Report details contributions of FPS sector to Nigeria’s economic growth

• EnterpriseNGR says banking, insurance, capital markets, others facilitated growth in 2022

PHILLIP ISAKPA IN MANCHESTER, UK 

A new report by EnterpriseNGR, a professional policy and advocacy group, has produced data showing that the resilience demonstrated by the financial and professional services (FPS) sector of the Nigerian economy, which allowed the sector to experience growth across its subsectors, facilitated and supported Nigeria’s economic growth in 2022 despite a slowdown in gross domestic product (GDP) growth of 3.3 percent, an inflation uptick of 18.9 percent and an increased debt-to-GDP ratio of 23.2 percent.

The report titled, “The State of Enterprise Report 2023”, according to EnterpriseNGR, shows the importance of the FPS sector to lives and livelihoods in Nigeria, specifically to people, businesses and the economy. It noted that the sector was pivotal in supporting businesses, governments and individuals while making substantial contributions to employment, fiscal revenues, investments and national output. 

“These various impacts indicate that the collective sector is indeed an enabler of national growth and development. Beyond these achievements, Nigeria’s FPS sector is recognised as a contributor to the global effort on sustainable development,” the report stated.

The FPS sector, which is made up of sub-sectors including banking, insurance, capital markets, asset management, pensions, sustainable finance, non-interest finance, and professional services, according to the report, has enormous potential to contribute more significantly, but immense efforts are still required, particularly from the federal government and affiliate industry regulators and policymakers, to address critical challenges standing in the way of progress,” the reported noted. 

“Following interactions with experienced industry experts, and informed by our own analysis, this second edition of the SOE Report provides recommendations to help fine-tune policy changes, initiatives, reforms, and actions that can move the needle in each of the nine classified FPS sub-sectors. If followed through, we believe these would significantly accelerate growth in the FPS sector,” the report further stated.

According to the report, key stakeholders, including regulators, policymakers, operators, and other industry participants, must come together to work collaboratively to advance the growth of Nigeria’s FPS sector.

In a data-led presentation, the “State of Enterprise Report 2023”, detailed the performance highlights in 2022 for each of the FPS sub-sector showing their resilience that contributed to Nigeria’s economic growth.

In a deep dive into the banking sub-sector, the report notes that it has consistently outperformed other sub-sectors across various metrics, exerting the most substantial influence on both the national economy and the average citizen.

“Notably, Deposit Money Banks saw an impressive growth in assets by 24%, to reach a total of ₦78 trillion in 2022,” states the report, adding that the “contribution of financial institutions accounted for 3.6% of the country’s economic output in the same year.”

According to the report as of June 2023, the value of assets reached ₦101.6 trillion, and noted that in terms of fiscal contributions, the banking sub-sector emerged as the fifth-largest contributor to value-added tax (VAT) receipts, accounting for a substantial ₦109.25 billion, equivalent to 7.4 percent of domestically generated VAT revenue. It also took a leading role in capital importation, with a total inflow of $2.09 billion, representing a significant 39.2 percent of $5.33 billion attracted by the financial services sector. 

It also outlined how the banking sub-sector facilitated the growth of remittances to Nigeria, which increased from $19.48 billion in 2021 to $20.13 billion in 2022, and that the ongoing process of digitalisation has substantially improved access to financial services.

“Notably, there was a significant decline in the utilisation of traditional channels, with only about 4.1 million transactions valued at ₦3.20 trillion conducted via cheques in 2022, compared to 7.8 million transactions valued at ₦4.5 trillion in 2019. Additionally, during the cash crunch towards the end of the year, FinTechs experienced a surge in transaction volumes, evident in the remarkable 41.63% increase in point-of-sale (POS) transactions and a notable 36.3% rise in web-based transactions, which underscores the sub-sector’s pivotal role in facilitating the shift towards digital financial services,” the report further showed.

Acknowledging the expansion in the insurance subsector, which produced 540 percent growth between 2015 and 2022 and seeing gross premium income surge from N289.34 billion to N1.852 trillion, the report noted that despite these achievements, the sub-sector‘s annual contribution to the GDP has remained relatively stagnant, hovering at 0.4 percent. 

