The Nation Newspaper

Category: Issues

  • Wanted: Action plan on chemical research

    Wanted: Action plan on chemical research

    Chemicals are essential to manufacturing. They are used in production of goods and services. But, the chemical industry remains unexploited because of lack of technological innovation and funds. If exploited, it has the capability to grow the economy, reports Assistant Editor OKWY IROEGBU-CHIKEZIE.

    The Director-General (DG), Raw Materials Research and Development Council (RMRDC), Dr. Hussaini Doko Ibrahim, is worried that despite the avalanche ofresearch institutes in Nigeria, limited success has been recorded in generating new technologies.

    He noted that  most science laboratories lack reagents and chemicals in the right quality and quantity. This, in his view, has resulted in the collation of false data, which has led to mass failure in various examinations with attendant implication for science education and industrialisation.

    To make matters worse, lack of patronage, he said, has left research results by the institutes to gather dust on the shelf. This has led indigenous manufacturing firms to be uncompetitive.

    Ibrahim, however, said the National Council for Science and Technology (NCST) has mandated the RMRDC and National Research Institute for Chemical Technology (NARICT) to develop a prgramme of action for local production of chemicals and reagents for secondary schools, colleges and large industries. This, he said, led to the establishment of pilot plant for the production of school chemicals and reagents starting with copper sulphate.

    At a recent investment forum on production of copper sulphate, which held in Lagos, he said: “There are over 500 different industrial chemicals presently being utilised in the country, out of which over 70 are commonly used secondary chemicals. All these chemicals are imported despite the fact that the country has comparative advantage in terms of local raw materials availability to produce some of them.”

    The DG said, for instance, last year, over N93 billion was expended on the importation of various quantities of industrial laboratory chemicals out of which N89.5 million was for the importation of 10.6million metric tonnes of copper sulphate (analytical and technical grades). He noted that if copper sulphate was developed to commercial production level, it would result in huge savings of foreign exchange and create employments. According to him, the emphasis on copper sulphate was because it is an industrial chemical and schools’ reagent with various applications in areas ranging from agriculture to medicine and other miscellaneous areas.

    He pointed out that in agriculture, it is used in the preparation of bordeaux and burgundy mixture used as fungicides. It could also be used in various ways as soil steriliser; tor correcting copper deficiency in soils and animals; to control scum in farm ponds and preserv wooden fruit boxes, plant baskets and other containers. The raw materials for copper, he said, are scraps and concentrated sulphuric acid, noting that the output capacity of the pilot plant is a metric tone per day for copper sulphate with its production cost put at about N600 per kilogramme.

    “This price is higher than the international price of N225 per kilogramme. If this project is fully commercialised, and there is improvement in the industrial facilities, the production cost will greatly reduce,” Dr Ibrahim said, adding that it is, therefore, expedient that Nigeria produce, if not all, most of these chemicals locally.

    The output capacity of the pilot plant is said to be infinitesimal when compared to the national demand of about 10 million metric tones per annum. Experts consider this a good area of investment.

    Expectedly,  RMRDC said it is prepared to collaborate with any interested investor to actualise the full commercialisation of this project. Another interesting aspect of the production process is the production of distilled water as a by-product. Besides, the acidic fume from the reaction can be condensed and dissolved in the distilled water to produce electrolytes for car batteries, which is another source of income.

    Chairman, Chemical & Pharmaceutical Sector, Manufacturers Association of Nigeria (MAN), Mr. Bayo Osibo, said the chemical industry is at the heart of manufacturing and central to global economy. He said it converts animals, vegetable and mineral raw materials into more than 70, 000 different products used by both industrial and household consumers.

    According to him, chemicals are used to make a wide range of consumer goods, as well as thousands of inputs to agriculture, manufacturing, construction and service industry. “The chemical industry itself is said to consume 26 per cent of its own output. Most of these products help to manufacture other items, although a smaller number goes directly to consumers. Solvents, pesticides, washing soda  and cement provide a few examples of products used by consumers,” he said.

    While Nigeria is yet to fully exploit her chemical industry, the same cannot be said of other developed countries of the world where the impacts of the chemical industry on their economies are visible. For instance, the chemical industry is one of the  United States (US’s) largest manufacturing industries, serving both a sizeable domestic market and an expanding global market.

    It is also one of the top exporting sectors of the U.S manufacturing, accounting for 15 per cent of global chemical shipments. The industry’s more than 10,000 firms produce more than 70,000 products.

    In 2012 alone, the U.S chemical industry recorded sales of $769.4 billion and directly employed more than 784,000 workers, with additional indirect employment by industry suppliers of more than 2.7 million. With investments of $57 billion in research and development in 2012 and strong enforcement of intellectual property rights, one-fifth of all patents granted in the U.S are chemically related.

    The story is the same in the United Kingdom (UK) where the chemical and pharmaceutical sectors represent 15 per cent of the UK total manufacturing output with exports of £53billion. The sector is one of the UK’s largest sectors, accounting for 18 per cent of its goods export. The sector employed 322,000 people and generated a turnover of £60 billion last year. The sector invests over £5billion in Research & Development (R&D) every year. This represents more than 28 per cent of total industrial R&D spread in the UK.

    China is also not left out. The Chinese chemical  industry is said to have powerful state-owned enterprises that have made their mark internationally. “These ’local champions’ both state–owned and private, are influential and have large economies of scale, can innovate and upgrade, and harbour aggressive overseas’ ambitions,” Head, Chemicals, China and Asia Pacific, KPMG China, Mr. Norbert Meyring, said. He explained that the  nature and characteristics of Chinese companies have changed dramatically over the years.

    Meyring said along with setting up mega production bases and expanding products range in an integrated manner, Chinese companies have started to innovate and are swiftly incorporating technological changes into their production to brand management and are in the process of internationalising their businesses. A number of companies are keenly promoting their brands in the global market and are continuing to examine overseas investments and acquisitions.

    He added that Chinese companies have reached a certain stage of development and are now increasingly exposed to global competition. The government, Meyring said, has also adopted ambitious targets with regards to sustainability and self-sufficiency while  chemical companies are expected to respond to the challenge.

    But Nigeria has not been able to replicate such successes in this area. The reasons are not far-fetched. For instance, as Osibo pointed out, the fortunes and growth of the Nigerian chemical sector have been erratically affected by inconsistent government policies such as the Structural Adjustment Programme (SAP).

    He enumerated other challenges to include tariff manipulations, insufficient resource allocation and prohibitive import restrictions. He argued that the several economic policies pushed out by the government were unsuccessfully implemented, with each succeeding plan seeking to correct the failures of the previous one, in addition to new objectives.

    Mr. Osibo said  although, government has used decades to fine-tune rather unsuccessfully, the elements of development in the economy and its investment in R&D should be given enough time to mature. “In my opinion, many of these institutes are doing very good jobs, and would do better if well funded. However, it is very doubtful if the results of their findings are shared wide enough for the mutual benefit of the chemical industry,” Osibo said.

    Former Acting Director-General, MAN, Mr. Rasheed Adegbenro, said the structure of industrial establishments in the county is a major challenge, noting that  most Small and Medium Scale Enterprises (SMEs) are local in orientation and production. They are also uncompetitive in global standards. There are also issues around narrow market coverage, high cost of funds and infrastructural challenges.

    He frowned at the duplication of efforts by several research institutes and called for collaboration instead of competition.

    “Lack of systematic collaboration bet ween research institutions in the sector has created sub-optimal allocation of resources charecterised by duplication of efforts in some areas and underinvestment in others. Some research efforts have no bearing to the needs of the people, the tendency for research to be supply-driven than demand- driven with little accountability to investors,” he said.

    The MAN chief expressed regrets that government has not given R&D and the chemical sector their pride of place, but preferred the importation of motor vehicles, television and radio, which are things that will not rejuvenate the manufacturing sector.

    But bad as the state of the nation’s chemical sector is, experts say the situation is reversible. Osibo said funding is key. According to him, although many of the research institutes are doing good jobs, but they would do better if well funded. Besides, he said there is the need for sharing of the results of findings of research institutes to guarantee mutual benefits of the chemical industry and the institutes.

    He observed that checks with the Federal Institute of Industrial Research (FIIRO), Oshodi,  have shown that the Institute, over the years, developed over 250 technologies based on virtually all raw materials available in Nigeria. This include agro and mineral resources with additional reports that over 50 of these technologies have made significant and laudable impacts in the chemistry industry.  He wondered what happened to the nearly 200 technologies left.

    Osibo said: “Surely, somebody somewhere must be able to take the benefit of the result of such extensive R&D efforts, if only FIIRO can take the trouble of interacting extensively with the chemical industry to fit their R&D results to the needs of the industry. Given the general attitude of government departments, it would not be surprising if the FIRRO experience is found in other research institutes.”

    He further pointed out that there is need to have a strong product identification and quality; access to low-cost natural gas; a highly educated workforce; world class research centres; protection for intellectual property and a robust regulatory system.

    The chemical sector, he argued, can benefit more if the government realises its key position in national development. This, he said, means that government must pay attention to areas of deficiency such as lack of basic infrastructure and getting research institutes to relate more closely with the sector by tailoring efforts to their needs with a deliberate tariff structure not to enrich the government, but to lower the cost of industrial development.

    Osibo suggested the development of local raw materials through the development of the petrochemical industry, insisting that with the stagnation of the nation’s petrochemical sector, the nation may never be self-sufficient in raw materials development. All these, he added, would be best achieved with a deliberate and focused development of the desired manpower.

    Adegbenro said there is need to encourage indigenous researchers and scholars to move from traditional to modern practices in order to exploit the benefit and potentials of information technology.

    He argued that local researchers can only make profound achievement and optimally contribute to the development of knowledge by using the internet to enrich their research and to disseminate their findings.

  • The cement price saga

    The cement price saga

    Dangote Cement’s slash of the prices of its 32.5 grade and 42.5 grade of cement to N1,000 and N1,150 has set off a chain of reactions. Some are praising its gesture; others believe there is more to the cut than meets the eye, reports TOBA AGBOOLA.

    When Dangote Cement slashed the price of cement, it never envisaged the chain of reactions that would follow. The new regime put the price of Dangote’s 32.5 cement grade at N1, 000 per 50kg bag and that of 42.5 grade at N1,150 per bag. The slash has not gone down well with other producers and estate developers.

    While some stakeholders described the price cut as good, others are imputing motives over the company’s action.

    Bua Group, a major player in the industry, is one of those hailing Dangote’s gesture. Its Chairman, Alhaji Abdulsamad Rabiu, said he had been advocating a sharp reduction in the unit cost of the product to enable Nigerians realise their dreams of owning their own houses.

    “It is against this background that I commend Alhaji Aliko Dangote for this patriotic initiative, which is long overdue. With the low price, more consumers would buy cement, which will not only shore-up its volume, but also increase stakeholders’ market share,” he said.

    Rabiu urged cement producers to emulate Dangote and bring down the price of cement, noting that there is no reason a bag of cement should cost so much. He said he had already directed all his plants to follow suit and implement the new price regime.

    He noted that more should be done to bring down the price further for the sake of Nigerians, insisting that there is really no reason for cement to cost more than N1, 000 per bag, bearing in mind the massive success of the backward integration policy, which started 12 years ago with billions of dollars injected into the cement industry.

    Similarly, the Lagos State Chairman of Block Moulders Association of Nigeria, Alhaji Okunola Abegunde, said he had been longing to see a time like this when the price of cement would crash to allow low-income owners own their houses.

    The Chairman, Coalition Against Building Collapse, Kola Ojewuyi, who chided Dangote’s critics who had earlier condemned the firm’s campaign on the adoption of 42.5 grade cement, which they described as a ploy to increase the price of the essential commodity. He hailed the decision, urging the management of the company to sustain the new price regime and ensure that it is not hijacked by profiteers.

    A real estate developer, Femi Odusanya, also said this was the time the low-income owners had been waiting for to build their own houses. He said before now, the cost of cement was too high for the average Nigerian, and this had been very discouraging. “I am convinced that things will be better as against initial belief that anything that goes up must definitely come down,” he said. A block moulder, Tunde Balogun, agrees with him, noting that with the new development, the cost of block will also come down. He however, reassured that the leadership of the association of block moulders would decide on the next line of action.

    The Nation gathered that the move by Dangote Cement was aimed at making cement products cheaper as they were in 2005 when a bag of the product was sold for less than N800. The Group Managing Director (GMD), Dangote Cement, Mr. Devakumar Edwin, explained that the new price regime is exclusive of Value Added Tax (VAT), which represents about 40 per cent discount on the prevailing market price,  selling at N1, 700, irrespective of the grade.

    “We recognise the need for a rapid response to huge infrastructure and housing deficit in the country and one of the ways to address the issue is to bring down the price of building materials to make it affordable, especially cement, which is within our control. This is part of our contributions to the transformation agenda of the administration,” he said.

    However, as patriotic as the price cut may look, there are those who are not swayed, arguing that there is more to it that meet the eye in the new development. For instance, investigations show that despite the price slash, the price of cement is still high and there is no sign that it may come down soon.

    According to a dealer at Cement Bus Stop, along Lagos Abeokuta Expressway, Mr Dotun Adisa, the product is still being sold for between N1,750 and N1,900 and this may continue for a long time.

    “Please, don’t believe the N1,000 price as announced. Our cement is still between N1,750 and N1,900. It depends on the quantity you want  to buy and it may be like this for a long time. We don’t believe in the price slash,” Adisa said. Another dealer, who spoke with The Nation, Mr. Benjamin Okafor, also said there was no sign that the cement price would fall. “All this news of N1,000 slash is fake as far as we are concern. The price of the  product is still high. It hovers around N1, 800,” he said.

    Similarly, the Managing Director of Elleon Properties, developers of Aspen Estate in Isheri North area of Ogun State, Mr. Sola Adekunle, said Nigerians would no longer take news emanating from cement companies on price reduction serious again, as there had not been any significant reduction in the price of the commodity two weeks after the announcement.

    “Dangote Cement should have done its homework well before going public. The company should have blocked all the loopholes that are working against the new price slash. The idea of engaging in price war or business bickering with competitors should not be handled the way it did,” Adekunle stated.

    A distributor of Dangote Cement, Chika Ekpenyong also said distributors are not selling the product at N1, 000 as announced. He said: “If we are selling at N1, 000, what it means is that we should buy it at the distributors’ price of between N800 and N900 to make a profit of at least N100 per bag. We are buying from the factory above N1, 000 and could not sell at the same price, considering the cost of transportation, loading and off-loading among other charges.”

    He said distributors were expected to make profit of between N50 and N100 on a 50kg bag of cement after all expenses. He sai: “We are buying at the unit cost of N1, 350 and when you add other expenses, we should be selling at between N1,450 and N1,500, which is a far cry from the over N1, 750 price before the announcement.”

