How to create a business plan – dos, don’ts and extra
Last year, we wrote to you about how you can position your startup for funding. We noted that most startups fail. Failure is more frequent than success in that startup life. It is difficult to run a startup, but it is also rewarding. We therefore offered a guide that detailed how to position yourself for funding. We began with creating a detailed business plan. Today, we will expatiate. Why is a business plan important? Typically, a business plan will help you get funding or bring on new partners. Investors want to see your business plan so that they are confident about returns on their investments. In this regard, a business plan should convince people that working with you or investing in your company is a smart choice. However, a business plan can also guide you through each stage of starting and managing your business. It should remind you of the key elements of your venture, and serves as a roadmap for how to structure, run and grow your business. What are the important considerations for your business plan? What are the points that serious investors will objectively consider? First, your management. Investors want to know how much experience the manager/management possesses, their educational background and track record. Second, what problems are you trying to solve? What is your unique, sustainable solution? Uniqueness is important because it determines how competitive your market will be. Importantly, ROI. How much return on investments are you promising and how long will it take before you become profitable? Also, can your business scale up? Can your business expand? Can it cater for a larger pool of customers? Can your process be replicated? Is your structure entirely fixed on you? Finally, what is the exit plan? Private equity investors, especially, do not want to get stuck. They want to provide capital and support for your company, then sell out to other investors. This is why your business must be attractive to other potential investors. Forms of business plan Most business plans are either traditional or lean. Traditional business plans are more common – they use a standard structure and encourage going into details. Traditional business plans require more work and can be dozens of pages long. While lean startup business plans still use a standard structure, they summarize only the most important points and are typically one page. Parts of a business plan When you write a business plan, you are not expected to stick to an exact outline. Instead, use the sections that make the most sense for your business, your business and your needs. Most business plans, however, contain the following, necessary parts. The executive summary In the executive summary, briefly tell your reader what your business is and why it exists. You should include your mission statement, product or service, and basic information about your leadership, staff and location. If you plan to ask for funding, you may also include financial information. Company description Here, you may go into details about your company – the problems your business solves. List out the consumers, organization or business your company plans to serve. You may thereafter explain the competitive advantages that will make your business a success. Use your company description to boast about your strengths. Market analysis You would need to show a good understanding of your industry and target market. What are other businesses doing, what are their strengths and weaknesses? What are the trends, themes, best practices? What can you do better? Now is the time to answer these questions. Organization and management Describe the legal structure of your business. You should state whether it has been registered as a legal entity and the form it was registered as. You should also include an organizational chart to portray the organizational structure – who is in charge, who else is involved and how everyone’s unique experience will contribute to the success of your business. You may also include resumes of key members of your team. Service or product line Explain the product you sell or the service you provide. Explain how it benefits your customers and what your product lifecycle looks like. Marketing and sales In this section, describe how you will attract and retain customers. What is your marketing strategy and how does it fit your unique needs? How exact will a sale happen? Funding request If you are asking for funding, you would need to outline your funding requirements. Here, your objective would be to clearly explain how much funding you would need over a specific period and what you would use it for. Would you buy equipment or materials, pay salaries or cover other running costs? Specify whether you want debt or equity, the length of time and the terms of the investments. Financial projections Your most important goal is to convince your reader that your business will be a financial success. You would therefore need to accompany your funding request with financial projections. If your business already exists, include income statements, balance sheets and cash flow statements for the last three to five years. Provide a prospective financial outlook for the next five years. Include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. Endeavor to explain your projections and match them to your funding requests. You may employ the use of graphs and charts to tell an intriguing story. Appendix Finally, use an appendix to provide supporting documents or other materials that were requested. This is all we can take for now. If you are growing African business looking to expand through venture funding, we’d love to hear from you. Simply fill our contact form. Thank you.
How to save money – tips for the second half of 2021
Life is hard, but it can be much harder without savings. This is Nigeria, so you are only one disaster away from needing urgent funds. Also, the only way to become wealthy is by saving and investing. And saving comes before investing. Do you ever feel like it is impossible to save no matter how hard you try? You try to spend less and stash funds, but something always comes up. Life just gets in the way. In Professor’s master plan, this is where Volition comes in. We have compiled tested and trusted tips to get your spending on track and help you save some money. Now, relax and pay attention. Make money Durggh. To save, you need to make money. First, you need to make enough money. If what you make barely covers your essentials, then you cannot save. You should not. To earn more than you already do, you need to improve your skills or seek better opportunities. Second, you need to make money consistently. To save, you need to be fairly certain of how much you will make during a period. At least, the least you will make. So, consider a job or business that is sure to pay you monthly. Spend less than you earn To be wealthy, you need to invest. To invest, you need to save. To save, you need to live below your means. It is the only way you will have money left. It is impossible to save if you spend all the money you make. Spending more than you earn is even worse. It is important to live within your means so you would not rely on loans to pay your bills. This is tied to the next tip. Get out of debt This one sounds like “aspire to inspire”. Easier said than done eh? However, to improve your chances of saving, you would need more of your money. You don’t want your paycheck to be gone before you even receive it. To get out of debt, cut your expenses, work to increase your income, and make a consistent repayment plan. Budget! A budget will help you remain intentional, so you don’t spend more than you earn. You will find out how much you can save each month. You can make a zero-based budget – give every single naira a name – or assign it a job to do – before you save or spend it. Go a step further by documenting your expenses periodically. Find out where your money went today or this week. How much did that Uber cost? How much is your rent? Write these things down. Your memory is not as good as you think it is. Have