Stories by CHRIS EBONG,Asst. Bus. Editor
Despite the fluctuating oil prices that has threatened Nigeria’s economic expansion; the country’s insurance sector offers significant potential for foreign investors attempting to build a profile in the market, according to A.M. Best in a special report.
In the new report entitled “Nigeria’s Insurance Sector Faces Economic Challenges, but New Government Improves Prospects,” A.M. Best says that Nigeria now boasts the largest economy in Africa, following the rebasing of Nigeria’s gross domestic product (GDP) in 2014, the first undertaken in two decades, adding that this resulted in a nearly 90 percent rise of the country’s economic size, making Nigeria a very attractive market for financial participants across the globe, the report said.
Economic growth of this oil-producing nation has been strong over the past five years, largely supported by high commodity prices, with more than 90 percent of total exports derived from the trade of petroleum. However, the tumble in global oil prices resulting from the increase in supply from major producers, lower demand from the global economy and a rise in U.S. shale output have increased pressure on the government’s ability to balance its fiscal budget, the report said.
Deniese Imoukhuede, associate director, analytics, said: “Domestic insurers, particularly those that maintain insurance portfolios weighted to the oil and gas segment, are likely to feel pressure from the decline in oil prices. This reflects delays, or in some cases, cancellations of infrastructure projects as a result of negative investor sentiment relating to the stability of the economy, and therefore, lower premium revenues.”
In spite of such challenges, there appears to be some signs of renewed confidence in the economy and the country’s future following the accession of the new government led by Muhammadu Buhari. It is anticipated that Buhari will bring much needed changes by reducing corruption, implementing economic reforms by reducing the country’s reliance on oil and by increasing foreign investor interest in Nigeria through the promise of greater transparency, the report noted.
Should these expectations transpire, greater confidence in Nigeria will likely attract further interests into its largely untapped insurance market, A.M. Best said.
A.M. Best’s research states that Nigeria’s insurance regulator, the National Insurance Commission (NAICOM), has over the years implemented numerous reforms to improve the perception of the sector and expand the contribution of the industry to the country’s economic output, although to varying degrees of success.
The report also examines the challenges facing the insurance sector. Although Nigeria’s population is growing, high levels of poverty and unemployment remain the reality for the majority of the country, as the benefits of economic growth have not sufficiently reached swathes of the poorer segments of society.
Yvette Essen, director, industry research – Europe & emerging markets, said: “Furthermore, a distrust in financial institutions, perceived weak oversight of regulators, or even a low level of awareness regarding the benefits of insurance, are factors continuing to dampen the attractiveness of the sector to the majority of the population. Without addressing these issues or introducing innovative products and appropriate distribution methods to attract the various segments of Nigeria’s demographics, insurance will continue to be viewed as a luxury product only available and necessary to the well-off.”