    Last week, cement distributors under the auspices of Association of Cement Traders (ACT) in Kano State expressed discomfort with the new Dangote Cement price, insisting that the N1, 000 per bag policy was unrealistic. Its Vice Chairman, Alhaji Dauda Bakare, said Dangote did not take into account its dealers and distributors who might have stocked large quantities of cement before taking such a decision.

    Dauda asked: “How do you expect the distributors to sell for N1, 000 when we bought for N1, 385 direct from factory at Obajana and that is without transport? When you add transport you will have it at N1, 635 and we sell for N1, 750 per bag. So, how do you reconcile this? Who will bear the loss?

    Dauda, who revealed traders’ dissatisfaction with the new price regime, contended that Dangote was insensitive to numerous dealers with large quantities of products, who might be forced out of business with huge loss when the new price takes effect. “Of course, the new price as announced by Dangote is a welcome development, especially to people on the street, but on the other hand, the decision to crash cement price by Dangote without due consultation with the dealers and distributors for proper assessment of the situation is not appropriate,” he stated.

    Continuing, Dauda asked: “For distributors who have like 10 trucks in stock, how do you want them to sell, or do you think customers will still purchase the products from them at the old price? Honestly, we don’t know what to do. Everybody here is confused ever since the announcement was made. But, of course, it is a welcome development for the common man because people will be able to afford the product at lower cost and build their houses, but as it is it is not possible to sell at N1, 000 when we buy at more than N1, 000 from factory, excluding VAT, transport and we must also make profit as a businessmen.”

    The cement traders are, therefore, demanding palliative measures from Dangote or in the alternative, asking the company to extend the commencement of the new price regime to enable them exhaust their stock. Better still, he said, the company could augment their potential losses.

    Meanwhile, the management of Dangote Cement has assured Nigerians that it would put in place a monitor team to ensure that profiteers do not hijack the new price cut.

    Edwin dismissed as baseless the accusation in some quarters that the price reduction was intended to chase away some manufacturers so that Dangote Cement could monopolise the sub-sector.

    His words: “What we have done is a patriotic decision in the overall interest of Nigerians. We are in business to make money and we know that the price cut would not affect our profit margins. We are a Nigerian company; we have responsibility to make the product available to our people at the most reasonable price.

    “As our production capacity increases, we found out that we could reduce the price to help low income earners find it easy to build their own houses and this is what we have done. Those castigating us and crying of monopoly are those who want house ownership to remain exclusive right of the rich.”

    Maintaining that Dangote Cement likes competition, Edwin said it was competition that encouraged the company to commit huge investment into cement sector.

    “We believe in competition and openness. We can defend our price anytime and it’s only an enemy of Nigerians that would speak against the price reduction,” he said, adding that Dangote would continue to protect the buyers from the hands of profiteers who might capitalise on the new price  to create artificial scarcity.

    Minister of Industry, Trade and Investment, Olusegun Aganga,  at a stakeholders’ meeting in Abuja, said the decision of Dangote Cement to reduce the price of cement was patriotic and in line with the aspiration of Nigerians and the Federal Government.

    He said: “Our main focus for the cement sector is to improve the standard of cement and to bring the price down. More cement manufacturers must do it themselves just as Dangote Cement has done because we do not do price regulation.”

    According to him, the Federal Government has attracted new private sector investments in the cement sector worth $7billion within three years, a feat it was proud of.

    Aganga’s statement came in midst of expression of surprise by many who thought such a price slash was not be possible in the next 10 years.

  • A new dawn for pensioners?

    A new dawn for pensioners?

    The Pension Reform Act 2014 has brought a new lease of life to pensioners; raising hopes of a better life after their years of labour. The Act has also enabled the National Pension Commission (PenCom) to transit into the next decade of its regulatory functions. Omobola Tolu-Kusimo reports that the Act will further stimulate compliance, improve investment returns for contributors and commitment of pension fund assets to long-term capital needs in the country.

    For  workers, hope of a good life after retirement, is on the horizon. This comes on the heels of the Pension Reform Act (PRA) 2014, signed into law on July 1, thus repealing the PRA 2004. Expectedly, the PRA 2014 would continue to govern and regulate the administration of the uniform contributory pension scheme (CPS) for both the public and private sectors employees in the country.

    Ten years after the pension reform, every Nigerian worker is eager and looks forward to retirement. Their input, loyalty and morale to their employers are also boosted as they work diligently to ensure the success of their organisations.

    PenCom Director-General, Mrs Chinelo Anohu-Amazu, said the CPS was novel and seemingly ambitious such that not a few doubted if Nigeria could transit into it and implement it successfully. “Today, 10years thereafter, the scorecard is somewhat self-explanatory. This emanated mainly from the fundamental structures upon which the scheme was built. Indeed, the cardinal principle of separation of custody from management and supervision has resulted in a pension scheme with sound internal mechanism for transparency and accountability.

    “Whereas the Pension Fund Administrators (PFAs) manage the pension funds they do not have access to same as custody is vested in the Pension Fund Custodians (PFCs) and the Commission ensures that both parties adhere strictly to regulations governing the pension funds. The ring fencing of pension fund assets and regulatory non-interference has resulted in the consistent growth in a large pool of pension assets of over N4.5 trillion, which are invested in structured and safe financial instruments; a remarkable growth when compared with huge estimated pension liabilities in the public sector prior to the reform in 2004.

    “The reform has also engendered a regime of regular payment of retirement benefits to all employees who retired under the scheme since 2007 without any delays as was the practice in the old system. Since inception, 111,210 retired employees have received payouts of over N268 billion. Also, through an enhanced compliance regime, 6.26million contributors have so far been registered into the CPS,” she said.

    Despite these records, she added that they are by no means suggesting that the journey has reached its destination.

    She added: “We are not unmindful of some challenges that are yet to be extinguished, for instance, issues around the old Defined Benefit Scheme (DBS) in the public sector. In addition, there are some issues that cropped up only in the course of implementing the PRA 2004.

    “In the quest to usher the pension reform into its second decade, a major review of the PRA 2004 was carried out with a view to proffering solutions to the noted implementation challenges. Having undergone extensive legislative scrutiny, the PRA 2014 was re-enacted in July, 2014.”

    The PenCom boss said some of its salient provisions include the expansion of coverage for private sector employees; upward review of minimum contribution rate geared at enhancing the adequacy of pension benefits; upward review of sanctions and penalties against infractions; informal sector participation in the scheme;  standards for the participation of states and local governments in the scheme, amongst others. She called on all stakeholders to support the Commission in order to sustain what has been collectively achieved over the past 10 years, as they focus on the implementation of the new provisions.

    At the PRA 2014 sensitisation conference recently organised by PenCom, KPMG, tax partner, Mrs. Nike James, observed that the percentage of contributors to the estimated working population as at 2013 is 7.5 per cent. She said while the number of contributors as at second quarter of this year is 6.1 million people, nominal average annual returns between 2008 and 2012 is 5.9 per cent. Pension fund assets as a percentage of rebased Gross Domestic Product (GDP) in 2014 is five per cent, while real average annual returns over 2008 to 2012 is 5.8 per cent.

    James noted that current statistics depict fairly low contribution of pension assets to the GDP and negative real return on investment. “Since 2005, the pension assets have grown annually by 25 per cent. If this rate of growth continues, pension assets will grow to N38 trillion by 2024. The issue now is how do we build capability and capacity to manage such enlarged pool and what is the implication on the roles of the PFAs and PFCs?” she asked.

    Looking into the future, she spoke on how  the roles of the key players for the next decade can be enhanced. According to her, there is need to leverage PFAs significant investments in equities to demand for strengthened corporate governance and ultimately safeguard pension investments in those companies; set world-class professional standards for pension investment managers of the future; optimise the skills of PFAs and PFCs to remain cutting edge, through allowing diversified asset management and custodial services experience, respectively, as done globally; encourage diversification into alternative investments to improve returns while balancing risk; grow the number of pension contributors, especially from the low income bracket, to enhance long-term economic development while PenCom must provide an enabling environment to implement these strategic imperatives.

    The Chief Executive Officer (CEO), Chapel Hill DenhamKey, Bolaji Balogun, while speaking on investment of pension funds under the new regime, highlighted the key take-aways of the new law.

    He said the new regulations allow for greater flexibility as it provides greater latitude. He added that oil prices will challenge Nigeria’s fiscal fundamentals hence, the need to begin to diversify away from government risk.

    “Nigeria’s infrastructure and economy urgently require long-term capital and the pension funds represent our largest pool of long-term capital. International capital is not coming to build Nigeria, only Nigerians will build Nigeria. PFAs and financial markets operators must deliver the risk managed structures and products to commit pension fund assets to long-term capital needs,” he said.

    The CEO of Financial Derivatives Company Ltd, Bismarck Rewane, on his part, spoke on the importance of the CPS. Rewane pointed out that the Federal Government is eating the biggest pie out of the N4.5 trillion pension funds while 34 per cent is invested in corporate entities locally. He added that only four per cent is invested in state government bonds and one per cent invested in foreign entity.

    “Pension funds are instrumental in funding the fiscal programme of the country. While it is important to ensure that savings are deployed in a manner to ensure safety and fair returns to the fund members, it is time to explore better investment outlets for the country, which will offer security and fair returns to the fund members,” he said.

    On investment of pension funds under the new regime, the Executive Director, Business Development of the Nigerian Stock Exchange (NSE), Haruna Jalo-Waziri said it’s been observed that PFA portfolios are significantly controlled by Federal Government securities, which are mostly traded on the OTC window.

    According to him, changes in the PRA 2014 showed that the scope of investments was expanded from an asset class point of view in Section 86 (i) of the PRA 2014, allowing for PFAs to invest in specialist funds.

    “Also, Section 73 (c) of the PRA 2004 was modified to expunge the clause for “good track record having declared and paid dividends in the preceding five years” on ordinary shares of public limited companies listed on a Stock Exchange in Section 86 (d) of the PRA 2014. Section 86 (b) of the PRA 2014  provides for the investment  in debt instruments issued by state and local governments, which was not originally stated in the PRA 2004.

    “Any offshore Investments required Presidential approval as stated in Section 74(2) of the PRA 2004, but this has been amended to only the proportion of pension assets in offshore investments, as stated in Section 87(1) of the PRA 2014”.

    He queried that to what extent should pension managers ensure that they maximise the risk-return trade-off? Does prudent investing for pension manager translate to passive investing? Would PFAs change their asset allocation from an extremely conservative approach to maximise growth in asset? To what extent do pension managers ensure they achieve best execution for investors through participating in liquid and transparent markets? Are PFA activities contributing to the depth of the capital market?

    He also pointed out that with increased asset size, can pension fund managers contribute to financing infrastructure in Nigeria? If PFAs continue to increase allocation to fixed income instruments, what is the effect on interest rates given their turnover in this space? Does the PRA 2014 explicitly provide for hedging of positions by pension fund managers as the NSE is positioned to create a derivatives market? And will investment guidelines be amended to allow for pension fund managers to explore opportunities in securities lending?

    Jalo-Waziri said PFA investments in Nigeria have been steered only with capital preservation in mind.

    “The true representation of the value proposition by any pension manager should be based on their ability to not only increase contributions or preserve capital, but as well grow the assets. There is the need to re-evaluate investment of pension funds towards creating long-term value for the entire economy,” he said.

    The Group CEO, UBA Capital Plc, Mrs. Oluwatoyin Sanni, said the industry has recorded phenomenal growth since the PRA 2004 was enacted, noting that from a meager N265bn pension assets in 2006 when the scheme kicked off, pension assets have grown by an annual average of 58 per cent, reaching about N4.5 trillion as at the end of August, 2014.

    “Although this growth looks impressive, the relatively low penetration of pension assets given the size of the Nigerian economy leaves much to be desired.

    “Nigeria has about 60 million work-force populations implying that less than 10 per cent of potential members currently contribute to pension fund. But increasing integration of the informal sector into the mainstream economic sectors will drive greater participation especially, from SMEs while ongoing reforms in key sectors will reduce current level of unemployment, and propel increased contributions,” she said.

    She explained that there are critical building blocks for promoting the growth of pension schemes in Nigeria, stressing that pension managers must continuously improve technical and technological competence in order to enhance the growth of the industry.

    “The industry is highly concentrated, hence opportunities exists in the possible re-capitalisation of the already existing pension managers for better operation and mergers and acquisitions among industry players for economies of scale and technology sharing.

    “There is also the need to strike a balance between protecting investors via regulatory restriction on investment outlets for pension funds and fostering industry competitiveness through more liberal policies regarding asset allocation,” she said.

    The Principal Partner, Austen Peters & co., Dr. Timi Austen-Peters, while setting an agenda for the industry said in about a space of 20 years Chile’s pension fund assets increased from 0.8 per cent of GDP in 1981 to 55.8 per cent in 2002, yielding an annual average gross real return of 10.4 per cent.

    “In that country the pension fund assets of PFAs stood at $170 billion in September last year,” he added, wondering where Nigeria’s PFAs will be in 2024.

    The Managing Director, Travant Capital, Mrs. Sanyaolu Okoli, said the new act adopts an aggressive stance towards obligating compliance; however a series of structured incentives may also prove effective. “In Nigeria, the problem is rarely a lack of laws, but rather, a lack of enforcement of those laws,” she said.

    Meanwhile, Leadway pensure PFA, Managing Director,  Mrs. Ronke Adedeji, while speaking to reporters at a media retreat organised by the Pension Funds Operators Association of Nigeria (PenOp) in Lagos, said PFAs would not invest in infrastructure if some certain conditions are not met by the Federal Government especially, as it relates to the security of contributors fund.

    Adedeji said operators want guarantee for funds before investing in infrastructure, expressing worry over how the funds can be recouped, especially with the state of inconsistent government policies which have been the bane of business growth and development in the country.

    She also noted that pension funds should not be considered idle money, which can be thrown at troubles without spelt out mechanism to recover the investments.

    “Such investments thrive in other climes, but the proposed plan should be done with clear guidelines specifying how the funds would be recovered and water-tight commitment that policies would not affect it.

    “As an operator, we are merely holding workers’ money meant for their retirement.  We will not be able to tell them when they come for their benefits that their money has been tied down in infrastructures,” she said.

    Head, Risk and Compliance, Stanbic IBTC Pension Managers, Idu Okwuosa, said the operators are not opposed to the demand, but their concern is that there should be proof and guarantee for the funds.

    She noted that one of the ways such initiative can thrive is for government to hand-off totally and allow competent private sector operators manage such infrastructure, adding that events have shown that Public Private Partnerships (PPP) often fail due to government involvements.

    Until June 2004, pension system in Nigeria was plagued with long queues, disappointments, broken promises, and countless hours spent under the rain and scorching sun by pensioners. Before 2004, many Nigerian workers do not like to retire from work even when they have reached and passed retirement age. This led to some reducing their age while others would do all sorts to remain at work. They fear to stop working because they do not want to be part of the despair that rocked the pension sector then.