a goal and stick with it If you do not have a savings goal, you will easily spend your money. To save successfully, you need to set a clear goal and draw up a plausible plan. What are you saving for? Is it an expense or an investment? For how long will you save? How much will you save per year, month, week, day? It doesn’t matter what we write though, you would still need the discipline to achieve your goals. Once you set up savings towards a goal, try to keep your hands off of the savings till you achieve your goal. Finally, try rewarding yourself for reaching small milestones. Pay yourself first Paying yourself first means separating your savings as soon as you get your paycheck, and then living off the rest. If you only pay yourself after your bills and expenses are taken care of, you run the risk of never saving enough. You can save money without thinking about it. You can set up your bank account to automatically transfer funds to a savings/investment plan. Saving automatically is especially imperative for people who spend whatever they see! Spend extra or unexpected income wisely Now and then, you will find N500 in your jeans. Or your uncle will give you N50k. Or you will see N500 million in a Ghana-must-go on the floor (that comes with a “you will not turn to a goat” tag). What should you do then? When you make unexpected income, you must put it to good use. You will get lucky. Everyone does. So, have a plan for where “lucky money” is supposed to go. Mind your expenses If you put yourself on a zero-based budget, you are more likely to do away with discretionary spending. This way, you must question every item on your list. Do you really need this and that? Take a few minutes to make a list of your monthly expenses. Identify your needs, and distinguish them from your wants. You may sort your needs immediately and purchase them in bulk. For your wants, wait! Particularly, think about non-essential items for a long time. Consider the 30-day savings rule. This involves waiting for 30 days before you purchase a non-essential item. This way, you are more likely to take emotions out of your spending. The 30 days savings rule will stop you from spending money impulsively on things that don’t serve any real purpose. Reduce costs There are many ways to drive your monthly costs down – some are interesting and some are just obvious. Reduce the luxury. First, buy generic. A lot of times, the only thing that is better about brand-name products is the marketing. Meanwhile, generic brands cost less but work as well too. Second, end your addiction to new stuff. If your old possessions still serve their purpose, why replace them? Cancel any subscriptions you don’t use regularly, and make sure you turn off auto-renew when you make a purchase. If you cancel it and decide you can’t go without it, subscribe again—but only if it fits into your new and improved budget. Also, consider sharing memberships with some family and friends. Consider energy costs – electricity and gas. Consider reducing your electricity bill. Which lights need to go off? Do you
Behind Nigeria’s Inflation
Inflation reduces the purchasing power of currency, which leads to increases in the prices of goods and services. Inflation can occur when demand outpaces supply for goods and services. As the demand for a particular good or service increases, the available supply decreases. Few items are left to match many wants. Buyers may then want the product so much that they are willing to pay higher prices. This is called demand-pull inflation. Inflation can also occur when prices due to increases in production costs, such as raw materials and wages. As a result, the added costs of production are transferred to the consumers in the form of higher prices for the finished goods. This is called cost-push inflation. Inflation rate is the percentage increase or decrease in prices during a specified period, usually a year. This percentage tells you how quickly prices rose during the period. A few metrics are used to measure the inflation rate. The most popular is the Consumer Price Index, which measures prices for a basket of goods and services in the economy. Central banks around the world use monetary policy to control avoid inflation. In the United States, the Federal Reserve aims for a target inflation rate of 2% year-over-year. In Nigeria, the Central Bank of Nigeria is in charge of trying to control inflation. The CBN has a target range of 6%-9%. Inflation in Nigeria In March 2021, Nigeria’s inflation rate rose to 18.17% from 17.33% recorded in February. This is according to the Consumer Price Index report, recently released by the National Bureau of Statistics. The last time Nigeria recorded an inflation rate higher than 18.17% was in January 2017 when it stood at 18.72%. Since 2016, Nigeria’s inflation rate has been double digits. 2020’s hike was driven by the dire impact of the pandemic that also induced a drop in the price of oil and weakened the naira. In the third quarter of 2020, the economy went into recession – its second since 2020. The economy emerged from recession in the fourth quarter but analysts say the weak naira currency continues to fuel inflation. In Policy Round Up: Oil Price and Miscellaneous, we explained that the naira is a petrocurrency because its fate is intrinsically tied to global oil prices. Almost 90% of Nigeria’s foreign exchange comes from oil exports. So, when oil prices went down, the pressure on Nigeria’s exchange rate increased. The Central Bank of Nigeria (CBN) therefore had to devalue the Naira to reflect its true value. Meanwhile, food inflation spiked to 22.95% from 21.79% between February and March. February figures were already a four year-peak as it was the first time food prices jumped more than 20 percent since 2017. The NBS explained in its report that the rise in the food index was caused by increases in prices of bread and cereals, potatoes, yam and other tubers, meat, fruits, vegetables, fish and fats. In November, we explained that Nigeria’s land borders had been shut since August 2019. Although described as an effort to control smuggling and importation of contraband, the ultimate result was scarcity of food products and a consequent spike in prices. The federal government has now said it will cut import duty on tractors and mass transit vehicles to try to reduce transportation costs and tackle high food prices How does inflation concern you? Nigeria’s inflation has different consequences for respective stakeholders. Businesses face investment uncertainty resulting in capital expenditure constraints. The result of this is unemployment due to low business investments. Primarily, it indicates a dwindling in the purchasing power of Nigerians. The goods and services you can buy for a fixed amount continues to decline over time. This declining purchasing power forces you to cut back on items thereby affecting your standard of living. Inflation in Nigeria heaps financial pressure on households already faced with a shrinking labour market and a stagnant economy at a time of mounting insecurity. For investors, there are real returns concerns on how to protect and grow wealth. When there is inflation, money saved today will be less valuable tomorrow. It may even interfere with the ability to retire. How then do you protect your income? First, you would need to increase your income. This may involve negotiating a salary increase, changing jobs, starting a side hustle, or obtaining additional qualifications/skills. The best course of action however involves diversifying your investment portfolio to generate positive real returns. The total returns from your investments should at least match or be higher than the rate of inflation. There are a number of top-performing opportunities to explore in stocks, mutual funds, fixed income, real estate, commodities, crowd-investment schemes, depending on individual risk appetites.You may learn more about money and improve your financial literacy with a free investment course from our Director. Subomi Plumptre’s free investment course is your definitive guide to investing in Nigeria. Apply today.
