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Are you standing at the threshold of
your retirement or have you already retired and are wondering what your
investment options are? There is good news for those approaching
retirement or already retired. Along with other options including bank
deposits, bonds, mutual funds, stocks and real estate, annuities
present yet another opportunity in the Nigerian financial market.

In 2009, two regulatory bodies, the
National Insurance Commission (NAICOM) and Pension Commission (PENCOM)
jointly issued a document that regulates the conduct of annuity
business in Nigeria in compliance with provisions of the Pensions
Reforms Act 2004. The Act provides that a retiring employee is entitled
to receive retirement benefits through programmed withdrawals, by
purchasing a life annuity, or a combination of the two.

Most of the retirees under the 2004
pension dispensation opted for programmed withdrawals instead of life
annuities. Following the release of the new regulations, some life
insurance companies in Nigeria have responded positively to the call on
them to introduce annuity products to align with the economic realities
that retirees face and thus create a better pension environment for
Nigerian workers. It is expected that more retirees will adopt this
option.

An annuity is an important retirement
planning tool and is simply a contract between you and an insurance
company. In return for a sum of money the insurance company is obliged
to provide you with a steady and stable source of income for life. A
range of annuity products are now offered by life insurance companies
in Nigeria with various features. Choosing the “right” one for you is
dependant on your specific needs, preferences and financial standing.

Immediate or deferred annuities?

An immediate annuity is ideal when you
want the income to start right away whilst with a deferred annuity you
are building up value over a period of time to be converted to income
later on.

With a single life immediate annuity,
you deposit an amount with the insurer, who begins to make regular
payments. You choose a deferred annuity if you want to build your
account value over time and convert it to income in the future.
Deferred annuities can be bought with a lump sum payment or a series of
regular payments that could be monthly, quarterly, biannually or
annually.

In some plans, policyholders can choose
an increasing annuity at five percent per annum guaranteed for ten
years and thereafter for life. In others there is the option to choose
an increasing annuity at ten percent per annum guaranteed for ten years
and thereafter for life. By choosing an increasing annuity one is more
likely to be protected from the effects of inflation.

Income for life

Issues such as increased life
expectancy and anxiety over whether one’s savings may get exhausted
within one’s lifetime, are to a large extent addressed by annuities;
the reliable and steady source of life income offers comfort and a
sense of security almost replacing pensions as a reliable retirement
tool. Even those close to retirement age can still invest in an
immediate annuity and begin receiving income from it almost instantly
which comes with a tax deferral advantage.

Annuities offer some stability

Annuities are a dependable option for
those who seek some protection from the risk associated with the
investment of lump sum benefits and the chance of losing part of their
savings through investment failure that other options tend to suffer.
Assets are managed by professional asset managers who provide you with
variety of asset classes including mutual funds, stocks, money market
instruments, direct real estate and Real Estate Investment Trusts
(REITS), and combinations as appropriate. Naturally the value of your
annuity will vary depending on the performance of the underlying
investments.

Annuities have a place in estate planning

Annuities provide the option of leaving
money for one’s heirs after the death of the investor. A couple can
hold an annuity jointly and so after the death of one partner the other
will continue to receive income from the annuity. This gives investors
comfort in the knowledge that in the event of the death of one partner
the other will continue to be secure. A guaranteed death benefit
ensures the policy beneficiary will receive at least a minimum amount
if the original owner dies within the guaranteed period.

Whilst annuities can be a good
alternative with many advantages, as with all investments, there is a
downside that one should be aware of and which must be carefully
considered.

Annuities can be inflexible

Annuities are sometimes regarded as
inflexible retirement tools when compared to other options such as
bonds. Let’s assume you decide to invest your money in a diversified
portfolio of blue chip, corporate bonds. When you invest in bonds you
receive interest payments periodically, and thereafter, on maturity you
have your money back. There is also the option to sell your bond prior
to maturity. The difference is, that with an annuity, the full value is
surrendered to the insurance company in return for lifetime income; you
don’t necessarily have the right to get your money back. One continues
to have access to your money in a deferred annuity until you convert
your accumulated assets to a revenue stream.

Will the insurer survive?

