000bpsd respectively; and two in Port Harcourt with a combined installed capacity of 210,000 bpsd.

this involves the transportation of refined petroleum products to storage/sale depots. The refined products are transferred through pipelines, coastal vessels, rail wagons, road trucks etc. The PPMC is also saddled with the responsibility of supplying petroleum products; through a network of pipelines, it supplies to about 21 regional storage/sale depots where Petroleum Marketers lift the products and deliver to their various retail outlets.

this segment handles the supply of natural gas from dedicated gas field and the distribution of these products to the end user. Currently, the Nigeria LNG (NLNG) is the major player in this sector and is an important supplier of LNG to European buyers. The products of the downstream sector

The primary fuels sold in Nigeria are the Premium Motor Spirit (PMS), Automotive Gas Oil (AGO), Kerosene (DPK) and aviation fuels. There is a huge demand for these products in the country, however the combined capacity of the refineries in the country cannot meet demand and marketers have to import fuel to meetlocal demand.

the market can be sectored into the Automotive segment (which is believed to constitute 80% of the total lubricant market) and the Industrial segment. Passenger cars, trucks and buses make up the bulk of the market for the product; other uses can be found in manufacturing, power generation and the Food and Beverage industry.

the market for this product is growing as people switch to the use of LPG which is considered a clean source of energy for domestic use.

- Transmission and conveyance:

- Refining:

- Distribution and Marketing:

- Liquefied Natural Gas (LNG):

Fuels:

Lubricants:

Liquefied Petroleum Gas:


INDUSTRY CHALLENGES

RECOMMENDATIONS

The current challenges faced by companies in the downstream oil and gas sector are highlighted below:

There may be possible reduction in the availability of bank loans and advancement to fuel marketers considering the uncertainty in subsidy payment which is a major revenue source to the marketers. Also, profitability is reduced due to increased cost of petroleum imports making the “thin margins” susceptible to further erosion by currency devaluation.

Fraught with positive and negative impacts, the benefits of “deregulation with regulatory controls” probably outweighs the risks. Possible benefits include attraction of investors, promotion of efficiency, stimulation of economic growth through innovation while saving the government from subsidy and other spending on the oil sector.

Oil prices have been known to be very volatile and this issue has affected the global oil market. The dip in oil prices has affected the oil industry in Nigeria, as most of the oil companies record reduced profits compared to previous years and in some cases, after-tax losses. This has forced oil companies to result to aggressive cost reduction in order to weather the storm. To successfully survive this, the industry must challenge itself to improve innovation, radical cost reduction measures, improved contracts, and improved efficiency, amongst others.

According to a report by Mckinsey global institute, the Nigerian oil and gas industry is expected at best to grow at about 2.3% till 2030 (natural gas is however expected to grow at 6%).

Most oil companies in Nigeria have dilapidated assets such as pipelines, depots, etc. This leads to very high operational costs and reduces efficiency.

Priority is given to the oil segment at the detriment of the gas segment. This poses a threat to the nation's gas production and income projections.

This is especially true of human capacity and capabilities, as there is a wide professional knowledge gap in the industry.

Because of the rigidity of structures put in place, a problem in one area can in fact lead to a complete shutdown of the nation's production and also affects exports.

- Impact of exchange rate fluctuations:

- Deregulation of the sector:

- Dip in oil prices:

- Slow growth in the Nigerian oil and gas sector:

- Ageing assets:

- Neglect of the gas segment:

- High tax and tariffs- Capacity constraints:

- Little or no flexibility in the mode of operation:

- Delayed contracting process

- Poor policy implementation

- Uncertainty due to new government: With the inauguration of president Buhari, there has been a lot of uncertainty as to the possible policies that may be adjusted or created. Also the appointment of the new GMD of NNPC, Kachukwu, also poses a lot of uncertainty.

