How to Position your Startup for Funding
According to Forbes, 9 out of 10 startups fail. Failure is more frequent than success when it comes to startup companies. It is difficult to run a startup, but it is also rewarding. You may be set to go with your business but you may be facing the most damning problem of them all – funding. Cash flow problems are said to be largely responsible for 82% of small business failures. Here is a helpful guide that tells you how to position yourself for funding as well as funding channels to explore. First, create a detailed business plan. A business plan will increase your chances of securing funds. It should come after market research. It will give a clear description of your business and serve as reference to remind you how to proceed. It will provide information about your target market and your competitors. Finally, the proposed organizational structure of your company. Investors will need to see your financial projections. Make them as realistic as possible. Here are important considerations for your business plan and all pitches you do. 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. Next, what are the direct solutions for your funding problem? What funding channels can you consider? Here is a quick list. But hold on. Before we get to it, learn how to manage your operational costs! For instance, before you commit money into any major acquisition, measure the expense against the expected ROI. You may need to learn new skills as you go. Then, do not outsource a job you can do yourself. Choose team members who possess complimentary skills. Finally, build relationships that allow you to access free resources or barter – this way you exchange one service for another, instead of having to pay. Now to our list. a. Self funding If you have the money, then you should consider funding your startup on your own. This way, you will not have to give up any equity, you will not pay interests on loans and you can keep all your eventual profits. The downside is losing all your savings of course. b. Friends and family Friends and family are second on the list for top startup funding sources. An advantage is you are likely to get money from these without having to pay interest. The downside however is the lasting, uncomfortable situation you may be put in if you lose their money. But that could also serve as motivation. c. Strategic partners A partner will share capital and liability. The downside is less profits for you and the possibility of conflict. While it is important to choose a partner you can trust, a detailed agreement is very helpful. d. Crowdfunding Crowdfunding websites are available for use. Some put you in a pool of professional investors, while others let you raise money from anyone. If your project is promoted properly, you can raise a ton of money. Examples of crowdfunding sites available to Nigerians are Kickstarter, NaijaFund, Funda Enterprise, CircleUp, MicroVentures, e.t.c. e. Loans You may visit a local bank and present your business plan to a loan officer. You would need to offer collateral of course. If you do not meet the requirements of a commercial bank, consider a microfinance bank. They allow payments in installments but their interest rates are usually higher. f. Angel investors Angel investors are usually entrepreneurs or former entrepreneurs themselves. They inject capital in expectation of equity, but you may also offer convertible debt. They are more likely to do seed investing (early stages). They can help you scale an idea into a prototype, for instance. They demonstrate their belief in you, your idea and plan. An impressive pitch with an angel investor may be all it takes. You may also benefit from their expert insights. g. Venture capitalists (VCs) Venture capital is a form of private equity. Recall our article on private equity. If you take this option, you would have to give away part of your business. Venture capitalist firms usually invest in the early stages of a company in exchange for an equity share. They also have a preference for startups within the tech industry or others with high growth potential. VCs will seek to cash out in a few years. Other funding options exist. There are startup incubators that provide support to startups in order to prepare them for investments. Also, if your startup is in the relevant industry, you may apply for government grants. And with that we have come to the end again. At Volition Capital, we are all about Private Equity. Read this to understand what that really means. We manage cooperatives and we help institutions raise funds. Subscribe to our newsletter to learn how we can help you/ your business.
How do Cooperatives work?
