Nigeria Content Online

Shares
of insurance companies will likely attract more patronage and better
returns this year, as the industry gears up to the implementation of
the local content policy in the oil and gas industry.

The
Nigeria Content Development Act 2010, which was recently passed into
law by President Goodluck Jonathan, provides among others, for 40 per
cent, 70 per cent and 100 per cent minimum local retention in marine,
none-life and life insurance services in the Nigeria oil and gas
industry.

The
boost would come from the major plank of the Act, which requires that
all insurance risks associated with oil and gas businesses, including
prospecting, exploration, drilling, constructions, shipping,
distribution, marketing and transportation are to be insured in Nigeria
with registered Nigerian insurance underwriting companies.

This
is a strategy by the government to increase the vibrancy in the local
insurance industry and improve local capacity. Local capacity, in this
case, refers to the aggregate capacity of all Nigeria registered
insurers and reinsurers which shall be fully exhausted prior to any
application for approval to reinsure any Nigerian oil and gas risks
overseas.

Local firms are capable

Sunday
Thomas, director general of the Nigeria Insurers Association (NIA), the
umbrella organisation for all insurance companies in Nigeria, said the
industry will be greatly enhanced by the new drive.

Mr.
Thomas said the guidelines for the implementation, as recently released
by the National Insurance Commission (NAICOM), has set the tone for
improvement in the industry, adding that local firms are capable of
meeting the challenge.

“For
like four years now, the issue of local content has been on and
companies have been gearing up. Some companies have stepped up capacity
and even capital base to be able to participate,” he said.

Commissioner
for insurance, Fola Daniel, in response to enquiries on how the
commission would address the issue of implementation, said the issue of
local content as it affects the insurance industry is a long drawn
issue that cannot be responded to on phone. Mr. Daniel has, however,
been at the forefront of drafting the guideline for the implementation.

The
guideline says, “No insurance risk in the Nigerian oil and gas industry
shall be placed overseas without the written approval of the
commission, which shall ensure that Nigerian Local Capacity has been
fully exhausted.”

Mr.
Thomas said the Act would build capacity in the industry, as local
insurance companies are expected to carry the risks directly in their
books.

He
said the insurance companies listed on the Nigerian Sock Exchange would
be able to meet the dividend expectations of the shareholders:

“Ongoing
capital market reforms are expected to lead to improvement in market
and insurance shares will be more attractive to investors.”

Out
of the four indices measured by the Nigerian Stock Exchange (NSE), only
the NSE Insurance Index depreciated last year, dropping 80.67 points or
37 per cent, reflecting the decline in the prices of equities in the
sector.

“I
believe strongly that the insurance sector is going to partake
extensively in the reversal going on in the economy,” Mr. Thomas said.

Some finance
experts have stated that the inclusion of the Chinese currency, Yuan,
to the list of foreign currencies that can be used for trading and
trade settlement in the domestic foreign exchange market will reduce
the pressure of the demand for dollar in the nearest future.

Government recently
added Yuan, to the list of foreign currencies that can be used for
trade settlement in the domestic foreign exchange market, in a bid to
diversify bilateral trade away from the dollar.

“We expect forex
exposure to fluctuations in the US Dollar to be significantly reduced
as banks begin to issue Yuan accounts to their customers” Afrinvest, an
investment advisory and finance firm said.

“Given the Central
Bank‘s commitment to managing the exchange rate at the US$1.00 /
N150.00 – N151.00 band, we expect increased supply of the dollar to
meet demand at the official market” the report added.

The addition of the
Yuan brings the number of tradable currencies in Nigeria to 13, which
includes the U.S. Dollar, Euro, British Pound and Japanese Yen.
Nigerian banks are now permitted to trade in Yuan which is expected to
ease demand pressure on the dollar in the interbank market. Nigeria’s
growing and substantial trade relation with China (especially imports)
is expected to spur demand for the Yuan in the medium to long term.

“It is definite
that sizeable number of our income is coming from China, especially
since 2009. There has been an increase in the imports from Asia,
especially China. More Nigerians are now importing from there and
rather than have to be changing from one currency to the other, they
can have the currency they need directly to transact their business,”
says a banker with Finbank.

However, while some
bank officials are excited about the Yuan introduction, some are simply
indifferent. “A large part of trade is already going to China. Before,
you would have to buy in dollars and then have to change to Yuan but
now, they are saying you can have that currency at once, without having
to change before trading. It is certain that this will reduce the
demand for dollars but I do not know how it will particularly help the
foreign reserves” another banker with First Bank said.