Policy Round-Up: the Finance Act 2020
Crude oil remains Nigeria’s dominant revenue earner. So, over the years, the Nigerian government has struggled to finance its budget mainly due to low revenue caused by oil price volatilities. The result of this is an increasing budget deficit and borrowing from both domestic and international bodies. In September 2020, the nation’s public debt stood at a total of N32 trillion. On Thursday, 31st December, President Muhammadu Buhari signed the 2021 appropriation bill of N13.59 trillion. The bill shows an expected revenue of N7.99 trillion and an estimated expenditure of N13.59 trillion, equaling a budget deficit of N5.6 trillion which would be financed, in part, by borrowings of N4.69 trillion. Already, 24% of the total expenditure is designated for debt servicing, a whooping N3.3 trillion. On 31st December 2020, the President signed the Finance Bill, 2020 (now Finance Act) into law. It introduced over 80 amendments to 14 different tax laws and it took effect from 1st January 2021. Nigeria hopes to offset its budget deficit and decentralize the economy. Here, we have done a summary of the Act, at least it’s highlights. These have been sorted into subheadings – additions, exemptions, and procedure. Now let’s begin! Additions Unclaimed dividends and bank balances can be borrowed The Finance Act empowers the federal government to borrow unclaimed dividends and dormant account funds. It specifically refers to any unclaimed dividend in a public company listed on the Nigerian Stock Exchange. Also, any unutilized amounts in a dormant bank account. The dividend or amounts must have been unclaimed for six years. Companies (in the case of dividends) and banks (in the case of bank accounts) are expected to transfer the funds to the “Unclaimed Funds Trust Fund”. This trust fund is to be supervised by the Debt Management Office and governed by a governing council chaired by the Minister of Finance. However, owners can request for their money. The borrowed funds will be available for claim (alongside any interest) by the shareholders and the bank account holders at any time. However, the era of unclaimed dividends and dormant bank account balances is over. More excise duties In Nigeria, excise duties are levied on the manufacture of certain goods. The Finance Act has now expanded the scope of goods to which excise duties apply to include telecommunication services provided in Nigeria. N50 on transfers above N10,000 Electronic bank transfers are no longer treated as transactions liable to stamp duties. An “electronic money transfer levy” of N50 is now imposed on the electronic transfer of money deposited in any bank (or financial institution) on any account on sums of N10,000 or more. Exemptions Donations are tax exempt Cost of donation made in cash or kind to any fund set up by the government in respect of any pandemic or natural disaster to be tax-deductible subject to a maximum of 10% of assessable profit after other allowable donations. Our guess is – this provision is supposed to encourage companies that contributed to COVID-19 relief. Tax exemption for SMEs A small or medium company engaged in primary agricultural production may be granted pioneer status for an initial period of 4 years and an additional 2 years (making a total of 6 years). This means they would not pay tax for the period. Tax exemption for agriculture Interest on a loan granted to companies involved in “primary agricultural production” is exempted from tax. “Primary agricultural production” was defined to mean primary crop production, primary livestock production, primary forestry production, and primary fishing production. Tax exemption for software The development and acquisition of software or electronic applications now qualify for capital allowance. That is, they will not contribute to taxable income. Many businesses spend a lot of money in acquiring software or in engaging IT firms to build software. This provision will come as a relief to them. Exemption of low-income earners earning minimum wage or less from personal income tax The current national minimum wage is 30,000 naira. This means that anyone earning 30,000 naira or less is exempted from paying personal income tax. Reduction of import duties In Nigeria, importers pay duties on the goods they bring into the country. The Finance Act has now reduced the import duty on tractors from 35% to 5%. Also, the duty on mass transit vehicles (for the transport of more than 10 persons) and trucks has been reduced from 35% to 10%. The duty on cars has been reduced from 30% to 5%. This should be good news for everyone in the import business! Exemption from VAT Commercial airline tickets are now exempt from value added tax. As well as commercial aircraft, engines, spare parts. Also, airlines registered in Nigeria are entitled to duty-free importation of their aircraft, engines, spare parts, and components whether purchased or leased. We expect that all these would reduce the cost of flight tickets. Ordinarily, by half! The Act also exempts animal feed and hire or lease of agricultural equipment for agricultural purposes from VAT. Goods subject to VAT exclude land and building, money or securities while services subject to VAT exclude interest in land and building, money or security. It is now settled that lease of commercial buildings is not VATable in Nigeria. Exemption from TET Most companies in Nigeria pay Companies Income Tax and Tertiary Education Tax. Small companies with less than ₦25million turnover are now exempted from payment of Tertiary Education Tax. Minimum tax As a Covid-19 incentive, minimum tax for companies in respect of returns for years of assessments due between 1st January 2020 and 31st December 2021 has been reduced from 0.5% to 0.25%. Procedure All going virtual First, service of notice of assessment and objections under CITA (Companies Income Tax Act) may now be done via courier service, email, or other electronic means as may be directed by FIRS in a notice. Also, the Tax Appeal Tribunal may conduct its hearing remotely via virtual means, using such technology or application as may be necessary to ensure a fair
