Home Insurance Digest OPS lament poor trickledown effect of budget on businesses

OPS lament poor trickledown effect of budget on businesses

OPS lament poor trickledown effect of budget on businesses

…Insurance sub sector worse hit

KELVIN EGERUE

Barely four months to the end of the 2019 fiscal year, business managers in the country are still lamenting the inability of the Federal Government’s activities to generate the usual trickledown effects on the larger economy.

Although the 2019 federal budget may not have been released on time thus choking the budget’s implementation processes, managers of the Organised Private Sector (OPS) are in agreement that the 2019 budget was yet to instigate the growth of the real sector.

Although the leadership of President Muhammadu Buhari had in November last year presented a budget of N8.83 trillion Nigeria to the National Assembly, the lawmakers had gone ahead to jack the figure to N8.91 trillion. The 2018 budget was slightly higher than this year’s budget at N9.1 trillion.

A breakdown of the 2019 budget showed that the government allocated N2.031 trillion to capital expenditure subhead which was 29 per cent lower than the 2018 figure of N2.873 trillion. N4.04 trillion went to recurrent expenditure while debt servicing gulped N2.14 trillion.

Under the 2019 budget, the percentage of capital expenditure to total expenditure for the year is 23 per cent, a drop from 31.5 per cent from the previous year.

Against the backdrop of the Nigerian economic structure where the government is presented as the biggest spender, financial analysts are worried that businesses are not likely to witness much growth.

The scenario financial analysts argue have been made worse by what they described as policy inconsistencies which most time run counter to the initial business projections of most organizations.

Worst hit perhaps is the nation’s insurance industry which operators say is bleeding from all sides.“Based on the projected level of government spending, the trickledown effect on economic activity and ultimately the insurance sector is expected to be flat”, chairman of Cornerstone Insurance Plc, Mr. Segun Adebanji, had lamented.

Insurance managers who spoke on condition of anonymity said that governments at all levels are reluctant to make financial allocation to their insurance needs.

According to them, it is only in the area of pensions that the federal government has demonstrated some level of commitment as there is virtually no insurance protection for many of the government assets.

The impact of the policy of non insurance of government assets they explained is made manifest in the dwindling fortunes of insurance companies whose growth in the volume of earned premium does not translate to concrete increase but a reflection of the dwindling value of the naira.

It is in the face of the apparent lack of sufficient insurance businesses in the market that investors in the insurance subsector of the economy are picking quarrel with the recent government directive hiking the minimum capital base of insurance and reinsurance companies.

Under the new recapitalisatio9n structure, a non life insurance company is expected to mobilize a minimum capital of N10 billion while life companies are to put in place a minimum capital adequacy of N8 billion.

Shareholders who spoke at the 27th annual general meeting of Cornerstone Insurance Plc said that the return on investment in the insurance sub sector does not warrant the demand for higher capitalization. Many of the 51 insurance and reinsurance companies in the industry have not been able to pay dividend to their shareholders in the last 10 years.

Federal Government’s policy on recapitalization of insurance companies they argue, will only open up the industry to foreign investors whose interest may not necessarily be the development of the market.

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