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 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.

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.

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 council of the
Nigerian Stock Exchange (NSE) has approved the acquisition of a new
trading platform, Emmanuel Ikazoboh, interim administrator of the NSE,
has said. Mr Ikazoboh said this on Monday during a media briefing on
his appraisal of the nation’s capital market performance in 2010. He
said discussion with global vendors on the need to upgrade the
Exchange’s trading platform commenced early last year. “An ad-hoc
committee of management and council including operators engaged with
various vendors to ensure that a new platform, which would address all
concerns relating to equities, derivatives, bond trading and
dissemination of data, was put in place. The committee completed its
job last year and I must say that council has finally approved that we
acquire a new trading platform,” Mr Ikazoboh said.

He said management
and the negotiating committees have been put in place to start
negotiating with the chosen vendor as to the costing and ensuring that
the nation gets the right trading platform in its Exchange. Mr
Ikazoboh, however, did not disclose the amount made available for the
purchase of the new trading platform.

Meanwhile, he
maintained that the exiting market infrastructure remains capable of
meeting the current needs of inventors, issuers of securities and
market operators. The total market value of 264 securities listed on
the Exchange increased by 41.12 per cent from N7.03 trillion to stand
at N9.92 trillion by year-end 2010. The NSE said the rise in market
capitalsation resulted mainly from new listings of equities and state
government bonds coupled with price appreciation by equities. Market
capitalsation had in 2009 declined by 26.5 per cent.

Foreign portfolio investment

On the extension of
trading hours, the Exchange’s head said, “I’m pleased to announce that
as a result of our trading extension one month after, 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.” Mr Ikazoboh said some of the
erstwhile foreign investors are returning while new investors sought
opportunities considering the key attributes of high returns,

liquidity and
safety of investments. NSE statistics showed that purchases by foreign
investors during 2010 were N381.34 billion, representing 48 per cent of
the aggregate turnover. This is an increase when compared with the
N202.483 billion recorded in 2009.

“We have also put
in place strict enforcement of Exchange’s rules and post listing
requirements. As a result, we have suspended 74 dealing members during
the year for failure to submit audited accounts for 2008, 2009 and
2010. A total of 42 companies are placed on technical suspension for
infraction of listing rules; however, 17 are no longer on suspension.
Also, 15 companies are placed on full suspension for violation of
listing rules and seven companies are recommended for delisting,” Mr
Ikazoboh said.

Meanwhile, Binos
Yaroe, General Manager of NSE’s Listing Department, said non release of
financial forecasts by listed companies at the Exchange attracts no
sanction compared with non release of quarterly and annual results
which attracts various penalties.

CSCS performance

Onyewuchi Asinobi, Managing Director of the Central Securities Clearing System (CSCS),

said the CSCS made a turnover of N3.88 billion in 2010 as against a
turnover of N3.2 billion in 2009. This represents 21.25 per cent
increase in revenue. Mr Asinobi said a total of 437 shareholders used
their shareholding in CSCS depository as collateral to obtain loan in
year 2010 as against 1,550 shareholders in 2009 representing a decrease
of 71.8 per cent. Meanwhile, he said Thomas Murray, an International
Central Securities Depository (CSD) and Capital Market Infrastructure
Risk Rating Organisation, appraised CSCS’ operational processes and
performance in the year 2010 and rated it A- 2011 outlook The fiscal
injections relating to AMCON’s purchase of non-performing loans of
deposit money banks is expected to produce a twin effect in 2011. Mr
Ikazoboh said the move should provide further stability to the stock
market and inject significant liquidity into the banking system. “Asset
valuation of listed companies would likely improve with the
commencement of the operations of AMCON. However, the huge fiscal
injections may fuel further inflationary pressure,” he said.

Over
70 stockbroking firms have been found to be operating below regulatory
minimum capital base, an inspection of 247 firms has revealed. The
inspection carried out between May 5 and December 23, 2009 by the
Compliance department of the Nigerian Stock Exchange (NSE) was made
public last Friday. It remains unclear whether the affected firms have
regularised their status. The minimum capital for stockbroking firms is
N70 million. Mohammed Momoh, general manager, Compliance and Risk
Management of the NSE who disclosed this at the meeting held on Friday
between chief executive officers of stockbroking firms and the NSE
management, said several firms failed to comply with the rules and
regulations especially on prompt rendition of financial accounts. “The
inspection also uncovered that several firms were illiquid. It was also
discovered that several firms engaged in illegal sale of their clients’
stocks,” Mr Momoh added. Mr Momoh also said that firms which engaged in
the padding of their shareholders’ funds would be penalised after
assets verification based on responses to assets reporting schedule to
be forwarded to stockbroking firms this week. He said firms that have
not separated their current accounts from clients’ account or who are
yet to appoint qualified accountants as chief finance officers or
compliance officers will be sanctioned.