AfCFTA, Border Closure and Food Inflation
The AfCFTA (African Continental Free Trade Area) agreement aims to create a continental free trade area for goods and services in Africa. Durggh. It is expected to liberalise and facilitate the free movement of people, investments and businesses across the continent. This way, the rate of intra-African trade (currently at 16 to 17 percent) will increase to 52 per cent. The agreement was signed by some countries in Kigali, Rwanda, on 21st March 2018. Today, it is the largest trade agreement since the creation of the World Trade Organisation (WTO) in 1994. It will create a continental trade bloc of 1.3 billion people with a combined GDP of $3.4 trillion. It aims to attract $4 trillion in investments and consumer spending. It has the potential to lift 30 million people out of extreme poverty. How does it work? The agreement instructs state parties (countries that signed it) to treat products imported from other state parties the same way they would treat domestic products. Golden rule eh. State parties are expected to gradually eliminate import duties and charges. Concerning services, state parties are also to eliminate measures that restrict foreign (as in, African) service transactions, employment of Africans and participation of African businesses within their jurisdiction. Problem! Another problem! On paper, the AfCFTA has great prospects right? Well, it was all going great until 2020. Predictably, the potential of AfCFTA was largely undermined by the COVID-19 pandemic. You cannot integrate economies when countries are closing borders, banning travel and so on, in order to contain a pandemic. Therefore, trading under the AfCFTA, which was due to commence on 1st July 2020, was postponed to 1st January 2021. On 1st January, it was new year, new Africa. AfCFTA and Nigeria At first, Nigerian manufacturers feared the AfCFTA. Due to internal inefficiencies, enterprises feared that they would not be able to take advantage of the agreement or compete with an influx of new competitors from other countries. These concerns sparked opposition so Nigeria hesitated with the signing and ratification of the agreement. Nigeria eventually signed on July 7, 2019. Later, on 11th November, we ratified our membership, ahead of the December 5 deadline. Yet, for AfCFTA to achieve its full potential, favorable policies and trade facilitation measures have to be put in place by individual countries. With international agreements, African countries have non-conformity issues. The national policies of many countries often conflict with the goals of regional trade integration. You already know. This is Nigeria’s sub. We were the first to default when it suddenly closed its borders. Nigeria’s border closure In August 2019, Nigeria closed the Nigeria-Benin border. Our government claimed that smuggling was undermining our industrialisation efforts, and it may have been right. It also claimed that the borders were closed to curb the smuggling of hard drugs, arms and agricultural products. Unsure about this part. Regardless, the closure contravened our commitments under the Economic Community of West African States (ECOWAS) and raised concerns about the plausibility of the AfCFTA. Well, within Nigeria, the result of this closure was tragic. Weeks ago, we explained how food prices have soared, reaching an all time high of 18.3%. Also, food inflation in the country reached a three-year high of 14.9%, according to the National Bureau of Statistics (NBS). The Minister of Finance, Zainab Ahmed, confirmed that the closure of Nigeria’s land borders contributed to this rising inflation. According to GDP data released by the National Bureau of Statistics for the third quarter of 2020, Nigeria fell into its second recession in five years. Open sesame! On 16th December, the presidency finally directed the opening of four land broders: Seme, Illela, Maigatari and Mfun. Last Tuesday however, the federal government emphasized the ban on rice importation into Nigeria. In December, Buhari had directed that the CBN “must not give money to import food. Already, about seven states are producing all the rice we need. We must eat what we produce.” Well, this reasoning is somewhat questionable. The issue is that Nigeria is heavily reliant on imports to feed our booming population of 200 million people. Meanwhile, our production capacity remains inadequate to meet food and raw material demands. We still need to import and trade. What happens next? The AfCFTA is here to stay! It can consolidate Nigeria’s economic growth in many ways. Interaction at our borders will reverse the decline of the trade sector, one of the largest employers of labour in the country. Of course, the AfCFTA would improve employment rates of Nigeria’s large working population. In addition, Nigeria is blessed with natural resources for manufacturing and exportation. If our government increases investments in the manufacturing sector, the nation will produce goods locally and trade actively internationally. This way, the sector can significantly increase revenues. What the country must now do is ensure that our exports surpass our imports, so that we encourage the local market instead of suffocating it. How can we do this? Perhaps it is time to improve infrastructure and enforce policies that would reduce local cost of production.
