Download Globalization versus market protection: effects on the

Globalization VS Market
Protection: Effects on the
West African Insurance
Industry
PAPER DELIVERED BY
MRS. OLUSEYI IFATUROTI
Managing Director/CEO
CrystaLife Assurance Plc.
At West African Insurance Companies Association
Educational Conference 21
st
– 2 3 rd N o v e m b e r , 2 0 1 0
Freetown, Sierra Leone.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
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Preamble
Globalization: Characteristics, Pros, and Cons
Market Protection: Benefits and Costs
An Overview of The West African Region
Globalization and The West African Insurance
Industry
Case Study: Nigeria
Protecting The West African Insurance Market
The Future of the W/A Insurance Market
Conclusion and the Way Forward
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Preamble
Until the second half of 2008, the global economy was
purring along with little or no bumps. For a period of about
three decades, the fortunes of many nations and societies
have irrevocably changed for the better.
For the three decades these nations embraced the concept
of globalization and free trade, their human development
indices improved dramatically.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
A lot of countries were able to modernize
their
economies
by
developing
competitive advantages in modern
technologies and other industries.
The foundation of this unprecedented
economic
growth
and
rapid
transformation in many countries was laid
in the seventies. And there is no doubt that
the driving force behind global economics
was globalization.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Wikipedia defines:
Globalization as the process by
which regional economies, societies,
and cultures have become
integratedthroughaglobalnetwork
of communication, transportation,
andtrade.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
ORIGIN OF GLOBALIZATION
The historical origins of globalization is still subject to on-going debate. While
some scholars situate the origins of globalization in the modern era, others regard
it as a phenomenon with a long history.
The popular Wikipedia website states that the 19th century witnessed the advent
of globalization into its modern form as industrialization allowed for the cheap
production of household items using economies of scale, while rapid population
growth created sustained demand for such commodities.
However, this first phase of "modern globalization" began to break down at the
beginning of the 20th century, with the first world war.
The second wave of globalization began roughly after the Second World war with
the Bretton Woods conference, an agreement by the world's leading politicians
to lay down the framework for international commerce and finance, which led to
the founding of several international institutions e.g. International Monetary Fund
(IMF) and the General Agreement on Tariffs and Trade (GATT) which are intended
to oversee the processes of globalization.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Globalization is the freedom and ability of individuals and firms
to initiate voluntary economic transactions with residents of
other countries.
- (The World Bank)
Globalization is the broadening and deepening linkages of
national economies into a worldwide market for goods and
services, especially capital.
– John Ohiorhenuan (Resident Coordinator, UNDP, South Africa)
Globalization is the tendency towards a worldwide investment
environment, and the integration of national capital markets.
-(www.beingwarranbuffet.com)
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Globalization involves:
one fundamental project: that of
opening up the economies of all
countries freely and widely to the
global market and its forces.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
CHARACTERISTICS OF GLOBALIZATION
Globalization is characterized by liberalization of
the world economies and economic activities that
are free from institutional control and which fosters
and promotes free market mechanism, private
enterprise, open competition, professionalism and
excellence in corporate governance
Globalization
Liberalization
Free Market
Mechanism
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
The Pros of Globalization
Investment and Capital Flows
Spread of Technical Know-How
Employment Opportunities
Increased Competition
Spread of Education
Reduction in the cost of production and distribution as a
result of an improved technology
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
The Pros of Globalization (Cont’d)
• Enhancement of productivity
• Improved specialization in resource allocation
• Improved transparency in the conduct of business
• Increased volume of business
• Scale of economy
• Cultural Regeneration
• Decentralization of power
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
The Cons
 Exploitation of labor
 Job insecurity
 Local industries being taken over by foreign
multinationals
 Hostility between the host and the foreign
nationals
 Imposed reforms and capitalization
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
The Cons (Cont’d)
Cultural Violence
Terrorism
Promotion of a credit-based economics leading to an
unsustainable growth of debt among developing nations
 Widened arbitrary inequalities
 Use of substantial and sophisticated legal and financial
means by foreign investors to circumvent the bounds of
local laws and standards.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Market Protection on the other hand
refers to the advocacy, system, or theory of
protecting domestic producers by
impeding or limiting, as by tariffs or
quotas, the importation of foreign goods
and services.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Market protection also known as Protectionism
is the economic policy of restraining trade
between states, through methods such as tariffs
on imported goods, restrictive quotas, and a
variety of other government regulations
designed to discourage imports, and prevent
foreign take-over of domestic markets and
companies.
Protectionism is often regarded as a barrier to
free trade which the advocates of globalization
dread to hear.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Some Methods of Market Protection
Tariffs
Import Quotas
Administrative Barriers
Direct Subsidies
Exchange Rate Manipulation
Restrictive licenses
Employment Law
Complex regulatory environment
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Why Market Protection ?