Your annuity is only as certain as the
strength and solvency of the company you invest with. Insurance
companies are heavily regulated and the annuity business is closely
monitored by National Insurance Commission, and the Pension Commission.
Insurance companies are also rated by professional agencies; this
should also guide in your selection of a strong, reputable institution.
Further, an annuitant is able to change his or her insurer after two
years if they are dissatisfied or concerned in any way.

Be aware of charges

The set-up costs, commissions, and
annual investment management fees associated with annuities can be
confusing, making it difficult to decipher how much you are actually
paying. Ideal for providing stable steady income, they tend to be
limiting when it comes to catering to sudden significant expenses. If
you need the money sooner than expected, you will incur “surrender
charges” which can be steep. All these costs add up and will certainly
eat into any profits the annuity earns.

If all you want is an alternative source of income and are more
inclined towards a conservative, quiet retirement plan, then annuities
might be a good option. Before you enter into any transaction that is
hard to reverse, it is important to go through the fine print as
tiresome as this may seem. You must understand how it works and
consider it alongside other alternatives, so that you can make an
informed decision as to the one that is most appropriate for you. As
always, maintain a diversified portfolio and don’t put all your eggs in
one basket.</

Some bank officials
have expressed reservations about the new banking model recently
introduced by the Central Bank, which is to be operational from
October. They are of the opinion that the problems of the industry runs
deeper than mere change of business model.

A source at First
Bank Nigeria, who pleaded anonymity because he was not authorised to
speak on the issue, said the industry is still getting a hang on the
issues raised. According to him, some banks may begin serial meetings
as the week begins. “An exposure draft had been circulated by the CBN
earlier, so the provisions are not new,” he said.

In the new
circular, the Central Bank stated that commercial banks would have to
discontinue activities not related to core banking, their primary
objective.

“It is a choice
between setting up a holding company in order to retain these
businesses under one roof, which implies massive structural challenges,
or selling them off (which I imagine the apex bank would prefer). Now,
if you put yourself in the shoes of the Nigerians who’d have to make
these decisions, do you imagine they would willingly let go?” he said.

Availability of required capital

The Central Bank,
in the new guidelines, said new capital requirement would range from
N10 billion to N50 billion, depending on the level of business they
want to operate. Banks that operate regional banking will require N10
billion, national banks will require N25 billion, while banks that want
to operate international licence would require N50 billion minimum
capital.

The source at First
Bank said the new capital requirement for banks who desire to continue
running their international branches may be realisable.

However, he
expressed worry over the efficiency of investing such an amount of
money when most banks are still struggling to get back on their feet.
“Question is, in the current circumstance, is this the most efficient
use of such resource?” he asked.

According to him,
the new banking model may not necessarily be the way out for the banks
as the issues arising in the industry were not all generated because of
the absence of specialised banking.

“I do not think
this would aid monitoring and improve regulation by the regulatory
body. These are not the reasons why the industry imploded in the first
place.”

He added that this
new process may not also necessarily address the huge percentage of yet
unbanked Nigerians, and that the deadline given to the banks may be
moved, even though the banks are ready for the transition.

Another banker, a staff at Zenith Bank, stated that the initial stages of the transition would not be without some confusion.

“To me, it won’t
change much. In fact, it may cause confusion. You could consider this
from various angles. From the viewpoint of the body of the present
operational staff, most of these banks already have members of staff
specialised in these varying banking services. Limiting them to just
one form of banking would mean that all the staff that are in other
sections would be rendered jobless, unless they would be sent on
special trainings to fit into their new job descriptions, and not all
banks would do this,” he said.

Sunday Salako, a
member of the National Economic Management team, however, said going
back to the basics is the best move to take now.

“That was what we
were doing before. There used to be merchant banks, community banks,
finance houses, and the rest of them and then we had commercial banks
that focused mainly on core banking, retail banking,” he said.

He blamed the
current crisis on the universal banking approach, which allowed banks
to engage in all forms of finance activities, including insurance
underwriting. “Now, they want to go back to the old template. It is a
good thing, going back to the basics. Perhaps, if we didn’t have all
these mumbled up, some of the fraud uncovered in August 14 may not have
occurred at all.”