Are you paying attention? Do you really know what we do at Volition Capital? Have you read our article about Private Equity? Well, it provides insight into what we do. This is another in the series. It’s about cooperatives, which we manage. But what are cooperatives and how do they work? This brief article will shed some light. What are cooperatives? Likely, you are familiar with a cooperative credit society or a multipurpose cooperative society. These lend money to members at a very low-interest rate. But cooperatives do more than that. Simply, a cooperative society is a group of people who have specific common interests and financial goals. The general objective is to improve the economic status and social welfare of members. A consequence of capitalism is inequality of wealth and cooperative societies help to reduce this by aggregating and distributing resources. Cooperatives are as predominant as they are useful. The Worldwatch Institute found that in 2012, approximately one billion people in 96 countries had become members of at least one cooperative. The turnover of the largest three hundred cooperatives in the world reached $2.2 trillion. Meanwhile, here’s a little about the history of cooperatives. The Rochdale Society of Equitable Pioneers, (RCEP) founded in 1844, is considered the first successful cooperative enterprise. A group of 28 weavers and other artisans in Rochdale, England set up the society to open their own store selling food items they could not otherwise afford. Within ten years there were over a thousand cooperative societies in the United Kingdom. Rochdale created a model for modern cooperatives, embodied in the “Rochdale Principles”. Many cooperatives follow these seven principles: • Voluntary and open membership• Democratic member control, with each member having one vote• Economic participation by members• Autonomy and independence• Education, training and information• Cooperation among cooperatives• Concern for community What are the features of a cooperative? A cooperative enjoys a separate legal personality after it is registered. This means that it acquires an identity, distinct and independent of its members. It can purchase and dispose of its assets in its own name. It can also sue and be sued. It has a continuous existence because it is not affected by the death of any member of society. Members enjoy liability that is limited, to the extent of the amount contributed by members as capital. Membership is voluntary. Also, the capital of a cooperative society is raised from its members. Members have the right to vote. They use this to elect the managing committee. This committee has the power to take decisions. Cooperative societies are self-governing institutions. Yet, once they are registered, they are subject to the rules and regulations of the government. In Nigeria, they are governed by the Nigerian Cooperative Societies Act which provides for compulsory registration. Registration is effected at the Office of National Civil Registration. Now to types of cooperatives. There are various types of cooperatives. Cooperatives in agriculture gather, process and store the produce of their members. They are useful to small scale farmers who may be unable to market their products individually. Consumer cooperatives supply household essentials to their members at prices lower than those in the market. You must have heard about savings and credit cooperatives. They are the most common. Members save money with the cooperative and the funds are made available to them as low-interest loans for individual projects. Transport cooperatives are involved in purchasing vehicles and using them for public transport or for hiring or leasing. Likewise, insurance cooperatives provide insurance. Housing cooperatives buy and develop houses for the members or sell houses to members at lower prices. A utility cooperative is tasked with the delivery of a public utility like electricity, water or telecommunications services to its members. Ah, then there are multi-purpose cooperatives that do some or all of these many things. Oh well, now you know about cooperatives. Our cooperative at Volition Capital is exclusively by referral. You have to be recommended by an existing member. To those who are already part of our community, high five! To everyone else, do well to join our mailing list for information on how we help businesses and private individuals. Bye for now!
Policy Round Up: Oil Price and Miscellaneous