Protecting the infant industry
Protecting jobs.
Increasing Revenue
Providing National security
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Prior to 1980, many countries quite deliberately
adopted policies that were designed to insulate
their economies from the world market in order
to give their domestic industries an opportunity
to advance to the point where they could be
competitive.
Even the likes of China, South Korea, and others
became more developed using measures to
protect their industries and so on, with various
forms of controls.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
“All Western European core economies
had higher industrial protection than Brazil,
China and India today when they had
similar per capita income levels”.
Dr. Yilmaz Akyüz, former Director of Division on Globalization
and Development Strategies at United Nations Conference on
Trade and Development (UNCTAD)
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
The Cost of Market Protection: The America Steel Industry
In 2002, the U.S. government headed by President Bush
slapped a 30 percent tariff on imported steel, making
other steels 10 percent more expensive than U.S. steel.
The American hubcap (wheel cover) industry who rely
on steel for their material had to pay 20% more for the
steel to produce their wheels. Since the government had
not put a tariff on hubs, Japanese hubs into the market
came cheaper than those produced in US.
The result: Americans started buying from Japan, the
industry faced declining revenue; some of the firms laid
off workers whilst some completely went out of
business.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Costs of Market Protection
Lack of technical Skill
Loss of jobs
Stunted Economic Growth
 Higher Prices of goods and services
 Higher taxes
Declining revenue
Lack of exposure
Lack of Innovation
Restriction of Consumers’ rights
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
The region is characterized by:
high level of illiteracy,
high rural population,
poor infrastructure,
poverty as many dwellers live below $1 per day
High dependency on industrialized economies for financial
integration.
Low insurance penetration
Poor infrastructure
Galloping inflation
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Globalization , Liberalization – Impact on the West
African Region
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•
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Increase in the Foreign Direct Investment
Increase in the Volume of Insurance business
Exposure to the International financial market
Exposure to international crimes – financial , terrorists etc.
Provides for risk diversification and costs reduction as a
result of new technology.
• Improved quality of product and services
• Reformation and Liberalization of the economy
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
DRIVERS OF GLOBALIZATION
According to the Swiss Re (Sigma No.4/2000), there are drivers for
globalization and these are the:
Push Factors: are the motives behind the movement of foreign
insurance companies
 Global Trade
 Growing Direct Investment
 Potential Future Growth in developing/emerging markets
 Saturation in developed economies
 Efficiency Gains through diversification
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Pull Factors:
Factors are the motives behind allowing the foreign companies to
operate in local market:
 Strong and Enduring regulatory framework
 Strong Economic Growth
 Availability of infrastructure facilities
 Availability of large capital in the market to cover major risks
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Illustration of the Benefits of a liberalized Insurance Industry
Local Economy
 Mobilization of domestic savings
 Improvement in financial stability
 Facilitation of production and trade
 Improvement in the efficiency of capital allocation
“Spill-over” effects
Local Insurance Market
Foreign
Insurers
Capital inflows
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Improvement in service to customers
Knowledge transfer
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Improvement in the efficiency of the insurance
market

Transfer of knowledge in the areas of
technology and management
Increase efficiency
Supervisory Authorities
• Improvement in
the quality of
supervision
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Globalization and West Africa: A Case Study of Nigeria
Nigeria is a dominant player in the economic bloc of West Africa and accounts for 67%
of the region’s Gross Domestic Product (GDP). The country has the sixth largest
insurance market in Africa. The country became a member of the World Trade
Organization (WTO) on 1 January 1995.
Since then Nigeria has been liberalizing its economy by doing the following:
 Investment Policy Reforms
 Import liberalization
 Guided privatization
 Administrative and legal reform measures
 Capital Market reforms
 Multilateral and regional agreements
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
The Consolidation Plan for Insurance Industry
As part of plan by the Government to liberalize its insurance industry through the
consolidation, on September 2005 the government announced the new
minimum capital base as shown below;
Business Type
Old
New
% Increase
Life
150million
2billion/US$13m
1,233
Non-Life
200million
3billion/US$19.6m
1,400
Composite
350Million
5billion/US$32.9m
1329
Reinsurance
350million
10billion/US$65.6m
2,757
Note: Exchange Rate As @ 15/12/2009 – N152.50 = $1.00
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Aftermath of the Consolidation Exercise
Foreign Direct Investment
Attraction of both local and foreign investments is one of the benefits
derived from the recapitalisation exercise. An estimated N600 million came
into the insurance sector as direct foreign investment through the Nigeria
Stock Exchange during the exercise.