He also added that
this model would help banks take up functions that they would be
convenient with and that can suit their available funds. “Each bank can
decide on which type of business it would like to run, according to
their expertise and capital accessibility,” he said.

In 2002, the
Central Bank, through the Universal Banking guidelines, authorised
banks to engage in non-core banking financial activities either
directly, as part of banking operations, or indirectly, through
designated subsidiaries.

The Central Bank,
in a circular last week, said the primary objectives for its current
reforms was to ensure the protection of depositor funds by ring fencing
“banking” from non-banking business; redefining the licencing model of
banks and minimum requirements to guide bank operations going forward;
effectively regulating the business of banks without hindering their
growth aspirations; and facilitating more effective regulatory
intervention in public interest entities.

By the circular, the CBN stated that all existing universal banks
are required to prepare and submit their plans on ensuring compliance
with the requirements of the new banking regime not later than 90 days
from October 4, 2010.

Mauritius’ central
bank has said commercial banks need to push up credit growth, the slow
pace of which is contributing to the excess levels of liquidity in the
market.

In a statement seen
by Reuters on Sunday, the Bank of Mauritius said there was a proposal
to cap the holdings of commercial banks in government paper to
encourage more aggressive lending.

The immediate-past
Chairman of Miyyatti Allah Cattle Breeders Association in Gombe State,
Sale Tinka, has condemned farmers’ encroachment into grazing reserves
in the area.

Mr Tinka told
journalists over the weekend in Wawazenge, Gombe State that
encroachment into the ‘Wawazenge’ grazing reserve in Funakaye Local
Government Area of the state is a particular source of friction between
farmers and cattle owners.

Mr Tinka warned that the situation, if not quickly addressed, was capable of creating serious security problems in the area.

He said sometimes ago, members of a vigilante group confiscated some
cows belonging to cattle owners living within the reserve, alleging
that the animals had strayed into their farmlands and destroyed their
crops. “The matter was then resolved, with a pledge that such an
incident will never occur again,’’ Tinka said.

The Niger State
government said it will host 46 Commonwealth countries to a grand
durbar on October 13, to boost the tourism potential of the state.

Adamu Chika, the
Commissioner for Tourism and Culture, said this in Minna at the Minna
Emirate’s durbar, organised as part of the Eid-El-Fitr celebration.

Mr Chika said that
the durbar was part of the state’s strategy to expose its rich cultural
and tourism potential to the international community.

“The Niger State Government has successfully created ‘The Niger
Durbar’ which has attracted the attention of the international
community. A clear demonstration of this is a request made by delegates
from the 46 Commonwealth countries, who would be in Nigeria for an
international programme,’’ he said.

The Nissan Motor
Company Ltd. has put its annual vehicle sale to Nigeria at 4,000 units,
saying this is attributable to its difficulty in understanding the
market.

Michiharu Kayamoto,
the Manager, sub Saharan Africa and Near East Department, made this
known in Yokohama, Japan, when the UNIDO Delegate Programme team
visited the company.

“This figure is too
small compared to what Toyota exports to Nigeria and we really will
want to improve on this,’’ Mr Kayamoto told the News Agency of Nigeria.

However, he said generally, Nissan vehicle sales to Africa dropped
from 72,000 in 2008 to 42,000 in 2009 and the figure remained the same
in the first quarter of 2010.

In the absence of
hard data, all manner of conclusions recommend themselves. And nowhere
is this plainer to see than in the economic sphere. Despite the
readiness of the more granular amongst us to take exceptions with
attempts by economists’ to elevate their calling into a science, I
don’t think one can argue against the need to assign responsibility to
some authority to regularly churn out data on the performance of
economies.

Comparisons across
economies based on such statistics allow assessments of the relative
efficiency of resource use. And within economies, they make it possible
to allocate resources more efficiently. While we may yet be reluctant
to grant the sacredness of “truth” to such data, one cannot but note
that in their absence, the commentariat is wont to run riot.

For illustration,
look no further than the Nigerian economy. The sense that most data on
this economy are available, as if from some sorcerer’s hat, has
encouraged all manner of claims, including what has become the most
laughable of the lot – that somehow, there is something in our
constitution that entitles us to be “the giant of Africa.”

