industry insights-issue 03

8/2/2019 Industry Insights-Issue 03

1/12

Major Economic Indicators:

Quarterly Outlook

Inflation:NegativeExchangeRates:StableGDP Growth:PositiveEquityMarkets:Stable

The Macro Economy

The Nigerian economy has continued to

growamidstpoliticalandeconomicuncer

tainties in the MiddleEast and North

African regions.Dataprovidedby theNa

tionalBureauofStatistics(NBS)estimated

GDP growth of 7.43% in Q1 2011. With

politicstaking

centre

stage

earlier

in

the

year, GDP growth in Q12011 was lower

than theQ42010 rateof8.49%; butwas

marginally higher than the corresponding

Q12010rateof7.4%. Theperformanceof

the nonoil sector continues to be the

majordriveroftheeconomy,withagricul

ture, telecoms, building & construction

andrealestate industriesbeingthemajor

contributors.

Increasedgeopolitical

unrest

in

the

Middle

East and NorthAfrica have elevated oil

prices sinceDecember2010.Theaverage

monthly price of bonny light crude oil in

June 2011 stood at a high $117.9, com

paredtothe$43.1recorded inDecember

2008. This will aid the Nigerian govern

ment in implementing the 2011 budget,

which is now basedon an oilbenchmark

of $75 per barrel, production output of

2.3mbpd,GDPgrowth rate of 7% and an

exchange rateof150/US$. Ouroutlook

for GDP in 2011 remains positive due to

stableoiloutput,reducedproductionfrom

Libya,continued

growth

of

the

non

oil

sectorsandastablepolity.

Inflation

Inflation remained a major concern for

monetaryauthorities inQ2,with inflation

rateshoveringbetween11.8%and12.8%

formostoftheyear. Surprisingly,inflation

figure for June 2011 declined to 10.2%

from the high of 12.4% recorded in May

2011.The

high

global

commodity

prices

and continued dependence on importa

tion,particularlyoffoodproducts,account

for our negative outlook on inflation for

thesecondhalfoftheyear. Itisreported

that Nigeria spent 98 trillion on food

importation inthelastfouryears. Inabid

to help stimulate lending to the agricul

ContentsThe Macro Economy P.1

Insurance P.5

Printing & Publishing P.7

Hotels P.9

Telecoms P.10

QUARTERLY REVIEW OF NIGERIAN INDUSTRIES

Industry Insights

Agusto & Co.RESEARCH, CREDIT RATINGS, CREDIT RISK MANAGEMENT

ISSUE 03, JULY 2011

1


2/12

Inourview,the

MPCsinsistence

onusingonly

monetarypolicies

tomoderatein

flationis

unsus

tainable.

tural sector, the CBN has set aside75

billionunderanew scheme tagged The

Nigerian Incentivebased Risk Sharing

System

for

Agricultural

Lending

(NIRSAL).

This follows theCBNgovernorscallear

lierthisyearforbankstoincreaselending

totheagriculturalsectortobetween6%

and8%ofloanportfolios.The75billion

sumisexpectedtoboostbanklendingto

theagriculturalsector.Weanticipatethe

CBNwillcontinuetomakeinflationakey

policypriority,thoughwedoubtifmone

tarypoliciesalonewillhelpcurbinflation

tosingledigitterritory. Webelievegov

ernmentspending

should

be

targeted

at

infrastructural development in order to

addressthestructuralinflationpresentin

theeconomy.

Interestrates

BasedonprovisionaldatafromtheCBN,

average lending to the private sector in

the first five months of 2011 was 5%

lowerwhencomparedtothecorrespond

ingperiod

in

2010.

This

is

partly

associ

atedwith reducedborrowingdue to the

contractionary monetary policy em

barked upon by the Monetary Policy

Committee(MPC)inordertotackleinfla

tion. Citingexcessliquidityinthesystem,

economicchallengesintheUnitedStates

and euro zone countries and rising gov

ernment expenditure, the MPC further

raised the cash reserve requirement to

4% in May 2011, the monetary policy

rates(MPR)

to

8.75%

in

July

2011,

and

maintainedthesymmetriccorridorat+/

200 basis points (2%) around the MPR.