Financial Strength
With improved financial strength, insurers were well-positioned to take
advantage of
the government’s local content policy (LCP) on the underwriting of oil and
gas risks
Therefore, the exclusivity given to Nigerian Insurance Companies now
makes better sense since the Nigerian Insurers now have the wherewithal to
provide greater cover following the consolidation
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Gross Premium Income of Nigeria Insurance Industry
2004
69.4billion
160
140
2005
76.3billion
120
100
2006
82.3billion
80
60
2007
100.6billion
40
20
2008
150.3billion
0
2004
2005
2006
2007
2008
Gross Premium Vs Year
The growth in the premium encouraged Nigerian Insurance companies to move
offshore and establish offices in some other West African sub-region like Ghana,
Gambia, e.t.c.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
The Total Investment:
Nigerian Insurance Business (2004- 2008)
N (billions)
450
400
350
300
250
200
150
100
50
0
2004
2005
2006
2007
2008
Source: 2009 Nigeria Insurance Digest
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Nigerian Insurance Industry:
Opened doors with Protectionist Measures
The Insurance Act 2003
 Registration Requirement
 Section 72: Restriction of transactions of insurance business to Nigeria
 Empowerment of the Commission (National Insurance Commission)
The Local Content Act
 Section 49 of the Nigerian Content Act specifically stated that all operators,
alliance partners and Nigerian indigenous engaged in any form of business,
operations, or contract in the Nigerian oil and gas industry shall insure all
insurable risks related to its oil and gas business, operations or contract within
and through an insurance broker or brokerage firm or an insurer registered in
Nigeria under the provision of Insurance Act 2003.
 No risk should be placed offshore without the approval of the National
Insurance Commission (NAICOM)
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
THE WEST AFRICAN INSURANCE INDUSTRY SHOULD CONSIDER…………….
Efficient insurance markets are an essential basis for
emerging markets to achieve integration into the global
economy and strong economic growth – Klime Poposki
(Faculty of Tourism and Hospitality, University of St. Kliment
Ohridski, Bitola, Maccedonia).
Generally speaking, companies have to participate in the
consolidation phenomenon in recent years to attain the
global scale needed to compete, because it is impossible to
achieve that scale through organic growth alone – Patrick G.
Ryan
- (Chairman, President and CEO, Aon Corporation, Chicago, USA)
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
The West African Insurance Market : the Future
The huge potential of the insurance business has
remained untapped in West Africa, largely attributable
to the absence of an enabling environment for
insurance, the lack of commitment to creating and
implementing policies targeted at developing the
industry and the problem of inadequate capital.
The future of our market should be paramount in the
minds of all stakeholders so as to ensure stability and
enduring contributions by the insurance to the nation
building.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
However, to ensure an enviable insurance industry in the
region, we need to take the following radical steps:
Establish a robust and protective legal and regulatory
system
Introduce Micro-insurance mechanisms to help to
deepen the market especially among the low income
(informal) sector of the region.
Develop indigenous information technologies suitable
for the environment.
Develop innovative strategies to enhance the channels
of distribution of products and services
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
The role of the media in the needed reformation of the
insurance industry cannot be overemphasized as they
would be helpful in the Massive education and
enlightenment programmes needed by the industry.
Build and enduring industry capacity capable of
accommodating large risks and investments
Easy access to credible statistics that would enable
insurance companies to design comprehensive policies
to meet the needs of prospective clients.

Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
The Story of
The Three
Blind men
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
CONCLUSION
I believe that all economies even the developed ones like US, UK inspite of
openness to globalization still have some measure of market protection e.g. the
automobile industry in the US is protected by the high tariff imposed on vehicles
from others parts of the world e.g. Japan. This is to ensure that the automobile
industry continue to exist and contribute to their GDP.
However, the issue is in the balance which should be maintained at an equilibrium
that the economy does not deprive itself of the benefit of globalization.
Africa is the future investment destination , it is becoming what we can term as the
last frontier of investment. This is because of the growth potential of the African
economies.
Whereas the developed economies are matured now or approaching maturity. The
continent and the West African sub-region has so much room for growth and
development. Consequently, investors world wide are interested in the region and
such would aid growth and development. Unnecessary or over protection of this
would not augur well for this growth and economic expansion that we badly need.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Echoing the Lagos State Commissioner for
Finance at the just concluded AIO Life Seminar in
Lagos, - Africa is plagued by two things : Capital
and Technology – and its time we put on our
thinking caps on how to generate more income
and mobilize profit.
We must open our doors to one another, learn
from each other and share experiences. Africa
has a lot of untapped investible resources to take
care of her capital needs.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
According to Napoleon Hill in his classic boo “ Think
and Grow rich”, he said one of the most common causes
of failure is the habit of quitting when one is over taken
by defeat. We all are guilty of this mistake and need to
rise up to globalization.
Furthermore, quoting Abraham Lincoln “ I will work
and I will prepare and my time will come”. In the light of
this, we need to get together so we can get wiser.
With every convinction, in view of prevailing trends I
want to attest that Africa – our time has come, lets come
together and take on the world!
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
THANK YOU
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc