Multiple Taxes in Insurance Scare Away Foreign Investors



Mr. Kolapo Adedeji is the Managing Director, Niger Insurance Plc. In this interview with Ebere Nwoji, he spoke on the impact of the economic recession on the insurance sector, imposition of excessive taxes on operators, as well as what the industry stands to benefit from the proposed municipal pool, among other burning issues in the industry. Excerpts:

In your 46th Annual General Meeting just held, shareholders were happy that Niger Insurance, is still able to pay dividend despite the hard times businesses in the country are experiencing. How were you able to do this when others found it difficult to do so and what led to this decision to still reward shareholders despite the harsh operating environment?

To every company, you have important stake holders. One, the people that have put this company together and give us the opportunity to run it and that is the shareholders. They are very important. Another set of important stake holders to us are the employees. They are very important set of stakeholders. Most important are the customers and again the government. When you talk about the customers, is a subset of the society. So you have to also have consideration for the society and that is why we talk about corporate social responsibility. We don’t give money to the shareholders; we deliver value to all stakeholders including government in the area of taxation, giving back to the society through Corporate Social Responsibility. For employees, you have to make them happy so that they can bend down and do the shareholders, they are the ones that have put the company together and given us the opportunity to have a stake.
So we have been very consistent in rewarding them over the years, because they are diverse, you have retirees, working class, you also have people that are there for the purpose of growing their businesses.
The board considers these and tries to maintain the tradition of rewarding them consistently. We try to make their reward unbroken over the years; that is the tradition we have decided to follow. It also makes them to identify with the company and continue to give their support.
We know that times are hard, but it is a passing phase. After the rain, comes the sunshine, so we believe there is still light at the end of the tunnel.

Times are hard really and Nigeria has been officially declared to be in economic recession, how do we look at that in relation to insurance business, how will it affect insurance business?

To me, you know in economic circle, you have period of boom and period of bust. As a country, we had our period of boom when the price of our major source of revenue that is oil went as high as $120 per barrel. Now, we are in recession and government is facing a major challenge. I believe that running government is about spending money, I also believe in making savings but part of the savings should be spent on infrastructure that can also lead to greater generation of income by the masses.

We are in recession and government’s earning is coming down but government is still the biggest spender meaning that what will flow from government into the economy is driven by what the government has been able to save before now and what it is making at present. But is also a challenge really because whether we like it or not, it is part of our revenue may be in the short run, because government is still the biggest spender. But to cushion that effect, there is need to empower ordinary citizen.
But again, if the disposable income of the ordinary citizen is also going down because of one, am not saying the salaries are being delayed but what am saying is that purchasing power is weakened now because there is also inflation especially if you look at the foreign currency exchange rate, you see that purchasing power has really dropped and if that happens, it will affect insurance business .You know insurance is always last in the scale of preference. Because first, you talk about food, children’s school fees, housing, you know today’s land lords among others before you talk about insurance. So you have to attend to these basic needs of life. So if inflation has eroded items one and two, you know what will be left for insurance. So it is going to present a lot of challenges because this is a service, now you are trying to project better in terms of awareness, creating new product. So I want to believe that it will really affect the industry because if you look at it, talk about, the performance of the budget, all of us are sitting on the national economy. Now the capital vote has been released, about N248billion, if you look at that, is between 55, 60 percent of the budget because of the dwindling revenue, so if budget is not going to perform 100 percent, it is really going to be difficult to set target. The honorable minister has just told us that we should expect a turnaround from third quarter.

In the mist of this recession, government is looking for alternative areas of growing the economy outside the oil, insurance is one of these areas targeted by government. This is because as you rightly said, banking industry has reached its peak and is coming down, what would you want government to do to enhance the performance of the industry?

Well, let me first of all say that government has taken the right step when you talk about repositioning the economy.
You must have read about the creation of municipal pool, this is meant to increase capacity to underwrite big ticket businesses. Also, I want to believe that the local content development policy of the federal government is doing a lot. Most businesses that before now go abroad are now insured here. But we too must grow capacity especially as the honorable minister of finance was talking about recapitalisation, because your business terms are sometimes a function of your capital. But I don’t want it to look like a contradiction because government is looking at other sources of income other than oil and gas what they should look at again is their taxation. I don’t want it to look as if we are complaining but government’s taxation regime is not too favorable to attract investors because if you are looking in the direction of this industry, it means that the ones that are supposed to bring in money to grow the industry the taxation problem is discouraging them. If you have a taxation regime that is too far from ideal, because what we are paying in the industry now is different from what you have in the manufacturing sector. I want to believe that there is an error somewhere, government should look into it. A member of the Senate has also promised to help us and see that it is looked into. Am not saying that government should not collect tax but if it allows the industry to thrive, government will even make more money from the industry in the area of taxation and the industry will also benefit.

But Like I said, the local content policy is working. Our regulator is also trying. What they are doing now is to ensure that every company that is licenced is also participating in all these businesses that must be domesticated. It is not a question of whether a company is weak. If it is weak, you have not withdrawn its licence. It is also not a question of whether a company is not paying claims promptly because you have not even complained. But it is good to allow everybody that is so licensed to try. So that is what the regulator is doing to ensure that there is a spread. As you know, insurance business is all about sharing of risk. Again if that happens, you can be sure it will reduce unbridled competition. For instance, if company ‘A’ knows that company ‘B’ is stronger, what will happen is that it will allow company ‘B’ to bid especially in oil and gas, without necessarily bringing down the rate knowing fully well that whether you like it or not at the end of the day, the bidding company cannot carry the risk alone. You must get your share of the business. A larger chunk will still go out going by the structure we have on ground now, majority go offshore so there is no point charging low risk in order to get the business. So from what they have done now, really, there will be a fair spread and again every company has been so recognised and that will enable many companies to grow. Because you can only grow if you are taking in more and more businesses and gain experience on whatever class of business you are underwriting. After gaining experiences, you can now have capacity and begin to underwrite bigger ticket. Like I said, all we are seeing now is a passing phase and I know insurance will be better for it at the end of the day.

Are you saying that the municipal pool will stop all the negative practices going on in the industry like rate cutting, unhealthy competition?

Yes, I want to believe so because we have pools in the past, oil pool and is helping us to conserve business within each other. Whether you like it or not, all of us combine, cede all the capacity together to underwrite big businesses. What is happening in the oil and gas business now despite the recession. Because I believe that the price of oil is stabilising and am sure it will also get back to a point where it will enable more investors to go back to the risk because now they don’t ,want to go back to the high sea but as it is now, all these glut from wherever now am sure is being addressed. As the president has said, if you can produce little at higher price, why do you want to produce more and sell at lower price am sure they are reaching out to the countries in the middle east concerned because there are some political angles to those countries.Look at the American companies, still growing ,creating new employments. Definitely, we have capacity problem but if things improve, I want to believe in two months’ time that is the beginning of winter, they will start stockpiling, I mean those of them that will not want to be caught up with higher prices. And that will also drive the market. It is left for us to learn lessons from what has happened to us in the past and be more prudent in management of our resources because our life style has not changed as Nigerians. We are still wearing expensive things all of which we are not producing, expensive handsets, if they bring in a container load of handsets into the country, it will finish within a short time and you start wandering that salaries have not been paid yet people have money for all these. But I believe that in terms of rot, Africa is not exception and Nigeria is not alone. Because if you get infrastructure right, the share population is enough to engender growth. Over 100 million people, you can just work on the middle class. Trading among ourselves alone can engender growth. You can travel from here to Jalingo in fact you can travel on Nigerian roads for 14 hours without a single boarder control.

At the just concluded Annual General Meeting of your company sir, you talked about foreign investment into the company, have you identified a particular investor ,what level of equity are you likely to hand out?

When you are talking about foreign investors, let me tell you, the minister said that all of us will recapitalise, you know that your retention is a function of your capital. Don’t forget that we attempted to go to the market in 2008, but what happened in capital market happened. We have put together all parties concerned, planned to have the first meeting, sequel to August 14 2009, it was Friday, the market started having issues. If you look at our balance sheet, because of the job, because of our equity and portfolio, it just created a kind of imbalance, so the business we do liquidity, is key .If you look at companies that are doing very well, just check the balance sheet, you will see they have huge capital .Some of them were very lucky, because they went to market just immediately before the problem, why am I saying they were lucky, they would have invested the money in capital market and the shares would have also lost value. But we have been around before some of them several years, and we have seen all these kinds of businesses together with regulations. So when the crisis happened, that time, even if you had wanted to sell, nobody was ready to buy. Because you can buy Cadbury at N50 and you know tomorrow is going to be 48, so someone can say, why do I have to buy when I know tomorrow, it will come down to N48.00. So we were having more offer than people who were ready to buy. Honestly, we had thought that the Period of drop in value of shares would have been for a short period. Nobody had thought that it will be extended for so long. Not that it can still not go back, but before the confidence will come back, it will take time. So that has happened, talking about foreign investment, liquidity is very key .If you look at Niger Insurance, historically, we have not done anything public, or special placement or what you call IPO, what we have been doing over the years is right issues to the existing shareholders. But when the market went the way it did, they became fatigued and if you want to raise big capital, you find it difficult to get it from them. So that is why the board is looking at foreign investors for two reasons: You know if you are still looking for money from Nigeria outside the existing shareholders, if you are not going to make it right issue, you can still get significant figure but we have looked at the trend in the industry, what competition is doing. If you look at image, you look at the likes of AXA Mansard when you just mention the name, they are global, they are multinational, they have better technology, if you look at custodian before IFC came in, if you look at Leadway, now you have Swiss Re coming into the company. So in terms of visibility, to be very visible, it will be good to also have foreign linkage, it is a Nigerian company agreed, probably acting globally and thinking Nigerian. What the board is looking out for in a nut shell, is capital, yes we want to raise capital but let it be both capital and expertise. But if you are looking for money, in Nigeria, we can get good investors, but we are saying okay, if anyone is bringing money, what else. Because for Nigerians, if they bring in the money, they might not have these other qualities we are looking fir for reason of exposure. Aligning with foreign investors has a lot of advantages, in area of product development, the skill set, knowledge, we want them to blend and we need greater exposure, so that we can innovate. We can’t do it on our own but I must tell you there are a lot of interests in Nigerian insurance industry from outside the world, a lot. Anytime you go out you meet enquiries. So the board decided we bring in foreign investors for reason of greater exposure.