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NIGERIA Business market Intelligence AXA CORPORATE SOLUTIONS International Network Department May- 2014 Recommendations Key country facts: K Nigeria is most populated country in Africa. With a growth GDP above 7% and a decreasing inflation the country is booming economically speaking. However, Nigeria is over dependent on oil exports (95% of the total exports); it endangers its good economical state and future growth. In addition, the country is still very poor (84,5% below poverty line) and the wealth remains concentrated in a few people. Country risk assessment: K Despite the war declared by the government against terrorists, the situation is getting worst, the sect Boko Haram strikes the country with violent terrorist attacks and kidnappings. Nigeria’s dependence on oil exports, the high degree of corruption and the insecurity can also endanger investments. However, its economic growth, the low level of foreign debt and the quality of its banking system are assets for investors. In addition, insurance risks are moderate (for S&P). Its is a very interesting country and economy but still unstable and insecure, especially in the North. Regulation: K Cash before cover country with a strict control of the National Insurance Commission (NAICOM). Fronting is generally prohibited with therefore low reinsurance cessions. J Key country data: K Nigeria is now the first economy in Africa in terms of GDP and has a strong overall economic growth. However, considering GDP per capita Nigeria is below South Africa and Angola. Its petroleum exports maintain a positive balance of payments. Finally FDI remains high, especially in the mining and oil sectors. Future growth will be linked to oil exports and to modernization and diversification of the global economy to decrease its dependence on oil. Insurance Market: J The market is growing and is composed by a very important number of players. The market penetration is low regarding other African economic powers. Globally it is an interesting market, one of the biggest in Africa. Good historical and prospective profitability. Local Partner (Leadway): J Occasional partnership with Leadway with a few accounts. Strong company, leader of the Nigerian market with more than 10% of market share. Recommendations: Nigeria, as the new economic leader in Africa, cannot be ignored in a global strategy of expansion in Africa. It is still a risky country in which terrorist groups like Boko Haram endanger the security, especially in the North. The insurance market is controlled by a strong regulator and the rule of law seems to be followed in this sector. AXA Corporate Solutions has just started an occasional partnership with a local company: Leadway. It is the leader on the Nigerian market, and the collaboration is stable. Recommendations are to strengthen the partnership and follow up the situation, especially regarding terrorism. Key country facts Key country data Country risk assessment Insurance Market Insurance Regulation Local partner analysis Analysis: Country- General information (Source: CIA factbook) LARGEST CITIES: Lagos (10.203 million) Kano (3.304 million) Ibadan (2.762 million) POPULATION: 173,9 million inhabitants (7/240 countries) Change rate 2013 (Oanda) per EUR 224,7 for 1 euro ABUJA (capital) (1.857 million) Exports and imports (Source: AXCO report) EXPORTS: petroleum and petroleum products 95%, cocoa, rubber MOST IMPORTANT EXPORT DESTINATIONS: US (16.8%) India (11.5%) Netherlands (8.6%) machinery, chemicals, transport equipment, manufactured goods, food and live animals IMPORTS: MOST IMPORTANT SOURCES OF IMPORTS China (18.3%) US (10.1%) India (5.5%) Nigeria is most populated country in Africa. With a growth GDP above 7% and a decreasing inflation the country is booming economically speaking. However, Nigeria is over dependent on oil exports (95% of the total exports) and it endangers its good economical state and future growth. In addition, the country is still very poor (84,5% below poverty line) and the wealth remains concentrated in a few people. Main contributors to GDP (CIA Factbook): 26% 31 % agriculture industry services 43% General overview (Source: IMF and World Bank) 2011 Gross domestic product growth (%) Inflation, average consumer prices (%) Population (million) Current account balance (% of GDP) 2012 2013 2014 2015 Quick Facts GDP per capita (CIA) 2013 7,4 6,6 6,3 7,1 7,0 Poverty ratio at $2 per day in 2010(World Bank) Life expectancy (year) (World Bank) in 2012 10,8 12,2 8,5 7,3 7,0 160,3 164,8 169,3 173,9 178,7 3,5 7,7 4,7 4,9 4,0 HDI* (UN) (value/rank) Next election (Axco) *: Human Development indicators (including: Life expectancy, GDP per capita and level of education) 2800 84,5% 52,6 0,5/152 2015 Key country facts Key country data Country risk assessment Insurance Market Insurance Regulation Local partner analysis Source: World Bank Current account balance, % GDP GDP % Growth, annual 14.00 20.00 