INDUSTRY

REPORT 2016
MBA 13

NIGERIA FMCG
AGRICULTURE OIL & GAS
FINANCIAL SERVICES TELECOMMUNICATION
 INDUSTRY REPORT 2016 | TABLE OF CONTENTS
1

Country Profile 2

Agriculture 8

Financial Services 16

FMCG 25

Oil & Gas 34

Telecommunications 41
Country Profile
 INDUSTRY REPORT 2016 | NIGERIA
3
NIGERIA IN FIGURES
Real GDP growth (%)
Population growth rate
Current account/GDP
CPI (y/y Dec.)
Monetary policy rate
Official fx reserves (in US$ bn)
N/US$ (end-period)
Bonny Light (end-period spoat; US$/b)
Population
Life expectancy at birth
Labour participation rate (% of total population ages 15+) 55.9% (2012)
Telephone & Internet users
Business languages
OVERVIEW
- The economy is likely to grow modestly in 2016: details
of the government economic plan have been stated
clearly in the Medium Term Expenditure Framework
(MTEF) for 2016-2018. Fiscal policy aims at stimulating
economic activity in order to engender growth above
levels experienced in 2015.
- The Central Bank of Nigeria (CBN) has reiterated its
stance on no further devaluation of the nation's currency
even in the face of stiff criticism from local and
international investors and financial experts. In aligning
its policies with the fiscal policy objectives of the Buhari
administration, interest rates are likely to remain low at
the inter-bank level while it looks for ways and means to
encourage lenders to advance more loans to the real
sector.
- The development of critical infrastructure such as roads
OUTLOOK FOR 2016 - 2018
Political Outlook
In 2015, APC achieved a great feat by winning the last
general elections with majority seats in the National
assembly making it the second political party to lead
Nigeria in the last 15 years. APC rode to victory on the
mantra of “Change” and a promise to reverse the
economic misfortunes of the country. Unfortunately,
this period is marked by changes in the global economic
environment which have had adverse effects on the local
economy. The sustained low level of low oil prices has
caused the current administration to seek other sources
of finance its expansionary budget. President Buhari's
war against corruption is modestly yielding results while
he continues to take steps to ensure a more transparent
and effective management of the NNPC in order to
maximize the use of the country's oil resource.
The APC is gradually stabilising in the formation of its
political structures while the PDP, the main opposition
6.2% (2014 E); 3.1 (2015 E)
2.47% (2014 E)
-3.3% (2015 E); -3.6% (2016 E)
8.0% (2014 E); 9.6% (2015 E); 10.5% (2016 E)
11% (2015)
29 (2015 E); 25(2016 E)
197 (2015 E)
35 (2015 E)
177,155,754 (July 2014 E); Age 15 - 64: 52.9%
Total population: 52.62 years; male: 51.63 years; female: 53.66 years
(2014 E)
Main lines in use: 183,290; Mobile cellular: 138.96 million (2014 E);
Internet users: 97 million (2015 E)
English, Hausa, Yoruba, Igbo, Fulani
and power are likely to receive a major boost this year
given the proportion of the budget (30% of the 2016
budget) allocated to capital expenditure and the eagerness
of the administration to resolve issues slowing the
completion of existing projects such as the Lagos-Ibadan
expressway.
- Inflation has continued to maintain its levels above
CBN's threshold of 9% driven largely by the rise in food
prices, especially imported items; the cost of
transportation and the scarcity of foreign exchange has
also contributed to increased price levels in the country.
- The security situation in the North-east has improved
slightly following the dissipation of the Boko Haram
elements by the Nigerian Army. However, Boko Haram
fighters continue to spread terror in the city by targeting
populated areas such as local markets.
party is still grappling with the challenges of defeat and
reorganization. The president's stance on the rule of law is
firm and the renewed fight against corruption has set the
tone for the polity and how business would be conducted
hence forth.
The government's priority areas are security, diversification
of the economy, prudent management of government,
generation of revenue, job creation and anti-corruption.
The Buhari administration has spared no effort in the fight
against Boko haram especially since assuming office one of
his first activities was to move the headquarters of the
Military base to the Northeast. Some measure of success
has been achieved as the insurgents have been largely
dissipated although they still find ways and means to harm
hapless civilians in the North-eastern region.
Fiscal and Economic Policy Outlook
The economic plan of the government is expansionary. It
 INDUSTRY REPORT 2016 | NIGERIA
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is aimed at revamping critical infrastructure in the country;
diversification of the productive base of the economy and
improvement in the competitiveness of the non-oil sector.
Government's plan for the next 3-4 years, as contained in
the Medium Term Expenditure Framework (MTEF), is to
ensure macroeconomic and fiscal stability; social and
infrastructure development. The 2016 budget of N6.04
trillion which is aimed at fostering large scale economic
activity is hinged on an expected N3.82 expected
government revenue and a deficit of N2.22 trillion.
Capital expenditure is about 30% of the total budget
compare to 16% in the 2015 budget. Although there are
concerns about the rising level of debt in the country after
the exit from the Paris club debt, the country's debt/GDP
at about 12% is considered among the lowest in the world
thus creating an opportunity for the government to assess
loans from the international community.
Real GDP grew by 2.84% (year-on-year) in Q3 of 2015
compared to 2.35% in the preceding quarter and 6.23% in
the corresponding quarter of 2014. Aggregate GDP stood
at approximately N24 trillion; higher by 6.02% when
compared to the third quarter of 2014. With this
expansionary budget, government expects the economy to
grow at 4.37% in 2016, and a 10% increase thereafter till
2018.
Fiscal Policy and Strategy
The Fiscal policy for 2016 focuses largely on achieving the
following: ensuring macroeconomic stability; formulating
policies to avail the real sector cheap access to long-term
financing to allow them plan reliable growth strategies for
the long-term; ensure prudent borrowing while improving
revenue generation and collection; recovery of looted
public funds and blocking leakages in the public sector.
Treasury Single Account (TSA) has been implemented in
order to accurately keep track of government cash balances
and revenue inflows from MDAs; and the Integrated
Payroll and Personnel Information system (IPPIS) in order
to ensure seamless payment to civil servants and to block
any possible leakages that could arise from the existence of
ghost workers.
Although the expectation of the positive outcome of the
2016 budget is high, there are issues surrounding how the
budget will be funded. Oil prices are trending between $25
and $34pb in the international market; and if this is
sustained, government oil revenue target for 2016 (which is
benchmarked at $38pb) might not be attained. On the other
hand, international Development Finance Institutions such
as the World Bank and African Development bank (AFDB)
have expressed willingness to fund the deficit; talks with the
Chinese government has also been resumed on certain
capital projects such as the railway transport projects which
it intended to fund through its export-import bank.
Government also plans to improve tax administration in
order to realise its non-oil revenue targets for 2016. The
plan to improve on tax administration involves strategic
engagement with tax payers; simplifying tax administration
and reducing tax evasion. Federal Inland Revenue Service
(FIRS) is likely to raise VAT by 100% (from 5- 10%).
Other means include the recently introduced stamp duty
charge and the proposed security tax on the profits of
Corporate organizations.
The $25 billion Infrastructural Fund set up by the
administration and managed by the Nigeria Sovereign
Investment Authority (NSIA) has been put in place to
guarantee the development of infrastructure in the country.
This is in addition to the Public-Private Partnership model,
adopted by previous governments, to ensure timely execution
and the realisation of public projects. It is also keen on
inclusive growth whereby the growth in GDP is championed
by the combined increase in output and productivity of both
large Corporates and MSMEs and which would translate to
economic development.
The introduction of Zero-based budgeting framework
portrays government's commitment to ensuring efficient
management and accountability in its use of public funds.
This is also in line with the current tightening measures by
government due to the dwindling revenues as a result of the
fall in the price and demand for crude oil which makes up
about 70% of government's revenue. Chances are that after
the House of Assembly passes the budget by the end of
February and approves the Medium Term Expenditure
Framework, investment by firms in the economy is likely
to increase.
Monetary Policy
The monetary authorities are still grappling with the twin
issue of price stability and a weakening currency. At the
MPC meeting held in January, the monetary authorities
maintained policy stance by keeping MPR unchanged at
11% with an asymmetric corridor of +2/-7. Liquidity ratio
and Cash-Reserve Requirement (CRR) was retained at 30%
and 20% respectively. This decision is largely due to CBN's
determination to ensure that Deposit Money Banks lend to
the real sector. The initial easing activity by the apex bank
was to stabilize the financial system in the wake of the
Treasury Single Account (TSA) and withdrawals of the
J.P. Morgan delisting of Nigeria and this has largely been
achieved. And now the emphasis on lending to the real
sector which the CBN is calling on Deposit Money Banks
(DMBs) banks to approach this as a patriotic duty.
Rates at the inter-bank market and across different money
market instruments continue to remain low reflecting the
level of liquidity in the banking system. Official exchange
rate still remains N197/USD with the CBN reiterating its
stance on not devaluing the currency any further. However,
the monetary authorities have underscored the importance
of improving foreign exchange to the market.
Social and Human Development
2015 was the year set for the attainment of the eight
Millennium Development Goals (MDGs) and Nigeria has
made some progress however not sufficient to lift it from
its Low Human development Status. In the past 15 years,
over N 3 trillion has been spent annually on MDGs which
is the total sum from the contributions of the three tiers of
government. Factors that may have contributed to the non-
attainment of these goals include social inequality, youth
 INDUSTRY REPORT 2016 | NIGERIA
5

unemployment and dearth of skilled workers and insecurity. live births in 2000 to 89 deaths per 100 live births. Maternal
These trouble points are still features of the country and health has also improved with maternal mortality rate falling
more targeted effort at all levels of society is needed to from 1000 deaths per 100,000 live births in 1990 to 243 per
effectively address these problems. 100, 000 live births in 2012. However, not much progress
was made to promote gender equality and women
Extreme poverty has been significantly reduced from its empowerment. The high growth rates of between 6-7%
height in 1996 of 65.6% to about 45.5% although recent recorded in the last 3 years, was not sufficient to reduce
estimates from the World Bank put it at 33.1% short of the incidence of poverty in the country as according to the
MDG target 21.4% by 11.7%. In 2012, Nigeria was able to Harmonised Nigeria Living Standards Surveys (HNLSS)
make significant advancement in an area closely related with 2010, over 100million people are living in absolute poverty;
this goal which is the hunger reduction. Nigeria was able to unemployment rate is on the rise (8.2% in the second
reduce hunger by 66%; however, the concentration of quarter, up from 7.5% in the previous quarter) and human
hunger by geopolitical zones, urban and rural areas may development as measured by the Human Development
leave room for improvement in many areas especially in the Index still remains low.
North East and North West regions of the country. Net
enrolment in basic education declined from 60% in 1995 to A lot more attention has to be paid to social development
54% due to Boko Haram activities which destroyed many in Nigeria with concerted efforts by all stakeholders to the
schools; however there good policies in place that should achieve these goals. Government has made commitment to
grow enrolment numbers when Boko Haram activities are development of infrastructure in the area of health and
curtailed. Nigeria has made improvement in literacy rate education however the formulation of policy targeted at
although marginally from 64.7% in 2000 to 66.7% in 2014; sustaining these initiatives is essential to ensuring their
infant mortality rate has reduced from 191 deaths per 1000 sustainability.
Agriculture
 INDUSTRY REPORT 2016 | AGRICULTURE
7

Before the oil boom in Nigeria, the Nigerian economy feeds and grazing lands, frequent farmer – pastoralist
thrived on agriculture, but with the advent of crude oil, conflicts, lack of processing facilities and low value
attention quickly shifted from agriculture to oil and gas addition and low technical inputs in the management of
sector and the search for white collar jobs left the the animals, including diseases. The livestock sector can
agricultural sector desolated. It was never imagined that create new opportunities for farmers and provide more
those left to attend to the agricultural sector would be affordable and healthier diets for future generations.
raking in millions of naira as agricultural products now sell
not only locally but in the international market. FORESTRY
Industries in the Forestry and Logging subsector grow and
In spite of the oil, agriculture remains the base of the harvest timber on a long production cycle. This subsector
Nigerian economy, providing the main source of livelihood the legal planting and felling of trees (timber).
for many Nigerians. The sector faces many challenges,
notably an outdated land tenure system that constrains FISHERY
access to land (1.8 ha/farming household), a very low level This subsector involves harvesting of fish and other aquatic
of irrigation development (less than 1 percent of cropped l animals from their natural habitats and is dependent upon
and under irrigation), limited adoption of research findings a continued supply of the natural resource. The harvesting
and technologies, high cost of farm inputs, poor access to of fish is predominant. The Nigeria fisheries sub-sector
credit, inefficient fertilizer procurement and distribution, contributes about 3%-4% to the country's annual GDP
inadequate storage facilities and poor access to markets and is an important contributor to the population's
have all combined to keep agricultural productivity low nutritional requirements, constituting about 50 percent of
(average of 1.2 metric tons of cereals/ha) with high post- animal protein intake. In addition, the sub-sector generates
harvest losses and waste. The agricultural sector covers the employment and income for a significant number of
following: fishery, forestry, crop production and livestock. artisanal fishermen and small traders. Although capture
fisheries has now been declining, Nigeria has a big
CROP PRODUCTION potential in both marine and fresh water fisheries including
Industries in the Crop Production subsector grow crops aquaculture. In spite of this high potential, domestic fish
mainly for food and fiber. The sub-sector comprises production still falls far below the total demand, which was
establishments, such as farms, and is primarily engaged in estimated at 2.2 million metric tons per year in 2008. As a
growing crops, plants, vines, or trees and their seeds. result, the country imports about 60 percent of the fish
ANIMAL PRODUCTION/LIVESTOCK consumed.
Industries in the Animal Production subsector raise or
fatten animals for the sale of animals or animal products. Even though agriculture still remains the largest sector of
The subsector comprises establishments, such as ranches, the Nigerian economy and employs two-thirds of the entire
farms, mostly the Fulani cattle herdsmen in the northern labour force, the production hurdles have significantly
part of Nigeria, primarily engaged in keeping, grazing, stifled the performance of the sector. Over the past 20
breeding, or feeding animals. These animals are kept for years, value-added per capita in agriculture has risen by less
the products they produce or for eventual sale. The animals than 1 percent annually. It is estimated that Nigeria has lost
are generally raised in various environments, feeding on an USD 10 billion in annual export opportunity from
open range pasture. Livestock industry development is groundnut, palm oil, cocoa and cotton alone due to
constrained by low productive breeds, inadequate access to continuous decline in the production of those commodities.

AGRICULTURAL INDUSTRY IN FIGURES

 INDUSTRY REPORT 2016 | AGRICULTURE
8

Contribution to GDP
ACTIVITY % OF ANNUAL FIGURES
Y/Y
SECTOR GDP 2015* 2014 2013 2012 2011 2010 Growth
Agriculture Rate
Crop Production 17.54 12,035,758 15,812,570 14,862,324 14,071,235 12,484,849 11,683,896 7.86
Livestock 1.75 1,240,766 1,573,052 1,399,484 1,251,931 1,115,601 979,564 12.57
Forestry 0.23 160,473 207,739 187,950 170,159 153,045 135,720 11.23
Fishing 0.47 349,974 425,250 366,793 322,671 284,329 249,711 14.24
*2015 figures are for Q1, Q2 and Q3
Foreign Direct Investment in the Agricultural Industry ($’000)

2013 2014 2015

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Agriculture 17,101 318 40,100 24,850 15,075 219 833 8,194 2,675 50 95,100 500
Capital Import Report, Nigeria Bureau of Statistics

INDUSTRY ANALYSIS USING PORTER’S 5 FORCES

Agriculture in Nigeria has greatly improved in the past few
years because of the advent of technology and other
necessary infrastructures. Initially, most Nigerian farmers
merely engage in subsistence farming to provide food for
their family while very little is made available in the market.
Growth in agricultural output has no doubt been on the
rise as farmer are stepping away from subsistence
agriculture and embracing modern civilization - investing
in large scale farming and ultimately increasing agricultural
products. The industry will be studied under three major
divide which are the Crop production, Livestock farming,
and the Fisheries farming.
CROP PRODUCTION
Bargaining power of suppliers is high.
1. The inputs required such as the seeds are available only
from a small number of suppliers. These inputs are
mostly imported and distributed by the government and 1. This is because the cost of startup especially as an
some other licensed private individuals. The inputs
generated by the farmers locally are not sufficient for
exports farming or large scale farming and hence limits
their production capacity.
2. The seeds required are unique, difficult to generate,
require a high level of technology in some cases and
hence making it costly to make and reducing the number
of suppliers and hence making it expensive to switch
from one supplier to the other.
3. Most of the farmers do not have direct access to the
suppliers and where they do, the volume they buy at a
time is not significant, as they are not the largest and
only buyer.
their produce while it's still fresh and most farmers do
not have the access to sell directly to the consumers. The
middle men dictate the prices. Most farmers have little
idea of how much these produce are sold to the final
consumer.
2. The product is not unique and farmers are more than the
middle men who sell to the final consumer.
3. The quantity bought also portrays the middle men as large
companies to the farmers. The Agric industry has many
small farmers supplying the product and buyers or
middlemen are few and large in size. Hence, they have
little negotiating power as the farmers and several
competing farmers are trying to sell similar products to
one large buyer.
Threat of new entrants in the sector is medium
investor is high. The machines and equipments needed
to start up is expensive, access to the seeds is also on the
rise.
2. Government intervention in agriculture also helps with
the starting up through the tax holidays, grants and loans,
subsidies and research institutes.
3. There are no permits or licenses patent to any farmer or
company for the production of certain produce and hence
everyone can participate.
4. Customers have very little loyalty for the farmer as many
a time the produce come out the same with the same
quality.

4. The farmers cannot negotiate on the price as they do not 5. The farming process is easily learnt for some types of
understand the technology or the process of making this produce but a bit more complicated for some other types
seeds in huge volumes. of produce.

Bargaining power of buyers is low 6. The customers do not lose anything switching from one
1. There is little or no infrastructure to help the sellers in customer/supplier/farmer to another.
the preservation of their produce hence creating price
crash as the farmers want to sell as much as they can of Threat of substitutes for the produce is low
 INDUSTRY REPORT 2016 | AGRICULTURE
9
1. The product doesn't offer any real benefit compared to
other products. What will hold your customers if they
can get an identical product from your competitor?
2. It is easy for customers to switch.
3. Customers have little loyalty as price is the customer's
primary motivator.
Rivalry among competitors is high
1. One farmer or many small farmers have incentive to
enable them grow and expand through the grant and
subsidies, the tax holidays and reduction export duties.
2. There are high fixed costs of production and this is not
relative to the number of farmer products harvested.
The companies are pushed to produce larger volumes
and hence compete with each other on price.
3. Products are perishable and need to be sold quickly due
to lack of supporting infrastructure and storage systems.
4. The products are not differentiated and hence farmers
have to compete on price.
5. Customers can easily switch between products.
LIVESTOCK FARMING
Bargaining power of suppliers is low
1. The inputs required such as the animal infants and the
feeds are available to the farmers.
2. Most of the farmers have direct access to supplies and
are not always under pressure to buy inputs.
3. The farmers can negotiate on the price.
Bargaining power of buyers is low
1. The farmers need little or no infrastructure to help them
in the preservation of their produce.
2. The product is fairly unique and demand is higher than
the supply of this produce.
3. The quantity bought by consumer or middle men is also
small due to lack of storage and infrastructure for
transporting from place to place before it gets to the
final consumer.
Threat of new entrants in the sector is high:
1. This is because the cost of startup especially as an
investor is not too high.
2. Government intervention in agriculture also helps with
the starting up through the tax holidays, grants and loans,
subsidies and research institutes.
3. There are no permits or licenses patent to any farmer or
company for the production of certain produce and hence as the farmers want to sell as much as they can of their
everyone can participate.
4. Customers have very little loyalty for the farmer.
5. The farming process is easily learnt for some types of
rearing.
6. The customers do not lose anything switching from one
customer/supplier/farmer to another.
Threat of substitutes for the produce is low.
1. The product doesn't offer any real benefit compared to
other products. What will hold your customers if they
can get an identical product from your competitor?
2. It is easy for customers to switch.
3. Customers have little loyalty because price is the
customer's primary motivator.
Rivalry among competitors is medium
1. One farmer or many small farmers have incentive to
enable them grow and expand through the grant and
subsidies, the tax holidays and reduction export duties.
2. There is a low fixed cost of production, however,
farmers are sometimes pushed to produce larger
volumes and hence compete with each other on price.
3. Products are not perishable.
4. The products are not differentiated and hence farmers
have to compete on price.
5. Customers can easily switch between products.
FISHERIES FARMING
Bargaining power of suppliers is high
1. The inputs required such as the feeds and fingerlings are
available only from a small number of suppliers. The
inputs generated by the farmers locally are not sufficient
for exports farming or large scale farming and hence
limits their production capacity.
2. The feeds and fingerlings required are unique, difficult to
generate, requires a high level of technology in some
cases and hence making it costly to make and reducing
the number of suppliers and hence making it expensive
to switch from one supplier to the other.
3. Most of the farmers do not have direct access to the
suppliers and where they do the volume they buy at a
time is not significant, as they are not the largest and only
buyer.
4. The farmers cannot negotiate on the price as they do not
understand the technology or the process of making this
feeds in huge volumes.
Bargaining power of buyers is medium
1. There is little or no infrastructure to help the sellers in the
preservation of their produce hence creating price crash
produce while it's still fresh and most farmers do not have
the access to sell directly to the consumers. The middlemen
dictate the prices. Most farmers have little idea of how
 INDUSTRY REPORT 2016 | AGRICULTURE
10
much these produce are sold to the final consumer.
2. The product is not unique and sellers are more than the
middlemen who sell to the final consumer.
3. The quantity bought also portrays the middle men as
large companies to the farmers. The Agric industry has
many small farmers supplying the product and buyers or
middlemen are few and large. Hence, they have little
negotiating power as the farmers and several competing
farmers are trying to sell similar products to one large
buyer.
Threat of new entrants in the sector is high
1. This is because the cost of startup especially as an
investor is not too high.
2. Government intervention in agriculture also helps with
the starting up through the tax holidays, grants and
loans, subsidies and research institutes.
3. There are no permits or licenses patent to any farmer or
company for the production of certain produce and
hence everyone can participate.
4. Customers have very little loyalty for the farmer.
5. The farming process is easily learnt for some types of
rearing.
6. The customers do not lose anything switching from one
customer/supplier/farmer to another.
Threat of substitutes for the produce is low.
1. The product doesn't offer any real benefit compared to
other products. What will hold your customers if they
can get an identical product from your competitor?
2. It is easy for customers to switch.
3. Customers have little loyalty because price is the
customer's primary motivator.
Rivalry among competitors is medium
1. One farmer or many small farmers have incentive to
enable them grow and expand through the grant and
subsidies, the tax holidays and reduction export duties.
2. There is a low fixed cost of production, however,
farmers are sometimes pushed to produce larger
volumes and hence compete with each other on price.
3. Products are not perishable.
4. The products are not differentiated and hence farmers
have to compete on price.
5. Customers can easily switch between products.
RECENT EVENTS
November, 2015: President Buhari launches N20bn loan
for rice farmers
The recently launched N20 Billion naira Anchor Borrowers'
Program (ABP) which is an initiative of the Central Bank of
Nigeria is aimed at creating an Ecosystem to link out-growers(Small
Holder Farmers) to local processors. The ABP will enable the
government to loan local farmers at a single-digit interest rate of
9.0% to address the issue of poor funding.
http://www.vanguardngr.com/2015/11/buhari-set-to-launch-
n20bn-loan-for-rice-farmers-on-Tuesday/
October, 2015: AfDB unveils plan to empower Nigerian
women in agriculture
The office of the Special Envoy on Gender (SEOG) and the
Department for Agriculture and Agro-industry (OSAN) of the
African Development Bank (AfDB) commissioned a report,
“Economic Empowerment of African Women through Equitable
Participation in Agricultural Value Chains”. The study, which was
launched in Abidjan, Côte d'Ivoire, in August 2015, identifies
opportunities for women in four subsectors including cocoa, coffee,
cotton and cassava sectors in Côte d'Ivoire, Ethiopia, Burkina
Faso and Nigeria, respectively.
According to the report, Nigeria represents Africa's top producer of
cassava with 53 million tons in 2013 – about 20% of global
cassava (approximately USD 16 billion in value); however, the
country only exported USD 1 million worth of the staple. The
global production of cassava was valued at USD 51 billion in 2013
– the highest production value (USD 35 billion) of the four sub-
sectors featured in the report, but signifying the lowest export value
(approximately USD 1-2 million).
“Nigeria is the largest producer of cassava in the world, but that
doesn't mean anything if we don't lift women out of poverty. I want
us to be the largest processor of cassava in the world as well, and this
can be done by adding value to our products and moving women up t
he value chain,” said Akinwumi Adesina, President of the African
Development Bank.
The Nigeria launch of the report took place in Abuja on October
19, 2015, with the AfDB's Country Director for Nigeria, Ousmane
Dore, calling on partners to act on the findings.
“Our objective for commissioning the study was for the African
Development Bank to play a decisive role in contributing to the
economic empowerment of African women in agriculture,” said Dore.
“This event is a call for all our esteemed stakeholders to join forces in
a discussion on to how to take this work forward.”
http://www.afdb.org/en/news-and-events/article/afdb-unveils-plan
-to-empower-nigerian-women-in-agriculture-14890/
October, 2015: Lifting of the ban on the importation
of rice.
The comptroller-general of Customs, Col. Hameed Ali (retd), has
ordered the immediate removal of rice from import restriction list and
the re-introduction of import duty payment at land borders.
 INDUSTRY REPORT 2016 | AGRICULTURE
11
The public relations officer of Customs, Mr Wale Adeniyi, who
made this known in an interview with the News Agency of Nigeria
(NAN) yesterday in Abuja, said that the restriction was only
applied at land border stations before now, adding that the customs
boss had lifted restriction on rice at border stations.
Adeniyi said that all rice imports through land borders by rice
traders would attract the prevailing import duty of 10 per cent, with
60 per cent levy. He added that rice millers (preferential levy) with
valid quota allocation would also attract duty rate of 10 per cent
with 20 per cent levy on rice importation.
“Over the years, importation has been restricted to the seaports
because border authorities have found it difficult to effectively monitor
and control importation of rice.
http://leadership.ng/news/465635/customs-lifts-ban-on-rice-
import-across-land-borders
July 2015: Kaduna State is now producing fuel from
sugarcane
Governor el-Rufa'i made this known while declaring open an
international workshop on biofuel production technology, which took
place at the National Research Institute for Chemical Technology
(NARICT), Zaria.
Represented by the Permanent Secretary of the state Ministry of
Science and Technology, Dr. Madina Shehu, el-Rufa'i said the
government intends to upgrade that initiative into a full scale c
ommercial outfit. “In line with this initiative, the state government is
on the process of constructing another plant at Unguwan Mu'azu
to produce bio-diesel from Jatropha Curcas,”.
The Director General of NARICT, Professor Idris Bugaje, in his
remarks, advocated for inclusion of biofuel training at the
undergraduate, National Certificate in Education (NCE),
National and Higher National Diploma levels in order to address
the country's renewable energy challenges. The don said it is
imperative for the country to give emphasis to research on biofuel in
view of the fact that renewable energy plays critical role in national
growth and development of countries world over, adding that the
sector can create job opportunities to the army of the country's
unemployed youths.
Bugaje urged the federal government to prioritize the completion of
the Petroleum Training Institute, Kaduna, which was started by late
President Umaru Yar'adua, but abandoned after his death. He also
called for the renaming of the institute to Petroleum and Biofuels
Technology Training Institute (PBTTI) in order to expand the
mandate of the institute to include biofuel.
http://www.dailytrust.com.ng/daily/index.php/agriculture/
58833-kaduna-is-now-producing-fuel-from-sugarcane-el-rufa-i
September 2015: Syngenta launched Ampligo to
combat Tuta Absoluta
Syngenta Nigeria Ltd., a seed company, on Tuesday launched a new
pesticide product known as Ampligo and two tomato hybrid seeds for
use by Nigerian farmers.
Speaking at the launching in Abuja, DrShachi Sharma, Director,
Syngenta Nigeria Limited, said it was part of the company's
commitment to play a leading role in the transformation of Nigerian
agriculture. Sharma said that the pesticide was not only the best in
the world, but it was simple and provided solution against many
insects destroying crops.
``Ampligo is a simple and fast acting crop protection product for use
any time against insect pests, especially against Tutaabsoluta. T
utaabsoluta is a deadly pest, that if not controlled can destroy up to
100 per cent of tomatoes in the field.
``Thousands of Nigerian farmers have suffered great loss due to this
pest and Ampligo is here to provide an effective solution to their
problem. ``Ampligo works against a wide variety of sucking and
biting pests in vegetables, potatoes and field crops, giving up to 21 days
protection,'' he said. Sharma further stated that Syngenta Ltd., was
also launching Chibli, a tomato hybrid variety for farmers, who grow f