Mixed custodianship

The
NSE also notified stockbrokers that from April 1, it will begin to
operate the mixed custodianship system to safeguard investors’ assets.
By this, clients’ accounts would no longer be accessed by the
stockbroking firm but will be held by a custodian which will be
separate. This is to prevent incidence of firms selling clients holding
without due authorisation. Director General of the Securities and
Exchange Commission (SEC), Arunma Oteh, who was at the meeting,
reiterated the necessity to safeguard investors’ assets in the market
in line with global best practices. Ms Oteh said 85 per cent of
complaints received from investors were on unauthorised sales, hence,
the need to take far reaching measures encapsulated in the adoption of
mixed custodianship approach currently operational in South Africa.
However, the Association of Stockbroking Houses of Nigeria (ASHON) says
that the matter of capitalisation should be considered in the light of
the current market downturn. Chairman of the association, Rasheed
Yussuff, said the issue of under capitalisation was more complex that
it is made out to be. Mr Yussuff said it will not be fair to assess the
capital profile of stockbroking firms at current market value as the
market downturn has affected the value of the asset upon which the
companies were formerly assessed. “It is not that the businesses have
collapsed but that the market has crashed which has affected the value
of the shares held by these companies. It is not an absolute figure.
Until you sell, you have not actually lost money. If tomorrow the
market starts to go up as it is doing now, the companies can value up
to the N70 million required.”

The Nigerian Stock
Exchange said on Monday that share purchases by foreign investors rose
88 percent last year to 381 billion naira and that wider trading hours
meant liquidity was continuing to improve.

Africa’s third
biggest stock exchange said falling incomes attributed to rising
unemployment, weaker purchasing power due to inflation, and local
investor apathy had caused a decline in market participation by
Nigerians.

“Some of our
erstwhile foreign investors are returning, while new investors sought
opportunities considering the key attributes of higher returns,” the
stock exchange said at an annual briefing to journalists in Lagos.

The bourse said
wider trading hours introduced last month had led to a 15.6 percent
increase in traded volumes meaning liquidity was improving.

It expected trading
in exchange-traded funds (ETF) to start in 2011. The bourse said in
October it was in talks with South Africa’s Absa Capital about listing
such a fund.

Nigeria’s domestic
debt grew at the fastest pace in 11 years during 2010, with total
public debt of $32.5 billion as at September 2010, according to the
stock exchange.

It said credit to government grew over 50 percent last year while private sector credit grew only 3 percent.

The bourse expects
an increase in money supply this year to provide stability to the stock
market and inject liquidity into the banking system, reviving lending
to the economy.

“Inflationary risk
will remain a threat in the months ahead due to the implementation of
the 64 percent increased minimum wage in the public service, rising
government borrowing and the expected increased political spending up
to the 2011 general elections,” it said in an annual review.

The stock exchange
said it expected all eligible non-performing loans in the banking
sector to have been bought by the Asset Management Corporation of
Nigeria (AMCON), the country’s new “bad bank”, by March 31.

AMCON was established last year to soak up bad loans and get banks lending against after a $4 billion bailout in 2009.

The stock exchange
said it expected a flurry of new issues this year as some bailed out
lenders recapitalise and some manufacturing firms raise funds to beef
up their capital bases.

It also expects to
begin preparations for demutualisation in the first quarter, a process
which will turn the exchange into a listed company, making it more
competitive and giving it a larger incentive to bring in profitable new
products.

Kenya’s central
bank will issue a five-year bond and re-open another 10-year paper for
a total 16 billion shillings this month, a fixed-income dealer said on
Monday.

The bonds will be
auctioned on January 26, said Fred Mueni, director at brokerage Tsavo
Securities after attending a central bank meeting with market players
to determine what bond would be offered for auction.

“They will be
re-opening the 10-year paper at a coupon of 9.307 percent, plus a new
five-year paper, totalling up to 16 billion shillings,” said Mr Mueni.

Initially issued in October 2010, the 10-year bond’s market-determined coupon was 9.307 percent.