Short term

Long term

- Innovative and strategic approaches to gain market position.- More proactive in engaging technological innovations(Training, research and development) to drive down operational expenses.- Mergers and alliances by smaller players to achieve economies of scale

- Reactivate old refineries and build new ones to facilitate local refining, avoid importation of products and lower dependency on foreign currency - Invest in infrastructure that will help monetise natural gasproduction from enormous amount being flared yearly(428Bcf representing about 15% of gas produced in 2013 was flared)- Invest in petrochemical industries capable of converting crude to secondary and tertiary products that are exportable giving the current fall in demand for crude.- Divest into production and exportation of other environmentally friendly energy sources such as ethanol currently used in developed countries, given that corn (used to produce ethanol) is widely available and can be easily cultivated in Nigeria.

http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Energy-and-Resources/gx-er-oil-and-gas-reality-check-2015.pdf, (2015). Oil and Gas Reality Check. [online] Available at: http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Energy-and-Resources/gx-er-oil-and-gas-reality-check-2015.pdf [Accessed 4 Nov. 2015].

www.dmflex.com, P. (2015). Kachikwu Unfolds Three-pronged Strategy for NNPC's Restructuring, Articles | THISDAY LIVE. [online] Thisdaylive.com. Available at: http://www.thisdaylive.com/articles/kachikwu-unfolds-three-pronged-strategy-for-nnpc-s-restructuring/217452/ [Accessed 4 Nov. 2015].Oyejide, T. and Adewuyi, A. (2011). Enhancing linkages of oil and gas industry in the Nigerian economy. 8th ed. Ibadan, pp.32-33.

Value Chain of the Oil and Gas Industry. (2015).

Nigerian oil and gas intelligence, financial issue 102, 134.

CNBC Africa, 2015 edition of annual Nigerian oil and gas conference


Telecommunication

Nigeria's telecoms sector experienced a revolution in 2000 following the deregulation of the telecoms sector by the then Obasanjo led administration. Before the introduction of the Global system for mobile communication (GSM) Nigeria's telecoms sector was monopolized and centrally managed by the government under the hospices NITEL.

The telecoms sector was in a dearth state, fraught with inefficiencies ranging from management, capacity, policy shortage, corruption and low telephony in relation to its population, only a selected few could afford the luxury of having a fixed phone at home or in offices-most telephone connection were found in government offices ,MNC's and official residences. Nigeria practically lacked a nationwide strategic plan for ICT-telecoms growth until 2000.

The introduction of GSM released a wide array of opportunities for Nigeria's economy, as penetration rose from 0.1% in 2001 to about 70% of the total population in 2015.The sector has since experienced tremendous changes. There are 4 major GSM operators competing for the overwhelming attention of the teeming populace as opposed to the monopoly enjoyed by NITEL, mobile phone usage led to an upsurge in value creation within this sector (over 100million people use a mobile phone),economic contribution to GDP posed an upward trend with the sector contributing about 8.47% to the GDP with a YoY 11% growth rate, the multiplier effect has also been evident in other sectors of the economy such as Finance, Utilities, Agriculture, Retail, Hospitality and entrant of new businesses.

Surpassing South Africa, Nigeria has become the largest mobile market in Sub Saharan Africa, with a subscriber base of more than 149 million and market penetration of 70%. With the support of strong regulatory environment, the country has witnessed an upsurge in the number of companies providing Value Added Services and basic telecommunication services. Thriving industries, such as agriculture, telecommunication, fashion are witnessing monumental increase in FDI as the global outlook on Sub-Saharan Africa countries especially Nigeria is positive. These can be attributed to the rebased GDP making it the highest in Africa and also the posture of the Buhari-led administration to counter one of the pressing issues of investment in Nigeria-corruption.

Due to unified licensing regime in the country, the competition level in the telecommunication sector has increased. With the declining ARPUs, telecommunication operators are diversifying their business by introducing new services to attract new customers and increase their market share.

The telecommunication sector has also brought increased level of FDI into the country. The private investment into the sector after the liberalization and deregulation thereof has increased from $1.2bn in 2001 to over $27bn in 2012 Q1 (According to the four major mobile operators they have deployed more than N 1 trillion into the industry). The continued aggressive move of the regulators to introduce a national broadband initiative for a wider coverage, faster and secure network has led to huge capital

inflow, furthermore the call to bid for communication infrastructure companies to invest in the Nigerian communication industry has improved the investment front. . This, in turn has led to a level playing field for establishing legal and regulatory frameworks as well as optimum utilization of abundant opportunities present in the sector.

Despite the gowth of the telecommunication industry and improved services, there is still a wide gap in telephone service delivery to rural areas and small towns, also the cost of voice and data service in relation to other African counterpart is quite high. The regulators are trying to tackle the issue by creating an OAM (Open Access Model) for a wider and secure reach thus far the plan is still in the offing.