Those who cavil at
this claim quickly direct attention to data on the power sector across
the continent. Three years ago, South Africa (with 4,447 kWh/capita)
had the continent’s highest numbers for “electric power (grid)
consumption per capita”. Egypt (1,375 kWh/capita), Algeria (849
kWh/capita), and Kenya (148 kWh/capita) followed in that order.
Nigeria, the slumbering giant, managed 134 kWh/capita.

In terms of the
usefulness of economic data, this set is especially intriguing.
Cross-country comparisons have meaning when you look at other
supporting data. In this case, both the numbers for population and
economic output help. With a population a whisker less than 50 million,
South Africa’s GDP (calculated at purchasing power parity) in 2007 was
estimated at US$496.2bn. Egypt (population, circa 78m) had GDP of
US$418.5bn. Algeria (population, circa 34m) had GDP of US$229.7bn.
Kenya (population, circa 39m) had GDP of US$59.94bn. “The Giant”, on
the other hand, with 149 million people, had GDP of US$303.4bn.

What to make of all
this? Obviously, the South African economy is much larger than the
Nigerian one, in spite of the latter having three times as many people.
Evidently, certain numbers may not matter as much! However, in terms of
the energy efficiency of the different economies, the Nigerian economy
might just be the better one. On the strength of these numbers, we are
doing about 61% of the South African economy while consuming a little
over 3% of the electricity generated there.

It is difficult not
to enter several caveats here. But is it the case that with all that
number ours might be a less efficient economy; throwing so much at the
development problem, and achieving a fraction of the performance of a
much more efficient economy. Put differently, how much does the power
sector add to economic performance?

“A lot!” is the
popular response. However, if we assume, as the organised private
sector is wont to, that the manufacturing sector will be the main
beneficiary of any increase in power supply in the country, then our
hopes in the redeeming power of more electricity might just be
misplaced. At least, this was the impression I got last week, listening
to Bismarck Rewane speak at the monthly business breakfast of the Lagos
Business School. Even if we had all the electricity infrastructure
running at full capacity, what would this amount to, if all
manufacturing activity in the country accounts for about 3% of GDP?

Another way to look
at this problem is to hazard a response to the hypothetical question,
“whether the manufacturing sector would not have accounted for more of
GDP if it had access to steadier supply of electricity from the mains”.
And what about the boost to other sectors of the economy from better
supply of electricity?

I imagine that
telecoms, wholesale and retail trade, and the services sector generally
will benefit from access to better electricity supply from the mains.
Not to talk of the small and medium enterprises subsector. One other
supporting number: one of the leading telcos in the country is reputed
to be the country’s leading seller of pre-owned power generating sets.
It is easy to see how this particular cost head plays, were the power
sector up to scratch.

As Nigerian banks continue to launch mobile, online, and e-payment products, finance experts say banks should adopt global solutions to combating electronic related crime.

Those who spoke on the issue said banks have to pay close attention to customer service processes and consider ways to improve them. Commending the efforts of the Central Bank in regulating fraud relating to mobile technology, Ifeoma Monye, a finance analyst at Ciuci Consulting, a management consulting firm, said Nigerian banks need to move quickly with the new trends in technology that eliminate or reduce fraud to the barest minimum.

“Over the years, banking has evolved from the traditional model of customers’ queuing for services in banks to modern day banking, where banking services can be reached through the Internet. Information technology is one of the major issues banks have to deal with as it is more evident that only the banks that have and use their technical resources effectively will be able to have a real competitive advantage in this fast-changing industry.”

She said the issue of financial fraud has also slowed the deployment of such technology, adding that mobile banking has a great potential in Nigeria if regulation is got right and fraud reduced to the barest minimum.

“In order to gain from the benefits that mobile banking offers, the Nigerian financial sector must begin to take necessary steps to align with the related global trends,” she said.

Relief in sight

However, relief may come the way of bank automated teller machine (ATM) card fraud victims as the Central Bank has begun moves to make banks liable for fraud committed on their platform. The Central Bank, in a statement issued last week, stated that banks need to be more responsive to complaints of card fraud by customers.