    Indeed, it was a time of hopelessness for pensioners in the country, a time when the Federal and state governments and employers in the private sector were not paying their retirees pension. The public service operated an unfunded Defined Benefits Scheme and the payment of retirement benefits were budgeted annually.

    The annual budgetary allocation for pension was often one of the most vulnerable items in budget implementation in the light of resource constraints. In many cases, even where budgetary provisions were made, inadequate and untimely release of funds resulted in delays and accumulation of arrears of payment of pension rights. It was obvious therefore that the Defined Benefits Scheme could not be sustained.

    In the private sector on the other hand, many employees were not covered by the pension schemes put in place by their employers and many of these schemes were not funded. Besides, where the schemes were funded, the management of the pension funds was full of malpractices between the fund managers and the Trustees of the pension funds.

    This failure came with negative consequences, foremost among which was untold hardship experienced by retirees especially, in the public sector and creation of estimated liabilities of over N2 trillion.

    The scenario necessitated a re-think of pension administration in Nigeria by the administration of former President Olusegun Obasanjo. He commenced the pension reform process in 2003 with the inauguration of the Fola Adeola Pension Reform Committee. The highpoint of the Committee’s recommendations was the establishment of the Contributory Pension Scheme (CPS) for both the public and private sectors through the enactment of the Pension Reform Act (PRA) 2004.

    The reform was envisioned as a well thought out process of addressing the myriad of pension problems in the country. Unlike DBS, PRA 2004 established a fully funded, privately managed CPS based on individual accounts for both the public and private sector employees in Nigeria. The Act also established the National Pension Commission (PenCom) as the sole regulator and supervisor of all pension matters in the country.

    The pension industry now boast of a total pension funds from a deficit of two trillion naira to N4.5 trillion with coverage of 6.26 million Nigerians under the CPS. A report on the role of major players in the contributory scheme by KPMG highlights global comparator countries.

    It said the Chilean pension scheme, which was the model used for the Nigerian Pension Scheme, showed Chilean’s total amount of pension assets in 2012 CLP 77.54T  (Naira) Nominal average annual returns over 2008 to 2012 is 2.7 per cent,  real average annual returns over 2008 to 2012 is 0.1 per cent.

    In 2008, Chile modified its pension scheme to include a social assistance scheme for those whose contributions are not sufficient for their needs in retirement.

    Mexico is an emerging economy and operates a contributory scheme like Nigeria. Total amount of pension assets in 2012 is MXN 1.9 trillion, nominal average annual returns over 2008 to 2012 is 7.7 per cent, real average annual returns over 2008 to 2012 is 3.2 per cent while pension funds asset as a % of GDP in 2012 is 14.1 per cent

    Mexico also operates a form of social insurance scheme in addition to the contributory scheme such that minimum benefits are guaranteed and premiums are paid upfront to that effect. The social insurance system helps reduce the risk of erosion of value of pension assets as a result of inflationary pressures.

    Recently, PenCom celebrated 10 years of pension reform in the country with an assemblage of private sector leaders, the icons of the pension reform and other important stakeholders as well as usher in the strategic focus of the reform in the next decade.

    However, as the country transits into the next decade with the PRA 2014 guiding the industry, experts and stakeholders want to see a rapid growth in the number of pension contributors, commitment of pension fund assets to long-term capital needs, greater level of enforcement of pension laws by PenCom especially in the private sector, among others.

    Former President, Olusegun Obasanjo while speaking on his expectations of the pension industry in the next 10 decade, challenge PenCom to have coverage of not six million Nigerians, but at least 15 million Nigerians.

  • Ebola: Counting losses in tourism industry

    Ebola: Counting losses in tourism industry

    The Ebola Virus Disease (EVD) may have been stamped out of the country, but it’s ripple effects are taking a huge toll on the businesses related to tourism and hospitality. OKORIE UGURU reports.

    There was an air of euphoria and sighs of relief when the World Health Organisation (WHO) certified Nigeria Ebola Virous Disease (EVD) free last September. This was after the mandatory 21-day waiting period to see if the disease, which was imported into the country from Liberia, would resurface.

    While Nigeria battled the disease from July through August and September, the industry most hit, negatively, by the Ebola outbreak, was the tourism and hospitality industry. Thousands of foreign tourists, mostly on business, left the country. They left behind thousands of empty bed spaces. Hotels also had cancellations in their event centres of programmes booked months earlier. Occupancy rate for hotels in Lagos, which hitherto had hovered between 75 to 90 per cent, for example, nosedived to about 15 per cent.  Some even went lower than that.  So, the announcement by WHO was like a kiss of life for the industry.

    The tourism industry was not spared. Many tourism programme had to be either cancelled or postponed. The annual  Akwaaba International Tourism Fair held in Lagos last month  was almost cancelled but for the doggedness of its organisers. Initially, about 20 countries were billed to attend the fair, but at the end of the day, only Kenya, Rwanda, South Africa and Ethiopia participated. The organiser of the fair, Mr. Ikechi Uko, said at the peak of the crisis when countries started canceling their participations, he ended up being on admission at the hospital, having expended so much fund into the project. He said it was a miracle that the event survived the crisis. But he had to reduce the size of the fairground due to the cancellations.

     

    Post Ebola business environment

     

    Ordinarily, the clean bill of health given by the WHO should have signaled the return to business normalcy. But many expatriate investors and businessmen, who left the country in a hurry, are not in keen about returning. They are mindful of Liberia, Sierra Leone and Guinea that are still battling with the disease. They constitute the bulk of business for most branded hotels and top local hospitality outfits in the country. That is why top brands in the industry are passing through difficult times. Considering the fact that most costs in running a hotel are fixed with or without guests, the hotels are incurring enormous cost to keep their hotels open. The fear is that if the situation did not normalise in the next couple of months, many hotels will close down pushing thousands of people into the labour market. The grim reality is that if the situation does not improve, many hotel workers would be thrown into the labour market.

     

    Long-term effect of the Ebola   

    crisis on hospitality industry

     

    Since 2008, Nigeria has seen a steady influx of top hospitality brands into the country.

    Before then, the only top international hospitality brands were Starwood Hospitality Group’s Sheraton and Le Meridian and Hilton (which later pulled out) and then the Protea group of hotels from South Africa.

    However, between 2008 and now, the industry has witnessed an explosion in  international hospitality  brands making in-road into the country. They include Four-Point by Sheraton; Southern Sun; African Sun; Radisson Blue; Marriot; Golden Tulip; Ibis; Luxury Collections; Swiss group and many others.  It is no secret that the growth in the hospitality industry was helped by the Arab Spring. If the Ebola crisis is not tackled, all these gains may be lost.

    The Managing Director of Swiss Hotel group, West Africa, Dr. Wasiu Babalola, explained the co-relation: “Let’s look at Arab uprising as an example. Leaders of about two or three countries were removed because of the Arab Spring, but are they steady? If you look at it, most investors moved their business because they thought it will be a short thing, it became long and we don’t know when it is going to stop.

    “As business investors, they need to make money, so they moved practically all their events out of North Africa to sub-Sahara, especially West Africa. Those guys are here and they are comfortable, even when the crisis was over, they did not go back. When you look at a research that was done this year, as at three years ago, about three countries in North Africa (Egypt, Morocco, and Libya) had about 50 per cent of hotel development in Africa, and then Nigeria was ranked fourth in hotel development. But as at 2014, Nigeria is accounting for about 48 per cent of developments in Africa, that is based on signed contracts and so on while Egypt is far below. It means some of the investments that were planned for Egypt two years ago had to be moved away, and the same thing with this Ebola crisis. If we don’t try to build the confidence in the populace, investors and foreign travelers, they will look elsewhere.”

    The attraction to Nigeria is the huge population, the steady economic growth, the oil money and to, a certain extent, Nigeria has become very popular for international conference tourism. Unfortunately, all these are evaporating into thin air as the Nigerian hospitality industry battles various problems. For them, the issue of safety has made profitability to pale into insignificance.

    The Managing Director of HSSL Global, Nigeria’s first indigenous hospitality management group, Ayo Olowoporoku, put it thus: “This year has been challenging as a result of the Ebola outbreak. It has adversely affected business. Most of the people that use hotels come from other countries.

    “They come by air, and if airlines are affected,  it affects the industry. Ebola has affected travel generally.  I, personally, have lost businesses, cancellations of reservations and so on, because companies cannot risk convening people in a venue. They don’t want to risk it. Even transient customers are refusing to come to hotels or places where they know they will meet with a lot of people. Everybody is running away. Hotels depend on social lives and ability of the people. We have been adversely affected.”

    Babalola  added his voice: “The Ebola crisis has actually affected the entire hospitality, tourism and leisure industry, not only in Nigeria, but all over West Africa. We are only fortunate that ours has been wiped out; we have a government that is pro-active to some extent.

    “Ebola has affected the hospitality business directly, and possibly the tourism and leisure industry indirectly. Presently, most hotels are experiencing the worse case, even worse than the world recession. It has been recorded that even during global recession, when all other economies were reducing prices, Nigerian hotels were increasing prices. This is a kind of global epidemic that has actually affected hotel industry seriously.  We are currently experiencing occupancy at the lowest ebb; we, the investors, are having terrible cash flow situations.

    “There is no confidence anymore in the industry as it is. This has shown to me that customers value their safety. Safety is now a core, and that is the message they have passed across that Ebola is a safety issue and customers are particular about their safety.” When asked if the local market has also been affected, he said: “I can say it is both ends. When Ebola was still animal to man transmission, it was still a bit manageable, but when it became human to human…the hospitality business is about human beings, which is giving service to human beings, it became a very serious problem for the industry.

    “You can see how parents revolted when government announced that schools should resume, they said no, we won’t. We know also people that took their children out of the country, saying whenever they get back, the children will continue with their schooling. Hospitality is human driven, not technology driven, you have to make contacts with human beings, because of that most of the foreign clientele had to leave. Even the local market, people said this is not the right time to organise any event, any retreat or anything.

    “So, the corporate client that would have even sustained our economy is not even coming out because people would say Ebola is everywhere, we don’t even know who is carrying Ebola. It is not written on anybody’s face. That is why it is everywhere, the local market retreated into its shell and the international travelers are not looking at our way. That is where the government needs to start looking at the post Ebola effect which will be tougher than the Ebola crisis itself.”

    So, how has the industry been coping with the dwindling revenue and cash flow as a result of Ebola?  Most top hospitality outfits in the country are finding it difficult  paying salaries of their workers. As at middle of last month, most of the hotels have not paid their workers September salaries. One of the leading non-branded hotels in Lagos based in Victoria Island has laid off all its auxiliary staff. There are threats that some workers would be laid off if the problem continues.

    “It is so bad that most operators are making less than one-third of what they used to make, meanwhile the cost of doing business is still the same. We still need to run diesel and so on. At a point, the investor would need to make decision: which cost do I have control over? The first thing that comes to mind would be staff. The second thing that comes to mind is that let’s turn it to bread and breakfast hotel.

    “We start sacking all the food and beverages department. As investors, there are options. If the government would allow us to get to that option, they are going to get a long-term problem on their hands, because they will start fretting where do we get jobs. It does not only affect the people we sack. Our third party suppliers will sack some people because the capacity for demand is coming down.”

    Some of them complained about the issue of cash flow as a result of this low occupancy rate, they are asking for incentives like tax waivers for them to recoup some of the money they are losing.

    However, Lagos State Commisoner for Tourism and Inter-governmental Relations, Mr. Disun Holloway said no: “there are no plans to that effect”. Adding: “We’ve not been approached with such request and we meet with them regularly. There are other things that will happen. The state government cannot, any time something happens in an industry, begins tax breaks and things like that. We quite appreciate what has happened in the industry and we will do our best to ensure that the period that they are going through does not turn into a period of massive unemployment. We are glad that, as at now, the hotel occupancy rate has begun to go up. So, we hope it will continue.”

     

    Wooing back tourists

     

    The hotels say they have not been sitting and waiting for their guests to return, rather they have been pro-active in wooing them back; telling them that Ebola has been wiped out of Nigeria. According to the Deputy General Manager of Southern Sun, Ikoyi, Mr. Cliff Shiridzinody, efforts to bring back guests would take at least, three months before yeilding results.

    “You know it is not going to take just the next day for people to come. The damage was done. We are talking of health issues here, it will take three or four months for people to come. But what we have done is that we have taken all the cuts from the newspapers and e-mail them to the travel agents outside Nigeria and say this is what is happening in Nigeria. So, we are sending the cuts from all the newspapers to corporate organisations and travel agents in South Africa, because most of our businesses come from there, so that they can know the situation. But it is not uhuru yet, it is not going to be tomorrow, no, it will take long for the industry to stabilise again.

    “When the news of WHO clearance came out, our head office in Dubai started sending out information to places where we source our market that Nigeria is Ebola free so that they can bring back the clients that we lost,” Shiridzinody said.

    To get the industry back to its feet, according to Babalola, there is need for confidence building.  “Building confidence to me is in three ways: we have the short, medium and long term. The short term has to be done by the government, which is two things. One needs to work with the private sector and internationally recognised institutes, such as the Institute of Hospitality, to do health and safety certification of our hospitality units.

    “It is all about confirming to the world that our hotels are free, they are doing personal hygiene, food hygiene, and a certificate being displayed so that everybody will know that they have done this thing. The government needs also to go back to the media and make noise on a daily basis that Nigeria is Ebola free.

    “I went to Google to get the names of Ebola country, Nigeria’s name was among, they did not even say Sierra Leone and other places, because that is not the market for the press. Nigeria is the most populous black nation on earth, so it goes beyond October 1st announcement by the President thanking everybody. No, the president, the governors and everybody needs to, on daily basis, tell the whole world that they are  free to do their business in Nigeria without fear of any contagious disease, even beyond Ebola.

    “We should also start talking about other things beyond Ebola. It is building confidence in the consumers and investors so that they don’t find a way to move their fund because if investors don’t get their returns, everybody has an exit strategy, they will move. So, for us to guard against it, the government needs to do that. Now, once you are making noise that Nigeria is Ebola free, talk to both the print and electronic media. Put it on the social media and foreign magazines; let’s do a campaign that we are Ebola free nation. This is a campaign the government can undertake for just three months and we will achieve result.  While government is doing that, it will generate some level of demands. The local demands will get excited to sustain the industry pending when the big funding will come. You would remember that WAEC does their marking in Lagos. West African Surgeons also use hotels in Lagos.

    “All these West African examination bodies come to Nigeria for their programmes. Since Ebola, all of them have moved out. So, if we don’t quickly do this, they may get comfortable wherever they are and may not come back. So, we need to quickly do that. That is in the short term.”