The fall in oil prices It all started in March when Saudi Arabia and Russia disagreed over proposed oil production cuts. This triggered a price war that crashed oil prices. The COVID-19 pandemic became official in the same month and slashed demand for oil significantly. Oil prices plummeted. Prices remained below $10 per barrel in April. Why? Excessive supply over demand. The Organization of Petroleum Exporting Countries (OPEC) resolved to curtail the output of countries in order to boost prices. Nigeria was reportedly producing 2 million barrels per day. It was then forced to cut this production to about 1.412 million barrels per day. Slowly, global prices improved. But almost half of Nigeria’s earnings were gone. By 12th March, fears grew over the devaluation of the naira currency. Oil and the Naira You see, the Naira is called a petrocurrency. This is 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. By 20th Match, the CBN devalued its official exchange rate from N307/$1 to N360/$1. By August 6th, this was further adjusted to N380/$1. Oil and refineries Nigeria has four refineries: two in Port Harcourt, one in Warri and one in Kaduna. Don’t ask why there’s a refinery in Kaduna. In April this year, the Group Managing Director of the NNPC (Nigerian National Petroleum Corporation), Mele Kyari said Nigeria would shut down these refineries until it secures financing. Apparently, the facilities were built between the 1960s and 1980s so they had to be upgraded. Meanwhile, NNPC’s financial report in June showed that the refineries had total running costs of $367 million even though they had processed no oil. Can you imagine? Na wa oh. In September, the Federal Government decided to give up its majority stake in these refineries. Private investors will now manage and operate them while the NNPC will resort to minority shares. Will the refineries fare better in private hands? That is likely, since private persons actually care about being profitable. Which private persons will the majority stake be given? We don’t know that. Oil and deregulation Last week, the Petroleum Products Marketing Company (PPMC), a subsidiary of the NNPC announced an increase in petrol price from N151.56 to N162 per litre. It directed all oil petrol retailers to comply immediately. Two seconds, everywhere burst. Why the increase? Well, deregulation. The downstream (supply and transportation) of the petroleum sector has been deregulated. This basically means that the government no longer determines the price of petrol, global market forces do. Or do they? It’s not that bad really, it’s just the timing. The federal government approved deregulation of the petroleum sector in March. It ended petrol subsidy, as well as NNPC’s status as sole importer. At the time, it also announced a reduction in petrol pump price from N145 to N125 per litre. That was apparently a palliative for Nigerians. The government also said that prices of petrol would be deregulated. The PPPRA (Petroleum Product Pricing Regulatory Authority) was then directed to give monthly “guidance” on the prices of petrol. The pricing was to be dependent on a price modulation method, meaning that petrol prices would be determined by the price of crude. Subsequently, petrol price was reduced in March, April and June before it was increased in July. Well, empowering an authority to guide price isn’t the same as allowing it to be determined by market forces, is it? It sounds like the opposite TBH. So yeah, marketers were not satisfied. According to them, the government should not meddle in petrol pump prices, it should indeed be allowed to float. Demand and supply. Economics 101. Ta-dah! It seems that the government has finally taken this advice. The latest increase in petrol pump price supposedly reflects cost. Oil subsidies The hike in pump price has predictably met mixed reactions. Marketers are happy. Most Nigerians are not. Meanwhile, the Peoples Democratic Party (PDP), the Nigeria Labour Congress (NLC), etc. have condemned the new price calling it “a demonstration of the government’s insensitivity to the plight of the people…” Well, according to the federal government, petrol subsidies are gone forever. The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed has said that fuel subsidies drain the economy. The government has even removed fuel subsidy provision from its budgets. The Minister of State for Petroleum, Mr. Timipre Sylva, said that subsidy removal would save Nigeria about N1 trillion every year. Also, those who cannot afford petrol can try alternatives like gas! Compressed Natural Gas (CNG) and Liquefied Petroleum Gas which are “cheaper and better alternatives.” Will subsidy removal work for the Nigerian economy? We can’t tell, what do we know? Let’s ask the stakeholders… According to marketers, “deregulation will foster an eventual price reduction in the nearest future when other market fundamentals would converge to create the desired competitive market space”. According to the Minister, “deregulation is a necessary policy direction. I agree it would come with a few pains initially. But I can assure you that when we all overcome it, we will be happy that we took the decision.” Well, we’ll keep our fingers crossed then…
Policy Round Up: Electricity Tariffs and Miscellaneous