Policy Round Up: The Federal Government and MSMEs
Again, the Youth Empowerment Fund In November, the federal government earmarked a N75 billion youth empowerment fund. The Minister of Youths and Sports Development, Sunday Dare, explained that the fund is billed to cater for youths within the age bracket of 18 and 35. According to him, the fund “is meant to create a special window for accessing credit facilities and financing on the part of our youths that will help to fund their ideas, innovations and also support their enterprise.” He also stated that his Ministry would work with the Ministry of Finance, Budget and National Planning and the Central Bank of Nigeria to facilitate youths’ access to the fund and thereby meet its set objectives. Subsequently, the CBN (Central Bank of Nigeria) revealed the implementation framework for this fund – the “Nigerian Youth Investment Fund” (N-YIF). Beneficiaries and registered businesses are to be determined based on the nature of projects and subject to a maximum of N250,000 and N3 million respectively. The FG’s intervention will be for a maximum of 5 years, depending on the nature of the businesses and the assets acquired. An interest rate of not more than 5% will be charged annually. When we considered this as news, we noted important questions as to the plausibility of the funding, its scope, assessment of beneficiaries, tracking of outcomes and so on. Covid-19 and fall in oil prices have taken their toll on Africa’s most populous nation. With Nigeria slipping into recession and food inflation skyrocketing, social and economic policies have never been this momentous. Before and after the youth empowerment fund, the Nigerian government introduced many other social programmes that target Micro, Small Medium Enterprises (MSMEs). We would now like to inform you about a few recent efforts. That’s the objective today. Welcome. Funding registration On Thursday, 10th December, the Federal Government disclosed that it is funding the registration for 250,000 Micro, Small Medium Enterprises (MSME). These businesses will be registered at zero cost, under the FG’s Economic Sustainability Plan (ESP). The disclosure was made by the Minister of Trade and Investment, Niyi Adebayo via the government’s Twitter handle. The Economic Sustainability Plan was formulated to drive the implementation of various support schemes for small businesses. A 10-man steering committee was inaugurated in August with members from both the public and private sectors. Survival fund In July, the Federal Government announced plans to disburse a N2.3 trillion stimulus package. It was titled the Nigerian Economic Sustainability Plan, and the purpose is to keep MSMEs afloat amid the economic challenges caused by the pandemic. The core of the program is a N75 billion Micro, Small and Medium Enterprises (MSME) Survival Fund and Support Initiative. This initiative includes a N60 billion MSMEs Survival Fund and N15 billion Guaranteed Offtake. The goal of the MSMEs Survival Fund is to support vulnerable micro and small enterprises in meeting their payroll obligations and ultimately safeguarding jobs. Through this Fund, the FG intends to save at least 1.3 million jobs and impact over 35,000 persons per state. Only MSMEs who have between 10 to 50 staff are qualified for the fund. Eligible enterprises will have their staff salary paid directly from the fund for 3 months. Meanwhile, the Guaranteed Offtake Stimulus Scheme is expected to boost the production capacities of small businesses in order to protect them from the economic disruptions of the Covid-19 pandemic. In September, the FG released guidelines to access the schemes. Registration was opened to every sector, one after the other. Subsequently, the Ministry of Industry, Trade and Investment disclosed that a total of 174,574 persons successfully registered for both schemes within 48 hours. In October, 70,000 businesses were shortlisted from the 432,000 Nigerian businesses that applied for the payroll support. Subsequently, on 19th November, the Presidency announced that 101,567 beneficiaries, drawn from 16,253 businesses had received their first monthly payment from the program. The information was disclosed via the official Twitter handle of the President. Special grant to rural women The Grant for Rural Women was introduced as part of the President’s social inclusion and poverty reduction agenda. It is a part of the National Social Investment Programme, with a target of lifting 100 million Nigerians out of poverty in 10 years. Way to go! The grant was introduced by the Federal Ministry of Humanitarian Affairs, Disaster Management and Social Development and it involves a one-off grant to some of the poorest women in rural Nigeria. Through this grant, 700,000 women are to be empowered with N20,000 each. The grants were launched in Plateau state and subsequently disbursed in Ondo state. In November, they went to women in rural areas of Gombe state. The Ministry disclosed this via Twitter. The Minister, Ms. Sadiya Umar Faroq, urged the women to use the grant to improve the lives of their families. No kidding. Conclusion Many other efforts are worthy of mention. In November, the Development Bank of Nigeria disclosed that it had disbursed over N150 billion since 2017, impacting MSMEs. The Twitter account of the Nigerian Government later revealed that 52% of these loans were to youths and women-owned businesses. Well, this is all we have time for today. A lot is desirable about social policies in Nigeria. Again, the important questions – how does the government measure impact? Who are the beneficiaries? How exactly are beneficiaries vetted? Who can verify exactly where funding goes? Until these are answered, the FG may unveil policy after policy, with no tangible evidence of change. Finally, do you know anyone that received any of the above funds? We would like to check something…
Consumer rights in Nigeria
On the back of our journey into Nigeria’s digital economy, we’re heading straight to legalese. Today, we’re all about consumer protection. What are the rights of a Nigerian consumer and how can these be enforced? Welcome back, ladies and gentlemen! Let’s get to it! First, who is a consumer? A Nigerian author defined a consumer as a person who buys products or services for personal use and not for manufacture or resale. What then is consumer protection? Consumer protection is everything we do to prevent consumer exploitation. Through consumer protection, the government ensures that consumers derive maximum satisfaction from the services available in the market. The Nigerian government has passed several laws and set up several agencies to protect the rights of consumers – NAFDAC (National Agency for Food and Drug Administration and Control), SON (Standards Organization of Nigeria), NDLEA (National Drug Law Enforcement Agency) and the FCCPC (Federal Competition and Consumer Protection Council). This article dwells on the FCCPC as a beacon for consumer protection in Nigeria. The Federal Competition and Consumer Protection Act On 5th February 2019, the President assented to the Federal Competition and Consumer Protection Act (FCCPA). In summary, the purpose of the Act is to remove monopolies