Weak oil prices present business case for eliminating fuel subsidy

The current oil price volatility that has seen the price of crude oil in the international market drop to $78 per barrel, presents Nigeria a rare opportunity to remove the entire controversial and highly abused fuel subsidy regime in the country. This was part of the emerging consensus among over 150 participants at a BusinessDay conference in Lagos yesterday.

The conference discussed the impact of falling oil price on the Nigerian economy. Imo Itsueli, former NNPC chairman, was the moderator, while speakers included Bismark Rewane, CEO of Financial Derivatives, Ayo Teriba, CEO of Economic Associates and Mansur Ahmed, a director with Dangote Group. Others were Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry (LCCI), Obafemi Olawore, executive secretary of Major Oil Marketers Association of Nigeria (MOMAN) and Laoye Jaiyeola, supervising director, Nigerian Economic Summit Group (NESG).

Participants marshalled evidence to demonstrate that at the current world market price of $78 per barrel, the subsidy element associated with Nigeria’s regulated price of N97 per litre of premium motor spirit(PMS) is about N20 per litre (not the N12.43 reported by BusinessDay yesterday).

As BusinessDay pointed out in an editorial of July 8 2014, titled “Towards a private oil refinery market in Nigeria”, Nigeria, Africa’s largest crude oil producer, is arguably the biggest importer of refined petroleum products on the continent, creating a lucrative market for refineries particularly in Europe and the United States (US).

Africa’s largest economy and home to over 170 million people imports more than 80 percent of its refined petroleum products for the servicing its economy because of inadequate domestic refining capacity.

With fuel needs put at 35 million litres daily, equivalent to 279,000 barrels per day (bpd) while crude oil production averages about 2 million bpd, Nigeria’s four refineries with a combined capacity of about 445,000 bpd have for long been operating far below their installed capacity, as they are in various states of disrepair.

The four refineries operated at an average of 31.1 percent of capacity in 2012 according to data from the Central Bank of Nigeria. However, data from the national oil company, NNPC showed that the situation deteriorated further in June 2014 when the country’s refineries operated at an average of 10.46 per cent of their combined nameplate capacity of 445,000 barrels per day.

Industry sources yesterday told BusinessDay that any petroleum refinery producing at less than 70 percent of installed capacity is destroying value. Besides, corruption has played a role in the poor state of the refineries because billions of dollars, have been wasted by successive administrations on several rounds of turnaround maintenance (TAM).

Even more worrisome, analysts said, is the fact that the subsidy structure of fuel sales incentivises the import of premium motor spirit (PMS) from EU refineries, which oversupply the European market.

While Nigeria continues to fritter a fortune on importing petroleum products and TAM on the refineries, attempts by government to sell off the existing refineries to competent private investors, remain hampered by misguided policies, corruption and the lack of political will to confront entrenched, short-term interests.

A number of private companies have expressed readiness to step in to build and operate their own refineries, but their efforts have often been delayed or cancelled, partly due to uncertainties around the government’s plans to deregulate the downstream sector.

Stakeholders commend Aliko Dangote, Africa’s richest man and business mogul, for taking concrete steps to build a $9 billion refinery/petrochemical/fertiliser complex in Nigeria but urge government to privatise all the refineries and end the subsidy regime. As some analysts pointed out, the N2trn that Nigerian spends on subsidy per year, can build new modular refineries. Also, they said, rural dwellers continue to pay more for fuel, way above the regulated prices.

Ease of doing business non-negotiable prerequisite for economic growth

Over the years, the debate over the overbearing attitude of regulators as it concerns the ease of doing business in Nigeria has never been as contentious or rancorous as it is today.

What majority of the stifling policies or policy witch-hunt have effectively succeeded in doing is restrict or hinder innovation, investment opportunities, growth of economy and most importantly bring about a static economy where bureaucrats dictate the pace of growth of an economy or out-rightly retard the process.

A country that prioritises the ease of doing business is almost on a sacred quest for the solution that will create growth, and open new eras of prosperity and well-being.

Unfortunately, like many things called holy, the concept of innovation is invoked ritually and ceremonially more than it is embraced in practice.