12.00 10.00 10.00 Nigeria 0.00 2010 2011 2012 2013 2014 2015 -10.00 South Africa Chad -20.00 Angola Nigeria 8.00 South Africa 6.00 Chad 4.00 Angola 2.00 -30.00 0.00 -40.00 2010 Foreign direct investment, net inflows (BoP*, current Mn US$) 10,000.00 8,000.00 2012 2013 2014 2015 External debt stocks, total (DOD, current Mn US$) 12,000.00 8,841.90 8,554.80 2011 7,101 6,048.60 10,000.00 8,000.00 6,000.00 10,076.50 9,008.80 6,847.80 7,271.10 2009 2010 6,000.00 4,000.00 4,000.00 2,000.00 2,000.00 0.00 0.00 2009 2010 2011 2012 Unemployment, total (% of total labor force) in 2012: 7,5% *: Balance of payments 2011 2012 Key country facts Key country data Country risk assessment Insurance Market GDP Current billion US$ 2010 2011 2012 9000 169,5 366,4 413,5 459,6 8000 South Africa 284 363,2 401,8 384,3 Chad 9,3 10,7 12,2 12,9 5000 75,5 82,5 104,2 114,1 4000 Angola Local partner analysis GDP per capita current US$ 2009 Nigeria Insurance Regulation 7000 6000 Nigeria South Africa Chad 3000 Angola 2000 500 1000 450 0 400 2009 2010 2011 2012 350 300 Nigeria 250 South Africa 200 Chad 150 Angola 100 50 2009 2010 2011 2012 Nigeria 1091 2294 2519 2722 South Africa 5654 7137 7790 7352 814 909 1006 1035 3989 4219 5159 5482 Chad 0 2009 2010 2011 2012 Angola Analysis: Nigeria is now the first economy in Africa in terms of GDP and has a strong overall economic growth. However, considering GDP per capita Nigeria is below South Africa and Angola. Its petroleum exports maintain a positive balance of payments. Finally FDI remains high, especially in the mining and oil sectors. Future growth will be linked to oil exports and to modernization and diversification of the global economy to decrease its dependence on oil. Key country facts Key country data Country risk assessment Insurance Market COFACE 2013 Country rating Weaknesses Local partner analysis Transparency International 2013 D Business climate assessment Strenghts Insurance Regulation D • • • • Substantial hydrocarbon resources and considerable agricultural potential The most populated country in Africa (162 million) Low foreign debt Banking sector largely consolidate thanks to the reforms launched in 2009 • • • • • Highly dependence on oil revenues (90% of exports, 80% of tax revenues) Refining capacity very reduced, resulting in burdensome imports Ethnic and religious tensions Insecurity, corruption constraining the business environment Unemployment, poverty, inadequate health and education systems Worldwide governance indicators comparison in 2013 (World Bank): Control of Corruption Rule of Law France Regulatory Quality Angola Government Effectiveness South Africa Nigeria Political Stability and Absence of Violence Voice and Accountability L 0 20 40 60 80 100 J Rank 144/177 Score 25/100 Fitch ratings (2014-04-11) Standard & Poors’ (2012-11-07) Moody’s BB- (Stable) BB- / Analysis: Despite the war declared by the government against terrorists, the situation is getting worst, the sect Boko Haram strikes the country with violent terrorist attacks and kidnappings. Nigeria’s dependence on oil exports, the high degree of corruption and the insecurity can also endanger investments. However, its economic growth, the low level of foreign debt and the quality of its banking system are assets for investors. In addition, insurance risks are moderate (S&P). Its is a very interesting country and economy but still unstable and insecure, especially in the North. Key country facts Key country data Country risk assessment Insurance Market Insurance Regulation Local partner analysis Source: AXCO Market Penetration Country Non-life (P&C) Total % Per capita % Per capita Nigeria 0,51 6,27 0,68 8,46 South Africa 2,05 150,47 16,29 1195 Angola 0,56 28,75 0,88 45,17 Market concentration (% of top 5 players in 2010): 33,8% Market size Premium in NGN mn Premium in USD mn % of total market Non-Life Total market 149 042 201 284,36 991,64 1 339,23 74,05% 100% Analysis: the market is growing and is composed by a very important number of players. The market penetration is low regarding other African economic powers. Globally it is an interesting market, one of the biggest in Africa. Good historical and prospective profitability. Key country facts Key country data Country risk assessment Insurance Market Insurance Regulation Local partner analysis: BODI Source: AXCO Fronting: In terms of the Insurance and Reinsurance Guidelines issued by the National Insurance Commission (NAICOM) in May 2006 fronting is forbidden in respect of: fire insurance and reinsurance business, motor insurance and reinsurance business, liability insurance and reinsurance business, life insurance and reinsurance business, accident insurance and reinsurance business, such other insurance and reinsurance and business as the commission may from time to time prescribe. Cash before cover: YES, under the terms of the National Insurance Commission (NAICOM) Guidelines on Insurance Premium Collection and Remittance (NAICOM/CFI/DC/G/12/12) of 1 January 