Although the apex banks policy has a

potential to suppress economic growth

by furtherrestricting lending,webelieve

this is the rightdirection in theabsence

ofquality targeted spending by the fed

eral government. However, in our view,

theMPCsinsistenceonusingonlymone

tary

policies

to

moderate

inflation

is

un

sustainable in the long run without tar

geted spending in infrastructure. There

fore, we expect MPR to remain high in

theshortterm.

FinancialMarkets

InQ2of2011,theNigerianequitymarket

was challenged by factors beyond the

fundamentals. The polity was stable,

AMCONinjected

liquidity

via

tranche

II

purchaseoftoxicassets,whilebanksand

major companies declared moderate

profits. However,bankingstocks ledthe

decliners with a 7% down tick in the

quarter following the CBNs announce

ment that it will withdraw interbank

guarantees in September 2011 and

amidstinvestorconcernsonthefailureof

thebailedoutbankstorecapitalize.The

Nigerian Stock ExchangeAll Share Index

(ASI)was

supported

by

the

breweries

sectorwitha17%returnforthequarter.

Overall, the ASI gained 1.46% for the

quarter and was up 0.85% for the half

year.

FiscalPolicy

Acursorylookatthe2011appropriations

budgetpassedby theNationalAssembly

shows that the governments spending

spreeis

not

about

to

end,

even

though

pressure from the Executive has led to

the subsequent moderation of the total

budgetbill to4.4billion from4.9bil

lion. Though elevated oil prices should

provideadditionalincometogovernment

coffers, we believe efforts should be

2


3/12

madetoboostcapitalexpenditureandimprovethebusinessenvironment.

Exchangerates

Thedomesticcurrencycontinuedtocomeunderpressureinthesecondquarterofthe

year.BasedonprovisionaldatafromtheCBN,theaverageWDASexchangerateinQ2

2011 rangedbetween151.02/US$ and153.09/US$ compared to147.8/US$ and

148/US$rangeinthesameperiodin2010. Nigeriasgrossexternalreservesstoodat

$31.9billiondollarsasat30June2011,remainingrelativelyflatfromitspositionatthe

beginningoftheyear.Weestimatethatthecurrentlevelofreservesremainsadequate

tofinancesixmonthsofimportsandpayments,whichisbetterthantheinternationally

recommendedminimumbenchmarkofthreemonths. TheNairaisexpectedtoremain

underpressureuntilstructuralissuesareaddressed. Thedependenceonimportation,

particularlyfoodandrefinedpetroleumproducts,coupledwithrisingworldcommodi

ties

prices

will

boost

demand

for

foreign

exchange.

However,

provided

oil

prices

re

mainhigh,theapexbankshouldbeabletomaintainitsdefenceoftheNaira.

BankingSector

Theongoing reforms in thebankingsectorcontinue tocreateuncertaintiesas tothe

eventualownershipof the bailedoutbanks.Asexpected, legalbattleshaveensued

withsomeshareholdersofdistressedbankschallengingtheactionsoftheCBNgover

nor. ThoughmuchoftheselegaldisputeshavebeenresolvedinfavouroftheCBN,we

believe the path to successful recapitalization before the 30 September deadline is

fraughtwithmorechallenges. Of theeightbanks rescued,thereare indicationsthat

threedeals

are

set

to

go

ahead:

Intercontinental,

Union

Bank

and

FinBank

have

all

signedaTransaction ImplementationAgreement(TIA)withAccessBank,AfricanCapi

tal Alliance Consortium and First City Monument Bank respectively, thus paving the

wayforareviewbyshareholders,regulatorsandthejudiciarybeforeagreementsare

finalized. Afribanks agreement with Vine Capital has been voided by the apexbank

followingconcernsabout theexperienceand technicalknowhowofVineCapitals

management.Theotherbanks(Oceanicbank,SpringBank,BankPHB)areyetto find

suitors. Some of these other banks are reported to be looking toward international

capitalmarkets to raisenecessary fundsbutweare scepticalon the successof such

strategyinlightofthecurrentglobaleconomicclimate.