    For the medium term solution, the industry according to Babalola, needs to look at the investors, who are crying for help, but not crying aloud because they still hope that normalcy would return. “But I pray it doesn’t get to the next two to three months. Probably the signal the government will see would be retrenchment of workers,” he said. The industry, he said, has been greatly affected by the stigma from the Ebola Virus Disease as some hotels that have suffered low patronage have begun to lay off some of their workers.

    “Presently in the industry, we know of some of our colleagues that have laid off their temporary staff. They are keeping minimal staff; the basic workers, because patronage had dropped ridiculously in Lagos particularly, to between 20 to 30 per cent. Even some unbranded hotels are experiencing less than 10 per cent drop in patronage. It is so bad that most operators are making less than one-third of what they used to make, meanwhile the cost of doing business is still the same,” he said.

     

  • Pains, gains of insurance industry regulation

    Pains, gains of insurance industry regulation

    Enforcement of compliance with reforms in insurance industry by the National Insurance Commission (NAICOM) has been a mix of pains and gains. Since he assumed office, the Commissioner for Insurance, Mr. Fola Daniel has put pressure on the operators to comply with the reforms directive. Despite the pains associated with the compliance, operators have begun to reap gains as evident in their 2013 financial results which showed reasonable profitability. Omobola Tolu-Kusimo reports.  

    The insurer is in the business of providing security to the insured for a fee. The promise of this security in the event of loss gives the insured peace of mind. To be worth it, insurer must have continuous capacity to keep this promise and not fail.

    But the idea of insurance regulation is predicated on the need to protect the interest of policyholders, hence the strict regulatory reforms imposed on underwriters by the regulatory body, the National Insurance Commission (NAICOM).

    The regulator intervenes in the insurance industry to ensure the insurer remains solvent.  This is achieved by making and effectively monitoring the relevant laws and legislations within the jurisdiction. For effectiveness, the making of such laws and their enforcement must take into account, the changing national and global environments of business. In other words, regulation should be dynamic.

    In the last five years, most national jurisdictions have embarked on aggressive reforms of their financial regulatory system. This has been in response to the global economic crises.

    During the same period, the National Insurance Commission driven by a number of internal and external stimuli including those from the global insurance regulatory standard setters like the International Association of Insurance Supervisors (lAIS), has embarked on a number of regulatory reforms.

    The primary objective of all these reform initiatives is to maintain the stability of the financial system and also encourage growth and development of the insurance sector.

    In the case of Nigeria, the stricter regulations commenced in 2007 when the Commissioner for Insurance, Fola Daniel took over the baton of leadership at NAICOM. The Commission embarked on major regulatory reforms in areas such as Risk-based Supervision, Market Conduct Reforms; Financial Inclusion; Enforcement of Compulsory; No Premium, No Cover and Anti-money Laundering and Combating the Financing of Terrorism, Anti-money Laundering and Combating Financial Terrorism (AML/CFT) compliance, among others.

    In complying with these regulations, many operators recorded loss in their financial results especially in 2012 as they grappled to comply and adjust to the new rules. They lamented what they described as too many regulations coming from the regulator almost at the same time.

    But from their results in 2013, it became evident that their pains in complying with the regulations had started to yield increase. The testimonies of chief executives of insurance firms showed that it was difficult to comply with the various regulatory reform initiatives but the compliance has turned most of the firms from loss to profit positions.

    Commissioner for Insurance Fola Daniel said infractions by underwriting firms, insurance brokers and other operators in the industry will not be treated with levity. He said the industry will witness strict regulatory environment henceforth.

    He said the days of accommodating the excesses of operators are over noting that they (operators) should brace up to the new regulatory regime.

    Assistant Director, Inspectorate, NAICOM, Sam Onyeka said a major lesson by countries from the global economic crises is efficiency in financial allocations. He stated that as a concept, risk-based supervision advocates that supervisors should be able to allocate resources as efficiently as possible, paying more attention to areas of higher risks and less attention to areas of lower risks.

    He noted that although there may be several models, it seems that the European Solvency 2 model has come to represent the global standards for insurance supervision.

    He explained that risk-based supervision represents a complex of regulatory standards encompassing capital adequacies and disclosure requirements, risk management and corporate governance.

    He said: “Indeed, for us, the desire to implement the capital adequacies and disclosure requirements of the Solvency 2 has been the harbinger of the now extant regime of International Financial Reporting Standard (IFRS).

    “It is now evident that the Commission has successfully guided the insurance industry in Nigeria towards migration to the IFRS regime.”

    Onyeka however, stated that most operators are now at home with IFRS standards although some are still grappling with the challenges of understanding and coping with the new regime.

    Chairman, Royal Exchange Group, Kenneth Odogwu, stated that for a greater part of 2013, insurers grappled with the challenges of meeting solvency margin and lFRS requirements in the preparation and submission of their 2012 audited accounts to NAICOM.

    As at December 2013, only 38 companies’ accounts were approved by NAICOM out of the existing 59 companies, with 14 firms undergoing varying stages of review of their accounts, and seven companies are yet to submit their results for review.

    He said the general sentiment was that 2013 Gross Premium Income (GPI) would settle at N230 billion as a result of the “No Premium, No Cover” policy by NA1COM restricting only insurance policies paid for in advance to be recognised in insurers’ accounts. He said: “In the same vein, NAICOM rolled out operational frameworks, guidelines and sensitisation programmes for the Takaful and Micro-Insurance initiatives as promised in 2012 and continued its enforcement exercise on compulsory insurance regulations throughout the year.”

    As part of the Federal Government’s reform agenda for the industry, the newly inaugurated NAICOM board led by Mr. Chibudom Nwuche in September 2013 discontinued issuance of new insurance licences, offering investors the option to acquire existing companies and recapitalise their balance sheets.

    The government also charged the insurance regulator to toe the path of self-funding as it confirmed its readiness to cease budgetary allocation to the commission by 2014.

    The Group Managing Director, Royal Exchange, Chike Mokwunye, was of the opinion that the potentials for further growth in insurance penetration levels locally remain buoyant due to the continuing reforms being undertaken by the NAICOM. We believe that the group is now well positioned to drive businesses and extract value across the diverse product lines supported by our superior human capital and extensive distribution network, he added.

    Chairman, Staco Insurance Plc, Dere otubu stated that NAICOM has intensified its enforcement of regulations and guidelines to maintain global best practices and improve the confidence of the insuring public as well as investors in the industry.

    He added that income from the market development and restructuring initiatives (MDRI) was expected to hit N1 trillion after its introduction in 2008. This target was however, not met.

    Also, the challenge of high premium debtors, cum paucity of funds was addressed by NAICOM in January 1, 2013 with the enforcement of the no premium, no cover provision of section 50 of the Insurance Act 2003. The enforcement of anti-money laundering act was also intensified, he said.

    The Managing Director, NEM Insurance Plc, Tope Smart, commended the enforcement of the no premium, no cover policy describing it as a pragmatic solution to the seemingly intractable problem of bad debt associated with the industry.

    The Managing Director, Custodian and Allied Insurance Plc, said the sector experienced improvements in regulatory supervision particularly the release of the guideline on risk-based supervision, strict compliance with Anti-Money Laundering and Combating of Financial Terrorism guidelines and adoption of full implementation of IFRS from 2012.

    The Chairman, Niger Insurance Plc, Bala Zakariyau said the landscape for insurance business provided the usual opportunities and challenges scenario. He stated that the Commission continued in its commendable effort to deepen insurance penetration in the country while sanitizing the industry. These were reflected in the introduction of certain policies.

    During the year NAICOM released the guidelines and registration requirements of Takaful Insurance in recognition of the need to complement the current drive for financial inclusion and to increase insurance penetration in Nigeria. The no premium, no cover, he said was a challenge at the initial stage as the insuring public was yet to fully adjust to its reality.

    He noted that while it improved cash flow of the industry, the policy has applied pressure on the volume of premium generated by insurance companies due to failure of some members of the insuring public to renew their policies as at when due.

    He said: “The Commission’s reinvigorated regulatory parameters continue to set the standards for the players in the industry. Competition remained stiff owing to low insurance penetration in Nigeria. Premium generation accounts for only about one per cent of the GDP, giving rise to practitioners chasing the very few willing insurance services buyers.

    “In our 2013 annual financial report, our Group profit before tax was N716.108 million as against N703.499 million in 2012. The total comprehensive income declined from N988.27 million in 2012 to N794.621 million in 2013. This result is attributable to the stability in the value of property, plant and equipment and available for sale of financial assets following the adoption of IFRS reporting format.”

    The Managing Director, Adeduro Mayowa, Anchor Insurance, stated that in the last five years, the company has grown above the industry’s average, paid claims promptly in excess of N1 billion, met regulatory requirement as at when due, grew its branch network from five to 21 with spread in the major geopolitical zones of Nigeria and has consistently declared profit and paid dividends to its shareholders in the last four years.

    Mayowa stated that Anchor has joined the league of insurance companies that have scaled the hurdle of complying with the IFRS account. According to him, the company experienced a six per cent growth in gross written premium, which stood at N2 billion, when compared to the previous year’s result.

    He said the growth was mainly attributable to increasing marketing network via the various agency outlet spreads across the country with key emphasis on providing insurance services that meet the global needs of customers.

    The company incurred net claim expenses of over N236 million while the underwriting result at the end of the year amounted to N814 million compared to N1.154billion earned during the year ended December 2012.  Its investment income was N145 million in 2013 as against of N117 million in 2012 an increase of 24 per cent.

    It also improved operational efficiency in 2013 by recording a drop of 34 per cent in operational cost from N1.2 billion in 2012 to N0.75 billion in 2013 while its shareholders fund grew from N3.9 billion to N4.1 billion in the year 2013 thus showing 6.4 per cent growth in shareholders’ fund.

    Similarly, the Managing Director, Lasaco Assurance Plc, Mr. Olusola Ladipo-Ajayi, while addressing shareholders of the company during its 2013 annual general meeting, said the organisation moved from loss position of N180 million in 2012 to a profit position of N412 million in 2013 business year as a result of hard work.

    He stated that recapitalization and expansion through the instrumentality of merging and acquisition, new-level branding and world-class quality certification and financial system rating would be given critical attention in the fiscal year in order to sustain the gains already made.

    Successes recorded in net profit, gross premium income, net premium earned, underwriting profit and other positive indicators are not accidental but results of doggedness and strategic planning, he noted.

    Cornerstone Insurance Plc also recorded a growth in its profit before tax by 60 per cent in the 2013 financial year over the 2012 financial year.

    The Group Managing Director, Ganiyu Musa said that the company grew its gross premium by 15 per cent from N4.6 billion in 2012 to N5.3 billion in 2013.

    He said that a combination of robust investment performance and disciplined control of operating expenses resulted in an increase in profit after tax from N544 million to N870 million. Based on this performance, the company recorded 16 per cent growth in the total asset from N12 billion to N14 billion.

    Assistant Director, Inspectorate, NAICOM, Sam Onyeka, further stressed that in the light of the foregoing, it may be appropriate to assert that branch offices are critical for attaining overall regulatory compliance by individual insurance companies.

    In conclusion, the ongoing regulatory reform initiative in the sector is necessary fallout of the recent global economic crises. The reforms will continue for the time being and the natural outcomes will be continuous introduction of complex rules and regulations by the regulator.

    There is a growing need for improving compliance level across all levels of the operational base and this underscores the need for an all-inclusive training for key company staffs at both the head office and branch offices. Companies that will survive in the coming years must begin now to install robust compliance programme.

  • Whither the intervention funds?

    Whither the intervention funds?

    Despite several billions of naira to stimulate growth, the industrial sector remains in the doldrums. This has put the Bank of Industry (BOI), the managers of the intervention funds, under pressure from industrialists, most of who complain that difficulty in accessing the funds from BoI has resulted in curtailing the impacts of the funds. The bank disagrees, flaunting its records, reports Assist. Editor, Chikodi Okereocha.

    The Bank of Industry (BOI) prides itself as Nigeria’s oldest, largest and most successful development financing institution. Reconstructed in 2001, BoI set for itself the mission to transform Nigeria’s industrial sector and integrate it into the global economy by providing financial and business support services to existing and new industries. It is, therefore, hardly surprising that the bank is charged with administering the several sector-specific intervention funds and schemes introduced by the Federal Government in the hope of breathing life into dead or dying key sectors of the economy particularly the industrial sector acknowledged as holding the key to sustainable economic growth.

    At the last count, no fewer than 13 of such intervention funds, amounting to hundreds of billions of naira have been introduced, targeting one segment of the industrial sector or the other. Some of the special intervention funds that raised the adrenalin of industrialists and manufacturers include the Federal Government’s N100 billion Cotton Textile and Garment (CTG) Fund, for the revitalisation of the CTG industry along the entire value chain; N10 billion Rice Intervention Fund, to ensure Nigeria attains self sufficiency in rice production; and Africa Development Bank (AFDB) $500 million Line of Credit, for the development of export-oriented Small and Medium Enterprises (SMEs).

    Others are: Federal Ministry of Women Affairs and Social Development (FMWASD) N90 million Business Development Fund, to provide soft loans to women entrepreneurs; Central Bank of Nigeria (CBN) N220 billion Intervention Fund, for Micro, Small and Medium Scale Enterprises (MSMEs); BOI N5 billion Cottage Agro Processing (CAP) Fund, for the   establishment of small-scale plants or mini mills to process Nigeria’s agricultural products; National Automotive Council’s N16.91 billion Fund, for the development of the automobile industry sub-sector; and Federal Government’s  N2 billion Sugar Development Council Fund, to ensure Nigeria attains self sufficiency in sugar production by 2020.

    The expectation was that government through BOI would leverage these special intervention funds to address the dearth of long term investible funds required by manufacturers and industrialists particularly SMEs. This would ultimately transform the industrial sector into a vibrant and globally competitive sector capable of guaranteeing bountiful returns to all stakeholders and the economy in general. However, the way and manner BOI has been managing and administering these funds appear to have left sour taste in the mouths of operators and stakeholders in key sectors of the economy. Citing inability to access the funds with ease because of bureaucracy and bottleneck in BOI’s administration of the funds, some of them argue that the special intervention funds have made little or no impact on the industrial sector.

    For instance, observers say that with a whopping N100b, a generous interest rate of six per cent, and a repayment period of five years, the CTG industry along the entire value chain should have since been bustling with manufacturing activities. Unfortunately, this has not been the case. So far, only about 20 textile firms have managed to access the loan, according to the Director-General, Nigeria Textile Manufacturers Association (NTMA), Mr. Jaiyeola Olarewaju. He also disclosed that very few cotton and garment firms have taken the loan, which sought to revitalise the CTG industry along the entire value chain, including textile, cotton, and garment production.

    President, National Union of Textile, Garment and Tailoring Workers of Nigeria (NUTGTWN), Comrade Oladele Hunsu, painted a more disturbing picture of the CTG industry, lamenting that “We are stagnated now; the problem goes beyond money.” Comrade Hunsu told The Nation that although, there was a significant improvement in the industry, as 1, 500 jobs have been saved through the intervention, efforts to put the industry back on track have been frustrated by government’s policy inconsistency. He said before the introduction of the fund, government had banned the importation of textiles into the country, which was why operators hailed the initiative and also embraced it.

    But the same government, he said, pulled the rug from under the feet of the operators when it again unbanned the importation of textiles, thus opening the floodgate for cheaper textiles to come in from Asia. Olarewaju agrees with him, noting that the fund, introduced in 2010, recorded some noticeable improvements in the fortunes of the CTG industry such as the re-opening of United Nigeria Textiles Limited in Kaduna, and Arewa Textiles, which indicated interest to come back. Besides, the industry, he said, recorded relatively less factory closures and redundancies, as some of the 20 textile companies who took the loan deployed it either as working capital or used it to refurbish their machines.

    Olarewaju however, regretted that those who took the loan got their fingers burnt when they discovered, shortly after accessing the loan, that over 80 per cent of the market has been taken over by cheap imports from Asian countries. According to him, the influx of foreign textiles into the country made locally produced textiles less competitive, as they are often costlier than imported or smuggled ones. The result, he said, was that other companies yet to access the loan chose to avoid it. Most of them became afraid that they may not be able to repay the loan considering the prevailing unfriendly operating environment particularly with regards to lack of infrastructure.

    Hunsu says the situation is regrettable considering the fact that the real sector rather than the service sector remains the real growth diver. He said the textile industry is the second largest employer of labour after government, which is why government must put necessary measures and policies in place to salvage the industry. He is right. The textile industry was once the bride of the nation’s industrial sector. In its heyday, around the 1980s, it was acknowledged as third largest in Africa, with over 160 vibrant textile mills and over 500,000 direct and indirect jobs. By 1985, the number of textile mills had increased to about 180, engaging about one million workers. The country’s textile capacity accounted for 60 per cent in West Africa.

    The administration of the CBN N220b intervention fund for MSMEs has also not gone down well with manufacturers. “There were lots of bureaucracy/bottlenecks when we wanted to access the CBN N220b intervention fund. We as manufacturers need our own bank,” one of the industrialists said lamented during the public session lecture of the 47th Annual General Meeting (AGM) of MAN Ikeja Branch, held on Thursday, October 16, 2014. At the AGM themed, ‘Creating a Vibrant Economy through Sustainable Entrepreneurial Development,’ the industrialist, who did not want to be mentioned, came down hard on BoI, describing it as “an arrangee bank” in reference to his argument that the bank allegedly only gives loans to politicians and friends of the bank.

    In terms of access to loans, SMEs appear to be holding the short end of the stick, as they appear to face the greatest hurdle in accessing funds from BOI. Despite being acknowledged as major catalysts for wealth creation and poverty alleviation, The Nation learnt that uncoordinated business plans and poorly packaged projects are largely responsible for the difficulties experienced by SMEs in accessing the funds. There are other factors apart from poor access to funds though. Some of them include weak institutional support, unstable macro economics, complicated and unstructured legal framework/regulation, inadequate business information, infrastructure and business environment and human capital factors, among others.

    According to experts, these factors, which militate against most SME operators’ quest to optimise their potential, explain why there is high mortality rate of SMEs in Nigeria. There are over 17 million SMEs in Nigeria, according to data from National Bureau of Statistics (NBS). Most of these SMEs in Nigeria, experts say, die within the first five years of existence, while another smaller percentage goes into extinction between the sixth and 10th year, with only five to 10 per cent surviving, thriving and growing into established corporate status. Yet, SMEs are said to account for over 90 per cent of enterprises in the world and are responsible for 50 to 60 per cent of employment, according to the United Nations Industrial Development Organization (UNIDO).

    For Obiora Akabogu, legal practitioner and public affairs analyst, the high mortality rate of SMEs in Nigeria would have since been halted given the magnitude of special intervention funds targeted at the sector, which plays key role in employment generation. Unfortunately, BOI, he argued, has deviated from the original concept of the intervention funds, which was to provide financial assistance particularly to small scale industrialists. He accused BOI of giving loans to politicians without collateral. He said that the special intervention funds have become drain pipes for siphoning the nation’s scarce resources.

    His words: “The implementation of the funds has not really been felt. Micro finance banks  are even more popular with the masses because they are closer to the grassroots. It has become elitist in nature; it is not on ground. Outside Lagos and Abuja, BOI is as good as dead. It has deviated from the original concept. Only a total overhaul can bring it back of track. Besides, unless the Economic and Financial Crimes Commission (EFCC) beams its searchlight on the financial records of the bank, the bank will perpetually remain a sick child.” He added that despite the fact that the bank had been recapitalised several times in the past, it is still suffering the same fate of lack of capacity to deliver on its vision and mission.

    The Director- General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, also noted that the biggest challenge to the economy especially for the SMEs is the challenge of accessing funds from banks. He regretted that SMEs can’t access loans, credits and other facilities from banks. He said some of them had to resort to Cooperative Societies, micro finance banks and family sources to raise funds. As he observed, “Cost of fund sometimes is as high as eight per cent, making access to  credit a big challenge.

     

    Beneficiaries speak

    Despite the outcry by many business operators, there are however, some people who have given BOI thumbs up for its funding and capacity support. For instance, the Executive Chairman, Innoson Group, Chief lnnocent Chukwuma, admitted to having enjoyed BOI’s facilities for three different times for the production of household plastics ranging from plates, chairs, tables and tanks to pipes and plumbing parts, which has placed the company as the biggest manufacturer of plastics in the country.

    He said in 2010, the company accessed a fourth facility for its diversification into automobile assembling plant, with the plastic arm producing almost all plastic components of the vehicles. According to him, his company, till date, has enjoyed four facilities from BOI, and has been able to maintain good debt service record on all the facilities. This made the company employ over 700 direct staff  and 2,000 indirect workers. Hesaid though he initially asked for a facility of N100 million and was denied, he was rather given N80 million in machinery and equipment.

    Chief Chukwuma is not alone. Chairman, Rumbu Sacks Nigeria Limited, Mr. Ibrahim Salisu Buhari also praised the single digit interest rate given to manufacturers, noting that it is not only convenient, but also easy to repay. He said the company grew from scratch 15 years ago to become the biggest producer of woven sacks and mats. “BOI improved our operations to the extent that we have been able to achieve an evolution of our production process from manual to advanced automation. Similarly, our company has been able to increase its workers from 231 in 2001 to 1,163 to date in direct and indirect employees,” he disclosed.

    Same for the Managing Director of Nigeria Aluminium Limited, Mr. Iyiola Ishola, who admitted that their long standing relationship with BOI since 2005 paid off with the growth in earnings per share of the company’s customers.

     

    BOI’s position

    However, BOI says it is still on course. Its Managing Director, Mr. Rasheed Olaoluwa,, disclosed recently that the bank has so far disbursed about N692 billion loans to customers, created approximately one million jobs, and financed about 2, 000 projects. For instance, information on the bank’s website says that over 60 per cent of the CTG fund has been committed to 52 companies as at March, 2013. The bank cited the re-opening of United Nigeria Textiles Limited in Kaduna as one of the numerous positive impacts of the scheme.

    BOI also said that a mid-term evaluation of the CTG industry commissioned by BOI/UNIDO to evaluate the impact of the scheme reveals that over 8,070 jobs had been saved through the intervention, while capacity utilisation for most beneficiaries increased from below 40 per cent to about 61 per cent. Besides, over 50 per cent of those making losses has started reporting profits.

    BOI also pointed out that the N300b Power and Aviation Fund (PAIF), which aims atrefinancing of commercial banks’ exposures to companies in the power and aviation sectors, fast-track the development of the aviation sector by improving the terms of credit to Airlines establish new power plants especially in clusters, and provide leverage for additional private sector investments in the power and aviation sectors, has paid off. The bank said it has disbursed over N208.21b as at March 2013.

    Total power generated by assisted projects is put at 747.7 Megawatts ?(MW), which represented about 18.7 per cent of the current power generation of about 4,000 MW. The scheme, BOI said, has also been able to leverage private investment into the power sector, and beneficiaries have been able to increase their investment in other assets or expanded their revenue base as a result of the lower debt obligations.

    Olaoluwa also dispelled insinuations that accessing loans from the bank was cumbersome. Said he: “The way to access finance from BOI is very simple. We have a website: www.boing.com, we have a lot of information in that website, such as the sectors we support, the products and ways in which you can apply. He said there are three simple processes: the application form, questionnaire, and the need for customers to engage at the end of the day with the bank’s analysts.

    “When you want to take a loan from BOI, it is important that as a promoter, you have a sound business model. The way we access business model at the bank is to ask you a few questions: First, the product you want to bring to the market; second, what is the target market (who are you going to sell the product to?) Thirdly, what stands your product out or what is your value proposition (why should anyone be interested in your product?) How is your product different from others in the market? Fourthly, which is more important, how are you going to deliver that value proposition to the target market,” he explained, adding that the bank has seven zones. Apart from its head office in Marina, Lagos, the bank is also present in Akure, Asaba, Enugu, Bauchi, Kaduna and Abuja.

    While the controversy over perceived cumbersome process of accessing loans from BOI rages, Diamond Bank Plc’s Regional Manager, Ikeja, Benson Oraelosi, raised the critical issue of the role of MAN in the introduction and subsequent administration of the intervention funds. “How much role did MAN play when the Federal Government introduced the intervention funds targeted at the manufacturing sector,” he asked, pointing out that MAN should have been the conduit or intermediate between government and borrowers.

    Oraelosi, presenting a paper titled, ‘Creating a Vibrant Economy through Sustainable Entrepreneurial Development,’ un-behalf of the bank’s former Group Managing Director, Dr. Alex Otti, at the MAN 47th AGM, said this would have reduced the rate of default by ascertaining the credibility of borrowers. He added that the rate of loan default in Nigeria is high, a position shared by BOI.

    A fortnight ago, BOI blacklisted 24 loan defaulting companies that failed to repay loans granted them. At the occasion of the induction of 10 customers into its hall of fame, Olaoluwa said that the blacklisted companies were also involved in shady deals. According to him, BOI decided to name and shame the bad customers’ to help Nigerian banks to identify business people with no respect for integrity and purpose. He alleged that the 24 companies cloned and falsified documents and diverted loans to non-profitable ventures. “In addition to naming these companies, we have also exposed their directors and shareholders in order to put lending institutions and credit bureaus on notice,” he added.

    On the other hand, Olaoluwa said that the 10 companies inducted into its hall of fame obtained credit facilities from the bank at least twice and fully repaid the loans thus, proving that integrity was not a function of size or of business environment. “As a bank, our hope and prayer is that we increase the number of customers in the hall of fame and minimise the blacklist,” he said, adding that the effect of any loan default was severe, with certain socio-economic consequences capable of defeating government’s objectives of financing the strategic sectors of the economy. The BOI boss pointed out that as a development bank, BOI derives its funding from government resources that are limited, finite and subject to competing demands.

     

    MAN’s reaction

    As far as MAN is concerned, its hands are tied with regards to high rate of loan default among members. Chairman, Ikeja branch of MAN, Prince Oba Okojie, argued that it is almost impossible for MAN as an association to stand or intermediate between government and borrowers. We can try, but there is a limit to what we can do,” he said, noting however, that “the inability of manufacturers to access funds with ease has led to closure of many factories, making our young people who would have been gainfully employed to contribute meaningfully to the growth of the economy idle and jobless and therefore, engage in all kinds of vices.”

     

    Conclusion

    Beyond the outcry by some manufacturers and business operators over lack of access to the funds, experts say that the intervention funds constitute only an interim measure. They argue that the funds translate to only a part of the fundamental changes needed to make the intended beneficiaries and the industrial sector competitive “While it provides a way forward in a financially arid operating climate, the equally critical issue of infrastructure should be taken into consideration. Otherwise, the loan beneficiaries may be frustrated midstream,” the Managing Director, Fruity Drinks Limited, Lagos, Mr.  Livinus Okafor, said, for instance.

    He noted that the problem of the SMEs is not so much about physical fund, but the provision of infrastructure that gulps the small fund available for business. He said as long as government neglects the provision of needed infrastructure such as electricity, motorable roads, water, raw materials and whatever makes operating environment possible, the fund would not do much for operators.

    Mr. Yusuf noted that SMEs have great potential in terms of job creation and should be eagerly supported by the government and all the necessary agencies to see that the sector is robust. He encouraged the administering agencies, which include state governments, cooperative societies and other institutions to ensure that  they get round the challenges of collateral, which has become an albatross for small scale industrialists in the country.

     

  • Tobacco Bill: Torn by health, economic devt

    Tobacco Bill: Torn by health, economic devt

    With over N213billion in taxes from the tobacco industry, the Senate may have opted for a middle ground solution to the heated debate over tobacco ban. In the interest of the economy, the industry, smokers and non-smokers, the National Assembly plans to harmonise the Tobacco Bill before the expiration of their session , write MUYIWA LUCAS and ADEDEJI ADEMIGBUJI.

    Unlike the uproar that greeted the public hearing at the Lower House when it deliberated on the controversial Tobacco Bill, the session inside the hallow chamber of the Senate  was far from  stormy when it conducted a public hearing on the issue last week. The hotly debated bill sought to regulate and control the production, manufacturing, sale, advertising, promotion and sponsorship of tobacco or tobacco products in the country.

    But when the Senate Committee on Health whose legislative input is expected to enhance a robust bill that would pave way for tobacco law deliberated on the matter for four hours, it was devoid of the usual hot exchanges. All the stakeholders, both for and against the bill, walked away after the presentation of about 48 submissions. The understanding was that the bill was not aimed at throwing people into the job market and stop tobacco industry from operating as a business. Rather, it was to protect public health.

    At the public hearing, last week, the Senate assured Nigerians that the new Tobacco Bill will not create unemployment or result in the closure of multinational companies that manufacture cigarette in the country. The Chairman of the Senate Committee on Health, Senator Ifeanyi Okowa, gave the assurance saying the new bill is designed to safeguard the health of the people.

    Okowa, who was reacting to the concerns raised by the Oyo State government in which it complained that any stringent regulations in the industry would worsen the economic situation of its people,  assured that the interest of all stakeholders  would be taken into consideration in the passage of the bill. He also noted that the intention of the Senate is to regulate the tobacco industry in a responsible manner, adding that the rights of the younger generation needs to be protected

    “Our intention in the National Assembly is not to drive the industry away by stopping them from manufacturing.

    “We only believe that they need to be regulated so that they will continue to act in a responsible manner. It is not only about the industry, but also about the retailers and our attitude as Nigerians.  It is a comprehensive thing.  People have the right to smoke, but we also want people to realise that smoking is injurious to their health and that they need to protect the right of other people who do not smoke and of course, the young ones need to be protected. Cigarette is the only product that we allow people to buy and sell in Nigeria legally even when we know it has a lot of injury and health hazards,” he said

    The Senate President, David Mark, also explained that  the National Tobacco Control Committee and the Tobacco Control  Unit were being proposed by the Bill as the administrative bodies to handle the harmonisation of the executive bill, the  Senate bill and stakeholders’ input at the hearings before it becomes a law.

    He said: “Much of the contribution of the negative effect of tobacco and tobacco products in the country is the illegal production, distribution and advertising of the product by many vendors, which has led to the cause of many diseases and untimely death of many Nigerians. This gathering has onerous task of assessing issues not limited to just tobacco distribution, sale, advertising, manufacture and sponsorship but also issues like age restriction and penalties, effects of second-hand smoke, both in children and adults smoking in public places.”

    Senators Okowa’s and Mark’s clarifications were in sync with the position of the House of Representative, which deliberated on the matter few mionths ago. Its Chairman House Committee on Health, Hon. Ndudi Elumelu, had assured that the tobacco bill was not intended to kill tobacco business, but rather to ensure that the business of tobacco was conducted in a regulated manner that would guarantee a healthy environment for all concerned. He explained that the public hearing was aimed at ensuring that all the parties to the bill were given opportunity to air their views as the bill, when enacted, would reflect the collective wishes of Nigerians.

    However, the position being canvassed by the National Assembly apparently did not go down well with some non-governmental organisations (NGOs) and other critical stakeholders most of who favour a total ban of tobacco business. Their desire is premised on the health implication of tobacco consumption. Armed  with statistics of deaths related to tobacco consumption, a coalition made up of  Environmental Rights Action/ Friends of the Earth Nigeria (ERA/FoEN), Civil Society Legislative Advocacy Center (CISLAC), and the National Tobacco Control Alliance (NTCA), insisted that a tobacco control bill that is in sync with the World Health Organisation Framework Convention on Tobacco Control (WHO-FCTC) would not only promote public health, but also fulfill Nigeria’s obligation under the FCTC.

    “The public hearing on the National Tobacco Control Bill is a welcome development and presents another opportunity for our lawmakers in the Senate to side with the people by ensuring that the bill is in tandem with the FCTC, which is the first global health treaty. The Senate must stand firm in the face of growing misinterpretation of the tobacco control bill by agents of the tobacco industry. It must remain vigilant and resist the deceptions and lies of the tobacco industry and those  fronting for them,” ERA/FoEN Director, Corporate Accountability, Akinbode Oluwafemi said.

    Also, the Executive Director of CISLAC, Auwal Rafsanjani said: “The public hearing is coming at a time that the health burden instigated by tobacco products has started assuming alarming proportions. Nothing short of effective regulation of the manufacture, sale and distribution of such lethal products is needed now.”

    But in fairness to tobacco producers, a lot of efforts have been made to curtail, through self regulation and corporate social responsibility possible health effects of tobacco.

    The Director of Corporate and Regulatory Affairs, BAT West Africa, Mr. Freddy Messanvi, said this much when he explained that BATN has always supported the passage of a balanced and evidence-based regulation of the industry in Nigeria. His words: “Through co-operation between BATN and regulatory agencies, we have achieved reduction in the incidence of illicit trade from over 80 per cent to around 20 per cent today.”

    Messanvi therefore, warned that the proposed regulation should not force a legal and regulated business out of operation and leave the market at the mercy of smugglers and illicit traders. He added that in passing the bill to law, it was important to consider trends and implications in other countries with similar legislation.

    Similarly, Habanera Limited, an affiliate of Japan Tobacco International (JTI), said it was not happy that tobacco advertising was banned in Nigeria by Advertising Practitioners Council (APCON) through its Code of Advertising Practice and Sales Promotion, even while the bill iwas still being debated and yet to be signed into law.

    The General Manager, JTI, Mr. Grant Mowat, said that while the ban is rigorously enforced, no justification has been presented for why the bill is needed in the light of existing restrictions. “This ban is rigorously enforced, sufficient and complies with Nigeria’s entire obligation in terms of Framework Convention of Tobacco Control (FCTC). Despite this, the Bill proposes new measures. No justification has been presented for why they are needed in the light of existing restrictions, nor has there been any assessment of whether they will be effective or what the negative consequences might be,” he said.

    For the Chairman of Tobacco Growers Association of Nigeria, Rasheed Bakare,  there is need for a bill that would promote and encourage sponsorship of tobacco farming as well as provide incentives to farmers.  Anything short of that, he said, would not only destroy their main source of income, which is tobacco farming, but also throw their children out of school.

    On its part, the Manufacturers Association of Nigeria (MAN) requested that certain factors be put into consideration in the pursuit of the bill. These factors include putting into consideration the manufacturing capacity of the industry, which if eroded will affect the tobacco industry’s  contribution to the economy. According to MAN, thousands of rural farmers actively engaged in tobacco cultivation through support by tobacco companies leading to wealth creation, financial empowerment and better standard of living.

    That is not all. MAN also noted that the tobacco industry contributes over N100 billion in revenue to government through excise duty, taxes and levies, corporate social investments among others. MAN warned that the current bill not only contravened trade agreements with other countries, but also will lead to loss of jobs, lrevenue, and an end to economic and social benefits enjoyed by rural farmers through CSR activities and promotion of smuggling among others.

    For pro-tobacco stakeholders, Clause 3 of the draft bill is perhaps, the most unpopular provision.  The clause provides that tobacco products will not be sold at open markets, shops and kiosks. For instance, the National Tobacco Retailers Association, Onuwankpu- Igbsagu Community in Izzi Local Government Area of Ebonyi State, BATN, and a host of others, argued that doing so implies killing their businesses through the back door.

    This much was highlighted at last week’s public hearing by the Director of Public Prosecution in the Oyo State Ministry of Justice, Mr. Tajudeen Abdul Ganiyu. The DPP told the committee that hundreds of Oyo indigenes, especially youths, would be out of job if the new bill forced the British American Tobacco Company in Ibadan to close down its operations.

    Ganiyu said: “We are looking at a situation whereby the bill would put the industry out of business and throw the workers out of employment because we are going to suffer the immediate result of people being thrown out of market as it is going to increase the crime rate in our state.We are also concerned about the area of partnership between the state government and BATN. The company has been helping the Oyo people by empowering them to set up small entrepreneurs throughout the state. We have the tobacco farmers who are also being empowered too by the tobacco firm.”

    Ganiyu was not done. “As a member of WHO Framework Convention on Tobacco Control(WHOFCTC) that adopted the treaty on Tobacco Control, the Nigerian Government and the National Assembly have to live up to this mandate by ensuring that adverse effects and burden of tobacco and tobacco products on our public health system are sustainably controlled. We must understand that for this Bill to be sustained, it needs more than government’s backing. We must shun illegality in this business sector in its entirety.”

    Interestingly, the Senate is not unmindful of the economic implications of banning tobacco, which was why the upper legislative chamber favours a balanced tobacco bill that would meet the expectations of all stakeholders. Besides, the current National Assembly winds up soon and because of the next election, the present wants to hasten the process to prevent a fresh debate on the bill by the next assembly if the present assembly fails to conclude the deliberation.

     

  • ‘Delayed Gas Master Plan implementation impacts on earnings’

    ‘Delayed Gas Master Plan implementation impacts on earnings’

    The Chairman/Chief Executive Officer, Oilserv Limited and Frazimex Limited, Mr. Emeka Okwuosa, an engineer, says the petroleum industry can add more value to the economy than it currently does. This, he says, can be achieved through increased domestic gas utilisation and local capacity development. Okwuosa speaks to Assistant Editor EMEKA UGWUANYI on this and other national issues.

    Indigenous oil services companies are recording remarkable success and are  gradually taking over the petroleum industry from foreign firms. What do you think is responsible for this?

    The Local Content Act is a combination of efforts. Originally from the private sector, and later on the Federal Government taking a cue from that and getting the Nigerian National Petroleum Corporation (NNPC) involved. So, between the private sector service companies such as ours and the NNPC, we were able to put together what we have today. But we thank the NNPC representing the Federal Government, for moving when it was required. If we hear about local content as a law today, some of us may not know that it took us 20 years fighting for it. After the first 15 years, NNPC did a very good job of setting up a sub-division within its group. Again, luckily and incidentally, the Group General Manager of the division at that time was the same Engr. Ernest Nwapa who currently superintends the Nigerian Content Development and Monitoring Board (NCDMB). That is why Nwapa’s position in NCDMB gives all of us joy because you see an individual who understands what the issues are and who was involved from the beginning, in getting to where we are today. That gives him the background and opportunity to be able to drive the process, because it is not about us as individuals, but how we create opportunities in Nigeria for the future of the country. When we talk about the future of the country, we are talking of how we, as individuals, impact the system to ensure that the extraction of oil and gas in the industry is done in a manner that would retain most of the values in Nigeria. The good story is that today, after 20 years, we can beat our chest and say we have actually been able to achieve a lot. But we have not got there yet because the target is still far away. When I came back in 1993, I made up my mind to make a change in the system. With the experience I acquired, in conjunction with my colleagues, we started the Petroleum Technology Association of Nigeria (PETAN) with the sole purpose of developing capacity in oil and gas industry, from service provision to exploration and production of crude.

    Nigeria is said to be more of a gas province than oil; yet there is a dearth of gas supply in the country. What does the country lose to the delayed implementation of the Gas Master Plan?

    The Gas Master Plan (GMP) should be executed faster because we are losing value. What we are losing by not executing it is difficult to quantify. It depends on the model you use. Do you know that Nigeria, as we speak, has the capacity to take and use five billion standard cubic feet of gas per day. If you look at the cost of gas at 1000 cubic feet, which varies between $2 and $6 depending on where it is being sold and transported to. This is a huge amount of money being lost on daily basis. But this situation is not as straight forward because there are several issues around gas as a commodity. One of this is the issue of gas commercialisation. For instance, if I own an oil block and you want to take my gas, there is a cost for me to produce that gas, clean it up and put it in a condition that you can pipe it. That cost has to be covered by a commercial arrangement. If the commercial arrangement is not right for me to do that, I’ll leave the gas there or burn it. That is the problem we have dealing with the international oil companies (IOCs). They also have a clear case of being able to get value from what they are doing. It is not just the cost of gas but also the cost of processing and moving this gas. They have to recover that. If they can’t recover that, then why are they into the business?  So there has to be a win-win situation. And that is where I think we are moving to and I believe there is a commercial framework for that and it is a matter of driving that arrangement.

    Your company was awarded the East-West pipeline contract. At what stage is it, and when will it be completed?

    The project is to raise the OB3 pipeline. The OB3 pipeline is the largest pipeline being done in Nigeria. It is a 48 inch pipeline and we have never built a pipeline of that magnitude. This is the first time such pipeline is being executed. We call it OB3 because it goes from Obiafu-Obrikom in Rivers State to Oben in Edo State. So instead of calling it OB-OB to Oben, it is called OB3.

    We were awarded the contract for half of it, and we commenced activity. This contract is an engineering, procurement and construction (EPC) project. We have finished the engineering and have procured the entire pipes. The pipes started arriving from November last year. Some constraints were there but they have been solved by NNPC. The major constraint was the right of way. It was only in April that NNPC secured the entire right of way. I think there are still some gaps. In Nigeria today, the most difficult aspect of the kind of work we do is dealing with communities. Ordinarily we have a law in the country that should enable us to acquire the operating pipeline license (OPL) as it is called. Ordinarily, you go to the Department of Petroleum Resources (DPR) and apply, go through the processes, which involve detailed environmental impact assessment (EIA) and all the requirements before issuance of the licence, and with that licence you go in there and build the pipeline. But it doesn’t work that way in Nigeria. You have to go back and take it meter by meter and start negotiating with individuals to make sure you have a framework to enable you work. So, it was only in April we got that and we have commenced work.  The bottom line is that building a pipeline is not like going out there to buy a car, which you just start and ride away. It is a long process. But I believe clearly that now that we have started, within the next 20 months we should be done with the construction all things being equal. There are other things that could delay but we don’t hope for that.

    Is there a guarantee that your community engagement strategies would ensure delivery of the project in 20 months? 

    We can’t guarantee that community issues will not impact delivery of the project, but the good story is that we are experts in what we are doing. We have experience that goes beyond discussing it. We have been talking about OB3 but beyond OB3 we are executing 10 other projects. We have a total of 11 projects going on at the same time. And we have been doing this level of activity for a very long time. So, what it shows is that we have a method of engaging communities that enables us understand the communities, understand their needs and go for win-win situation. Discuss with them and agree on what has to be done, which includes opportunities for provision of jobs, sub-contracts, security, and also do some community development projects for them. If you agree with them, you sign agreement and execute accordingly.

    What is the cost of the 11 projects your company is executing?

    The 11 projects are worth more than $550 million. This capacity we showcase is typical of what PETAN represents in promoting indigenous capacity to deliver on challenging assignments. We in PETAN do not represent government but we collaborate in building industry capacity to ensure that national economic aspirations are realised in full through creation of value in the domestic economy.

    With vandalism challenges in crude oil and gas supply, can the LNG be used to close the gap between production and consumption centres?

    The use of LNG and investment in gas supply alternatives are all commercial issues. If it is commercially reasonable and can be funded, it can be done; otherwise, it cannot be done. It is not based on technicalities at all. It is possible to go and set up a regasification plant, buy LNG, regasify it and pipe it but it is not worth the cost in Nigeria because we have the gas already. All we need to do is pipe it where we want to use it than to build a regasification plant. That means that you sell your gas as LNG and import another LNG back, re-gasify and pipe, all in the name of averting pipeline vandalism. All the challenges of pipeline in Nigeria are superficial and transient. All it takes is for the country to have a proper master plan and execute it in a way it makes sense. There is no difficulty in building pipelines; it is a matter of how we work about that. So, building a regasification plant is not commercial enough to make it workable. We have a lot of gas offshore. If the country decides to harness the gas, it is a policy issue and NNPC will take it and talk with the international oil companies (IOCs) and strike a commercial arrangement whereby the IOCs will extract proper values from their gas, whereas government will create the right environment to be able to utilise this gas in a way that is commercially attractive. It has to match it. It is business. It is not a very big issues but it can be done. And I believe there is a plan to do that but it is a matter of executing that plan.

    What is your take on funding challenges faced by indigenous players?

    Funding is a key issue in capacity building. For us, at the very early stage it was very difficult because Nigerian banks and funding institutions were not tailored to doing this kind of business. They were more tailored to importation of materials. So in the early 1990s if you went to them for facility to execute contracts, they would only give you facility for three months. And you don’t do these projects in three months. But today we have gone beyond that. Funding is not really a major problem for us because we have built capacity that enables us to continuously perform. And what banks want is to be sure that when they lend you money, they can get it back with interest, not stories that the project has failed. Oilserv and Frazimex have never done any project that failed. In fact, before we sign a project, banks would have lined up to give us facilities. It might not be the same with other companies. The experiences differ from one firm to another. But really, anywhere in the world you have to understand that money is always available. It is a duty of matching money with what it needs to do. That process is the issue. If you want to raise a billion dollars, you can do that so far there is credibility in the process of utilisation.

