Local Content Initiative A New Driving Force In Nigeria’s Insurance Growth Plan

Nigeria gets new acting Commissioner for Insurance – Business Traffic

At the just concluded media engagement with Insurance Journalists , Nigeria’s Commissioner for Insurance, Sunday Thomas spoke on plans to key into the Nigeria Oil and Gas Content Act, NOGIC, to drive growth in the industry. YEMISI IZUORA, looks at the possibilities around its implementation.

The Nigerian Oil and Gas Industry Content Development Act, signed into law in 2010, was a cumulative result of decades of attempts by the government and stakeholders in the petroleum industry to ensure that the industry provides local value and maximized benefits to Nigerians.

In over fifty years since the discovery of oil in Nigeria, the petroleum industry has functioned as an “enclave” economy, with very little linkages and contribution to the wider Nigerian economy.

Previous efforts to give effect to the local content policy include establishment of various research, development, training, education and support funds; provisions in the Petroleum Act on mandatory employment and training of Nigerians by petroleum operators, provisions on technology transfer, local content utilization, recruitment and training of Nigerian personnel contained in various contractual arrangements with International Oil Companies, IOCs, and the establishment of a Nigerian Content Division, NCD, of the NNPC to monitor and give effect to government’s Nigerian content policy.

Today, the Act, is being reviewed by the legislature to repeal the Nigerian Oil and Gas Industry Content Development Act 2010 and to enact a new multi-sector statute that would extend local content regulation and enforcement across other sectors including, mining, information communication technology, construction and power sectors if enacted (the NCDE Bill).

The Senate is deliberating on another local content- focused Bill, the Nigerian Oil and Gas Industry Content Development Amendment Bill (the Senate NOGIC Amendment Bill).

The Senate NOGIC Amendment Bill however proposes to amend and clarify, rather than repeal, the Local Content Act, and preserves its singular petroleum sector focus.

Inability of local firms in Nigeria to compete globally informed the introduction of having a local input in form of a policy to enhance the ability of home grown vendors, but this is more pronounced in manufacturing sector than service sector.

Challenges

Nigeria’s insurance market has been substantially evaluated and seen as having great potential given its position as Africa’s largest economy, its substantial oil and gas reserves and its young and growing population.

But again the insurance market has failed short on that promise due in part to the volatility of growth in the country’s real gross domestic product, along with with uneven enforcement of mandatory retail insurance lines.

In 2020, a new Best’s Market Segment Report, titled, Nigeria’s Insurance Market Offers Significant Potential Despite Headwinds”, analysts at AM Best cite obstacles to insurance market growth that include low consumer awareness, lax enforcement of mandatory coverage laws, and new proposed capital requirements.

The analysts argue that the industry needs the support of government to improve trust and understanding of insurance if the market is to grow in the country.

There are 57 insurance companies operating in the Nigerian market, according to the report, based on the country’s latest regulatory data.

The NGN 426 billion (USD 1.2 billion) of gross written premium (GWP) generated in 2018 represented growth of 14.5 per cent over the previous year. In the five years between 2014 and 2018, the compound annual growth rate of total GWP grew on average by 8.6 per cent per annum.

But that growth is not what it appears. AM Best analysts note that although growth has seemingly been strong, when viewed in real terms, the market actually contracted by approximately four percentage points due to inflation that averaged 12 per cent over the same period. Market-wide GWP (excluding health insurance premiums) grew broadly in line with inflation to reach approximately NGN 490 billion (USD 1.3 billion) at year-end 2019, according to Nigerian Insurers Association (NIA) figures.

A key factor behind the relatively slow real GWP growth has been the low insurance penetration in retail lines.

“Low retail penetration can be partly explained by the low level of awareness and trust in insurance, as well as the absence of strong financial literacy across large parts of the population,” the report says.

“Furthermore, the extremely shallow level of economic growth in recent years has affected both the demand for insurance as well as the value of insurable assets across a number of lines of business.”

 

Energizing Sector Through Local Content Legislation

The National Insurance Commission (NAICOM), has considered the local content as a critical growth ingredient and is seeking to apply it with verve and flexibility to achieve set objectives.

The Commissioner, Sunday Thomas, during conversation with key industry media editors in Lagos, released the Commissions new plan for the next two years, tagged ‘2021-2023 Strategic Plan’.

Under the fresh drive the Commission would deepen engagement with the Nigerian Content Development and Monitoring Board (NCDMB).

He was optimistic that with adoption of the initiative the sector would soon witness an increase in the oil and gas business.

He said a Committee was working on the guideline that would make it mandatory and enforce the law on the local content and the linkages would be blocked.

“Our inter-regulatory cooperation is why we are able to work with the Nigerian content,’’ he said.

 

Initial Push

Since the Nigerian Oil and Gas Industry Content Development Act 2010 was passed, several measures have been put in place to implement its provisions. The Act with contains far-reaching provisions that are designed to ensure the use of Nigerian labour, goods and services in the national oil and gas industry was well conceptualized to boost local capacity.

Oriental News Nigeria, reports that way back in December 2010 the National Insurance Commission, the insurance industry regulator, issued its Guidelines for Oil and Gas Insurance Business in collaboration with the Nigerian Content Development and Monitoring Board, with the dual objective of establishing a uniform set of rules, regulations and standards for insurance contracts within the oil and gas sector and facilitating compliance with the act.

The guidelines require all oil and gas-associated insurance business to be conducted in accordance with the relevant sections of the Insurance Act (Chapter I17, Laws of the Federation of Nigeria 2004), the National Insurance Commission Act (Chapter N53 Laws of the Federation of Nigeria 2004) and the new act.

The guidelines replicate the provisions of the act to require all regulatory authorities, operators, contractors, subcontractors, alliance partners and other entities involved in any project, operation, activity or transaction in the oil and gas sector to seek prior written approval from the National Insurance Commission before any insurance risk in the oil and gas sector is placed offshore. In granting such approval, the Commission will consider whether Nigerian ‘local capacity’ – defined as “the aggregate capacity of all Nigerian-registered insurers and reinsurers which shall be fully exhausted prior to any application for approval to reinsure any Nigerian oil and gas risks overseas” – has been exhausted.

According to a detailed research on this, Folake Elias Adebowale, Funmi Olojo at Udo-Udoma & Belo-Osagie chambers stressed that this is not entirely a new concept.

They posited that it is not unusual, for instance, for project financiers and other foreign lenders to Nigerian businesses to require borrowers to place insurance and reinsurance risks offshore.

However, even before the guidelines were issued, the Insurance Act had prohibited insurance and reinsurance businesses from carrying out transactions in respect of any Nigerian life, asset, interest or other property business classified as domestic insurance unless such transactions were entered into with an insurance company registered with the commission under the Insurance Act.

‘Domestic’ insurance or reinsurance business is defined in the Insurance Act to include fire insurance and reinsurance business, motor insurance and reinsurance business, liability insurance and reinsurance business, life insurance and reinsurance business, accident insurance and reinsurance business and such other insurance and reinsurance business as the commission may from time to time prescribe.

The Commission has statutory discretion to approve the placing of insurance or reinsurance risks outside Nigeria where it is satisfied that, because of the exceptional nature of the risk in or emanating from Nigeria or any other exceptional circumstance, the risk is of an exceptional nature and cannot be placed locally, or where the local market does not provide a particular type of policy or lacks the capacity to provide all of the cover required in respect of the risk, in which case the excess (the amount that the commission feels cannot be placed locally) may be insured or reinsured outside Nigeria.

The writers noted however, that it seems likely that in applying the guidelines, the Commission will be guided by similar principles in relation to oil and gas industry-specific contracts, bearing in mind the specialised nature of certain risks that are specific to the Nigerian petroleum industry. For example, the Commission’s consent is required in order to access the foreign exchange (forex) market to purchase forex to fund the remittance of premiums to offshore insurers.

Failure to obtain the Commission’s consent before insuring such risks offshore attracts penalties of either a fine equivalent to five times the premium involved or the imprisonment for three years of the chief executive, directors, managers and company secretary of the relevant offender.

They averred that Nigerian-registered insurers are eligible to participate in any Nigerian oil and gas insurance business subject to any restriction in their operational licences. Every insurer willing to participate directly in such business must provide: a current tax clearance certificate; evidence of value added tax registration; evidence of procurement of workmen’s compensation insurance; evidence of pension registration; a group life insurance certificate; a certified true copy of the insurer’s operational licence permit issued by the Department of Petroleum Resources; and the latest audited accounts approved by the commission.

Insurance companies and brokers participating in oil and gas insurance business are permitted to set up a process of manpower development and must render annual progress returns to the commission in order to bid for oil and gas insurance business. The guidelines allow insurance companies to form consortia for the purposes of bidding for oil and gas insurance business.

In addition, insurance brokers holding current licences issued by the National Insurance Commission are eligible to provide brokerage services to petroleum industry insurance businesses, subject to having an office in at least one of the oil-producing states of Nigeria.

Notably, in situations where the provisions of the act regarding insurance matters may result in conflict between stakeholders, the guidelines allow the commission to clarify such matters within the ambit of the Insurance Act, if necessary, in collaboration with the board.

The issuance of the guidelines by the Commission was considered another step towards the goal of achieving clarification and guidance on the petroleum industry-specific issues raised by the act.