or both home and industrial use. He said that the variety was grown
well across multiple agro-ecological zones and had high solid content,
suitable for tomato paste processors.
Sharma said 'Kilele,' a second hybrid tomato variety, had high quality
hybrid that could be harvested over a 10-week period compared to the
local varieties that spent just four weeks. ``This long harvesting period
extends farmers' sales window and increases their ability to optimize
their return,”
http://www.nannewsnigeria.com/seed-company-launches-pesticide-
new-tomato-hybrids-farmers
EU bean ban hits Nigeria's farmers
The food items banned from Europe till June 2016 are beans, sesame
seeds, melon seeds, dried fish and meat, peanut chips and palm oil.
The European Food Safety Authority had said that the rejected beans
were found to contain between 0.03mg per kilograms to 4.6mg/kg of
dichlorvos pesticide, when the acceptable maximum residue limit is
0.01mg/kg
The EU had warned Nigeria that the banned food items constituted
danger to human health because they “contain a high level of
unauthorized pesticide“. It said it had issued 50 notifications on this
to Nigerian beans exporters since January 2013. The pesticide
contained in the food items is applied when the products are being
prepared for export.
http://www.vanguardngr.com/2015/08/eu-barns-nigeria-from-
exporting-beans-melon-seeds-dried-fish-meat-others-containing-
pesticide-concentrate/
September 2015: Federal Ministry of Agriculture is
soon to introduce the National Agricultural Payment
Initiative (NAPI)
Bauchi State Director in the Federal Ministry of Agriculture,
Alhaji Mohammed Yusuf, has described as successful the 2013/14
E-Wallet System of fertiliser allocation and distribution in the
country.
To this end, he said, the Federal Ministry of Agriculture is soon to
introduce the National Agricultural Payment Initiative (NAPI) as
a boost to the e-wallet system geared to biometrically capture the data
of all farmers under the scheme
“There is also this new programme that is coming up, the National
Agricultural Payment Initiative (NAPI) in which we are going to
capture biometrical data of all farmers which is an improved version
 INDUSTRY REPORT 2016 | AGRICULTURE
12
of the e-wallet system.” to dilapidated infrastructures and this presents an
opportunity for investment. An agricultural produce
“Under the new system, cards will be issued to farmers with national logistic company will go a long way to helping farmers and
identification numbers. It is a smart card just like the ATM cards meeting the needs of moving produce from the farms to
whereby at any given time farmers can access inputs without problem the market.
of network, they can go into banks and make transactions using
5. Agricultural inputs supplies and machinery
Point of Sale (POS) machines, they can access loans, and so forth.”
The availability of the right variety of seedling is a major
http://www.thisdaylive.com/articles/agric-ministry-introduces-new-
measures-for-fertiliser-allocation/219855/ issue that has affected the Nigerian agricultural industry.
This situation has made local agricultural produce less
INVESTMENT OPPORTUNITES competitive in the international market. Partnering with
established seed producing companies as a distributor is an
With renewed interest in the agricultural sector, currently opportunity that will meet the needs of the farmers and
over $8 billion in executed letter of intent (LOI) from over ensure this seedlings get to the very rural communities. The
30 private companies in the world have being attracted to availability of the right tools that will support best practices
the agricultural sector. During the 2014 world economic and boost the yield of farmers is a bane in the local
forum key issues of relevance to this sector was unfolded. agriculture industry and this represents an opportunity for
The Staple Crop Processing Zones (the country has investors.
completed fourteen such zones) and the partnership for
high energy nutritious food drew attention to the sector. 6. Green-house and water resources development
Nigeria is getting launched back into agriculture on a This ensures round the year farming and is especially
global level. The country seeks to add 20 million tons to needed for regions with a continually changing weather
food supply and create about 3.5 million jobs via condition. This will also help areas with flooding and
agriculture. Mckinsey estimates $ 263bn USD by 2030 in drought with an effective irrigation system
the agricultural sector.
7. Optimization of timber and wood processing activities
The agricultural potential of Nigeria is barely being tapped The enormous rain forest of Nigeria is a proof of the
and this explains the inability of the country to meet the supportive weather condition enjoyed by the forestry; this
ever increasing demand for agricultural produce. Although promotes availability of timber for furniture, paper and
the agricultural sector remains a dominant employer of other manufacturing industries.
labour, serious investment is needed across the board to
enhance production and increase the contribution of the 8. Growing of flowers and ornamentals for commercial
sector to GDP. Investment is required in the following purpose
priority activities: This is an untapped area that will grow as the average life
style of Nigerians improves as a result of increase in the
1. Livestock and fisheries production middle-income earners. The society is gradually beginning
The market for the production of livestock and fisheries to appreciate beautification of the interior and exterior of
has got a huge potential and continues to grow on a yearly houses with flowers and ornamentals. The demand is
basis. The cost of start-up is very low and the business can projected to increase overtime.
be scaled progressively upwards depending on the change
in demand. 9. Large-scale crop production
The huge population of the country provides a ready
2. Food processing, preservation and storage market for agricultural produce; this ensures food security
The opportunities in the food processing is enormous as and also promotes the provision of industrial raw materials
the average demand for processed consumables is on the to ready and available market. The population of Nigeria is
increase due to changing life-style due to significant expected to grow significantly and this will lead to more
increase in the middle income level earners. Similarly, demand for agricultural produce.
investing in preservation and storage facilities will improve
the shelve life of the products thereby reduce and
preventing loss of products due to spoilage. This is a
significant value add to the farmers which will be
embraced to improve efficiency.