Having said that, amid all the rhetoric, of allowing organisations the enabling environment to thrive and in return grow the economy, a lot of regulatory authorities knowingly and unknowingly stifle it. They say they want more growth and innovation but at the same time, they seem to operate by a set of hidden principles designed to prevent innovations from surfacing or succeeding.

Emeka Ohanyere, an economist, learnt his voice on the the need for government and other relevant authorities to support and encourage companies with huge investment appetite rather than stifle them with overbearing policies that will hinder industrial growth.

“It cannot be overemphasised that Nigeria needs as much Foreign Direct Investments (FDIs) as it can get, particularly with the recent transformation agenda set in motion by the Federal Government, intended to ensure rapid growth and far-reaching economic prosperity.

Ohanyere continued: “Often than not, regulatory rascality, a situation where regulation takes the law in its hands rather than follow due process, is the key factor that negatively affects inflow of FDIs. Many a time, it unknowingly hinders investment inflows, for fear of losing domestic management control.

“The current Coca-Cola/CPC issue which has raged on for a while occupying the centre stage in media discourse is one that is giving investors some concern.

“However, Nigeria needs to do more to make its economy attractive to foreign investors and catch up with other developing countries, despite the improvement recorded.”

In ease of obtaining credit, Nigeria jumped 73 places up to No.52, while in ease of starting a business it improved nine places to No. 125.

The World Bank report went further to say that Nigeria has implemented 10 regulatory reforms, starting from 2005, making it easier to do business.

Having observed this situation for a while and the attendant effects, it is likely to have on the economy, one will expect that some level of caution be taken so as not to send the wrong signals to consumers it intends to protect.

One other worrisome policy is in the insurance sector, where FDI”s in insurance companies is permitted up to certain levels with restrictions on voting rights to ensuring that management control of an insurance firm doesn’t shift to a foreign entity.

Concerns about loss of management control is of much less importance compared to sacrifice of economic growth. Considering the potential of FDI to spur growth, for an industry regulator to be unnecessarily harsh on businesses is misplaced priority.

Another case in point that easily comes to mind is that of India, Mexico and China losing huge Foreign Direct Investment (FDIs) due to their stifling policies that can best be described as regulatory rascality.

To put India’s track record in attracting FDI in an international context, it’s been at best a trickle compared to FDI into countries like Mexico and China. In the last 10 years, Mexico has attracted $247bn of FDI net inflows and China $2trn, compared to India’s $229bn.

According to Kayode Omosebi, an analyst with UBA Capital, Nigeria needs to do more to make its economy attractive to foreign investors and catch up with other developing countries. It needs to shed itself from stifling policies that might bring about the needed enabling environment that would attract investors, likewise deepen their level of presence.

Reduced costs help Mutual Assurance revert to profitability

The ability of the management of Mutual Assurance Nigeria plc to trim costs has helped the insurer revert to the path of profitability, analysis of its financial statement shows.

The audited 2013 financial statement o released on the website of the Nigeria Stock Exchange (NSE) showed the Nigeria Insurer posting a profit before tax of N911.07m from N3.07bn losses recorded in the corresponding period (FY) of 2012.

Similarly, a profit after (PAT) of N555.75m in FY 2013 was recorded compared with a loss of N3.39bn recorded the preceding year.

Analysts attribute the Nigeria insurer’s impressive performance at the bottom line level to effective cost control mechanism by its management as operating expenses were down by 20.1 percent to N5.84bn in the review period from N7.31bn the preceding year.

However, there was slight reduction at the top line level as Gross premium income (GPI) reduced by 3.90 percent to N7.68bn as against N7.98bn the preceding year, while net premium income fell by 9.79 percent to N6.72bn.
 

Underwriting expenses increased by 7.52 percent to N4.30bn as against N4.65bn the same period of the corresponding year (FY) 2012.

Total assets surged by 27.22 percent to N2.38bn compared with N1.87bn the preceding year – thanks to a 140.26 percent surge in cash and cash equivalent and a 26.59 percent rise in loans and receivable.

Total equity also increased by 27.22 percent to N2.38bn in the review period from N1.87bn in 2012.