    Secondly, the issue of pipeline vandalism is a major problem in Nigeria. But there is technology solution to that. The 54 kilometre pipeline we are building from Umudasege to Umugini in the Niger Delta will host the pioneering vandalism detection fiber optic system that we are installing. The fibre optic vandalism detection  system is so sensitive that it can differentiate between somebody coming to dig, walking on top of it, or driving a car across the line. So, you can determine what is happening along that right of way and whether it is a threat to the pipeline. And there is a control system and access controls to enable you take action immediately. Such are technologies that you can be deployed to curb pipeline vandalism. There are other technologies you can also deploy, but we have to consciously deploy more technology in pipeline protection and that calls for massive investments.

    How have Oilserve and Frazimex contributed to local capacity development?

    Oilserv is purely engineering, procurement and construction (EPC) company in land, swamp and offshore terrains. It has great capabilities. We build pipelines, flow lines and facilities associated with pipelines; from manifold stations, pigging stations to metering stations, among others. The capacity we have today is similar to what Wilbros had when it held monopoly in the country. When you talk about Oilserve, we are not just doing challenging jobs but also building capacity and training people. I can tell you that all the people working in Oilserv today are Nigerians. And some of these individuals left universities in the 1990s and early 2000s and came in as fresh graduates. Today, some of them are general managers, some of them are managers. So you can see that Nigerians can do it if given the opportunity, but you need to be trained. We move into other countries as expatriate companies, which nobody would have thought about 20 years ago.

    Frazimex specifically focuses on engineering design ranging from feasibility studies, front end engineering, to detailed engineering. Frazimex also is involved in gas development. You hear about gas to power.

    How important is gas to the country’s economic survival?

    Today, gas is the key driver in terms of capacity building in the Nigerian economy. If Nigeria can articulate and seriously commit to the implementation of the gas master plan, make gas available to every part of Nigeria, you will see that with energy available, it is possible to have things like power generation made easy. What people fail to understand is that gas is related to our ability to feed ourselves. Gas is the main source of urea production, which is the main component in fertilizer production. So the fertiliser that you apply to be able to have good yields in agriculture, comes from gas. But unfortunately, the only fertiliser plant we have in Nigeria is the one built over 30 years ago, which is now owned by Notore. How come a country that has so much resource has only one fertiliser plant? And I know that some quantity of fertiliser is being imported to meet the country’s consumption need. Meanwhile we sell our gas as liquefied natural gas (LNG); the countries that buy the gas would produce fertiliser with it and sell the fertiliser to us.  It is the same story about importation of refined petroleum products. You ask yourself whether it makes sense to have the crude, and you cannot refine it. You sell the crude, provide jobs for people where they have refineries and they sell to you the refined products, which you have no control over the quality. Obviously these are the issues we have to address, and in addressing it what we are doing in our own little way is to continue building capacity in our own field in such a way as to be able to make a difference in the country.

    Is there any collaboration between Oilserv and Frazimex in jobs execution?

    I would like to clarify that one part of Frazimex manages and handles engineering design and feasibility. You have the other aspect of gas development and power. And you have another aspect also that manages Exploration and Production portfolio. For Oilserv, the synergy there is that it retains the main value of the EPC but when we bid and get EPC projects, which means it covers from engineering all the way to commissioning; Frazimnex comes in to manage the engineering aspect as part of the Group. As I speak to you Frazimex is handling engineering scope of a job being executed by one of our competitors. That doesn’t stop Frazimex from working for us as a group.

    Considering your knowledge of gas business, what is your view on developing LNG projects in the country?

    Nigeria has capacity to build a number of LNGs but I’m not an apostle of LNG. In fact, LNGs are not different from what we do with crude oil. You take your crude oil and sell to somebody, and they use it to develop their place. What is more important to us in Nigeria is how to pipe gas all over Nigeria to enable us develop with our gas. So, as a first option we must have gas available to all Nigerians and not to outsiders, because we can create the value, and money will come out of it and we can make payments to the same international oil companies (IOCs). So, there should be a conscious effort by the government through the NNPC to drive this home.

    What is the size of your company’s workforce?

    Oilserv employs more than 400 people. Why I cannot put a figure is that you heard the number of projects we currently handle. By the nature of our business, the number of staff I have today might be different from the one I will have next week. It moves up and down but it has always varied between 400 and 500. And that includes the project staff members. They do not include community based staff who are ad hoc workers because as you finish your project in one community, you drop the ad hoc workers from the community and pick another ad hoc staff from the next community.

    What particular services does your firm export?

    Services that we export are the services that we’ve developed already, from engineering to construction, to maintenance of facilities, power generation, and to gas-to-power systems as well as exploration and production. We export services to across West Africa and East Africa. And we will continue to develop that as we move on.

     

     

  • Dangers of Nigeria’s depleting oil reserves

    Dangers of Nigeria’s depleting oil reserves

    Stakeholders in the oil and gas industry have warned about the dangers of Nigeria’s depleting crude oil reserves. They have pointed out the implications of exploiting the reserves without replenishment. The Federal Government appears not interested in addressing the issue thus raising fears the economy may collapse someday soon, EMEKA UGWUANYI reports.

    For several years now, Nigeria’s depleting oil reserves has been a subject of discussion at major oil and gas fora. The continued depletion of the reserves without replenishment has become worrisome to stakeholders in the oil and gas industry for several reasons.

    The reasons for their worries are not far-fetched. Earnings from the sale of crude oil, according to data,  constitute over 80 per cent of the nation’s foreign exchange earnings, at least over the past two decades. Therefore, operators of the oil and gas industry are of the view that an industry that occupies such an important position in the economy should be taken seriously.    Besides, they expressed fear that if the decline in reserves continues unchecked, it  will get to a point where the country will transit from a net exporter of crude oil to a net importer of crude. Their reason is that as the population continues to grow with increasing standard of living and advancement in technology, energy needs will double.

    In 2003, the Federal Government in its aspiration to grow reserves while empowering and increasing participation of indigenous operators in the industry, awarded 24 marginal fields to local firms. Out of the 24 fields awarded, only eight have started production as a result of funding constraints. According to the former Director, Department of Petroleum Resources (DPR), Osten Olorunsola, besides funding issues, issues around host communities  and lack of technical expertise, contributed to lack of development and production from the fields.

     

    Definition

     

    Industry experts and the United States Energy Information Administration (EIA), define oil reserves as an estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation’s reserves. Therefore, crude oil proven reserves are the amount of technically and economically recoverable oil. However, experts say that reserves may be for a well, for a reservoir, for a field, for a nation, or for the world but different classifications of reserves are related to their degree of certainty. The total estimated amount of oil in an oil reservoir, including both producible and non-producible oil, is called oil in place.

    However, because of reservoir characteristics and limitations in petroleum extraction technologies, only a fraction of this oil can be brought to the surface, and it is only this producible fraction that is considered to be reserves. The ratio of producible oil reserves to total oil in place for a given field is often referred to as the recovery factor. Recovery factors vary greatly among oil fields. The recovery factor of any particular field may change over time based on operating history and in response to changes in technology and economics. It may also rise over time if additional investment is made in enhanced oil recovery techniques such as gas injection, surfactants injection, water-flooding, or microbial enhanced oil recovery. Proven reserves are those reserves claimed to have a reasonable certainty (normally at least 90 per cent confidence) of being recoverable under existing economic and political conditions, with existing technology, experts say.

     

    Stakeholders’ views

     

    The Royal Institute of International Affairs also called Chatham House, an independent policy institute based in London, in April 2008, carried out a study titled ‘Resource Depletion, Dependence and Development.’ The study focused on some oil producing countries including Nigeria. The study showed that Nigeria’s oil and gas production will begin to decline from between 2021 and 2022, adding that Nigeria’s hydrocarbon export earnings would no longer support imports to the rest of the economy. The study was conducted even when Nigeria was growing its reserves. Now that Nigeria has started dipping hands into its reserves, the production decline and its economic impact may begin to occur before the Chatham House’s timelines. The study also noted that by 2036, Nigeria will be consuming all its oil and gas production domestically, insisting that Nigeria’s dependence on oil and gas is unsustainable.

    Also, the Nigerian Association of Petroleum Explorationists (NAPE) and the Society of Petroleum Engineers (SPE), Nigeria chapter, which are outstanding oil and gas professional bodies in the country, have in the past few years been drawing the government’s attention to the economic threats that oil reserves depletion poses to the nation. Past presidents of NAPE who also work for different international oil companies (IOCs) or run their private oil firms including Dr. Kingsley Ojoh, Isaac Arowolo, Jide Ojo, Dr. Mayowa Afe and also the incumbent, Mrs.  Adedoja Ojelabi, have been urging the government to encourage aggressive and sustainable exploration by creating incentives that will drive that purpose to replace used reserves.

    For instance, Ojoh who spoke at the sixth yearly mini conference of NAPE held at the Obafemi Awolowo University, Ile-Ife, said drilling activities had become too low that exploration activity, which peaked in the late 60’s dropped to a very low level in 2010. He noted the urgent need to encourage aggressive exploration for hydrocarbons now for tomorrow’s resources and reserves. He said: “While Brazil builds up reserves and production of liquids in the next decade, Nigeria’s future is not as promising. There is urgent need to replace production in Nigeria.”

    He said Brazil had discovered 36 billion barrels of liquid from exploration in 10 years and could produce over four million barrels per day by 2030. Ojoh  said  building reserves and production beyond 2020 and 2025 should be given priority for the country to continue to remain in the business of oil and gas in 2030.

    NAPE President, Mrs. Adedoja Ojelabi, also said  exploration for fresh discoveries has become imperative. She noted that the only means of rescuing the nation from continued depletion of oil reserves is to start aggressive exploration. According to her, all the oil companies are willing to embark on exploration and production, adding that the right environment has to be there.

    She said it is important to replace used reserves arguing that the IOCs and independent oil producers have their reasons for shunning exploration now.

    “They are being careful because we are talking about investments here. Investment in the oil sector is capital intensive. It is not something one jumps into without doing proper economic analysis. We have the Petroleum Industry Bill (PIB), which is pending. Hopefully it would be passed. Any investor would want to ensure that the environment is okay, free and fair to enable him  recoup his investment. I believe all the parties are working to create that enabling environment,” she said.

    The Director, DPR, Mr. George Osahon, during this year’s Nigerian Oil & Gas Conference in Abuja, said Nigeria’s oil reserves had depleted to 35 billion barrels. Before he assumed office, data showed that the reserves were in excess of 37 billion barrels.

    He drew the attention of the Federal Government and other stakeholders in the industry to the dangers of the depleting reserves. He urged the government and all the stakeholders to urgently address the situation before it becomes unmanageable. “What we now have in our reserves are 35 billion barrels. Niger Delta is finally showing signs of maturity as its reserves are beginning to drop and I think everybody must be worried about this,”he said.

    To address the situation, Osahon said the nation must boost exploration and find more oil to replace the depleted reserves.

    He said: “Oil reserves are dropping and our output is dropping too. What are we supposed to do to correct this? The only way is exploration, exploration and exploration. We need to do more in this regard to have more reserves. “We have reached the plateau of production in the Niger Delta and we are already going down. A lot of money has to be spent to increase our reserves at the old fields. Aggressive exploration is needed the Chad Basin.  The fact that we have not found anything at the Chad basin as at today does not mean that oil is not in the basin. We are optimistic about this. We are sure it would help us to boost our reserves.”

    He said  all stakeholders in the oil industry have to do everything to increase the reserves, stressing that  this could be achieved by carrying out more seismic data gathering and drilling of exploration wells. “We have come up with strategies to boost our reserves and in due course, we would make this known,” he added.

    Global Chairman, Energy and Natural Resources Sector of KPMG, the auditing giant, Mr. Michael Soeting,  told reporters in Lagos that the government should be concerned over  lack of investments in the oil and gas exploration and production, which is resulting in depletion in oil reserves and revenues. He said the United States (U.S.), which used to be Nigeria’s biggest market, is becoming a net producer and exporter of oil and gas, adding that by the end of this decade U.S will be producing about six million barrels of oil per day.

    He said although, Nigeria has found alternative markets in Asia, China, India and Japan, these countries may depend on Nigeria only in the short term because many countries including China, South Africa and Argentina have huge reserves of shale gas and oil. Other countries, he added, have discovered conventional oil and gas and the implication is that the multinational oil firms have choices to make in terms of where to invest their money. He said that besides embarking on aggressive exploration, Nigeria should encourage investment through creating enabling environment and policies, citing the PIB, for instance.

    He said: “The Nigerian economy depends on crude oil export and there is need for the country to do it right. Non-passage of the PIB has resulted in investment apathy in the sector. The IOCs are uncertain about what the fiscal terms in the PIB would become after passage and they have refused to invest. Unfortunately, more countries are becoming energy players across the world, creating alternative markets for the IOCs to channel their investment.

    “After PIB was introduced about 10 years ago, countries such as Ghana, Mozambique Angola and others have discovered oil and are already attracting investment from IOCs.”

    Some former officials of the Nigerian National Petroleum Corporation (NNPC) such as Mr. Mike Olorunfemi, Akin Adetunji and Ade Olaiya who rose to top management positions before their retirement, also pointed out the need to check the depleting reserves. They said  DPR’s statement that Nigeria’s oil reserves is depleting rather than increasing should be a concern to every Nigerian. For the oil and gas industry regulator to say that the reserves have declined to as low as 35 billion barrels as against almost 40 billion barrels when they left the corporation, is worrisome, they added. They said: “The implication of that for Nigeria is that if nothing is done drastically and aggressively to stop the decline and replace the depleted volume, Nigeria will sooner than later end up being a net importer of crude, not even net importer of products because there wouldn’t be reserves to tap from. In their book launched last week, titled Nigerian Oil and Gas: A mixed blessing? A Chronicle of NNPC’s Unfulfilled Mission, the trio elaborately explained the dangers of reserves depletion.

     

    Consequences

     

    Soeting said: “With continued reserves, production and revenue decline, Nigeria’s ability to finance its budget will be greatly threatened, unless it puts in place measures that will grow its crude production capacity.”

    The former Group Managing Director of NNPC, Engr. Andrew Yakubu, had told the Senate and House of Representatives Joint Committee on the Medium Term Expenditure Framework (MTEF) for the period of 2014 to 2016 that revenue shortfall was caused by continued attacks on major oil pipelines by oil thieves and vandals. The attacks also contribute substantially to decline in oil production and reserves.