They expected that other industries with corresponding operations in the Nigerian oil and gas industry and which are also regulated by the Act will follow suit. The long-awaited regulations and guidelines to be generated by the Board which are expected to provide substance and much-needed clarity on the more nebulous provisions of the act, remain of key importance.

 

NCDMB’s String Of Collaborations

The Nigerian Content Development and Monitoring Board (NCDMB), has always been engaging other sectors to deploy the Act to effectively change the narrative across critical Sector of the economy.

Already, the Board and the Federal Ministry of Justice are working to deepen the existing collaboration to ensure effective implementation of Nigerian Content initiatives.

The Executive Secretary of NCDMB, Engr. Simbi Kesiye Wabote said that the collaboration between the two organisations has yielded excellent results.

Such results include the Federal Ministry of Justice’s approval of fait for the prosecution of persistent defaulters of the Nigerian Oil and Gas Industry Content Development (NOGICD) Act and the support for the establishment of Special Purpose Vehicles (SPVs) to enable the Board’s partnerships and commercial interventions.

He listed other benefits of the cooperation to include the Ministry’s review of the Draft Nigerian Content Ministerial Regulations and the Board’s sponsorship of capacity building workshops for judicial officers.

The Executive Secretary stated that the Board would not succeed in the implementation of its mandate if the Federal Ministry of Justice were not aligned with it. “If we don’t work with the Ministry to understand what we do, it will be difficult for them to support us,” he said.

He noted that the Board had organized similar workshops with the Nigerian Customs, Justices of the Supreme, Appeal and High Courts, with the intent of improving their understanding of the Nigerian Content Act, so as to get their cooperation.

He called for more assistance from the Ministry, especially in securing fait to prosecute recalcitrant defaulters of the NOGICD Act and establishment of new SPVs for the Board’s projects.

Wabote also sought the endorsement of the Ministry of Justice for the extension of the Local Content Act to other critical sectors of the economy, including Power, Construction, Rail and Information Communication Technology and the amendment of the NOGICD Act to enable NCDMB superintend over those sectors.

He advised against plans to enact a new law that would regulate Local Content in the Science and Technology sector and establish an independent agency to supervise it.

According to him, “once you establish another agency, there will be overlapping of functions, because science and technology activities overlap to the oil and gas industry. That way the atmosphere will to become uncertain and scary to investors.”

”The Ministry of Justice will play an active role in this and will need to tell those who have such plans that it is better to have Local Content under one umbrella. There will be a lot of implications if there are separate laws on Local Content,” he added.

Wabote, explained that the adoption and implementation Local Content policies in key sectors of the Nigerian economy will address the high unemployment rate in Nigeria.

In a strategic move to expand its mandate to other areas, the Board had engaged the Institute of Directors (IoD), Nigeria.

As a Guest Speaker, at a recent IoD, summit, Wabote in his presentation titled, “Addressing Unemployment: Local Content Option”, regretted that for many years, until lately, Nigeria had regarded crude oil as a commodity, instead of a resource –  a situation which resulted in the loss of all in-country value adding activities and opportunity to capture the full benefits of the derivatives of crude oil.

He noted that the enactment of Local Content Law in the oil and gas industry and its implementation has become a game changer, helping Nigeria to claw back work, services and spend which used to leave the country to other parts of the world. He reiterated that the essence of local content policy is “domiciliation and domestication”.

Stating that the oil and gas sector is not a huge employer of labour, compared to Agriculture, the Executive Secretary commended the current emphasis on Agriculture and diversification by the Federal Government of President Muhammad Buhari.

He also lauded the Federal Government’s reinforcement of the Local Content Policy through the issuance of Executive Order 5, designed to boost local content practice in other critical sectors of the economy.

He also, argued that with the huge unemployment figure of about 16 million from the Bureau of Statistics (NBS), a staggering number equal to the total population of three West African countries of Sierra Leone, Togo and Liberia, Nigeria needs to extend Local Content practice to other critical sectors like Agriculture, ICT, Construction, Power and Manufacturing in order to tackle the scourge of unemployment in the country. Wabote also argued that for Nigeria to derive full benefits from Agriculture, it must look at the various derivatives across Agricultural supply chain as to create jobs and boost the economy. He cautioned, “we must not repeat the mistake of ‘commodity trading’ with agriculture”.

Speaking further, he enjoined the Directors to be circumspect about agreements with foreign development partners and financiers and ensure that their companies do not pen contracts which would lead to loss of jobs for Nigerians.

Earlier in his opening remark, the Director-General and CEO of IoD, Nigeria, Mr. Dele Alimi indicated that the Institute exists to promote good corporate governance. Similarly, the Chairman, Port Harcourt Zone of IoD, Sir Innocent Harry in his welcome address stated that the Institute was interested in finding solutions to the problem of youth unemployment hence the decision to invite the Guest Speaker.