Withrising

interest

rates

and

the

heightened

risk

consciousness

remaining

among

banks,weexpect lendingtoremainsubdued intheshortterm.AlthoughAMCONhas

helpedimprovebankingsectorliquidity,withphaseIIpurchaseoftoxicassets,theim

3


4/12

pactoncredittotheprivatesector lookssettobeminimal. Nonetheless,weexpect

thebankingsectortoremainstableintheshorttermascredittotopandmidtierre

mainsafocusforbanks.

PoliticalDevelopmentsandOutlook

Followingmonthsofpoliticalcampaign,PresidentGoodluckJonathanemergedvictori

ous for the rulingPeoplesDemocraticParty (PDP) in theAprilPresidentialelections.

TheApril2011electionsweredeemedby internationalobserverstobegenerallyfree

andfair. Wemaintaintheviewthatthisshouldhelpimproveforeigndirectinvestment

(FDI)inflowstoNigeriainthemediumterm,astheglobaleconomyrecovers. However,

we firmly believe that this is contingent on the governments ability to improve the

businessenvironment.

A major consideration in the achievement of the economys short term goals is the

stabilityof thepolity.Thecabinet isbeginning to takeshape. TheMinisterofPetro

leumisretainingherpost,whilethegovernmenthasrecalledMrs.NgoziOkonjoIweala

backasMinisterofFinance.Mrs.OkonjoIwealahadbeenresponsiblefornegotiating

thecancellationofNigerias foreigndebtsunderPresidentObasonjosadministration.

Herpredecessor,Mr.SegunAgangahasbeenmovedtotheMinistryofTradeand In

vestment anewlycreatedministryresponsiblefortradeandemploymentinthecoun

try. InhisoneyearasFinanceMinister,Mr.Agangawasresponsible forthedevelop

mentoftheSovereignWealthFundforNigeria,and itwas largelyexpectedhewould

betaskedwithmanagingthefund. WebelieveOkonjoIwealasinclusioninthecabinet

and the creation of the Trade and Investment ministry lends credibility to President

Jonathansreform

ambitions.

Onthebasisoftheforegoing,weattachastableoutlooktotheNigeriaeconomy.

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Insurance Long life and prosperityTomostpeople inNigeria, life insurance is synonymouswithdeath insurance. Why

shouldIpaysomeonefordying?isatypicalattitudemostpeoplehave,evenamongst

theeducated

in

society.

This

has

been

agrowing

concern

among

life

insurers

in

the

country,whocontinuallycollect lowerthanexpectedpremiumsasaresultofthepre

vailingattitudes. However,thefightbackseemstobeon,asmanylifeinsurancecompa

niesare lookingatwaystogrowincomebefore itbecomesalifeordeathsituationfor

thissegmentof the insurancesubsector.Wenowseemany life insurancecompanies

are expanding their product offerings to include health insurance, investmentlinked

products, retirement benefits & annuities and educationlinked policies. With these

products,policyholderscanenjoybenefitssuchassubsidisedmedicaltreatments,have

their mortgages paid during times of financial difficulties and receive regular income

uponretirement.

TheNigerian

insurance

industry

(the

Industry)

is

estimated

to

have

generated

gross

premium income(GPI)of200billion in2010.Toputthis inperspective, itrepresents

lessthan1%(0.75%)ofthecountrysgrossdomesticproduct. Ofthistotalpremium,life

insuranceaccounted forapproximately20%of the Industrys totalGPI,whilenonlife

accountedfor80%. GPIinthe life insurancesegmenthasgrownatacompoundedan

nualgrowthrate(CAGR)of44%(20062009). However,thisgrowthhasbeenaidedby

thePensionReformAct,whichmadeitmandatoryforemployerstoprovidealifeinsur

ancepolicyforemployees.Thisappliestoallcurrentemployeesinthepublicserviceand

privateorganizationswithmorethanfiveemployees.

ThePensionReformAct2004hasbeenthemostsignificantlegislationtopositivelyim

pactthe

life

insurance

segment

in

recent

times.

Although

the

introduction

of

the

law

transferredpremiumsmanagedbyinsurancecompaniestopensionfundadministrators

(PFAs), italsocreatedacompulsory life insurance(group life insurance) foremployees

working inestablishmentsof fivepeopleormore. Consequently,group life insurance

becamethebedrockofthelifeinsurancesegment,accountingforasignificantportionof

premiumgenerated in this segment. However,premiumgenerated is constrainedby

poorcompliancetoregulation. Webelievetherearemanyorganizations,includinggov

ernmentdepartments,thatareyettocomplywiththelegislation;andthusdenyingthe

Industrymuchneededpremiums. Webelievecompliancecouldbe improved if there

was a stricter enforcement of the law. In general, insurance premiums collected are

curtailedbyweakenforcement. However,webelievetheNational InsuranceCommis

sion(NAICOM)

is

taking

great

strides

to

address

the

issue.

The

World

Bank

in

July

2011

announceda220million (US$1.5million) fund forNAICOMtostrengthen itsregula

toryframework,whichwebelievewillgosomewayintougheningenforcementofexist

inglegislation.

Webelievethatthecountrysvastpopulationandthenonexistenceofanyformofso

cialsecuritysystemcreategrowthopportunitiesfortheindividuallifeinsurancebusiness

inthecountry. However,thisisdependentontheinsurersabilitytocommunicatethe

benefitstoalargelyuninformedpublic. Lifeinsurersseemtoberespondingtothischal

lengethroughincreasinguseofbancassurance,microfinancebanksandretailkiosksto

5


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reachoutto individuals. Thedriveseemstobetoshiftfocusawayfromcorporatecli

entsand focuson individuals,whomaynotnecessarilyworkwithinthe formalsector.

For thistobesuccessful,weexpect Industryoperatorstoexpandon flexiblepremium

paymentstoencourageaffordability,particularlyforlowincomeearnersandinperiods

ofeconomicslowdown.

AIICOInsurancePlchasconsistentlybeentheleadingprovideroflifeinsuranceinNige

ria.Theinsurersmarketshareisestimatedtohavegrownto16%in2009(2008:12%).

Althoughmostinsurers2010resultsareyettobepublished,indicationsarethatcom

petitionisgrowinginthisareaasmoreoperatorsmovetothehealthinsurancebusiness.

Inour recentlypublished2011 Insurancereport,we reviewed theperformanceof the

insuranceindustrylifeandnonlife incomparisontoothersinemergingmarkets. We

alsoexaminedthecompetitivenessofthevariousinsuranceclassesandrankedindustry

operatorsbased

on

certain

key

market

indicators.

We

also

highlighted

the

key

success

factors for Industryoperators,examined thechallengesexperiencedbyoperatorsand

assignedanindustryriskrating.

Formoreinformationon2011Insurancereport,clickhere.

6


7/12

TheNigerianPrinting&Publishingindustry

(the Industry) faces several challengesranging

from

infrastructural

inadequacies

to lack of local inputs. However, the ab

sence of protection for intellectual prop

ertyremainsthegreatestchallengetothe

revenue generating capacity of Industry

operators. Poorenforcementofcopyright

lawsandpoorbordercontrolallowspiracy

to thriveunbridled inNigeria.Considering

thateducationalbooksarethemainstayof

many publishing houses, the Industry op

erators engaged in this market are the

mostsusceptibletothethreatofpiracy.