Nigeria needs to generate between 40,000MW and 60,000MW of Electricity, but generation is less than 5,000MW. You know the gist. The common consequence is that businesses run on generators thereby increasing the cost of production. On 31st August, our ”What’s New?” informed you that the government had approved an increase in electricity tariffs, even though the National Assembly had promised that this would not happen until 2021. Well, this post expands on the issue further. Wanna learn more? Keep reading! How tariffs work. If you are a metered consumer in Nigeria, the cost of electricity depends on 4 factors. First, your location. There are 11 electricity distribution companies (DisCos) operating in Nigeria. Second, your tariff class. Every electricity customer belongs to one – residential, commercial, industrial, special and street lights – based on projected energy consumption. Third, tariff rate. This depends on your tariff class. Finally, the quantity of energy consumed in KWh. The hike in electricity tariffs. A planned increase in electricity tariff was initially scheduled for April 1st, 2020. This was postponed to July 1st in order to give stakeholders time to design a service based tariff system. When a service based system works, it ensures that the customers receiving high quality of service would pay agreed rates with the distribution companies, while those receiving poor service would not experience any tariff increase. The increase in tariff and a commencement date of 1st July were both approved by the Nigerian Electricity Regulatory Commission (NERC). By June however, Premium Times Newspaper reported that DisCos were accusing the NERC Of dissociating itself from the increase in tariff. Well, you cannot blame the NERC. En masse, Nigerians have condemned the tariff increase. The most common argument is that the electricity situation should improve first before any increase. Meanwhile, proponents of the tariff (e.g. Discos) counter this argument by explaining that the electricity situation cannot improve unless consumers pay the appropriate prices for electricity. This way, investors will make enough money to reinvest in their infrastructure. Well, August came and ta-dah! Hike approved! Why is the hike happening? Business Day Newspaper did a useful breakdown. The estimated cost of electricity in Nigeria is about N53/kWh. Meanwhile, distribution companies only charge N31/kWh. The difference of N22/kWh is a subsidy which cost the Federal Government of Nigeria N560 billion in 2019 (7% of the budget!). If this subsidy continues, it will total N610 billion in 2020 even though energy produced is the same. The most prominent argument is that this recurrent expenditure used to cover the tariff shortfall could be used to improve other sectors such as healthcare and education. In addition, an analysis corroborated by the World Bank showed that 60% of this subsidy is actually used to cover electricity consumption for the richest 10% of the population. Meanwhile, 90 million of the poorest Nigerians have no access to power. Nigeria cannot fund the subsidy for this year. The National Assembly only approved N80 billion for tariff subsidy. The government planned for 40% of the 2020 tariff subsidy to come from a $750 million loan the World Bank agreed to grant. The World Bank then made this loan contingent on the removal of the subsidy regime, calling it retrogressive and exploitative of the poor. Removal of subsidies is the rave now. The African Development Bank and the World Bank have made it clear that they would not extend more facilities until retrogressive subsidies are removed. When DisCos (distribution companies) met with the federal government, their projection was that 80% of the increase would be borne by the richest 20% of the population. There would be no change in tariff for the poor, and customers who receive less than 50kW of energy a month will not experience any increase. Well, let’s see. More talk. Citizens have labeled the hike as unnecessary considering the poor state of the economy and growing poverty among Nigerians. Some have gone as far as protesting. On September 10, Vanguard Newspaper reported that armed policemen in Lagos arrested 14 protesters and 4 journalists who were protesting the hike. NGOs have since condemned this action. A striking discovery is that Discos are yet to provide prepaid meters for all consumers. If this is the case, then most consumers would still be subjected to estimated billing. A service reflective electricity tariff would then be implausible. Also, many Nigerians are not connected to electricity at all. It may be time for the government to support the off-grid space in the power sector. Since September 7 however, the President has personally defended the hike. He explained that there was no provision for subsidy in the revised 2020 budget. He then said his administration was pursuing a mass metering program to provide meters for over 5 million Nigerians. Regarding those who are not connected to electricity, “We are providing solar home systems to 5 million Nigerian households (impacting up to 25 million individual Nigerians) in the next 12 months.” In conclusion, he said, “Protecting the poor and vulnerable, while ensuring improved service in the power sector, is also a major priority for the Government.” Well, these fingers are crossed again.