“It has become necessary to put measures n place, in addition to the existing guidelines to stem this tide” the circular titled ‘Circular on the need to combat card fraud’ and dated August 30, stated.

But Mr. Paul Love, a solutions consultant at ACI worldwide, a provider of application software for electronic payments, said liability of ATM card related fraud was relatively clear. According to him, the card holder and the bank are liable for the loss, depending on the point at which it occurred.

Who is liable?

“From a liability point of view, in normal circumstances, the cardholder is absolutely liable for the transaction. If a card is used after a customer has reported it stolen – the bank should then be liable. But what if the PIN was compromised and the card stolen, and then used before the customer is able to report it to the bank – strictly the customer is liable, but will the bank enforce this in all cases?” he said.

However, the Central Bank in the circular stated in clear terms that banks shall bear the liability for any fraud perpetrated with the use of cards issued without written requests from account holders and directed that no debit card can be issued on an account without a written request from the account holder.

Some banks stated that they are yet to be notified of the circular issued by the Central Bank. A source at Zenith Bank said the embargo on the use of temporary staff in the card management department of banks may mean getting more staff in the industry if the conditions were to be met.

“Yes, this could mean getting more staff to handle card management. We usually send SMS alerts to customers for those who subscribed before, whenever there is an increase or decrease in their account balances, as the case may be, so this is not entirely new. Customers with issues regarding ATM frauds and issues related to their cards are usually directed to state their case at the branch where their accounts are domiciled to be attended to,” he said.

A source at Spring Bank, however, said the category of staff that handle card sections are usually permanent staff due to the nature of that line of service. “The people that handle such issues are trained and experienced professionals, Information Technology experts, because of the sensitivity of that issue.”

The Central Bank stated that appropriate sanctions will be imposed for non-compliance, though it did not state a time limit for the compliance.

President Goodluck Jonathan has inaugurated the governing council of the Nigerian Content Development Board, with a charge to reposition the petroleum sector for the benefit of the nation.

The president had in April this year signed into law the Nigerian Oil and Gas Content Development Act, which provides for the development and use of Nigerian content in the operations and transactions of the oil and gas industry. He explained that the NOGICD Act, which he signed into law on April 22, 2010, created the NCDMB with a professional governing council and this can propel Nigeria into becoming one of the world’s industrialised economies in the next decade.

Shortly before inaugurating the board at the council chambers of the presidential villa, Mr. Jonathan said the country is aware of the limitations of capacity in manufacturing for the upstream and downstream operation, unlike in other economies where the application of local content has stimulated investments that transformed their economies, hence the enactment of Nigeria’s own local content law.

“We must drive the implementation of this law in a manner that develops partnerships between local and international companies and government and the private sectors of the economy, including local banks, global financing institutions, manufacturing, agriculture, and educational and research institutions should be exhaustively explored,” the president said to the governing council.

He further urged them to enhance the supply chain management and efficiently integrate such government programmes as SME development PTDF, Industrial Training Fund, and the National Office for Technology Acquisition and Promotion (NOTAP) initiatives to build local capacities. This, he noted, “will serve as a vehicle for transferring the technological experience inherent in the oil and gas industry to other critical sectors”.

While government is working at building these synergies, “Nigerians must step up to take up the challenge of participation,” he said.

“We must embrace a new ‘I can do’ spirit in pursuit of the high quality and global standards of performance required in the oil and gas industry. We have to reenact the same level of commitment that has seen our telecom and banking sector reforms noteworthy successes.”

Inaugurating the council, he charged them to make all these aspirations of government a reality.

“As the pioneering governing council of and implementation authority for this law, you have the opportunity of repositioning the industry for the benefit of our country. You cannot afford to fail in this important national assignment”, he told them.

In her speech, the petroleum resources minister , Mrs. Alison-Madueke, noted that effective implementation of the Act will ensure that the Nigerian economy will, within the next four years, retain over $10 billion out of an average annual oil & gas industry expenditure of $20 billion, compared to the current sum of less than $4 billion. She added that “successful implementation of the Act will create over 30,000 direct employment and training opportunities, considering the scale of activities to be domiciled in Nigeria.”