He added that the Central Bank did not state how it is going to fund
the demand for Yuan “so for all we know, it is still going to be from
the same source , the dollars were funded.

Some operators at
the nation’s capital market have said that while the Nigerian Stock
Exchange management is planning to attract more foreign investors
through trading hour extension, it should place more priority at
protecting indigenous investors.

Emmanuel Ikazoboh,
interim administrator of the NSE, had on Monday, during a media
briefing on the 2010 market performance, said as a result of trading
extension last December, “we have an increase in the number of deals by
five per cent, an increase in traded volume by 15.6 per cent and
increase in traded value by 34.8 per cent. This justifies that we
should continue with our extended trading hours. It also shows that our
foreign investors have actually started trading and increase the volume
of our operation.” Meanwhile, David Amaechi, an executive member of the
Shareholders Association of Nigeria, said the trading extension was a
setback last year.

Mr Amaechi said,
“We should not forget that these same foreign investors that the NSE
wants to attract to the market were the ones who pulled out their funds
leaving our market to crash. These investors will take their monies
back sooner or later when they make good appreciation. But no attention
or protection is given to us who plan to stay longer in the market.”

Investors’ confidence

Tunde
Oladapo-Dixon, chief executive officer, StockPicks Consulting, a
stockbroking firm, said though it is good for the nation to have a
foreign direct investment for some capital projects, “but the capital
market authority should be encouraging indigenous investors who will
not take their monies out in a long time because the market actually is
a long time investment.” Mr Oladapo-Dixon said there is still fear that
investors’ confidence is yet to be guarded jealously in the market.

Also, analysts at
Proshare Nigeria, an investment advisory firm, said based on some
evaluations it is deductible that the initiative of trading extension
“may in the long run create a pull factor for an improvement in the
market; but for now, the extended trading hours is yet to deliver on
expectations.” They added that “the liquidity posture is yet to improve
as it closed indecisive when compared with previous period’s position.”

Harsh operating environment

In the meantime, Mr
Ikazoboh, in his appraisal of the market last year, said the harsh
operating environment led to mixed performance by listed companies as
shown in their interim and final financial reports last year.
“Declining incomes and savings attributed to rising unemployment,
weakened purchasing power arising from inflationary pressure and
investors’ apathy caused a decline in the participation of Nigerians in
the stock market,” he said.

He said the rise in interest rates especially during the fourth
quarter, profit taking and absence of margin facility exerted downward
pressure on the stock market. He added that the huge margin loans
contributed to the lull in the capital market as banks withheld funding
acquisition of equities by investors.

The federal
government has proposed a number of incentives for employers of labour
to give them the impetus to create more employment opportunities for
the large army of unemployed Nigerians.

Segun Aganga, the
minister of finance, said in Abuja that the incentives, which are part
of the responsibility of government to create the enabling environment
for the private sector to create jobs, include improving the fiscal
environment that would allow employers to invest in job creation and
human resource development.

Some of the
proposals include a legal framework for establishing an Incentive to
Create Employment (ICE) Act, to provide Personal Income Tax (PIT)
exemptions or Employer Tax Credits (ETC) to employers that employ the
services of new graduates and unemployed individuals.

Others proposals
include a New Employment Tax (NET) Relief, Work Opportunity Credit
(WOC), Rural Employers Tax (RET) Relief or Work Experience Acquisition
Programme (WEAP) Relief to help provide tax deductions under company
income tax allowance (CITA) for companies that take on new employees;
provision of additional tax concession to cover donations to certain
non-governmental organisations (NGOs) or public institutions involved
in activities such as rural development or youth empowerment.

Mr. Aganga said the
federal government’s concern about the growing challenge of
unemployment in the country, particularly among the youth, motivated it
late last year to direct the National Economic Management Team (NEMT)
to come up with a strategy for addressing the problem.

Private-sector led job creation

A NEMT committee,
led by businessman, Aliko Dangote, to prepare a private sector-led job
creation action plan for the country has since submitted its report to
government, with a recommendation for a new National Jobs Creation
Scheme with initial seed funding of N50 billion to create thousands of
jobs in the country’surban and rural communities.