Advocacy: Tax Compliance in Nigeria
On September 17, the federal government asked Nigerians who own bank accounts to obtain and complete self-certification forms, to be issued to them by their banks. And why? The statement read, “The forms are required by the relevant financial institutions to carry out due diligence procedures in line with Income Tax Regulations 2019”. Expectedly, social media was set on fire. A day after, the federal government backtracked on this statement, saying the notice did not apply to everyone. The drive for tax revenue continues… Oh you must know the quote already. That one about death and taxes? Benjamin Franklin? Yeahhh. The only things certain in life are death and taxes. Somebody defined taxes as a debt owed by citizens of a country to their government. Hardcore eh? Taxes may be direct or indirect. Regardless, remittance is essential to governments and their budgets. Yes, this is why the government takes it personal. Tax compliance refers to the extent to which the tax paying population of a particular country complies with its tax laws and policies. Ideally, tax compliance involves timely and complete fulfillment of tax obligations. According to the World Bank Group, the importance of taxes and tax compliance lies in the need for a sustainable source of funding for social programs and public investments. Eventually contributing to a country’s economic growth and development. In Nigeria, tax compliance is increasingly a big deal. Well, it should be. Crude oil accounts for 70% of the country’s revenue base. And oil revenues are falling, so the country is going broke. Meanwhile, tax evasion has had its way for too long. In 2018, the Federal Inland Revenue Service (FIRS) found that over 6,700 billionaires do not pay taxes in Nigeria. Haha, wave your hand if you did not know we had that many billionaires in this economy. Also, the informal sector of the economy remains largely untaxed. In 2019, the FIRS generated about N5 trillion, relatively high numbers, but N3.7 trillion below its target for the year. Nigeria’s tax to GDP ratio is a sad 6%. To offer comparison, the tax to GDP ratio in a prosperous country like Norway is a staggering 54.8%. And so our country remains the poverty capital of the world. Over 82.9 million Nigerians are poor. In the second quarter of 2020, the nation’s economy contracted by -6.10 percent. As it stands, the country will have to borrow record numbers to fund its 2021 budget. The need to raise tax revenue is iminent. Tax compliance must improve. But how? What are the factors responsible for non-compliance in Nigeria? Well, the demographic makeup of the country, citizens’ unresponsive behavior towards taxation, as well as the faulty tax system. Nigeria needs to revisit (and modify) the policies and laws governing the tax system. Perhaps they should be more just. Wealthy Nigerians are barely taxed. Perhaps an introduction and enforcement of a luxury tax will improve the situation? Then, tax registration and payment processes should be made simpler. Perhaps some more digitization should be employed. It is tax, why should payment be difficult? Also, tax laws should be made easy to understand. People should be able to ascertain their obligations easily. However, the most important point is transparency in the tax administration system. The Federal Inland Revenue Service should be made accountable to the public. The government too. The social contract theory is not a superstition. The payment of taxes should cajole the government into doing the needful for citizens. If people see their revenue being put to productive use, they will be more responsive! They should be.
Advocacy: Tax Compliance in Nigeria (2)
Welcome to Tax 101 class! A tax is a compulsory levy imposed upon a taxpayer by the government in order to fund various public expenditures. Now, remember the following. First, it is not a willful or voluntary donation. This is not charity LOL. Second, it is usually imposed by law. Lagos boys storming your office to collect owo-ile does not count, unfortunately. Third, it is not in direct exchange for a benefit. Finally, deliberate failure to pay tax is generally punishable. Tax evasion Last week, we casually mentioned tax evasion. What is tax evasion and how is it different from tax avoidance? Well, tax evasion is the illegal evasion of taxes by taxpayers. Tax evasion often entailsdeliberately misrepresenting the true state of one’s affairs to the tax authorities in order to reduce tax liability. Also, declaring