THE OPEN ACCESS MODELThis is the model for optic fibre transmission network development to bridge the current gap and deliver fast and reliable broadband services to households and businesses. The model is also envisaged to address the challenges of congested and unplanned towns, the challenges around infrastructure sharing and other issues such as high cost of Right of Way.

The Open Access Model is expected to help optimize thecost of broadband access across Nigeria and ensure that all operators, whether large or small, have equal access to broadband infrastructure.CAPITAL IMPORTED BY SECTOR IN 2015 ($ million)

The figure above shows the value of capital imported by the top ten sectors of the economy in 2015. The green bars represent the sectors that have experienced a decline in the value of capital imported while the blue bars represent sectors that have appreciated values of capital importation relative to 2014.

The Telecoms sector attracted the largest capital investment in 2015 at $938.13 million, a slight decline from 2014 at $994.3 million which is in tandem with the general economic capital outflow.

INDUSTRY REPORT 2016 | TELECOMMUNICATION42

THE MARKET

GROWTH

PENETRATION

Nigeria's mobile market grew by 2.7% the fourth quarter of 2011 to reach 95.167mn active mobile subscribers, according to market data published by the market regulator (Nigerian Communication Commission). However it recorded greater gains between the end of the fourth quarter 2011 and that of the first quarter 2012. There was a net increase of 3.28 million subscribers. This is a 3.44% increase and it has brought the number of active subscribers on the networks to 98.56 million.

Although the mandatory SIM card registration exercise implemented by the NCC threatened to increase downward pressure on subscriber growth, we note that promotional activities by the operators in the run-up to the expiration of the SIM registration period has helped to attract a considerable number of new phone users. Meanwhile, seasonal demand during festive periods in the second half of the year also had a positive effect on subscriber acquisition.

The market penetration according to the regulator stands at 70% .The GSM segment continues to account for the growth in the sector as the CDMA segment (and fixed wired/wireless segment) keeps declining in growth rate and subscribers number. The 2015 report shows that the mobile segment stands at 98.52%, CDMA 1.36% and fixed/wireless at 0.12%. MTN has the largest market share with over 62million subscribers claiming 42% of the market, Glo and Airtel are competing for the second place with over 31million subscribers claiming 21% and Etisalat with 23million subscribers claim 16% of the

market. The first time there was a drop in the number of subscribers in the mobile GSM segment was Q211.

The tele-density measures the number of telephone subscribers per 100 people in a given region. The Nigerian Communications Commission calculates this figure based on the number of active subscriptions on mobile networks' rather than the number of connected subscribers which they had used in previous years. The NCC calculates its tele-density value based on a population of 140 million. In January of 2015, the Nigerian tele-density statistic hit a milestone figure of 100% with a total number of active lines of over 140 million. This meant that access to telephony services was growing deeper in the country.

Over the past few years, the fierce competition amongst Mobile network operators in the country has led to a price war within the sector. Subscribers have benefited immensely from this price war as they saw mobile tariffs declining dramatically to as low as $0.12 per minute. According to the NCC, the call rates between 2011 and 2013 decreased by about 30% this also follows a 4% decline in the Average Revenue Per User (ARPU) for the MNOs.

TREND IN DATAAccording to the Federal Ministry of Communication Technology, Nigeria accounts for 29% of all internet usage in Africa. Between the year 2009 and 2014, the number of internet users in Nigeria increased by 133% from 24 million to 55.9 million internet users.

TELEDENSITY

TREND IN VOICE


SWOT ANALYSIS

Despite the growing trend in internet connectivity, a significant portion of the rural population are still lacking in internet access.

As a response to the declining Average Revenue per User (ARPU) caused by price competition amongst Mobile Network Operators (MNOs) and price regulation by the industry regulator, the MNOs are now shifting focus from Voice to Data by investing in and promoting their mobile internet capacity. Major investments by key players in the industry have in recent times been geared towards expanding their 3G services and upgrading to 4G.

NIGERIAN BUSINESS ENVIRONMENT

Strengths

Weaknesses

Opportunities

A large population means an abundant supply of cheap unskilled) labour and a growing consumer market.