and market dominance, alongside protecting the rights of Nigerian consumers. In the Act, reference is repeatedly made to the consumer (the person who buys a good or procures a service), the undertaking (the person who supplies the good or service) and the commission. Remember these. So, what rights do you have under the FCCPC? A number of interesting ones really… Rights of a consumer The right to information. A consumer has a right to information in plain language. So, an undertaking that displays goods or services for sale must display the price of these goods/services. The Act further provides that an undertaking cannot require a consumer to pay a price for any goods or services higher than the price on display. No kidding. An undertaking must not mislead consumers as to a trade description. That is, they may not claim that goods have a particular feature when they do not. A supplier even has the responsibility to correct a misunderstanding on the part of a consumer. Importantly, where a consumer agreed to purchase goods because of a description or sample, the goods delivered by the undertaking must correspond to that description or sample. Yes, this means that what I ordered vs. what I got is illegal. In fact, when an undertaking supplies second-hand goods, they must notify consumers that the goods are second-hand. An undertaking is further mandated to provide a receipt to every consumer that is supplied goods/services. The right to cancel and seek refund A consumer has the right to cancel any booking, reservation or order, subject to the payment of a reasonable charge. A consumer has a right to return goods (within a reasonable time after delivery) and receive a full refund in two scenarios – first, when goods are purchased for a particular purpose and it turns out that they are unsuitable. Second, when the consumer did not have an opportunity to examine the goods before delivery and it happens that the delivered goods do not correspond with the description, sample, type and quality that was agreed. The consumer may return goods within three months of delivery. The right to examine A consumer has the right to select or reject from the goods on display before paying. A consumer is not responsible for any damage to goods on display unless the damage is a result of carelessness, malice or crime. Responsibilities of an undertaking An undertaking cannot limit or transfer its risks through a notice to the consumer. That is, an undertaking cannot claim to not be responsible/liable. Yes, all the businesses with a “no refunds” policy may be wrong. Also, an undertaking has a duty to label goods properly so it can be easily traceable. They have a duty to notify the public of risk as well as an obligation to withdraw hazardous goods. Where damage is caused to a consumer by defective goods/services, the undertaking that supplied the goods/services is strictly liable for the damage. A person affected by the defective goods/services has the right to sue. Most importantly, how do you enforce consumer rights? How do you sue? How do you sue? When a consumer seeks to enforce a right under the Act, it/they may refer the matter to the (defaulting) undertaking, to an industry sector regulator or to the Commission (the FCCPC Commission). A consumer may also approach a Court directly. Where a matter is referred to the Commission, it may issue a “notice of non-referral” if the matter is groundless. If the matter has grounds, the Commission may refer the complaint to the industry sector regulator or may direct an inspector to investigate immediately. After receiving the report of the investigator, the Commission may issue a notice of non-referral, make an order or issue a compliance notice. Ultimately, a wronged consumer has a right to begin a civil action for compensation in a court. Anybody who contravenes any consumer rights is liable to imprisonment for five years or N10,000,000 or both. In the case of a company, it is liable to N100,000,000 or 10% of its turnover whichever is higher. Also, each director is personally liable. Well, there you go!
Nigeria’s Emerging Digital Economy (2)
Our new series examines the many facets of Nigeria’s digital economy, the efforts of the Nigerian government to propel it and its relationship with governance and prosperity. Last week, we took on Nigeria’s digital infrastructure and the state of financial inclusion. Today, we’re onto digital inclusion, financial technology and technology in government. Last week, we concluded by noting how mobile phone usage offers the most realistic means of improving financial and digital inclusion… Mobile phones Indeed, mobile phone usage offers the most realistic means of improving financial and digital inclusion. While internet penetration is a little over 40%, Nigeria already has a mobile phone penetration rate of 87%. Meanwhile, the adult literacy rate is 62%. This reinforces the belief that persons only need a basic education to use phones. Do they need to be wealthy either? No. Recycled phones dominate the Nigerian market. Also, mobile phone brands like TECNO, Infinix and Itel that are made specifically for the low budgets of Nigerian users. For Nigeria to reap the dividends of mobile connectivity, 4G-enabled mobile phones must be made even more attainable for the entry-level market. One way policy makers can achieve this is by reducing the tax burdens on mobile phones and services. They must begin to perceive these as a necessity, instead of a luxury. Indeed, the use of mobile phones impacts significantly on the Nigerian economy. Besides affording small businesses the means to participate in e-commerce, it has become the fulcrum for another emerging sector – fintech. Fintech The Nigerian financial system has been quite receptive to the introduction of technology. Mobile banking solutions are driving the banking sector. Alat by Wema Bank and 737 by GTBank are some of the digital banking platforms that offer financial services 100% online. Platforms like Flutterwave and Paystack are enabling online payments for businesses. Piggybank helps Nigerians save, PayLater and QuickCheck allow users access quick loans. Nigeria’s fintech thrives on the back of rapid technological advancement, foreign investment and a young population. Frost and Sullivan expects Nigeria’s fintech revenue to reach US$543.3 million in 2022 from US$153.1 million in 2017. According to Weetracker, Nigerian startups attracted $663.24 million in venture capital last year, by far the largest share in Africa. Interswitch ($200 million) and Opay ($170 million), two payment platforms, accounted for almost half that number. And we all know about Paystack’s recent deal… However, the greatest challenge the fintech sector faces is regulation. Regulators must decide on how to regulate innovation without killing it. Within the past year, federal and state governments have enacted regulations and imposed fees with reckless abandon. It is perhaps wiser to allow innovation to grow without hindrance. This way, there will be plenty to tax later. Governance and Sustainability It is useful to add that digitization is not only enabled by governance, it can also contribute to it. The adoption of digital technologies can improve