Indecades

past,

Industry

operators

had

to

deal with local pirates who simply pro

ducedcounterfeit substandardversionsof

their books within Nigeria. However in

recent times, piracy has taken on a new

dimensionasNigerianbooksarenow ille

gally produced overseas for Nigerian con

sumption. The two sets of pirates, local

and international, operate in the same

way. They simply purchase a publishers

original and take it to their respective

printinghouses tomake illegalduplicates.

Thepirates

that

operate

on

an

interna

tional scale however, have to import the

books into Nigeria prior to being able to

distribute them. The key differentiating

factors between local and internationally

pirated copiesare the typeofpaperused

andprintjobquality.

Several factors contribute to local and

internationalpiracy,includinglaxcopyright

law enforcement and porous borders. Pi

racyhassinceevolvedintoorganizedcrime

with numerous players located in various

regions, and sometimes aided by unscru

pulouslaw

enforcement

agents.

Conven

tions such as the United Nations Educa

tionalScientificandCulturalOrganizations

(UNESCO)UniversalCopyrightConvention,

whichprohibitstheillegalcopyingofintel

lectualpropertyisyettobeadoptedbyall

countries. Countries such as Taiwan and

China have loose copyright laws and are

yet to formallyjoin the crusade to elimi

natepiracy,therebycontributingtoit.

7

Book Pirates Piracy

CausesofBookPiracy


8/12

TheIndustryinNigeriahasbeenbucklingundertheweightoforganizedbookcounterfeiters.

Piracyaccountsforanestimated25percentloss(6billion)ofrevenuetoprintingandpub

lishingfirmsannually.Industrysourcesestimatethatoneoutofeveryfourbookssoldonthe

Nigerianmarket

is

pirated.

Unlike

publishers,

pirates

are

not

saddled

with

the

cost

of

re

sourcesandhumancapitalinvolvedinthedevelopmentofabookfrominceptiontoprint.In

addition,piratesareoftennotburdenedwithtaxationandimportdutiesasmajorityofthe

booksareeithersmuggled inorbrought inundertheUnitedNationsEducationalScientific

andCulturalOrganizations (UNESCO)agreementonthe ImportationofEducational,Scien

tificandCulturalMaterials.Theagreementprohibits theapplicationofcustomsdutieson

importededucationalmaterials.Inlinewiththis,officialsoftenspendlesstimescrutinizing

book importsand failing to identifyviolationsofcopyright laws,unintentionallyaidingthe

importationofinternationallypiratedbooks.

Thecostofproductionforpiratesisrelativelylowincomparisontothatofpublishers,mak

ingit

avery

profitable

business

to

engage

in.

Books

pirated

overseas

are

often

sold

for

ap

proximatelythesamepriceasthepublishersoriginal,whilelocallypiratedonesaresoldat

about50%ofthecostoforiginalcopies.Itisestimatedthatbookpiratesmakeupwardsof

50% inprofitdependingon thequalityof thepiratedbooks,while the industryoperators

haverecordedanaverageoperatingprofitmarginof18%overthelastthreeyears.

Thecruxoftheproblemwithbookspiratedoverseasisthatitbecomesmoredifficulttocurb

ifitisnotdetectedatthepointwhenitisbroughtintothecountry.Thisisbecausethecon

sumersabilitytodiscernbetweenanoriginalandillegalcopyofsuchbookisalmostimpos

sible.Ontheotherhandlocallyproducedillegalcopiesareofteneasiertospotandthedis

cerningconsumer isableto identifythem.Oncetheproduct isallowedentry intothelocal

market,it

is

often

undetectable

as

the

Nigerian

Publishers

Association

(NPA),

Nigerian

Copy

rightCommission(NCC)andtheNigerianPoliceForce(NPF)areunabletocountertheprob

lemduetocapacityconstraints.DespiteadditionalfinancialhelpfromtheNPA,therearent

adequateresourcestoeffectivelycombattheproblemofpiratedbooksontheopenmarket.