Taxation is relatively low; with VAT just 5%, corporate tax 30% and individual income tax rising progressively to a top rate of 25%. Compared to corporate tax of an average of 34.64% paid in South Africa.

Corruption is endemic, with Nigeria scoring just 2.4 in Transparency International's 2011 Corruption Perceptions Index, placing it 143rd out of 182 countries worldwide.

Intellectual property protection is very poor.

Physical security, especially for foreign workers, is a significant concern in some regions.

National infrastructure are lagging behind, chief among them is power. This invariably increases the cost of doing business.

Full repatriation of invested funds is possible, which will also help boost the economy of the investing company, leaving the host country in a flurry of capital flight issues.

Vandalism of equipment is still rampant in rural communities where they are situated leading to capital loss and inefficiencies.

Ongoing banking-sector reforms have the potential to create a consolidated and much more efficient financial infrastructure, thus providing better financial services to deserving investors.

There has been some improvement in the anti-corruption effort; and, with a pro-market government, this should continue to improve.

The telecommunications sector is a destination of choicefor any investor, leading to an increase in the foreign direct investment potential of the country.

Threats

MOBILE SECTOR

Strengths

Weaknesses

Industrial action remains commonplace and can disrupt normal business activity

Security threats especially in the Boko-haram infested region could turn off investors

Investment in the energy sector has been frozen pending an improved strategy for expanding capacity.

Nigeria telecommunications subscription is mostly dominated by subscribers to GSM technology which is controlled by the four major Mobile Network Operators (MNOs) in the country (MTN, Airtel, Glo and Etisalat). In December 2015,the active lines in the mobile subscription accounted for 98% (133 million lines) of the total number of active subscriptions in the telecommunications sector. Between October 2014 and December 2015, a the total number of active lines increased by a total of 15.6million. This represented an increase of 12% within a period of 13 months.

Only a few MNO utilize the CDMA technology as the rapid expansion of GSM operators in the past few years has led to a contraction of the CDMA segment. As at December 2015, this segment accounted for only 1.7% of the total number of active subscriptions. Major players in this segment include Multilinks and Starcomms

Growth of mobile sector remains robust, despite the introduction of compulsory SIM registration.

All GSM mobile operators awarded 3G service licenses in March 2007; the majority now offer, or are currently deploying, 3G/4G services.

Competition and regulatory measures have helped bring down prices in the mobile sector.

Mobile market boasts the presence of major international investors, including South Africa's MTN, India's Bharti Airtel and Etisalat of the UAE.

Mobile phone penetration has led to increase in mobile product and large internet usage.

The use of new technologies to communicate various offering has led to healthy rivalry amongst operators thus commoditizing the market.

Despite strong growth in the mobile market, poor network coverage has traditionally been a problem, which hampered customer growth and service usage.

Large cost implication for telcos as a result of erratic power supply thus passing the buck to its consumers future.

Rapid subscriber growth and competition have put downward pressure on Average Revenue per User (ARPU)


rates.

CDMA segment of the market is very poor.

Operators' ability to serve rural communities continues to lag behind their network presence in urban areas.

Verifiable data are not always available which makes most of the work done on the industry more of estimates thanactual.

Leading operators such as MTN, Etisalat and Airtel continue to invest in developing their mobile network infrastructures to deal with ongoing service quality problems.

As local operators realise the need to improve the quality of their networks, a substantial number of contracts are being won by multinational telecoms solutions providers.

The free and fair auction conducted by NCC for infracos in the Lagos region could boost the confidence of local and foreign investors to invest in communication infrastructure.

The launch of mobile number portability should help give the sector a competitive boost, by allowing mobile users to change their service provider more easily.

Nigerian government may issue more 3G licenses in the privatization of NITEL could open the sector to a new strategic investor and revive M-Tel.

Nigeria's second-largest mobile network operator GlobaCom launched an LTE (4G) network with the ability to support more demanding applications.

Probable removal of tax breaks for cellular operators unlikely to encourage further foreign direct investment (FDI) in the sector.

The current lawsuit slam on MTN may send negative signals to foreign investors

Vandalisation of operator base stations is a threat to the quality of network provided

Regulator introduced compulsory mobile SIM registration for new customers. This could put a dent in subscriber figures and hinder growth.

Global economic difficulties may yet have an effect on growth or investment in the sector.