public service delivery and public accountability. Kenya is Africa’s leader in terms of digitization. Its digital economy contributed 87% to GDP in the third quarter of 2019 (while Nigeria’s contributed 14%). Attention should also be drawn to how digitisation has improved public revenue collection and saved $290 million in efficiency gains over four years. Digitisation will reduce costs of service delivery while also improving their quality and coverage. For instance, quality of service can be improved by creating feedback flows from citizens to public service providers. This feedback can be used to improve government agencies, ministries and other institutions for public service. Digitisation projects are notoriously likely to run over budget, experience delays and eventually fail to deliver results. The foundation must therefore be laid, one that entails ready infrastructure, capacity building within government institutions and digital literacy amongst citizens. Ultimately, political will. To leverage digitization and automation for transparency and accountability, political will is key. It will reap evident rewards. In June 2020, the Head of the Civil Service of the Federation explained how a platform, IPPIS (Integrated Payroll and Personnel Information System) had determined the actual number of serving public servants. By cleaning Human Resource data, it had saved the government at least 60 billion naira. Experts say that if Nigeria digitally transforms and integrates the information and communications systems of its public sector, it can save $5.6 billion annually. Finally, in adopting digitization, the government must also engage and orient stakeholders. The current ASUU (Academic Staff Union of Universities) strike was ignited by the insistence of the federal government to pay university lecturers through IPPIS. Perhaps a little more chill next time?
Nigeria’s Emerging Digital Economy (1)
Do you recall those pictures of Isa Pantami? That showed the Minister of Communications and Digital Economy stunning his audience with fitness exercises? The Ministry captioned them “STAYING FIT TO DELIVER EFFECTIVE SERVICE! The Honourable Minister of Communications and Digital Economy, @DrIsaPantami demonstrating to management Staff of the Ministry some exercise tips during the ongoing 2-day retreat.” Well, this post is about everything else – what the Ministry should be prioritizing in giving Nigeria the Digital Economy lead. Stay here! The global digital economy was worth $11.5 trillion in 2016, 15.5% of global GDP. It is expected to grow to 25% by 2020, faster than the global economy. The Nigerian digital economy is making its own strides, contributing 14% to GDP in the third quarter of 2019. The NIPC (Nigerian Investment Promotion Commission) believes that it would generate $88 billion by 2021. Meanwhile, a report released by Google and the International Finance Corporation (IFC), estimates that Africa’s internet economy has the potential to reach 5.2% of the continent’s gross domestic product (GDP) by 2025, contributing nearly $180 billion to its economy. Our new series will therefore examine the many facets of Nigeria’s digital economy, the efforts of the Nigerian government to propel it and its relationship with governance and prosperity. Today, we’ll take on Nigeria’s digital infrastructure and the state of financial inclusion! What is Nigeria doing? Nigeria’s efforts The Nigerian government has vocally prioritized the digital economy. In November 2019, President Muhammadu Buhari unveiled the National Digital Economy Policy and Strategy (NDEPS), a so-called guide for the digital economy. The Digital Economy drive has apparently begun. At the forefront is the Ministry of Communications and Digital Economy. In August 2020, the Minister, Dr. Isa Pantami, announced that it had completed 11 projects under said drive and was commissioning Phase 2. In December 2019, he had said that a pervasive broadband penetration would make Nigeria a truly digital economy. He said this at the launch of the Nigerian broadband plan for 2020-2025. The ambitious plan aims at increasing broadband penetration to 90% by 2025. Accordingly, internet speed would be a minimum of 10 megabits per second (Mbps) in rural areas and 25Mbps in urban areas. Also, data would be affordable at ₦390 per 1GB. Well, 5 years to go! Assessment The World Bank launched the Nigeria Digital Economy Diagnostic Report in 2019. According to this report, with improved digital connectivity, digital skills and literacy, Nigeria can reap benefits from the digital economy. To achieve this however, Nigeria must build the five pillars of a digital economy, as formulated by the Digital Economy for Africa initiative (DE4A). They are digital infrastructure, digital platforms, digital financial services, digital entrepreneurship and digital skills. These criteria introduce interesting talking points. How well is Nigeria doing? Digital infrastructure Nigeria faces a dearth of infrastructure, without which the digital economy cannot thrive. Connectivity is minimal in rural areas, leaving a significant percentage of the population without internet access. To achieve broadband penetration, for instance, extensive broadband infrastructure is key – deployment of fiber optics and connection to towers, from the shores to the hinterlands. Financial inclusion Nigeria also faces challenges with access to financial services. 41.6% of Nigeria’s 190 million people are financially excluded. Only 29% of adults have bank accounts. In 2012, the Nigerian government, through the Central Bank, launched the National Financial Inclusion Strategy to achieve 80 percent inclusion by 2020. Reports show however that financial exclusion has only reduced by 2.9 percent (from 39.7 percent in 2012 to 36.8 percent in 2019). What is the challenge with financial inclusion? The hurdles range from formal means of identification for millions to proximity of financial institutions. Poverty and illiteracy are also barriers to financial inclusion. 60% of Nigerians live below the poverty line. In 2018, Nigeria overtook India as the country with the largest number of extremely poor people. Northern Nigeria is predictably the worst hit. The result? 20.7 million of its adults are financially excluded. In addition, only the financially literate can maximize the opportunities of a financial system. And a vast majority are illiterate. Low enrollment in basic education and the poor quality of that education cripple both financial inclusion and digital inclusion. A lack of digital skills in the curricula segments digital skills into a slim share of the population. The absence of up-to-date training in STEM (Science, Technology, Engineering and Mathematics) and the inadequacy of equipment in schools ultimately result in the exclusion of the poorest from the benefits of the digital world. Nigeria must therefore close the digital skills knowledge gap. Perhaps, by increasing higher level education and creating online training initiatives to reach people wherever they are. Ultimately, mobile phone usage offers the most realistic means of improving financial and digital inclusion… We must stop here. We will discuss this and more next week. Stay glued!