 

Engaging BoI. SMEDAN

NAICOM with the new drive by Thomas, will join the league of collaborating government agencies like the Bank of Industry and SMEDAN.

Their collaboration is also aimed at linking the mandates and outputs of the agencies to benefit local content and support Federal Government’s drive for employment generation, in-country value addition and overall economic transformation.

The aboard has encouraged the agencies to assess their capabilities and achievements and synergise them for well-coordinated economy, and develop local capacity needed to avail other sectors with the expanded capacities while agencies that have fund pools needed to work together to support local supplier development.

NCDMB, has charged the agencies involved in training of the need to synchronize the skill sets that were needed by the economy, while other agencies dealing with technology development, investment promotion needed to help the agencies that depend on their output.

Such synergies would have enduring impact and help to galvanize the economy.

Oriental News Nigeria, is of the belief that such collaborations would address worrisome scenarios whereby some agencies committed funds and trained experts but cannot find jobs for them; technology was being acquired but not being deployed because the industry is too far away and investment promotion efforts are going on and a lot of people are coming into the industry.

 

Similarly, the Ministry

of Power has also signaled commitment to work towards replicating the success achieved with the implementation of Nigerian Content in the oil and gas industry.

The Ministry at a Power Sector Local Content Policy Framework Development Workshop, promised to ensure that ongoing transformation in the sector and massive investments by governments and private sector entities are steered to develop the local supply chain and encourage manufacturing.

Restating the need to build on existing structures, the Ministry canvassed for the expansion of NCDMB’s mandate to enable it regulate Nigerian Content in the power sector.

Also, the Nigerian defence community has been advised to adopt the Local Content Policy in their operations, particularly in the manufacturing and maintenance of security equipment and development of software.

Wabote gave the advice in Abuja when he delivered a lecture to participants of the Nigerian Defence College, Couse 25.

Speaking on the topic, Local Content Policies and National Security: An Assessment of the Oil & Gas Sector, he charged military authorities to also consider adopting Local Content in the production of security clothing, construction of security vessels and include the policy in other security contracts, especially in offshore locations and maritime facilities.

The Executive Secretary pledged the support of the Board to the Defence Community in developing a unique local content policy that would fit its operations.

According to him, the implementation of Nigerian Content in the oil and gas industry has yielded enormous achievements, including employment generation for thousands of Nigerians, skills acquisition, local manufacturing and asset ownership and prompted sectors like power, telecommunications, and construction to adopt the policy.

He added that countries such as Ghana, Kenya, Gabon and Oman have also adopted some of the local content models implemented in Nigeria.

Wabote described Nigerian Content as a national security imperative, noting that the Nigerian oil and gas industry must depend on Nigerian owned assets and personnel to avoid a scenario where the sector is forced to shut down because foreign owned assets or expatriates have to be withdrawn due to insecurity in the Gulf of Guinea Region, diplomatic tensions or outbreak of an epidemic in the country.

He stated that spend on procurement of manufactured goods gulp over 50 per cent of contracts budgets, much more than other elements like fabrication, construction and engineering. That he said, informed the emphasis of Nigerian Content implementation on in-country manufacturing and domiciliation of industry activities because of their capacity to create employment, retain spend in the economy and contribute to national industrialization.

He further explained that NCDMB is implementing the Nigerian Content Act using a four pronged approach that focussed on Manufacturing and Infrastructure, Human Capital and Technology, Supplier Development and Funding and Asset Ownership.

The Executive Secretary expressed satisfaction that the Board’s participation at the Defence College event in 2015 resulted in the partnership the military has forged with Oildata Wireline Services – an indigenous service company.

The two parties collaborated in the deployment of fiber optic technology for pipeline monitoring and protection between Ugheli and Kwale, Delta State in 2015 and set up of Oilfield shaped charge manufacturing facility in Nigeria in partnership with the Defence Industry Corporation of Nigeria (DICON).

Wabote, revealed that the Board was collaborating with the Nigerian Maritime Administration and Safety Agency (NIMASA) to implement the Cabotage Act as it pertains to the oil and gas industry. He noted that the number of Nigerian vessel owners in the oil and gas industry have increased to about 60 per cent of the total operators – a marked improvement on what obtained in 2010 when the Act was enacted.

He also explained that the Board’s Expatriate Quota Policy regulates the participation of expatriates in the Nigerian Oil and Gas industry through the issuance of biometric cards after confirmation that such skills are not available locally. The policy also assists the Board to electronically track their length of stay, compliance with provided succession plans and expected date of exit.

With the inherent opportunities therein, the Nigerian insurance market is on a growth tripod and with the zeal at which Thomas is driving the initiative the sectors contribution to the Gross Domestic Product, GDP, will record significant improvement.

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