“This scheme
comprises multi-faceted interventions including a Public Works
Programme across the country that will engage private sector
contractors in implementing simple, labour-intensive public works. A
local employment content requirement for all procurement contracts
submitted by ministries, departments and agencies (MDAs) to the Federal
Executive Council for approval as well as introduction of an industrial
trade-off programme,” the minister said.

This arrangement,
he pointed out, is beside government’s previous efforts to assist small
businesses to access longer term, single digit funds through a $500
million loans programme for Small Medium Enterprises (SMEs) already
initiated through the Bank of Industry (BoI).

“In our bid to
build an inclusive society, government intends to measure economic
growth not just in terms of output or Gross Domestic Product (GDP), but
also in terms of the level of job creation in the country,” he said.

The Anya O.
Anya-led expenditure review committee inaugurated in September to work
and recommend practical measures to rationalise recurrent expenditure
in the budget, Mr. Aganga said, has since submitted its initial
findings, though the deadline for the completion of its assignment was
extended to the end of the first quarter of this year.

“The quick wins
identified by the committee, composed of eminent public and private
sector professionals, have been reflected in this year’s budget, and
government intends to implement the major recommendations upon
submission of the report at the end of its assignment,” Mr. Aganga said.

The Kenyan shilling
weakened marginally against the dollar on Monday as the greenback held
its ground against major international currencies, while a sell-off by
investors sent stocks lower.

The shilling closed
trade at 1300 GMT at 81.20/30 per dollar, a tad weaker than Friday’s
close of 81.10/20. “It’s an overflow from last week’s demand from power
and oil sector. Once this demand fizzles out, we could see a correction
when (dollar sellers from) tea and horticulture return,” said Kennedy
Butiko, the Deputy Head of treasury at Bank of Africa.

Several traders
expected the shilling to weaken further when substantial market players
returned to trade. A 81.00/81.75 range was likely this week as
corporate demand for dollars picked up, they said. “I expect the
shilling to remain bearish on two accounts: a globally strong dollar
and increased corporate (dollar) demand,” said Peter Njuguna, the Head
of Trading at Commercial Bank of Africa.

At the Nairobi
bourse, the benchmark NSE-20 share index was down 10.74 points to close
at 4,610.92 points, but turnover plummeted 44 percent to 603.5 million
shillings. Andrew Thinguri, investment analyst at Faida Investment
Bank, said the decline in shares resulted from profit-taking by
investors, but that other investors were positioning themselves to buy
shares at this time of the year. Thinguri said the market would pick up
again this week.

The Kenyan stock market has enjoyed a buoyant start to the year with
the benchmark index already up over 4.0 percent on a rosy outlook for
east Africa’s largest economy. Safaricom was the most active stock on
Monday, rising 1.0 percent to 4.75 shillings a share. Equity Bank’s
price ticked up 0.85 percent to 29.75 shillings after it hit an
intra-day high of 30 shillings. A total 1.75 billion shillings worth of
bonds were traded on Monday, from 1.18 billion at the previous session.
A five-year bond issued in November traded at a yield of 6.85 percent
compared with a coupon rate of 6.671 percent.

The Association of
Senior Staff of Bank, Insurance and Financial Institution (ASSBIFI) has
called off the picketing scheduled for today in Intercontinental,
Oceanic, and Unity Banks untill negotiations are finalised.

Sunday Salako, the president, in a telephone interview, said discussions were still on, so picketing cannot hold for now.

“Like I said,
negotiations have already begun. We are done with Intercontinental
Bank; the union is talking with Oceanic Bank at the moment and we would
be discussing with Unity Bank tomorrow. You know these are three
separate institutions and we have to talk with them individually,” he
said.

Mr. Salako, who
said the discussions were going on smoothly, said that the crux of the
matter was not particularly the layoff but the process with which it
was coordinated by the banks.

Fighting for due process

The labour unions
have had issues with banks ever since the series of layoff that have
been rocking the industry since the bank crisis that peaked in 2009.

Banks, both the
rescued and supposedly ‘safe’ ones, have been retrenching in their
hundreds, forcing the labour leaders, at the peak of sackings last
year, to write a letter to the Central Bank governor and the Ministry
of Labour, alerting them of the happenings in the industry.

“We are not going
to fold our arms and watch institutions whose management do not have
regards to laws binding staff and management, or the constitutions of
Federal Republic of Nigeria to have their way,” the Trade Union
Congress said at the peak of layoffs last year.

Banks have been
accused of not following Article 5(b) Part 11 (Section 1) of the
Collective Agreement relating to redundancy and Section 20 of the
Labour Act before initially carrying out their purported sack exercise.

