BY MADUABUCHI EFEGADI
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Equivalent to 35.7% of national GDP at current prices
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Contributed over 12% of company income tax
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3rd largest generator of company tax
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But FPS penetration in Nigeria lower than peer economies
With EnterpriseNGR proudly presenting Nigeria’s first State of Enterprise (SOE) report which measures the country’s Financial and Professional Services (FPS) sector, the performance of the FPS sub-sectors in 2021 validates its pivotal role in an economy. Its particular contributions are significant in governments, businesses and people.
By providing a current-state assessment, Obi Ibekwe, EnterpriseNGR’s chief executive officer, said the SOE 2022 “offers a launch pad for discussions around policy and regulation with a view to expanding the depth and breadth of the sector”.
The report, the first of its kind in Nigeria, indicated that the FPS sector is central to the growth and broad-based prosperity of every economy. It considered FPS’ nine classified sub-sectors: Banking, Insurance, Capital Markets, Asset Management, Non-interest Finance, Pensions, FinTech, Professional Services (Legal Services Accounting and Management Consulting) and Sustainable Finance.
“The FPS sector contributes to our economy, governments, businesses and people. The sector provided access to finance, facilitates foreign direct investment, contributes to employment generation, helped drive financial inclusion and enabled consumers to meet their everyday financial services needs. In addition, the sector contributed significantly to tax revenue, provided protection against loss of assets, helped employees save for their old age while reducing the retirement burden on government, and enabled improved access through financial innovations, among others. While there is still room for further development, the sector’s contributions remain underappreciated,” the EnterpriseNGR chief executive said.
According to the premier SOE 2022 report, Nigeria’s deposit money banks’ (DMBs) assets grew 15.3 percent to N62.9 trillion in 2021, and led other sub-sectors on many performance indicators during the period, the report said.
The report which displayed the Financial and Professional Services (FPS) sector’s significant achievements and contributions to Nigeria’s economy last year, indicated that the DMBs assets’ growth of 15.3 percent is equivalent to 35.7 percent of national GDP at current prices.
The country’s banks and other financial institutions (BOFIs) are the third largest generator of company income tax valued at N96.4 billion representing 12 percent of company income tax (CIT) receipts generated locally.
Also, development in the banking sector led to expansion of services and products, and the establishment of new businesses, with significant job creation, particularly in payments, with over 326,000 agents and other unidentified retail outlets providing agency banking. The proliferation of agents is reflected in the number of point-of-sale (POS) terminals deployed: 915,519 as of 2021, the SOE report said.
Capital inflows declined from $9.7 billion in 2020 to $6.7 billion in 2021. The FPS sector led other sectors in capital importation, principally by banks, attracting 21.8 percent of imported capital. Nigeria led sub-Saharan African countries in diaspora remittances, receiving $19.2 billion compared to South Africa’s $0.9 billion, Kenya’s $3.7 billion and Ghana’s $4.5 billion. Banks played a supportive role in remittance receipts in 2021, seeing an 11.2 percent increase in remittances from the previous year. This was facilitated in part by the Central Bank of Nigeria’s Naira-4-Dollar scheme that encouraged the adoption of formal payment channels.
However, this phenomenal growth pales into insignificance when the penetration of other FPS sub-sectors in Nigeria is measured against peer economies. As a result, the report recommended the need to ensure growth evenly distributed across all FPS sub-sectors as they all have enormous potential to spur collective efforts to build on current accomplishments and to elevate Nigeria to become Africa’s premier financial services centre.
According to Ibekwe, “there is a need to ensure growth is more evenly distributed across all FPS sub-sectors as they all have enormous potential, improved depth/sophistication of product offerings, increased penetration of all sub-sectors, and development of talent. That identifying and building on synergies between sub-sectors can accelerate the development of the financial system and strengthen the economy.
The report found that Nigeria’s economy saw a positive growth rate of 3.4 percent in 2021, though the pandemic-induced a -1.9 percent contraction in the economy in 2020. The growth rate surpassed the 2.6 percent and 2.7 percent predictions made by the International Monetary Fund (IMF) and the World Bank, respectively. Nigeria’s economy historically has been resilient in adverse conditions, notably during the 2008 global financial crisis when its GDP growth was sustained at 6.76 percent, the 2016 oil price-induced recession, and the recent pandemic-induced recession. It believed the country has a strange ability for bouncing back.
According to the report, though from 2015-2021, Nigeria’s Insurance sub-sector recorded 113.1 percent growth in gross premium income, however, premium income grew 20 percent in 2021 over the previous year to reach ₦616.6 billion. Total investment for the sub-sector was N1.63 trillion in 2020; a 38.7 percent increase over the previous year, equivalent to 1.1 percent of GDP at current market prices. The National Insurance Commission (NAICOM) put the sub-sector total assets at N2.2 trillion as of December 2021.
Also, during the period under review, the capital markets represented by the Nigerian Exchange Limited (NGX) (formerly Nigerian Stock Exchange) saw total equity capital market (ECM) capitalisation at N22.3 trillion ($51.3 billion) with 152 companies across 11 sectors listed during the period under review. Also, in 2021, the NASD OTC Securities Exchange recorded a market capitalisation of N629.03 billion, up from N525.95 billion in 2020, and, as of August 2022, comprised 43 companies, the EnterpriseNGR SOE 2022 report said. It added that FMDQ Securities Exchange turnover reached N198.9 trillion ($484.7 billion) in 2021.
According to the FPS sector-specific firm, it seeks to promote a strong financial and professional services sector with the aim of fostering an enabling environment for sustainable development of the Nigerian economy.