2013, all insurance covers should be provided strictly on a 'no premium no cover' basis. Control of exchange: NA Pools: NA Non-admitted insurance: Non-admitted insurance is not permitted because the law provides that insurance must be purchased from locally authorized insurers. There are no exceptions specified in the legislation to the general prohibition on non-admitted placements, other than permission may be sought from the regulator to effect such a placement. Compulsory insurance: third party motor insurance, builders' liability, property owners' liability and healthcare providers' professional indemnity cover Premium taxes: NA Retentions: There are no statutory limitations on retention levels. Insurance legislation Insurance legislation: Insurance Act, No 1 of 2003 repealed and replaced Insurance Decree, No 2 of 1997. The legislation deals with, amongst other things, the registration and operation of insurers and insurance intermediaries. The act applies to both life and nonlife classes Regulator: National Insurance Commission (NAICOM) It is part of the Federal Ministry of Finance and was formed in accordance with National Insurance Commission Decree, No 1, 1997. It also sets standards for the conduct of insurance business, approving premium and commission rates and regulating transactions between insurers and reinsurers both inside and outside of Nigeria. The commissioner has power to wind up, put into receivership or withdraw licenses from offending companies. Analysis: Cash before cover country with a strict control of the National Insurance Commission (NAICOM). Fronting is generally prohibited with therefore low reinsurance cessions. Key country facts Key country data Country risk assessment Insurance Market Local partner analysis Insurance Regulation SOURCE: LEADWAY Founded in 1970, Leadway Assurance Company Ltd - Leadway is a composite insurer. Leadway is 81% Nigerian-owned and 19% owned by the International Finance Corporation. In 2010 the company had a non-life market share of 10.35% and a life market share of 5.06%. 3 policies with Leadway today Rating by AM Best: BA composite company underwriting all classes of insurance business. The Company has enjoyed a steady growth in premium Income and total assets, which currently stands at over N 30.5 billion (Thirty billion five hundred million naira) and N 66.3 billion (sixty six billion, three hundred million naira) respectively as at December 31, 2012. Financial analysis Turnover (M of NGN) 2012 36920,5 Turnover (M€) Combined ratio 164 Net Result (M€) 42,3% Analysis: Occasional partnership with Leadway with a few accounts. Strong company, leader of the Nigerian market with more than 10% of market share. 57,9 ROE 109% Assets (M€) 295 Invest / Assets 21% Equity / Premim Reserve / Premium 32% Financial rating: BB- 7% Appendix - Sources Page Source Comments Axco Worldbank http://data.worldbank.org/ Transparency International http://www.transparency.org/cpi2012 CIA factbook https://www.cia.gov/library/publications/the-world-factbook/ Coface http://coface.com/ IMF http://www.imf.org/external/data.htm Appendix - Definitions Gross domestic product, constant prices (Percent change) Annual percentages of constant price GDP are year-on-year changes; the base year is country-specific . Expenditure-based GDP is total final expenditures at purchasers’ prices (including the f.o.b. value of exports of goods and services), less the f.o.b. value of imports of goods and services. [SNA 1993] Inflation, average consumer prices (Percent change) Annual percentages of average consumer prices are year-on-year changes. Unemployment rate (Percent of total labor force) Unemployment rate can be defined by either the national definition, the ILO harmonized definition, or the OECD harmonized definition. The OECD harmonized unemployment rate gives the number of unemployed persons as a percentage of the labor force (the total number of people employed plus unemployed). Current account balance (Percent of GDP) Current account is all transactions other than those in financial and capital items. The major classifications are goods and services, income and current transfers. The focus of the BOP is on transactions (between an economy and the rest of the world) in goods, services, and income. The current account balance is defined by the sum of the value of imports of goods and services plus net returns on investments abroad, minus the value of exports of goods and services, where all these elements are measured in the domestic currency. GNI Index (GNI per capita, Atlas method current US$) GNI per capita (formerly GNP per capita) is the gross national income, converted to U.S. dollars using the World Bank Atlas method, divided by the midyear population. GNI is the sum of value added by all resident producers plus any product taxes (less subsidies) not included in the valuation of output plus net receipts of primary income (compensation of employees and property income) from abroad