“This sluggishness underscores the need for concerted efforts to enhance market penetration, ultimately boosting the sub-sector’s impact on economic growth. While there has been consistent growth in insurance assets and premiums, this expansion has not necessarily translated into the availability of more investable funds,” the report stated.

According to the SOE Report 2023, a closer examination of Federal Government of Nigeria (FGN) bond allotments by investor type reveals a notable decline in allocations to insurance, which decreased from three percent in 2019 to one percent in 2020.

In 2022 the capital markets, the report noted, saw its All-Share Index gain 19.98 percent as it closed at 51,251.06 points, up from 42,716.44 points in 2021, despite challenging macroeconomic conditions.

Detailing market activity, it noted how total transactions on the local bourse amounted to N2.32 trillion in 2022, up 22.38 percent on 2021, and that the debt market also enjoyed greater participation in 2022, driven by consecutive rate hikes (500bps) and the Federal Government’s inclination to source funds from the domestic debt market. It also noted how fixed income market turnover reached N81.38 trillion in 2022, substantially increasing from the NGN28.7 trillion recorded in 2021.

The report also disclosed that while there has been a decrease in capital inflows in recent years, the capital markets have substantially contributed to inbound capital flows, noting that after a peak in 2019 at $23.99 billion, total capital inflows have declined steadily, with a decrease of 20.5 percent in 2022, amounting to $5.33 billion (compared to $6.70 billion the previous year). “Foreign portfolio investments constituted the largest portion (45.8%) of these inflows, accounting for approximately $2.44 billion,” the report stated.

Using a robust amount of data, the report showed how the asset management sub-sector enabled the government to successfully raise N2.8 trillion through FGN bonds in 2022, equivalent to approximately 16 percent of the total budget and 43 percent of the fiscal deficit.

“The corporate bonds market also thrived, with 11 companies securing approvals to issue corporate bonds valued at N668.1 billion, providing valuable long-term financing for businesses. Approximately ₦4.63 trillion has been raised through FGN bonds in the first ten months of 2023,” the report disclosed. 

It also noted that the mutual fund landscape expanded significantly, with 136 mutual funds listed by December 2022, marking a robust 13.33 percent growth from the 120 listed in 2021, adding that the combined assets under management for these funds reached N1.4 trillion in 2022, attracting 421,422 unitholders. 

“Asset managers made strides in democratising investments, leading to an 11.2% increase in the value of domestic retail investment in the Nigerian equities market, reaching N642.7 billion in 2022, compared to N578.1 billion in 2021. 

“In Q2 2022, the net asset value (NAV) of the 12 exchange-traded funds (ETFs) listed on the exchange increased by 5.82%, reaching N7.2 billion, up from N6.8 billion in December 2021. Despite potential, private equity investment in Nigeria remained largely untapped. As of Q3 2022, there were ten registered private equity funds with total committed capital of ₦65 billion, slightly up from ₦62.3 billion in Q3 2021. In the same quarter, the total value of investments and assets under management declined to ₦28.85 billion and ₦32.21 billion, respectively, from ₦31.3 billion and ₦38.5 billion in Q3 2021,” the report stated.

With regard to the pension sub-sector, the report noted how it has significantly alleviated the retirement burden, evident in the growth of the yearly payment of retirement and terminal benefits, which increased from N80 billion in 2010 to N117.7 billion in 2022, marking a notable growth rate of 47.1 percent, adding that total assets under management of pension funds grew by 11.9 percent, reaching N15 trillion in 2022, compared to N13.4 trillion in 2021.

“Pension fund investments have become a substantial contributor to Nigeria’s economic growth. Approximately 64.3% of total pension assets, equivalent to ₦9.6 trillion, were invested in FGN securities in 2022, a noteworthy increase from ₦8.8 trillion in 2021. Additionally, the total funds allocated to support the expansion of companies through corporate debt securities reached ₦1.7 trillion, a considerable rise from ₦0.9 trillion in 2021,” the report noted to underscore the sub-sector’s contribution to Nigeria’s economic growth.

The 2023 Nigeria Enterprise Report also highlighted the prominent position of Nigeria in the non-interest finance world especially in the Sukuk market, noting that in 2022 the Islamic finance industry in Nigeria was estimated to be over N1.5 trillion, with Sukuk being the largest segment at N756.2 billion, followed closely by non-interest banking at N736 billion.