It said the report provides insights into the state of the FPS sector. The research team provided a breakdown of the sub-sectors—banking, insurance, capital markets, asset management, non-interest finance, pensions, FinTech, professional services (legal services accounting and management consulting) and sustainable finance. It looked at each sub-sector’s performance, identifying its impact on key economic variables, such as contribution to GDP, employment, tax, improvement in quality of life and ease of doing business.
It observed that, given the Covid-19-induced lockdowns and restrictions on traditional financial services delivery models, there was a quantum leap in adoption of digital financial services. Hence, the FinTech ecosystem grew to approximately 250 firms, supporting services such as payment, credit and investment. In addition to growing beyond payment solutions, the FPS sector is creating opportunities for other service providers to leverage existing bank accounts to offer unique benefits and services, consequently creating more indirect jobs.
The report indicated that in 2021, the NGX promoted finance for capital projects, listing 86 FGN bonds, 14 State and Municipal bonds and 46 Corporate bonds, jointly valued at N19.7 trillion ($45.5 billion). In addition, FMDQ Securities Exchange listed 20 bonds/ sukuk at N601.2 billion ($1.5 billion), quoted 66 commercial papers at ₦406.4 billion ($990.3 million) and registered 15 commercial paper programmes valued at N465 billion ($1.1 billion). Seven infrastructure funds worth N121.8 billion were also registered by the Securities and Exchange Commission (SEC).
EnterpriseNGR said it is positioned to foster a favourable environment for engagement with policymakers and business sector advocacy — representing the Nigeria-based FPS sector and lobbying on its behalf, both domestically and internationally, to: drive competitiveness and sustainable economic growth; open markets; create an enabling environment for financial market participants. “Working with government and other key stakeholders, we also intend to encourage both local and foreign investments across the FPS sector with a view to optimising its capacity. Nigeria has the potential to take its place among the developed nations of the world, but this can only be realised if the country’s Financial and Professional Services sector, among others, is transformed and positioned to be globally competitive,” the group said.
In asset management, the report saw that global asset management reached $112.3 trillion in total assets under management (AuM) in 2021. But in Nigeria, the sub-sector, though possesses significant potential, it supported issuance of new securities in the first three quarters of 2020 valued at N2.8 trillion. Thirty-three unit trust schemes valued at N10.3 trillion and $86.4 million (Dollar/Eurobond funds) were registered with the SEC in 2021, and 19 companies received approval to issue corporate bonds valued at N369.8 billion. Mutual funds’ AuM was more than N1.2 trillion. There were 120 mutual funds in the market, including equity-based funds, money market funds, bond/fixed income funds, dollar funds, real estate funds, mixed funds, ethical funds, and Sharia-compliant funds.
Pension fund assets under management grew by 3.7 percent to N13.4 trillion, with 9,586,291 pension contributors as of December 2021, the report said. The value of pension fund assets is equivalent to 7.6 percent of GDP at current market prices.
In 2021, Nigeria’s assets of Non-interest Banks reached N448.1 billion, from N300.2 billion in 2020, the EnterpriseNGR SOE report said. The banks facilitated N188.1 billion worth of loans. The six Sharia-compliant mutual funds listed on the market in the period accumulated N17.4 billion in total investment from 17,353 units holders, up from a total investment under N2.5 billion and 15,625 units holders in 2019.
With a record high $1.3 billion investment attracted by FinTech in 2021, Nigeria’s FinTech ecosystem perhaps has undergone rapid evolution, the report noted. The number of FinTech firms grew from just a few (such as Systems Spec, Interswitch, and eTranzact) in the 1990s and early 2000s to 210–250 by 2021. Payments, insurance, credit, investment, and support services such as know your client (KYC) and digital identity are some early use cases. In recent times, the penetration of cryptocurrencies and blockchain technologies has added another layer of services to the FinTech ecosystem, the report said.
By far, EnterpriseNGR says it looks forward to seeing a Nigeria where the average citizens can access credit seamlessly; resources are efficiently channelled to the economy’s critical sectors like power, infrastructure and manufacturing; more people rely on insurance to protect them from loss; the FX regime is efficient, with policies consistent and well-thought out; mobile money functions seamlessly with technology used to accelerate financial inclusion; and rule of law upheld.
To realise all the above, the group said it is working assiduously to unite the FPS sector, taking the initiative to work collaboratively with government and regulators to transform Nigeria into a premier financial centre in Africa. It is driving a deliberate effort to contribute to further development of an enabling and stable policy environment for the FPS sector in the country.
Under the Professional Services, the premier FPS sector report said Nigeria space for professional services has grown from the Big Four auditing firms (Deloitte, EY, KPMG and PwC) to a growing number of firms in Consulting, Accounting and Legal Services, which are making increasingly important contributions to the economy and helping to meet the support services needs of businesses across all sectors of the economy. As of June 2022, there were 21,917 registered members of the Institute of Chartered Accountants of Nigeria (ICAN) and over 120,000 registered legal practitioners. Records from the Securities and Exchange Commission show 166 reporting accountants/auditors and 376 solicitors registered as market operators to provide support services in the capital markets specifically.
On the whole, the SOE 2022 report said, the performance of the FPS sub-sectors in 2021 validates the pivotal role of FPS in Nigeria’s economy, particularly its contributions to governments, businesses and people. Notwithstanding this, FPS’ potential contributions are enormous, and will only be realised through a collective effort of all stakeholders and by prioritising resources to address each challenge area. To smooth out the uneven growth prevalent in FPS, a common vision for the development of the sector needs to be developed and adequate consideration given to resolving identified issues in all sub-sectors. Furthermore, synergies and linkages across the sub-sectors should be explored and leveraged to spur overall growth of the sector, the concluded.
