OVERVIEW OF NIGERIA ECONOMY

• Nigeria is a relatively large economy with apparently strong growth rate• GDP was recently rebased with GDP of

N80.3trillion ($509.9bn)• Nigeria now ranks as the 26th biggest

economy in the world and is the largest economy in Africa.• At least 25% bigger than South Africa

($408bn)

BUT THE STORY IS FAR FROM PLEASANT

• Nigeria is also an economy with major contradictions and weakness despite its size• The economy, in spite of its size, remains

heavily dependent on crude oil which accounts for more than 90% of exports• Size means little without a high quality of life• On a per capita basis, we are still a low

income country with GDP of just around $3000

FUNDAMENTAL TOOLS IN RISK MANAGEMENT

• The risk management matrix provides alternative financial action to undertake for each frequency/security combination

• Forecasting involves projecting the frequency and severity of losses into the future based on current data and statistical assumptions

• Capital Budgeting involves cost-benefit analysis for loss-control effort with the ammunition of reducing the frequency of losses. It examines the cost and compares the expense to the expected reduction in losses on savings in insurance premiums for insurance

• Based on the risk management matrix and use of costs-benefit analysis can help reinforce decisions.

ISSUES AND TRENDS IN SOCIAL SECURITY

• Who should be responsible for the welfare of the retired population? The current workers or the retirees(who should save for it)?

• Is it appropriate for the government to mandate forced savings in private accounts in lieu of the pay-as-you-go social security system?

• If part of the individual accounts would be administered by the government, is it ethical for the government to essentially become a major stakeholder in private companies? As in the case of the ‘single treasury account’ in Nigeria.

THE FUTURE OF SOCIAL SECURITY

• To project future effects on social security, reviews on available evidence and gather expert opinion about all the factors that affect income and expenditures; demographic (birth rate, mortality, immigration), economic (unemployment rates, inflation);and program specific (retirement patterns, disability incidence). A plan should be designed to include both short-range (ten year) and long-range (seventy-five year) predictions.

• Traditional solutions should be provided to the looming social security and Medicare budget crisis by focusing on increasing taxes and cutting benefits.

WHY THE NIGERIA INSURANCE SECTOR IS UNDERPERFORMING

INTERNAL FACTORSEthical standardsImpaired capitalizationFragmented industry with many

marginal playersEXTERNAL FACTORSInsurance is more positively

correlated with economic well being of the individuals that is to general growth rates. Hence growing the insurance business becomes more challenging in an economy facing high poverty intensity and poor quality of life. Budget theme is critical for the insurance sector.

WHO SHOULD INSURE AGAINST MEGACATASTROPHES?

• The incredible losses from disasters of catastrophic events such as outbreak of disease or virus in the case of “Ebola Outbreak” in Nigeria 2014, flood is insured only by the government through the national Federal Insurance Program.• The unprecedented economic

loss is at the heart of the debate. Who should insure against such mega catastrophes in the future?

RECOMMENDATIONS• Because the private industry

cannot insure mega losses that are fundamentally uninsurable, the federal government should be the ultimate insurer. The federal government is already the national flood insurer and has been providing the terrorism stopgap coverage against the “Boko Haram”. It makes sense that uninsurable risks be mitigated by the government

• The private sector should be involved in handling any disaster, large or small. The idea is to have less government, with relaxed regulation and taxation. The creativity of the private sector should prevail.

ASSESSING YOUR RISK VS REWARDS•

RISKLOW HIGH

REQUIRED INVESTMENTS

REWARDSRETURN ON

INVESTMENT

HIGH

LOW

ServiceContract

Lease/Operating

Contract

Design-Build-Operate(BOT) Concession

Divestiture

(Investor-Owned Utility)

ManagementContract