Hassan Adeleke, the
president of National Union of Banks, Insurance and Other Financial
Institutions’ Employees (NUBIFE) in a previous telephone interview
said, “The due process we are talking about is that even if at all you
want to send anybody away, you must call the unions to negotiate an
exit package for our members.”

Mr. Adeleke said
all persons being discharged or relieved of duties on the basis of even
redundancy are entitled to some welfare packages, following due process
and that where trade unions are recognised by employers and are able to
operate openly, they may negotiate with employers over wages and
working conditions.

In a bid to cut
cost and remain in business, almost all the banks in the industry have
laid off since the crisis was highlighted in the industry last year.
First Bank, Stanbic IBTC, Diamond Bank, Access Bank, Wema Bank, Spring
Bank, Intercontinental Bank, Bank PHB, among others, have all laid off
a sizeable number of their manpower.

The Nigeria
Extractive Industries Transparency Initiative (NEITI) said it has met
all the conditions spelt out last October by the Board of the
Extractive Industries Transparency Initiative (EITI) for Nigeria’s
validation as ‘Compliant country’.

Sam Ohabunwa,
alternate chairman of the Task Force of Nigeria’s EITI validation, said
at the end of its meeting at the weekend in Abuja that its final and
comprehensive report on the six EITI board conditions would be
presented to a meeting on Wednesday of the National Stakeholders
Working Group (NSWG), including representatives of the Word Bank and
non governmental organisations.

Mr. Ohabunwa added
that the meeting would consider and approve the 2006-2008 oil and gas
industry audit report, the EITI board charter, and other measures taken
by Nigeria to meet the conditions, ahead of the January 15 deadline to
complete its assignment.

The EITI board had,
at its last meeting, adjudged Nigeria as close to compliant, giving six
conditions which the country must meet to attain full compliant status
on or by April, 2011.

Zainab Ahmed, NEITI
executive secretary, who described Nigeria’s attainment of full EITI
complaint status as strategic to the development of the country’s
extractive sector, said that the 2006-2008 oil and gas industry audits
would be ready this week.

Mrs. Ahmed said
some key NEITI staff in its technical department were drafted to work
with the auditors to ensure that processing and analysis of the data
already collated for the audit report, which is a major condition
required for Nigeria to attain full EITI compliant status, are
completed on or before January 12.

Besides, she said
the simplified version of the 2005 Audit Report, which was the second
condition by EITI, has been presented in a question and answer format
on the NEITI website as well as translated into some of the country’s
major languages for wider dissemination, while a template has been
designed to simplify the report of 2006 – 2008 audits as soon as it is
released.

Other conditions have been met

The other
conditions that have been met include production and adoption of a
Board Charter, which defines the role and powers of the NSWG and its
relationship with NEITI secretariat, with final vetting and approval to
be given during Wednesday’s meeting of the task force, while an
agreement has been developed to ensure comprehensive disclosure of
signature bonuses by oil and gas companies.

“Data on
outstanding signature bonuses for the 2005 Audit have been collected,
while measures have been taken to include same in the 2006 -2008 audit
as required by the global EITI,” she said, adding that steps have been
taken to ensure that all government disclosures are based on audited
accounts to international standards.

She added that
NEITI has collaborated with the office of the Auditor-General of the
Federation to extend the measures to ensure its audit to the
Nigeria-Sao Tome &Principe Joint Development Zone (JDZ), pointing
out that a tripartite committee has been reconstituted to address all
sundry issues raised by the EITI Board on the issue.

Meanwhile, steps
have been taken to reconstitute the Inter-Ministerial Task Team to
address outstanding remediation issues arising from the last audit in
2005.

The World Bank has
expressed concern over the slow pace of implementation of its 185
million dollars Commercial Agriculture Development Programme (CADP) in
Nigeria.

The News Agency of
Nigeria (NAN) reports that five states, Enugu, Cross River, Kano,
Kaduna, and Lagos are currently implementing the programme.

Louis Akapa, the
bank’s team leader in charge of CADP, expressed the bank’s reservation
on Monday in Abuja in an interview with the News Agency of Nigeria
(NAN).

He stressed the need for the five states to adopt “an aggressive” approach in the implementation of the programme.

“The World Bank is
not too happy with the implementation of the programme in the manner it
is being run as a small scale farmer’s project,” he said.