It will be recalled that the Insurer established a micro finance bank (MFM) to promote its micro-insurance offerings, which carry premiums as low as NGN 50 (USD 0.30) per three day period covering up to NGN100,000 (USD 600) in hospital expenses and in the event of loss of life.

Furthermore, it also signed a Memorandum of Understanding (MoU) with members of the Finance Correspondents Association of Nigeria (FICAN) for a Group Personal Accident insurance cover.

This cover which became effective January 1, 2014 covers medical, permanent disability and Death resulting from accident. The policy which is renewable annually and covering initial 72 members of the Association, according to industry players provides a moral boost for journalist considering the critical nature of their job and profession.

Mutual Assurance’s share price closed at N0.5 on the floor of the NSE while market capitalisation was N4bn.

RMB sees Nigeria’s creative industry as catalyst to economic growth

In a clear move to replicate feats already achieved in South Africa’s creative arts sector, Rand Merchant Bank (RMB) Nigeria Limited has unveiled a new partnership with the Nigeria Theatre Society, aimed at harnessing the immense potentials of the country’s creative industry to spur economic growth.

The new partnership which will provide a viable platform for indigenous talents to be discovered, grown and nurtured, is also expected to berth economic growth, innovative thinking, employment and trade.

Speaking at the sidelines of an event to unveil the new partnership, Michael Larbie, CEO, RMB Nigeria, explained that the new move will also help more Nigerian’s engage effectively and profitably in the broader economy.

“It is part of what we hope will be the beginning of RMBs participation in the Nigerian creative art industry, replicating we have done in South Africa where the creaive arts sector, has always been an essential aspect of our culture,” Larbie said.

The CEO stressed that the brand which is synonymous with the arts industry in South Africa hopes to replicate the same feat in Nigeria, adding that the bank’s commitment will enable it play an increasingly important role in growing the arts sector by uniting its aims, goals and ultimate effectiveness in society.

“Our partnership, with the arts has been well received working with the very best of South African arts society and we aim to do the same here,” he said.

According to him, the bank’s commitment to the creative economy is hinged growing realisation that effective arts education provides useful strategies for communicating across communities, engaging and persisting inspite of challenges and difficulties.

“We believe that the growth of this sector will enable many more Nigerians engage effectively and profitably in the broader economy,” Larbie said.

According to Larbie, through its sponsorship and funding, the bank has give more young Africans access to learning opportunities offered in the creative arts, regardless of physical or socio-economic background.

“We currently have 27 partners in our creative arts funding programme, including schools teaching the disciples of ballet, music and opera. RMB remains one of the few corporates that has a pragmatic funding plan for the arts sector in South Africa, where we funded selected initiatives in three year cycles,” he added.

RMB Nigeria Limited, is a division of FirstRand Bank Limited. Having established a representative office in Nigeria in 2010 and subsequently opened a full-fledged merchant bank in early 2013, the bank boasts of five years of transactional experience ranging from advisory on infrastructure projects to funding of various transactions across multiple sectors in Nigeria.

Pension Reform Act 2014: Redefining future of Nigerian retiree

The Pension Reform Act, 2004 ushered in a uniformed Contributory Pension Scheme for workers in both the private and public sectors in Nigeria. The law, whose implementation started June, 2004 reformed the crisis-ridden unfunded and under-funded defined benefit pension schemes in the country.

Before then, the huge and increasing pension liabilities in the public sector needed to be addressed while most workers in the private sector were not covered by any form of retirement benefit scheme. The inefficient administration of pension schemes and demographic shifts made defined benefit scheme unsustainable.

A decade of contributory pension:

Under the new Contributory Pension Scheme, both employers and employees were mandated to contribute certain percentage of an employee’s total emoluments into a Retirement Savings Account (RSA) opened by the worker with a Pension Fund Administrator (PFA). The scheme, which is complemented by group life insurance to the tune of 300 per cent of the individual worker’s emolument, also allows withdrawals under strict conditions. The accumulated pension assets in custody of Pension Fund Custodians (PFCs) are being privately managed by PFAs while the National Pension Commission (PenCom) regulates and supervises pension operators.