less income, profits or gains than the amounts actually earned. Or, overstating deductions. This one is illegal. You can be imprisoned. Ask Wesley Snipes. In contrast, tax avoidance is the legal use of tax laws to reduce one’s tax burden. This is not illegal. It is being sharp as a blade. Got it? Wesley Snipes, Blade? Tax administration Another casual mention was the Federal Inland Revenue Service (FIRS). Who are these and what do they do? Well, they are a machinery for tax administration. Tax administration is the implementation of the various tax laws in a country in order to achieve its objective. In Nigeria, tax administration is carried out by the three tiers of government – the Federal Government, the State Governments and the Local Governments, through the machineries they set up. Tiers of government, not organs. Come on now. The Federal Inland Revenue Service (FIRS) is the body empowered to “administer” at the federal level. The States’ Governments administer tax through the various State Boards of Internal Revenue. The Local Government Revenue Committee of each State administers taxes at the local government areas. Finally, there is a Joint Tax Board (JTB). It is made up of officers of the federal and state tax authorities. It serves as a big umbrella covering all tax authorities in Nigeria. The official role of the JTB is purely advisory. Taxes Now what taxes are imposed in this country of ours? What are their rates? And which bodies are responsible for administering them? Keep reading, let’s teach you… 1. Personal Income Tax (PIT) This is imposed on income of individuals – employees, families, trustees, executors, sole traders, partnerships, estate. The relevant tax authority may vary from the FIRS to the various State Boards of Internal Revenue. 2. Companies Income Tax (CIT) This is one of the main taxes administered and collected by the Federal Inland Revenue Service (FIRS). It is paid on the income of incorporated companies. Ordinarily, the rate of this tax is 30% of a company’s total profit minus “all expenses for the period which a company reasonably incurred in generating the taxable profit”. But companies with a turnover of N25,000,000 and less are now exempt from Companies Income Tax and Value Added Tax. 3. Value Added Tax (VAT) This is a tax charged on the sale of specified goods and services at the rate of 7.5%. The FIRS administers and manages VAT in Nigeria. 4. Tertiary Education Tax (EDT) This tax is also administered by the FIRS. The rate is 2% of assessable profit. It is imposed on all companies registered in Nigeria and put into a fund. The amount in the fund is distributed between Universities, Polytechnics and Colleges of Education in the ratio 2:1:1 respectively. 5. Stamp Duties Stamp duties due are chargeable on the execution (signing/stamping) of certain documents/transactions. The stamp duties of individuals are paid to their respective State Governments, while corporate bodies pay theirs to the Federal Government. The stamp duties rates applied by FIRS are in two forms – flat rate charges and ad valorem charges. 6. Capital Gains Tax (CGT) This is a tax charged where there is a disposal of assets. Where any capital sum is derived from a sale, lease, transfer, assignment, compulsory acquisition or any disposition of properties classified as chargeable assets. CGT is usually charged at a flat rate of 10% on chargeable assets. 7. Petroleum Profit Tax (PPT) This tax is imposed on income of companies in petroleum operations (upstream). Downstream guys pay CIT. Companies liable to PPT are not liable to Companies Income Tax (CIT) on the same income. 8. Customs and Excise Duties These are taxes charged at Nigeria’s Port of Entry on certain imported goods. It is usually administered and collected by the Nigerian Customs Service. There are two types of taxes charged at the Nigeria Port of Entry; one is on imported goods and the other is on some exported goods. Phew! Now that is a long list of taxes, isn’t it? Finally, what happens when there is a dispute between a taxpayer and an administrative body? Well, they usually go to the Tax Appeal Tribunal. This tribunal is vested with the power to determine disputes arising from all federal tax legislations. It is an administrative appeal body, not a court of law. If the decision of the TAT does not appease either party, they can appeal to the Federal High Court. Wooh. Now look how much you have learnt in 5 minutes! Look who’s a tax expert already. Tuesdays are for blog posts. We’ll return next week.