The number of fixed line subscriptions in the mobile communications sector has seen a dramatic decline since the entrance of the GSM Mobile Network Operators in the year 2001. This segment accounts for less than 1% of the entire market.

Opportunities

Threats

FIXED-LINE & BROAD BAND

Strengths

Weaknesses

Opportunities

Threats

OPERATORS

Liberalized licensing scheme allows for multiple fixed-wireless operators to easily enter the market.

Positive attitude from the regulator towards achieving widespread connectivity in rural areas.

Telephony services based on fixed-wireless technology compensate for a lack of PSTN infrastructure.

Despite the difficulties facing beleaguered fixed-line incumbent NITEL, the wireline sector is benefiting from investments by Globacom, the country's second national operator.

Traditional copper fixed-line network is in a poor state. PSTN operator NITEL is barely functioning.

Strong growth from the mobile sector has undermined the viability of traditional fixed line services.

Fixed-line sector continued to exhibit sharp decline with a percentage market share of 0.12%

Despite stepped up investment, the broadband penetration level is low.

The inauguration of several new submarine cable systems is leading to the introduction of greater quantities of cheaper international bandwidth. This should boost the telecoms market in general, but particularly broadband, which should result in lower prices.

A new investor for NITEL could bring a new beginning for Nigeria's fixed-line network.

The open access model is expected to support the national broadband project and provide a faster and secure broadband network thus stimulating the economy.

The licensing of collocation service providers for these industry players will mean that they can now reach in to the rural areas and under-served end of the market.

Continued strong growth from the mobile sector threatens fixed-line growth with mobile substitution.

Global economic difficulties may yet have an effect on growth or investment in the sector.

MTN has the largest share of the overall mobile market at 42% in 2015 falling from 43.53% in 2012. MTN's dominance in the market can be attributed to its first mover advantage and also its successful set of strategies. Following improvements that MTN made to its network in 2009, the operator invested US$1bn in network capacity expansion in 2011 and announced plans to invest another US$1bn to improve the quality of its network services in 2012. MTN is keen to maintain a competitive advantage in terms of


COMPETITIVE ANALYSIS

network coverage and quality, a strategy that bodes well for the operator's long-term growth outlook. On numerous occasions, network coverage has been highlighted by the regulator and consumer groups as a major issue in Nigeria's mobile sector. It is hardly surprising that the market leader has given improved network coverage such prioritization. Meanwhile, the operator ran successful promotions offering free talk time or cut-price calls, mostly during off-peak periods of the day. Promotions such as these are understood to have had a positive effect on net subscriber additions. Other operators offered same with the introduction of different price slash in the first quarter of 2011, however it seems that the network quality enjoyed from MTN made them keep their place as market leader in the telecoms industry.

Intensity of Existing Rivalry

Threat of new Entrants

Threat of Substitutes

Bargaining Power of Customers

Competition in the Telecommunication space is high. This can be seen from the regular tariff wars, undifferentiated products and the various players in this industry trying to copy products through advertising in order to gain market share. This is an indicative that the intensity of rivalry in the Telecom industry is high. This competition is a strong force affecting the industry. This competitive factor often lead to a decrease in costs . This can be attributed to the industry fast rate and the availability of few competitors which means fewer firms competing for the same customers and resources.

In the Telecommunication industry, the threat of new entrants is low as barrier to entry is high. This is because the industry requires large economies of scales, large amount of capital required by a new Telecommunications company. Also, acquiring the license to operate is rigorous and costly. Given that the Nigerian Government has no enabling environment for investors, companies or investors who want to have a new telecommunications company would have to build its own infrastructure, generates its power and often this requires millions of dollars to operate. Another reason is the fact that the products in this industry are not differentiated and the switching cost is also high. A lot of advertising and brand image needs to be carried out for the new entrant to gain market share.

The threat of substitutes in the Telecommunication industry is low. The substitutes here include fixed telephone lines, letter writing which is a vastly ignored means of communication in Nigeria. The internet is also a substitute. Internet usage in Nigeria is growing at a good rate in Nigeria. The internet is not completely a threat to the Telecommunication industry as it may just affect a small percentage of mobile phones. However the Telecommunication companies provide mobile phones as well as the substitute i.e. the internet. This is an indicative that the threat of substitute in the industry is low.