Putting the challenges, gains, implementation drive and sustainability of the Contributory Pension Scheme into perspective; it is evident that breakthroughs have been recorded in the last ten years. The number of contributors has increased, more workers in the private and informal sectors are covered and the scheme has continued to impact positively on the Nigerian economy.

The Contributory Pension Scheme had generated a pool of long term investible funds that is attractive to fund managers, investment advisers and capital market operators who want to access part of the fund for different purposes.

From the lessons learnt and the identified loopholes and areas for improvement, the stage was set for the amendment of the enabling law. The amendments were to take care of shortfalls in coverage, address supervisory and enforcement challenges, correct anomalies in the taxation of pension assets and to enable deployment of the pension fund to develop infrastructure.

There was need to criminalise fraudulent diversion and conversion of retirement savings of workers and retirees and bring the pension reform law in tune with current developments. The above necessitated a change in the strategy with a view to exploring new investment windows for pension funds among other things.
 

Sensitisation programme:

The new developments and points of divergence between the repealed Pension Reform Act, 2004 and Pension Reform Act, 2014 with regard to capital and investment windows for pension assets was the focus of the sensitization conference on the Pension Reform Act, 2014 held in Lagos recently.

Pension Reform Act, 2014:

Reviewing the Pension Reform Act, 2014, Gbolahan Elias, who commended PenCom for being a “well-run regulator,” noted that the exemption of pension transactions from stamp duty and income tax is good for the system. He said the confidentiality obligation on the part of the Commission and its staff as well as the power to replace the management of ailing PFAs and the transfer of pension assets being managed by ailing PFAs to the strong ones were some of the commendable provisions in the new law.

He however queried the rationale for an aggrieved person to have recourse first to the Commission before going for arbitration and to the court, saying the right to litigation ought to have been the first option.

Setting an agenda for Contributory Pension Scheme, former Commissioner in charge of Inspectorate at PenCom, Musa Ibrahim was of the opinion that pension should not have been a constitutional issue since it is purely a contract between an employer and his employee, he stressed.

He also dwelt on the enforcement limitations, compliance issues and abuse of court processes in addition to supervisory and regulatory challenges. He advocated self-regulation and improvement in service delivery and recommended a shift in supervisory and regulatory activities to promote better internal governance and enhance consumer protection.

Deployment of Pension Asset to Infrastructure:

While commenting on the responsibility of finance industry regulators and the impact of pension reform on the capital market in Nigeria, the Director-General of Securities and Exchange Commission (SEC), Arunma Oteh, said the focus should be on how to leverage on the lessons learnt to fix infrastructure in the country. She advocated the use of pension funds for infrastructural development and asset financing, stressing the need to minimise risks in this regard to ensure workers do not lose their pensions. The capital market provides a safe and secure market for pension funds, she assured.

Stakeholders also welcomed the use of RSA balances as collateral for mortgages and underscored the need to channel pension funds to grow infrastructure and clear the housing deficit in the country.

Stakeholders’ Take

According to Timi Austen-Peters, the provision on the safety of pension assets, growth in pension funds, increase in coverage and applicability of the scheme were commendable. He said difficulties in getting private sector employers to comply with relevant provisions in the pension law, very low accumulated pension savings for low income earners and other enforcement issues were some of the challenges facing the scheme.

Oluwatoyin Sanni noted that the 58 per cent annual growth of the Contributory Pension Scheme is a huge improvement, adding that there is room for improvement especially when one considers the Gross Domestic Product (GDP) of Nigeria and the rate of growth in other countries.

She commended the National Assembly for making pension savings and returns on investment of the fund tax free, protecting investors the more and introducing stiffer penalties for breach of provisions in the law. She also recommended the investment of pension fund on quoted equities to check interest-pushed inflation and advised PenCom to liberalise its policy on investment while ensuring compliance by operators.

Worried about Nigeria’s demography, the Managing Director of Financial Derivatives Limited, Bismarck Rewane, said many young people cannot save in an economy where the number of middle aged people is very high. The more sophisticated a country’s financial system is, the lower its savings rate; if government saves less, the people will save more, he said.

Rewane also noted that with the pension contributions at 8 per cent and 10 per cent of individual workers’ income by an employee and his employer respectively, Nigeria should channel this large pool of fund to meet its infrastructural demands like other emerging markets. Nigeria could build new capital from its pool of pension fund and ensure that this fund is profitably deployed in the economy as is the case in Brazil, Columbia and Morocco, he advised.

They also noted that 6 million RSA holders out of over 70 million of working population and the 6 per cent return on pension funds were not good enough saying pension operators need to take more risks to maximise return on pension assets.

Conclusion

The new Contributory Pension Scheme has turned the thoughts of retirement into a sweet dream for workers since they now look forward to good life after work.

Meanwhile, as PenCom considers the views of relevant stakeholders on how to make Contributory Pension Scheme more beneficial to the Nigerian economy, the increased awareness on the part of both employers and employees will guarantee sustainability for the Scheme.

Maximise your time, maximise your money and Your Time

Trading time for money is one of the hardest ways to make cash. But when it’s your job (or hobby, or second job), you must use it wisely or you lose. Since time is finite, every second wasted means dollars gone.

When you waste money, car payments may come up late, rent may be hard to make, or you may not have enough to buy the extras you want. Either way, wasting time hurts your bottom line.

Here are a few ways to help service-based business owners and hobbyists find more time, so they can make more money.

Start out with a detailed plan of what you must accomplish each day.

Never go to bed without knowing what you need to do the next morning (or whenever you work your gig). This is your Do-or-Die List. If you don’t do, your business dies, and so does your money. Create a focused plan before you sleep. Then, check it again when you wake up. Make it a habit to check it before you sit at your computer; it can help jog your memory before you get lost in the Facebook rabbit hole.

Schedule your most complex and time-consuming tasks when your mind is freshest.
 

If you work a primary job, this’ll require a little creativity. You’ll need to figure out your best days for getting things done. It may be at 8 pm in the evening, when the kids have gone to bed. It may be when you get up on Saturday morning and don’t have to work. Whenever it is, make sure you’re focused on your best and most profitable projects then.

To find out when your most productive hours are, follow these steps:

Keep a running log of your energy for two weeks, noting your energy in the morning (before work, if you have a “day” job), at lunch, in the afternoon (after work, if necessary), at dinner, and in the evening.

Rate your levels from one to five, with one being the least productive feeling and five the most. Chart your results to get an idea of your body’s patterns and energy levels. Then, start using that time to hit your hardest, most profitable projects.

Leave the stuff that can wait until you’ve taken care of the money.

If you have client work to handle, or products to deliver, the dishes should wait. Dinner is a different story, but you should put clean-up on the back burner.

Manage your email; don’t let it manage you.

Running a service-based business, especially online, means you’re at the mercy of your inbox. Answering each notification with drool to your chin means you’ll spend a large chunk of time fishing through other people’s baggage. Cut yourself loose.

There are courses on Udemy teaching you how to be more productive by mastering Gmail, and there are programs like Sanebox to help you beat the inbox blues. Take control of your email and gain at least an hour in your day.

Invest in time-saving projects.

If you’re busy tweaking your website or doing laundry, instead of doing what earns you money, then you’re wasting your time and, therefore, your dimes. I know people in my industry that don’t even touch their laundry or the house cleaning. And these people are insanely productive because of it.

These are investments well spent. Take a look at the activities that take up most of your time and budget having someone handle them for you. But, you don’t get to play while they tend to your “chores” — make the most of your investment and spend that time earning.

Prioritise.

Work on the money first. Leave the movies for the people who don’t have an agenda for earning. We all love vegging on the couch, but we have to be smart about how our time’s spent. If the goal is to collect minutes and earn dollars, be prepared for this — especially in the beginning.

Master your craft.

You’ll earn more when you can quickly crank out whatever it is you do.

The guy cutting grass knows how to mow four lawns an hour, when it takes you one for your own. He’s a master. He knows how to work quickly, so he earns more money mowing lawns than you would. Master your craft and you’ll also earn more in less time.