    “The critical and most important point to note here is that when the artery conveying crude oil to the terminals is hit, this reduces our production volume by 150,000 barrels per day and  the period the line is down accounts for the drop in crude oil production. From February to date we have witnessed so much breaches and each time we go down, about 150,000bpd goes down,” he said.

    He said there is no doubt that the menace of crude oil theft and pipeline vandalism have received the highest intervention from President Goodluck Jonathan, which led to constitution of a committee by the National Economic Council, comprising some state governors, NNPC, DPR, IOCs, security agencies and other relevant bodies to work out modalities to mitigate the menace.

     

    Solution

     

    Nigeria is said to have depleted over one billion barrels of crude oil yearly between 2012 and 2013 from the reserves. Besides, in the past five years, no exploration activity has taken place and for over a decade, the Federal Government has been shifting the post on datelines of achieving 40 million barrels of oil reserves and four million barrels of oil production per day. Currently, the same targets have been set for achievement by 2020.

    However, all the stakeholders agree that the only way to stop, restore and grow reserves is through aggressive exploration activities to find more oil. The Chatham House was of the view that besides exploration, Nigeria has to exit from dependence on oil, make other sectors of the economy active.

    The Institute commended Nigeria’s Transformation Agenda including serious macro economic and monetary reforms since 2004, embracing Extractive Industry Transparency Initiative (EITI) and undergoing radical overhaul to increase transparency in oil deals as well as introduction of local content targets to encourage greater national involvement in the oil industry.

    NAPE chiefs say  besides investment in exploration activities, industry stakeholders should also invest in technology. Previously 2D was used for seismic data gathering, from where the industry moved to 3D and now many countries are using 4D, therefore Nigeria has to step up its technology for search for oil and enhancement of oil production from existing oil fields. For instance, Adedoja said: “There is need for technology, there are also issues of funding and of regulation. Some of these issues may make the IOCs and independent producers to be a little bit careful about their investments.

    Soeting advised Federal Government to boost reserves in accordance with international best practices, noting that one of the factors responsible for reserves and revenue depletion is tax holidays given to indigenous operators who took over some marginal fields from the IOCs and non-passage of the PIB. He also said Nigeria needed to diversify the economy, build additional refineries to stop product importation.

    Passage of the PIB will give direction to investment in the oil and gas industry. Currently, oil firms are skeptical about putting their money into finding and developing new fields because of the alleged contentious provisions in the bill. For instance, Soeting noted that Nigeria and other resource-rich countries should realise that investment inflow is shrinking because of threats to investment. He also said there is increased scrutiny by the stakeholders of the IOCs on their capital expenditure (capex) level. “You have seen in the fourth quarter 2013 announcements that most of the IOCs talked about reducing their CAPEX because they are not having enough returns,” he said. The stakeholders warned that a stitch in time saves nine and the time to start is now!

  • Why access to quality seedlings is key to agricultural growth

    Why access to quality seedlings is key to agricultural growth

    Access to adequate, secured and timely supply of quality seedlings has been a pain in the neck of farmers. It constitutes one of the major hurdles on the nation’s way to achieving food self-sufficiency, writes Daniel Essiet.

    With an abundance of tillable land, untapped water, and an eager labour force, the push for  massive expansion of agricultural production to achieve food security should be a smooth sail. But this has not been the case. Although the Federal Government, riding on the back of the Agricultural Transformation  Agenda (ATA) that has seen a renewed interest in investing in the sector, sought to reduce  food insecurity, improve families’ nutrition and promote economic growth, experts say that timely supply of adequate and quality seedlings to farmers remains an issue.

    Some of them argued that Nigeria requires a long-term seeds strategy that can guarantee timely access to adequate and quality seedlings to farmers if the ATA must become a reality.

    The Director, Africa Region, Cassava Adding Value to Africa (CAVA), Dr. Kola Adebayo  is one of them. Adebayo said seeds are the most important input in all crop-based agriculture and a prerequisite for food production. He noted that without good seeds, farmers don’t have chance of a good harvest.

    While improved varieties are available for almost all staple crops, Adebayo said many Nigerian farmers still use seed of a narrow selection of varieties from their previous harvests or other unregulated sources. According to him, farmers rely on the practice of saving, exchanging and re-using harvested seeds as their main source of planting materials. After harvests, they  select grains, store them, and then use them for the following farming season.

    Such practice, Adebayo said, leaves most farmers uncertain about variety identity and seed quality, a situation that throws up issues around disease and pest infestation, genetic and physical purity, and germination rate. He pointed out, for instance, that many  farmers  have had to plant seeds that carry viruses and/or bacteria. “In the growing plants, these viruses and bacteria can cause wilt, which leads to lower yields,” he told The Nation.

    The Director, CAVA reiterated that sustainable improvement of crop productivity is necessary to address the challenge of food insecurity. Seeds, he   explained, is  the basis for crop improvement, allowing farmers and plant breeders to develop cultivars with high levels of adaptation. He said this is why a lot of efforts are put into breeding improved varieties in terms of yield and tolerance to production limitations such as drought and  diseases .

    Adebayo noted that improved varieties and hybrid seeds have became key ingredients of  green revolution, which is why Federal Government, through the Ministry of Agriculture and Rural Development, is encouraging farmers to use seed species and varieties that are adapted to the growing environment. Already, government has since developed a number of improved, early maturing, stable, and drought tolerant varieties of millet, maize, cassava, and cowpea, which are   later used for distribution and multiplication.

    However, Adebayo  said the formal seed sector can only provide for a fraction of the certified seed requirements for  farmers. Besides, majority of the farmers acknowledged the benefits of using these varieties, but the main reason for not using them is  the non-availability, poor accessibility and lack of extension advice. He explained however, that farmers’ access to quality seeds depends on the types available and the mode of supply.

    The Director observed, for instance, that advances in breeding particularly the rise of modern genetics for hybrid seed development have put the selection of seeds on a firm scientific basis. He said farmers benefit from improved seed varieties because of increased expected yields and reduced need for pesticides. Besides, there is simpler and less expensive weed control with herbicide tolerant plants. But such benefits come at a price. For instance, farmers pay high price for hybrid seeds.

    While the adoption of improved varieties has been significant, a Consultant  at the International Institute  for  Tropical Agriculture (ITTA), Prof  Lateef Sanni,  said the  share of total seed supply remains low. While pointing out that local production and distribution of good quality seeds is an important aspect of agriculture, he  said that maintaining  seeds  quality  is  very  important prior to planting. This, he explained, is because older mother plants are more susceptible to diseases.

    He stressed that  it  is  important  to maintain the  quality  of  seeds  to  allow farmers to eliminate possible sources of disease and abnormality. Sanni  said  farmers have become more aware of the importance of high quality seeds, new varieties, and seed multiplication techniques. And with the support of the Federal Government, he said, the agriculture sector is benefitting from a national programme that is supporting the existing seed system through the provision of varieties from research centres.

    The approach, according  to him, aims to increase and speed up farmers’ access to novel types, while at the same time strengthening the existing institutional and social networks which supply seeds to farmers on a continuous basis. The  effort, he disclosed, started with an assessment of the existing seed systems. This meant looking at the factors, which guide farmers’ preferences, at the institutions which provide access to these varieties, and at how the flow of existing and new genotypes can be continued.

    For the National Programme Director, West African Agricultural  Productivity Programme (WAAPP), Prof Damian  Chikwendu, WAAPP has been providing support to  research  institutes  to breed and propagate local rice varieties and provide seeds and ecological awareness to farmers. The project, he said, has been very effective in spreading new varieties through farmer multiplication activities. With its local distribution channels, the  programme has recorded success in improving the dissemination, accessibility and availability of quality seeds of the adopted improved varieties.

    According to Chikwendu, newly introduced varieties has become part of the farmer stock, and the importance of the multiplication, repayment and exchange system is well recognised by the farmers after their experience with such  seeds. He  explained  that farmers’ efforts to explore  certified seeds and varieties are  higher without  the  support  of the  government. He however, said that to guarantee the production of good  seeds, the  varieties have to undergo a process of certification.

    As the WAAPP Programme Director explained, the certification process involves  accredited seed growers who must  adhere to the technical guidelines set by the National Seed Council whose mandate is to test and certify foundation seeds developed by the research institutes. Once the improved varieties entered the system, WAAPP encourages  farmers to ensure that the  seeds are  returned through repayment to  enable  other  farmers take  advantage  of it. He however, regretted that seed repayment rates are low mainly due to poor availability of storage facilities, little monitoring and follow up, and lack of awareness in general.

    He  said farmers have certain expectations from new crop varieties as promised by the breeders. To realise these expectations, seeds of new varieties must be made available to the farmers in adequate quantity and quality and at affordable prices. Unfortunately, however, the Nigerian seed industry, according to Chikwendu, has not fully developed and does not have the capacity to perform this role very well. He disclosed, for instance, that the current national seed uptake is less than 10  per cent, while the regulatory and enforcement capacity in the industry has been weak.

    Through training, WAAPP has  increased awareness about the benefits of repayment and has been helping farmers keep the returned seeds until redistributed. Chikwendu said WAAPP Nigeria is  train Nigerian breeders in India to help the nation improve  on  breeding  technologies. He acknowledged  that  government  has  limited resources and cannot meet  the communities’ seed requirements.

    The Nation learnt that despite the presence  of commercial seed growers, the challenge of meeting farmers’ seed requirements persists. Besides, farmers often complain of the quality of the seeds being delivered, the efficiency of the seed delivery system and the availability of the volume of seeds required. But as a form of quality assurance, the research  institutes maintain a core population of good seeds. They  clean the seeds after harvest and ensure that moisture content is standard before seeds are given to farmers.

     

    Seed banks, companies

    to the rescue

     

    Chikwendu recommends that Nigeria  needs  seed companies  to  develop and sell seeds for different crop varieties. Commercial seed companies, according to him,  select  seeds for characteristics such as high yield, quality and resistance to pests and diseases. For Sanni, seed banks could do the magic. According  to him,  community seed banks function very much like commercial banks only that the transfers are not in money but in seeds.

    Community seed banks collect, grow and store seed to distribute to farmers. Seeds of food crops that are stored in the bank are provided free of charge  to members of a seed bank. The member then sows the seed and after harvesting the crop, returns double the amount of seeds to the seed bank. To ensure the continuous quality of seeds managed by the seed bank, members set down some rules such as banning the use of chemical fertilizers and pesticides. Some seed banks earn some income from processing activities, adding value to crop produce.

    Sanni  said  local  farmers can start a seed bank to conserve local seeds and crops so farmers can use them. By  promoting  seed bank, he  said farmers  are  taught  to save the seeds from their favourite vegetable and flower varieties that grow in their own backyards. The seeds are then collected and stored in the seed bank and made available to the community. Some seeds are sold to the public, while others are distributed free to seed bank members on the condition that they will grow, save, and return to the bank double the amount of seed taken.

    Under the seed-bank model, no one farm or garden is responsible for growing all the seeds for the community. Instead, with many different growers saving just one or two varieties, the risk of seed contamination by cross-pollination can be minimized, and a crop failure in one garden does not jeopardize the whole seed supply.

     

    Seed-bank model,

    its many challenges

     

    Interesting as the seed bank model is, it is not without challenges. Adebayo said, for instance, that poor farmers have tended to lack confidence, knowledge and resources to fully experiment and take the risk in the first instance to experiment  with  new  seeds. Another challenge, he said, is encouraging  farmers to  adapt  sustainable farming techniques. To encourage farmers, certified seeds  from the formal sector need  to be  integrated and diffused into the farmers’ seed system through the practice of saving, re-using and exchanging seeds.

    Experts identify other challenges of community seed banks to include lack of policy, lack of common understanding of community seed banks, low coverage, lack of capacity building efforts, declining interest from farmers, and limited scientific knowledge of the replacement of local varieties by hybrids and modern varieties, among others.

     

    The way out

     

    According to Adebayo, the development and maintenance of a sustainable seed supply system is essential to improve food security, especially in conditions where farmers’ seed stocks have been severely affected, or farmers have become dependant on relief aid. The main goal of community seed banks, he maintained, is to promote plant genetic resources conservation. He therefore, argued that there is need for government to promote community seed banks to increase food production through increased seed replacement rates and increased availability of farmer preferred varieties.

    For a start, government, he recommended, must develop guidelines and pilot its own community seed banks and also strengthen local institutions, improve information systems, and also mainstream community seed banks into the national system. He also made a case for the formation of policy and legal mechanisms and the establishment of a seed revolving fund. Besides, there is need to develop a mechanism for providing subsidies and registration of community seed banks in the government system as well as linking community seed banks with the national genebank or seed bank.

     

    Imperatives of implementing

    the recommendations

     

    As far experts in the agric sector are concerned, lack of awareness of the importance of improved seeds coupled with unavailability of same make farmers resort to the use of own saved seeds with resultant low productivity. Most Nigerian farmers obtain seeds either from the previous season’s crop or purchase grains in the open market and plant without regards to genetic purity hence their average yields are among the lowest in the world.

    The experts also note that the realisation of the importance of the utilisation of seeds, coupled with the attendant increased productivity has led to the need for the emergence of small and medium scale seed producers in rural areas, just as seed delivery system has become a critical foundation for all the intervention programmes being put in place to mitigate the food crisis.

    They also note the impact of high quality seedlings on national food security and other government initiatives as well as the implementation of Economic Community of West African States (ECOWAS) harmonized regulatory framework, which advocated compulsory certification of all classes of seeds, and endorsed the establishment of satellite seed testing laboratories in each member state.

    Experts also identify the lack of trust in local seed markets as a problem even for large commercial farmers, some of who have invested heavily to plant hundreds of acres with high yield hybrids that simply didn’t germinate. For small-scale farmers, fear of counterfeits leaves commercial seeds out of the question: when a failed harvest means outright hunger, any risk is considered too big to take.

    Nigeria’s  seed sector is said to have evolved over the last 30 years in terms of seed science and commercial seed production capabilities. However, the sector is still under-performing in terms of meeting the agricultural seed needs of the country. Consequently, government imported rice seeds in 2012, while vegetable seeds are still mostly imported through informal channels.

    The development and performance of the seed sector is constrained by many factors which include weak technical capacity, poor market mechanisms, inefficient enforcement of seed law, information asymmetry, insufficient capital investment and low utilization of innovations.

    However, in a bid to address the above challenges, the Federal Government, through the National Agricultural Seeds Council (NASC) is supporting the Community Based Seed Development Scheme aimed at making high quality seeds available in the rural areas.

    In addition, the Community Based Seed System is expected to increase seed adoption rates and reduce drastically the use of farmers’ saved seed through the production of improved seed in the rural areas.

    NASC, in a bid to enhance the production, processing and marketing of improved seeds in the rural areas, is also providing a motorised maize shellers, rice reapers, mobile seed processing plants and NASC-branded agro-seed dealer kiosks.

    Can these interventions do the magic? Time, they say, will tell.