Insurance in Nigeria: The Industry
The global insurance industry maintained steady growth in 2019 as premiums increased by 3.0% to $6.3 trillion representing 7.2% of Global GDP (Gross Domestic Product). Insurance is a big deal everywhere else. This post examines the Nigerian situation. What makes up the Nigerian insurance industry and how is it doing? Stakeholders According to BusinessDay, 57 registered companies make up the Nigerian insurance industry. 14 of them are life insurers while 43 are non-life insurers. There are also 2 reinsurance companies whose roles are to provide technical security and capacity for the insurance companies. Most insurance companies are incorporated pursuant to the Companies and Allied Matters Act 1990 (An Act that has been replaced with the Companies and Allied Matters Act 2020). Other stakeholders include agents (individual and corporate), brokers, surveyors and third party administrators servicing health insurance. There are 460 registered insurance brokers and about 15,000 insurance agents. The Nigerian insurance market has been described as a brokers’ market because brokers currently control over 90 per cent of the premium income, with less than 10 per cent for insurance agents and even direct marketing channel by insurers. The National Insurance Commission (NAICOM) is the regulator that exercises supervisory and administrative capacity over the insurance business in Nigeria. How is the insurance industry doing? In the Nigerian insurance sector, growth was faster than the country’s economic growth of 2.3%, as the sector expanded 3.6% in 2019, according to the National Bureau of Statistics. In June 2020, Fitch Solutions predicted that the Nigerian insurance sector would witness considerable growth in the medium to long term, despite an interruption in 2020 due to the COVID-19 pandemic. The life insurance segment is expected to grow its premiums to as much as N207.96 billion by 2024. On the other hand, the non-life insurance segment of the market (which is significantly larger), is projected to grow its premiums by a revised 2.9% to N248.85 billion in 2020. It was however mentioned in the report that these projected growths are not going to come about easily, mainly due to Nigerians’ general lack of enthusiasm for insurance. In our last post, we said a lot about the insurance culture. Didn’t we? According to Fitch Solutions, premiums growth will continue to be limited due to expected low average earnings by the insurance firms. Widespread poverty and general indifference were identified as a major factor making it impossible for a lot of Nigerians to access insurance covers. Could they have foreseen October though? Hoodlums and what not As you know already, peaceful protests staged against the activities of the Special Anti-Robbery Squad (SARS) were hijacked by hoodlums, who then began the destruction of both private and public properties. Remarkably, the Lagos State Governor, Babajide Sanwo-Olu, was reported to have said the state alone would need N1 trillion for reconstruction after the destruction caused by the hoodlums. Importantly, stakeholders expect insurance claims to run into billions of naira. Would this be overwhelming for the insurance players? The sector is yet to recover from the effect of the Covid-19 pandemic which has resulted in an increase in health, travel and business disruption claims. Afterall, it posted a contraction of 29.53% in the second-quarter GDP report published by the National Bureau of Statistics (NBS). Foreign interest According to Oxford Business Group, Nigeria’s insurance sector is attractive chiefly for its potential. The number of uninsured prospective customers is among the world’s largest within a single market. Nairametrics noted that foreign players have been showing serious interest in the Nigerian insurance sector. A typical example is AXA, a French insurance company which has stakes in Nigeria’s AXA Mansard Insurance Plc. Other examples are South Africa’s Old Mutual Ltd and Sanlam Emerging Markets (Proprietary) Ltd. Way Forward Agusto & Co noted that with more than half of the population living below the poverty line, the idea of insurance is unthinkable to a significant number of Nigerians. In addition, consumer purchasing power continues to be negatively impacted by high inflation. Thus, there is a need for insurers to offer specific products that cover just the right amount of insurance that is desired at various income and demographic levels. Afrinvest Research advises that it is pertinent that micro-insurance policies – which are specially designed for the low-income market, micro and small-scale enterprises – are promoted. In this regard, NAICOM recently licensed two full-fledged micro-insurance companies, GOXI and Cassava Micro-insurance companies, to offer life and general micro-insurance services in Lagos state. Finally, insurance operators have under-invested in consumer education, thus creating a vacuum that leaves consumers and operators as losers in the game. Investing in consumer education could help to restore confidence in the Industry and align expectations appropriately.