She also expressed hope that the industry will witness the development of one or two dockyards and increased utilisation of existing shipyards for maintaining marine vessels operating in Nigeria, which currently sails out for their maintenance and dry docking. According to her, there will also be the “transformation of ownership profile of marine assets supporting industry activity from a current ratio of 20 Nigerian-owned, as against 280 foreign-owned vessels to a more equitable ratio of 180:120.”

The governing council has a four-year tenure and is chaired by the minister of petroleum resources, Mrs. Diezani Alison-Madueke. Other members are Mr. Shawley Coker, representing Petroleum Technology Association of Nigeria, Mr. Emmanuel Bekee, representing the technical regulator of the industry, and Mr. J.T. Dawha, representing Nigerian National Petroleum Corporation.

Others are Mr. A.O Ajibola, representing Council of Registered Engineers of Nigeria, Mr. Mike Onyekonwu, representing Nigerian Content Consultative Forum, Mr. Sani Shuaibu, representing the Ministry of Petroleum Resources, Mr. Fola Daniel, representing National Insurance Commission, and Mr. Ernest Nwapa, the executive secretary of NCDMB and secretary of the governing council.

Trading activities at the Nigerian Stock Exchange (NSE) opened the week on a negative note as the market could not sustain the positive performance recorded last Friday.

At the close of Monday’s trading, the NSE market capitalisation, which gained N10 billion on the last trading day, depreciated by N39 billion to close at N5.901 trillion from N5.940 trillion. This reflects a decline of 0.65 percent. The Exchange’s All-Share Index was also down by 0.65 percent or a decline of 156.69 units, from 24,241.84 basis points to 24,085.15.

Analysts at Resource Cap, a portfolio management company, said the downturn trend could be attributed to the weak investors’ sentiments in the market.

Also, Equity Research team at Proshare Nigeria, an investment advisory firm, said, “The current trend stands as manifestation of uncertainties and issues that pervaded market last month, coupled with low liquidity and unwillingness of investors.”

However, they said the planned listing and merger of the Dangote Cement Group with an estimated valuation of N2 trillion “should impact the market capitalisation and serve as an encouragement for attracting telecom and energy sector firms to the exchange.”

Low gainers

At the close of Monday’s trading, a total of 17 stocks appreciated in value, lower than the 34 stocks recorded last Friday; while 33 stocks depreciated in value, higher than the preceding day’s 31.

African Petroleum and Guinness Nigeria topped the price gainers’ table with an increase of N1.56 and 90 kobo on their opening prices of N31.26 and N164.10 per share respectively. On the flip side, Nigeria Breweries and Benue Cement Company led the price losers’ chart with a loss of N2.63 and N1.94, to close at N69.75 and N63.06 per share respectively.

The banking subsector maintained its lead as the most active with 80.513 million quantities of shares, valued at N610.772 million, as against the 141.00 million units valued at N1.07 billion recorded on Friday. The subsector’s volume was driven by shares of Guaranty Trust and First Bank.

The maritime subsector was second in the chart with 51.371 million shares worth N62.300 million. The subsector’s volume was largely driven by Japaul Oil & Maritime Services. Trading activities in the insurance subsector followed, with 33.193 million shares valued at N42.448 million. Volume in the subsector was boosted by deals in shares of Law Union and Rock Insurance, Custodian and Allied Insurance, and Equity Assurance.

Meanwhile, the Exchange’s management, on Monday, marked down the price of University Press for a dividend of 40 kobo per share and a bonus one for every five owned by its shareholders. The dividend payment date is 30th of September 2010. Also, the price of NEM Insurance was marked down for a dividend of 4 kobo, while payment date is 12th of October.

At the trading floor yesterday, Seven-Up Bottling Company presented an audited financial result for the year ended March 31st, 2010. The result shows a 17.80 percent increase in turnover, from N34.864 billion to N41.069 billion; and an increase of 23.70 percent in profit after tax, from N1.529 million to N1.892 million.

The company’s board of directors proposed a dividend of N1.75 kobo per share and a bonus of one for every four owned by its shareholders.