A look at Nigeria’s Data Protection
A year ago (October 2019), the National Information Technology Development Agency (NITDA) commenced investigation into a potential breach of privacy rights of Nigerians by Truecaller Service. You must know about this. That app that lets people know your name when they call your phone. Apparently, the privacy policy of Truecaller was divided into two sets – one for those in the European Economic Area (EEA) and another for those outside the EEA. Nigeria fell under the second category. An assessment of the relevant policy revealed noncompliance with the NDPR. An expository press release (as published on NITDA’s website) concluded with the following words: NITDA would like to assure Nigerians that we will continue to monitor the activities of digital service providers with a view to ensuring that the rights of Nigerians are not unduly breached while also improving the operational environment to support ethical players in their bid to get maximum benefit from Nigeria. How well has NITDA done since then? How secure is data in Nigeria? Last Friday, thisdaylive.com wrote about the efforts of NITDA to implement the Nigeria Data Protection Regulation (NDPR). According to this article, within the space of one year in office, NITDA has created more than 2,700 jobs. Also, Nigeria’s data security industry has surpassed the N2.5 billion mark. Ultimately, the agency has ensured strict compliance with the NDPR. While we cannot confirm or challenge these commendations, today’s article discusses the NDPR and prior legislation that are part of Nigeria’s data protection efforts. Just so you know your rights? Data Protection Laws in Nigeria In the beginning, there was no comprehensive law for data protection. However, the privacy of persons was protected by Section 37 of the 1999 Constitution which guarantees the privacy of citizens, their homes, correspondences, telephone conversations and telegraphic materials. Soon, there were specific laws that contained snippets of data protection. The National Identity Management Commission Act of 2007 established a commission. This commission is responsible for operating a National Identity Database. The Act provides that no person or company shall have access to data or information contained in the database with respect to a registered individual without authorization. Also, the Freedom of Information Act No. 4 of 2011. This Act actually provides for public access to public records. Still, it prevents a public institution from disclosing personal information to the public unless the concerned individual consents to such disclosure. It also provides that a public institution may refuse to disclose information that enjoys professional privilege (lawyer-client privilege, for instance). The Consumer Code of Practice Regulations was issued by the Nigerian Communications Commission (NCC) in 2007. It requires telecommunication operators to take reasonable steps to protect consumer information against “improper or accidental disclosure”. The National Health Act of 2014 requires health establishments to maintain health records for every user of health services. The confidentiality of such records is to be maintained and protected. Meanwhile, the Cybercrimes Act 2011 prevents the interception of electronic communications and imposes data retention requirements on financial institutions. Finally, the Federal Competition and Consumer Protection Act of 2019 requires the Commission to protect the business secrets of all parties involved in the Commission’s investigations. The Nigerian Data Protection Regulation In 2007, the National Information Technology Development Agency was set up by the National Information Technology Agency Act as the statutory agency with the responsibility for planning, developing and promoting use of information technology in Nigeria. The Agency is mandated to develop regulations for electronic governance and to monitor the use of electronic data. In line with this responsibility, the Agency issued the Nigerian Data Protection Regulation (NDPR) in January 2019. Essentially, the Regulation aims at protecting the personal data of all Nigerians and non-Nigerian residents. It targets transactions that involve the processing of personal data. The Regulation is directed to government agencies and private organizations that own, use and deploy Nigerian information systems as well as foreign organizations that process personal data of Nigerian residents. Data is personal when the information relates to an identified or identifiable natural person, whether it relates to his or her private, professional or public life. Personal data must be processed for the specific lawful purpose as consented to by the Data Subject. It must be without prejudice to the dignity of the human person. Also, it must be stored only for the period within which it is reasonably needed. Finally, it must be secured against all foreseeable hazards and breaches. A Data Subject is identified as the individual who the data is about. A Data Controller is the company or organization that possesses/requests for your data. The advent of information technology has quadrupled the amount of information available. Necessarily, governments of the world are promulgating data protection legislation to regulate the processing of data and to safeguard information of persons. The Nigerian experience has been slow and steady.