It comesasno surprise that someof thesepirated copiesarehard todetectas theyare

clonedinthelikenessoftheoriginal,withonlyindustryplayersbeingabletodetectpirated

books.Operatorshavelimitedgeographicreachandarethereforeoftenunabletodiscover

theextentofpiracyinthemarket;beitlocallyproducedorinternationallyproducedillegal

copies.

Inordertocurtailtherapidgrowthof illicitbookpiracywhichproduceshighqualitymate

rial,theNigerianCustomsServices (NCS),theNCC,NPAandtheNPFmustworkcollabora

tivelytostop thebooks fromcoming intothecountrycompletely.Additionally it is impor

tantforawaragainstpiracytobedeclaredfullythroughtheraidsofsuspectedmarketsto

detect locally pirated copies and internationally produced ones after they have passed

throughtheborders.Inaddition,theIndustryoperatorsmustbewillingtoeducatethegen

eralpubliconhow todistinguishbetweenoriginaland illegalcopiesof theirbooks. If left

unchecked,theestimatedannualcostofbookpiratesof6billion isjustthebeginningof

thingstocome,aspiracymayspiraloutofcontrolandbecomeanevenbiggerthreattothe

Industry.

8

Piracysingle

handedlyac

counts

for

an

esti

mated25percent

loss(6billion)

ofrevenuefor

publishingfirms

annually.


9/12

...thelargesthall

inLagosstate,

hasaseatingca

pacityofover

5,000persons

withan

esti

mateddailyhire

priceof6mil

lion.

Inthelastthreeyears,theNigerianhotelindus

tryhaswitnessedconsiderablegrowth,asnew

hoteloperatorscontinue tospringup indiffer

entparts

of

the

country,

particularly

in

Lagos,

the commercial capital of Nigeria. Lagos has

seen the influx of both local and international

brandssuchastheRadissonBlu,Park Inn,Pro

tea, Sheraton, Travel House Hotels, the Inter

continentalHotelsGroupandIbisHotels.

Theprimaryimportanceofthehotel industryis

reflected in the temporary accommodation

offered tobusinessand leisure travellers.Nev

ertheless,ancillary services suchas restaurants

and the provision of conferencing facilities

(event halls and meeting rooms) continue to

gain significant ground on the hotel landscape

and are partly responsible for the stable per

formanceof theNigerianhotel industry. Indus

tryplayersare thus reducing focuson revenue

per available room (RevPar) to generating in

come from the use of these facilities

(particularly conferencing facilities), thus diver

sifying their income base. Demand for confer

encingfacilitiesislargelyfromcorporateorgani

zations.

A typical hotel in the 3star category in Lagos,

has over 3 conference rooms; which can be

arranged inaselectionofmultifunctionalstyles

and various sizes to accommodate a range of

functions such as wedding receptions, annual

general meetings and board meetings among

others.Forinstance,oneoftheoldestplayersin

theNigerianhotel industry, FederalPalaceHo

tel, has 9 conference facilities. The smallest

meeting

room

has

a

capacity

of

10

persons

and

ispricedat114,000perday,whilethelargest

meeting room, seating about 500 persons is

pegged at750, 000 per day. A comparative

analysisofdailyrental income fromroomsand

conferencing shows that room revenues still

accounts for thebulkofaveragedaily revenue

(ADR),whileconferencingaccountsforapproxi

mately 10% of ADR. Another key player cur

rentlyundergoingexpansion,EkoHotel&Suites

hasover10conferencingfacilities,withseating

capacityrangingbetween505,400persons.