According to the report, Greenwich Merchant Bank played a pivotal role in accelerating non-interest finance by supporting the Debt Management Office (DMO) in the FGN Series V Sukuk Issuance, which initially amounted to N100 billion. 

“However, the overwhelming subscription, surpassing ₦166 billion, led to an upsize to ₦130 billion in 2022. In addition, TAJ Bank Ltd received approval to launch a pioneering ₦100 billion sukuk issuance programme, marking a significant milestone as the first private-sector sukuk bond,” the report stated. 

It added that in contributing to the national investment pool, the NGX Lotus Islamic Index, designed to track the performance of Sharia-compliant equities, displayed substantial growth by reaching 3,240.83 points in 2022, up from 3,009.51 in 2021, a year-to-date increase of 7.7 percent.

In another deep dive into the Fintech sub-sector, the report noted the giant strides made in 2022, and stated that with $800 million in funding in 2021, Nigerian fintechs attracted a further $1.2 billion in 2022 and secured $952 million as of Q3 2023.

“FinTech companies are increasing their product offering and played an essential role during the national cash crunch as many Nigerians migrated to FinTech platforms to meet their daily personal and business transaction needs. The volume of electronic channel transactions rose by 45.5% to reach 638 million in January 2023, up from 438.5 million in January 2022,” the report acknowledged.

It stated that fintechs are imparting Nigerian lives and livelihoods through emerging products like buy now, pay later (BPNL), cryptocurrency, personal finance, and investment options, noting that “with the growing number of FinTech companies and FinTech products in Nigeria, the financial inclusion rate, estimated at 64.1% in 2020, should have improved substantially.”

On the professional services sub-sector, the report noted its significant potential demonstrated by the global professional services market’s growth from $4.9 trillion in 2017 to $5.9 trillion in 2022, achieving a compound annual growth rate (CAGR) of 3.8 percent, with projections indicating that the market is poised to reach $7.4 trillion by 2027, with an anticipated CAGR of 4.7 percent.

According to the report, the sub-sector, which also includes scientific and technical services (STS), contributed substantially to economic growth, with its contribution to national output estimated at N2.4 trillion, up from N2.3 trillion in 2021. 

“In 2022, this estimate accounted for 3.2% of GDP. Additionally, Professional Services generated ₦28.7 billion in value-added tax (VAT) revenue in 2022, representing 1.9% of the total VAT generated during the year and ranking the subsector ninth out of 21 in terms of contributions in the classification,” the report showed.

On sustainable finance, the State of Enterprise Report 2023 noted that as of 2022 in Nigeria, there were five corporate green bonds valued at N32.83 billion listed on the country’s exchanges and an additional $50 million listed on the London Stock Exchange, adding that two sovereign green bonds valued at N25.69 billion were also listed on Nigeria’s exchanges. 

According to the report, total investment in sustainability-focused mutual funds in 2022 amounted to N2.4 billion, attracting 10,796 unitholders.

It highlighted how sustainable finance has made substantial progress, with notable efforts being made at various levels — local, national, regional, continental, and global. “By the close of 2022, global leaders from 35 developed and developing economies had collectively implemented 388 dedicated measures for sustainable finance, with 50 of these introduced in 2022, and several more in development,” the report explained.

According to it, globally, sustainability-themed investment products witnessed significant growth, estimated at 12 percent, reaching $5.8 trillion in 2022. 

The report stressed that “beyond the naira and kobo to the broader repercussions of our actions, the collective FPS nine classified subsectors impacted 11 of the 17 Sustainable Development Goals, including No poverty, Zero hunger, Good health and well-being, Gender equality, Affordable and clean energy, Decent work and economic growth, Industry, innovation and infrastructure, Reduced inequalities, Sustainable cities and communities, Climate action, and Peace, justice and strong institutions.” 

EnterpriseNGR, which produced the report, noted that while it is looking forward to more impactful achievements in 2024 and beyond, its 2023 report offers major initiatives and policy changes required, particularly from the new government, to address key challenges and catalyse growth in each sub-sector, stressing that “with all stakeholders — regulators, operators, business leaders, and investors — working collaboratively, the FPS sector will influence more remarkable growth and development of Nigeria’s economy.