Insurance in Nigeria: The Culture
“Our Lekki store has been vandalized and looted. But, we acknowledge that this is only a setback compared to the larger issues we are all facing as a nation, and our thoughts and prayers remain with Nigerians everywhere, and for a peaceful resolution to various issues at hand. Rebuilding a supermarket is hard. Rebuilding a nation is even harder. We stand with you Nigeria. Stay focused. Be the solution.” SPAR Nigeria had this to say after its supermarkets were looted by hoodlums. That must have been hard. For them, or their insurance company. A lot is happening in Nigeria. Notably, looters are looting government offices, banks, shopping malls, media houses, toll plazas, private offices, etc. Vehicles, buildings and properties have been set ablaze or looted. It raises interesting questions for insurance companies, doesn’t it? When the dust settles, businesses will calculate their losses and make claims. In the coming weeks, we will take on Nigeria’s insurance industry. Today, we chose to look into the insurance culture in Nigeria. Do Nigerians insure? Why or why not? What do they insure against? Welcome! Do Nigerians insure? Not really. Nigeria’s adult population was 99.6 million in 2018. 40% had access to financial services. However, only 1.9% of them had insurance coverage. Insurance penetration remains low and the insurance industry contributes about 0.3% to Nigeria’s GDP. The industry has been relegated to the background in a financial services sector that has produced more prosperous industries such as banking and pensions. Why are Nigerians not insured? Many inefficiencies plague the insurance sector – poor regulatory enforcement, weak corporate governance & risk management framework. However, the greatest of these may be the dearth of innovation. While tech has jumped on other financial services, it is not jumping on insurance, is it?Well, tech is an enabler. The reason why there is tech in banking and investments is so that they can do what the traditional banks are doing more efficiently. But the demand was always there. Meanwhile, knowledge of the insurance industry is extremely low as a combination of low income and perception about the industry has affected the reach of insurance services. The insurance culture Nigerians are very poor. Simply, people with low income cannot afford to subscribe to insurance services. A study by EFiNa revealed that at least 30.8% of Nigerian adults say they cannot obtain insurance services because of economic constraints. 15% of them say they can’t afford it, while 14.9% say they have nothing to insure. Nigerians are also quite religious. People pray against bad things and hope God prevents them from coming their way. Meanwhile, insurance recognises that bad things do happen but can be recovered from. Why take motor insurance coverage against accidents? Doesn’t that show a lack of faith in God’s power to protect? Life insurance is called funeral insurance in other countries. But who wants to hear “funeral” over here? Eh? God forbid. Finally, Nigerians are not very trusting. Specifically, this relates to a conception that it is difficult to get insurance companies to pay claims. Oh, Nigerians have a general, uncompromising distrust for financial service providers including bank offerings like loans. They are also unaware of how the industry works. According to a World Bank report, over 30% of Nigerian adults are not aware of insurance. Hope in compulsory insurance… Well, government regulations are an important driver for insurance adoption. A World Bank-sponsored report explained that “compulsory insurance… continues to be a strong driver in the market.” The GPI (gross premium income) of the Nigerian Insurance Industry was N356 billion in 2016. This GPI growth was driven by the six compulsory insurance policies: • third party motor insurance,• employer’s liability insurance,• group life insurance,• builders’ liability insurance,• healthcare professional indemnity insurance• occupiers liability insurance. These products are concentrated in statutory insurance policies and also within the formal sector. The insurance industry pursues a strategy of selling compulsory insurance policies to the formal economy (representing about 40% of the economy). Compulsory insurance explains why motor insurance takes a giant share of the market. Between 2007 and 2011, it accounted for over 29% of the gross written premium for general insurance. Regardless, even motor vehicle insurance indicates low value for customers. According to techcabal, Nigerian drivers paid ₦40.3 billion ($103.2 million) as premium for motor vehicle insurance in 2016. Most drivers favoured compulsory third party insurance over comprehensive insurance. Yet when accidents happen, very few people go back to claim their insurance. This was limited to ₦1 million ($2,580) for third party insurance in 2016. The ratio of motor vehicle claims paid relative to the premium collected was 0.43. Already, you may be asking “can anything good come out of the Nigerian Insurance Industry?” Who is the regulator? NAICOM (National Insurance Commission)? What is their role and what have they been doing? What are the new tech and innovation trends in Nigeria’s insurance sector? What are the government initiatives and investment incentives? Maybe we can answer these next week…