The bargaining power of customers in this industry is low.

This is as a result of large number of customers can leverage on his bargaining power. The implication of this is that Telecommunication companies that are able to retain their customers will experience greater profits.

The bargaining power supplier in the industry largely depend on the Telecommunication companies for income. Some of the suppliers in this industry are advertising agencies, generator suppliers, security firms. Therefore, the bargaining Power of suppliers is low.

Bargaining Power of Supplier

SUPPLY CHAIN ANALYSIS

The supply chain for the telecommunication sector in Nigeria is centralized.

It's basically a supply chain split into two major process areas: Supply side (Operator focused) and demand side (Customer focused).

The supply side covers the distribution of goods and information as a result of operator requests. The demand side of the chain covers the fulfilment and distribution of goods as a result of customer orders and requests.

The figure above illustrates how information from all supply chain parties are centralized.

The supply side of the supply chain as shown above that supports the request of the operators can be broken into the following:

The telecommunications industry has been dominated by a fairly small number of OEMs (or NEMs, network equipment manufactures).

Specialist companies often best handle the skills required to design and build components.3rd Party Logistic (3PLs) Companies: Because todays supply chains are more outsourced and complex than ever before, companies are relying heavily on third party logistics providers to cut cost and reduce time to market. Upstream Suppliers: These are the infrastructure providers. The major players here within the Nigerian Telecommunications industry include Ericsson, Alcatel, Huawei and Nokia Siemens. Services provided by these companies include but not limited to: Geotechnical Exploration, testing and reporting, Turnkey base station construction/SIMS, Environmental assessment and NEPA Services, Fibre optics installation and maintenance, Collocation Infrastructure, Industrial Power and electrical installation engineering, Data and switch centre construction, Microwave installations,

These are the wireless carriers and they are at the centre of the whole supply chain trying to meet the demands of the customers. They provide wireless telephony service platforms (voice, data, sms, etc.) to the

SUPPLY SIDE OF THE SUPPLY CHAIN

Original Equipment Manufacturers (OEMS):

Original Design Manufacturers (ODMs):

Operators:


customer along with billing and customer relationship management services.

Despite the huge investment thus far on infrastructure, the demand and pressure on the existing telecommunication infrastructure has reached its breaking point making it difficult for supply to meet demand. The infrastructure inadequacy within the telecommunication industry has resulted in poor quality of service.To guarantee efficient network quality, there must be adequate infrastructural equipment to be able to drive the network. Consequently, the size of this equipment must be in tandem with subscriber base. Where this is not the case there will be lack of adequate channels to support network functionality hence, network congestion becomes inevitable. Industry experts believe that broadband telecommunication is an instrument for sustainable development, which can transform a nation and should be a major focus. Infrastructure inadequacy has made the deployment of broadband difficult hence the inefficiency in data communication.

Some of the challenges facing the industry with regards to this aspect of the value chain include man-made disasters, criminal vandalism of infrastructure, theft and digging up of cables for sale in black market, destruction of infrastructure due to road construction, community interference, etc. The critical infrastructure protection bill when passed into law in Nigeria will recognize telecoms infrastructure as critical to national and economic security thereby making its destruction or theft a criminal offence.

On the demand side of the supply chain, we have all those parties responsible for ensuring customers' requests and demand placed on the operators are met. Here we have the Distributors who work directly with the network operators and provide the Retailers with products and information needed to meet customer demands.

These are organizations or persons that engage in the provision of value added mobile/fixed services. There are usually four entities that work together to bring value added services to the end-users or customers. They include the VAS providers, VAS aggregators, Application providers and network operators.

CONCERNS ABOUT THE SUPPLY SIDE

DEMAND SIDE OF THE SUPPLY CHAIN

Value-added Service (VAS) Providers:

INDUSTRY CHALLENGES

Poor quality of service emanates from environmental constraint which limits the availability of installed network capacity to carry traffic such as challenges with power supply, vandalism and site lockouts by agents of government and aggrieved communities typically account for 90% of availability issues.

An average of four hours electricity supply from the national grid is harnessed Pan-Nigeria daily. Less than 40% of base stations are on the national grid, meaning that telecommunication companies have to rely on 24 hours self-generated power – for equipment that are not designed


Industry Report V0.3

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Transcript of Industry Report V0.3