A trend in the Nigerian hotel industry is the

provision

of

large

sized

event

halls

and

medium

to small sized meeting rooms, which cater for

different purposes. The incorporation of this

trend intohoteliersbusinessmodelwould see

the players achieve stronger market relevance

and record increased revenue.Demand forho

tel conference facilities have intensified over

the last five years and some operators are ex

pandingtheirexistingstructurestoincludeaddi

tionaleventhallsandmeetingroomsinorderto

catertothegrowingdemand.Forexample,Eko

hotelrecently

completed

the

construction

of

a

newexpocentre,which isperceived tobe the

largesthallinLagosstate,hasaseatingcapacity

of over 5,000 persons with an estimated daily

rentalfeeof6million($39,735).Furthermore,

new investors in the Nigerian hotel industry

haveidentifiedtheprovisionofmultisizedcon

ference facilities as imperative to creating a

niche inthemarket.FourPointsbySheraton,a

new entrant into the Industry, has 8 meeting

rooms, with sitting capacities ranging between

of15

250

persons.

Consequently, Industry sources estimate that

income from ancillary services contributes ap

proximately40% of ahotelsprofit,while con

ferencing accounts for approximately 60% of

thisamount. Although the Industry faces com

petition from stand alone event centres and

halls,hotelsoffersomecomplementaryandfee

based services such as event catering, accom

modation for attendees, administrative assis

tance

(business

centre

facilities),

audiovisual

equipment, adequate parking and security, in

ordertostayaheadofcompetitioninthisarea.

Goingforward,weareoftheviewthat income

from this source would be stable in the near

term. Therefore, industry players with well

structured and designed facilities can benefit

immenselyfromthisopportunity.

9

Hotels The New Venue


10/12

Avenues to transfer money are limited,

particularlyforthepoorestpeopleinrural

Nigeriawherethebankingsectorisunder

represented and transactions are largely

cashbased.LikeeconomiessuchasKenya

andGhana,MobileMoneyTransfer(MMT)

is now being considered as a means to

givepoorer residentsaccesstoaffordable

money transfer services via their tele

phones. Sincemobile phonesnow signifi

cantly outnumber Automated Teller Ma

chinesandbankbranches in the country,

telecoms operators (Telcos) are consid

ered

to

have

a

reach

far

in

excess

of

banks

andmoneytransferoperators.

Agusto&Co.estimates thatonlyabout30

millionNigerianshavebankaccounts.With

the number of active mobile lines in the

countrynowapproaching90million,MMT

hasbeen identifiedbytheCBNasapracti

cal strategy for financial inclusion of the

unbanked in Nigeria. Toward introducing

MMT, the apex bank granted provisional

licenses

to

16

mobile

money

transfer

opera

torsduring the lastquarterof2010 to roll

out mobile transfer services across the

country.TheoperatorsselectedbytheCBN

to implement the mobile money directive

areStanbicIBTCBankPlc,EcobankPlc,For

tis MFB, UBA/Afripay, GTBank/MTN, First

Bank, Pagatech, Paycom, MKudi, Chams,

Eartholeum, ETranzact, Parkway, Monitiz,

FETandCorporeti.Theselectedfirmswere

initiallygivenuptill31March2011tobuild

necessary infrastructure and conclude a

test runof the scheme. Subsequently, this

deadline was extended by two months to

allowadequatepreparationsforthelaunch

of the service. However, as at the end of

the revised 31 May deadline date, only a

few of the operators had made notable

efforts to build the infrastructure required

for toeffectively rollout theMMTservice.

Based on our findings, the delay in imple

mentationispartlylinkedtotheinabilityof

someoftheprospectiveinvestorstosecure

the

financial

investment

required

to

jump

start operations. We understand that the

CBN is currently conducting due diligence

on the16 selected firms toascertain their

readinessforMMToperationsAlthoughthe

apexbankremainscommittedtothe intro

duction of MMT in Nigeria, we do not ex

pect the scheme to commence before the

last quarter of 2011 in view of the chal

lenges being faced by some of the opera

tors.

Beyond funding considerations, a further

headwindformostoperatorshasbeenthe

needtosecureoperatinglicensesfromthe

Nigerian Communications Commission

(NCC),aswellasreachcommercialagree

mentswithmobilenetworkoperators.We

believe thesuccessofMMT isdependent

onaccessto,aswellasthequalityofnet

work infrastructure available provided by

10

Telecoms Mobile money

...asattheend

oftherevised31

Maydeadline

date,onlyafew

oftheoperators

hadmadenota

bleeffortsto

buildtheinfra

structurere

quired...


11/12

telecoms sector.According to some financial sector stakeholders,up to 99.99%

uptimeonmobilenetworksisrequiredforMMTtobeeffective.However,guaran

teeingthislevelofserviceremainsanuphilltaskfortheNigeriantelecomsindus

tryin

its

current

state

given

that

the

telecoms

market

is

still

plagued

by

perennial

issuesofnetworkcongestionandpoorservicequality.Onthebasisoftheforego

ing,weexpecttheintroductionofMMTtobefraughtwithtechnicalchallengesin

theearlierstages.Nevertheless,ensuringsufficientnetworkuptimeisimperative

inordertoboostpublicconfidenceintheintegrityofthemobilepaymentssystem

andenhanceusagebycustomers.Itisthereforeourviewthattelecomsoperators

shouldbeencouragedtoupgradetheirnetworkinfrastructureinordertoaccom

modate the expected growth information flows, if the scheme is to succeed in

Nigeria

Lookingbeyondcurrentchallengesofimplementation,Agusto&Co.believesthat

MMTpresents

win

win

opportunities

for

stakeholders

in

the

mobile

money

mar

ket.Ontheonehand,Telcoswillearnfeesfortheuseoftheirnetworkresources

creatinganavenuetogrowrevenues,whileMMToperatorsandagentswillearn

commissionsfortheirtransferservices.MMTcanalsobeintegratedbybanksasa

valueaddtotraditionalaccountholders,whichwillbeusefulinsettlingutilitybills

andmakingpurchases.Therefore,onabroaderscale,MMTcanservenotonlythe

pooratthebaseofthecommercialpyramid,butcouldalsopotentiallypermeate

theentirespectrumoftheNigerianpopulace.

11


12/12

12

Agusto & Co. Limited

Agusto&Co. istheforemostcredit

ratingagency

in

Nigeria,

specializing

in financial institutions, corporate

and bond ratings. We are also a

research organization providing

businessinformationforourvarious

clients.

As business information service

providers, we publish industry

reports containing unbiased expert

analysisofvarious industries in the

NigerianEconomy.Wegatherinfor

mation about the market size and

potential of an industry, its key

players, competitors, products and

financial conditionamongstothers.

Inprovidingabroadoverviewofthe

industry and its key players, our

analysts interpret data collected

and assign each industry a risk

rating, taking intocognisanceNige

riasriskprofile.

Thecopyright

of

this

document

is

reserved

by

Agusto

&

Co.

Limited.

No

matter

contained

herein

may

be

reproduced,duplicatedorcopiedbyanymeanswhatsoeverwithoutthepriorwrittenconsentofAgusto

&Co.Limited. Actionwillbetakenagainstcompaniesorindividualswhoignorethiswarning.Theinfor

mationcontained inthisdocumenthasbeenobtainedfrom sourceswhichweconsidertobereliable

butdonotguaranteeassuch. Theopinionsexpressedinthisdocumentdonotrepresentinvestmentor

otheradviceandshouldthereforenotbeconstruedassuch.

Thecirculationofthisdocumentisrestrictedtowhomithasbeenaddressed.Anyunauthorizeddisclo

sureoruseoftheinformationcontainedhereinisprohibited.

Disclaimer

Agusto & Co. Limited

UBAHouse(5thFloor),57Marina

Lagos

P.O. Box56136,Ikoyi

Tel:(234)126435715

Fax:(234)12643576

E-mail:[email protected]

Website:www.agusto.com

industry insights-issue 03

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