3. Supply of agricultural produce as raw materials to

industries
A strategic alliance with the manufactures either directly or
through the Manufacturers Association of Nigeria (MAN)
will guarantee a ready market for the agricultural produce
and simultaneously help industries to have direct and cost
effective access to these raw materials.

4. Transportation and logistics support

Logistic within the country is facing a lot of challenges due
 INDUSTRY REPORT 2016 | AGRICULTURE
13

VALUE CHAIN ANALYSIS

The process remains largely unchanged irrespective of

the sub-sectors. Some processes are integrated by some
companies, while the necessity of some products causes
them to skip certain steps. This has been tabulated
below according to the different areas of the industry
to identify the players in each point of the value chain.

INPUT AGRO AGRO TRADE &

PRODUCERS FARMERS DEALERS PROCESSORS EXPORT
Licensed growers Lumber companies, Furniture retail
FORESTRY Licensed growers Licensed growers and fallers and furniture companies, companies,
lumber companies paper companies, lumber companies
pharmaceuticals
LIVESTOCK Feed manufacturers, E.g. Obasanjo Farms, Usually individuals, Butcher houses, Retail outlets,
cage producers, Sebore Farms, farmers associations, meat factory, superstores, food
veterinary doctors Anadariya farms, processors poultry eggs, markets, restaurants,
and medicines Jovana Farms lactose related fast food outlets
products, restaurants
& fast food outlets

FISHERY Feed manufacturers, E.g. Ojemai Farms, Usually individuals, Food companies, Retail outlets,
Pond builders Jovana Farms farmers associations, packaged food superstores, food
processors companies markets, restaurants,
fast food outlets

CROP Fertilizer, chemicals, E.g. Dengula Farms, Usually individuals, Food and drink Retail outlets,
PRODUCTION seed makers, Ajanla Farms, farmers associations, companies, packaged superstores, food
equipment processors food and drink markets, restaurants,
manufacturers companies fast food outlets

INDUSTRY CHALLENGES

Knowledge Gap Whereas food must be consumed on a daily basis,

One major challenge of the agricultural sector in Nigeria
is the knowledge gap that exists in the industry. This had
led to rejection and wastage of various agricultural
products. This challenge could be traced to the poor
preservation techniques, seedlings planted, the crude for
agro processing techniques, certification and
standardization of products, the value chain of various
agro products etc.
Getting Credit
Access to credit facilities has been a major issue in the
agricultural industry in Nigeria today. Due to the nature of
the industry, creditors find it a high risk to invest in the
Agricultural sector. Credit where available comes at very
high rates which erodes the farmer's margin and defeats
the purpose of the investment.
Inadequate Storage Facilities
Lack of Safe and efficient storage system to ensure
continuous supply of agricultural commodities in the
market also contributes to the inadequacies of storage
systems. This is very inadequate and ineffective. Even if
the total production of food seems adequate at the
aggregate level, it will not lead to significant improvement
in food security unless the food is available for
consumption at the right time and in the right form.
production has a different specific time profile.
Storage and processing are critical in ensuring that the
commodities produced at a particular period are available
for consumption whenever and wherever they are required.
A significant quantity of products harvested in Nigeria
perishes due to lack of storage and processing facilities.
Simple, efficient, and cost effective technologies for
perishables, such as roots, tubers, fruits and vegetables, are
not as highly developed in the country compared to the
storage technologies for cereal grains and legumes.
Consequently, post-harvest food storage losses are very
high, approximately 40 per cent for perishables, compared
to cereal grains and pulses at about 15%. Traditional
storage facilities have certain deficiencies, including a low
elevated base giving easy access to rodents, wooden floors
that termites could attack, weak supporting structures that
are not moisture-proof, and inadequate loading and
unloading facilities.
Infrastructure inadequacies
Infrastructure in this instance is construed to include
physical infrastructure, such as roads and railway system,
educational and health facilities, social services such as
potable water and electricity and communication system.
Agricultural performance in Nigeria is greatly impaired by
the low level of development of infrastructure. In the rural
 INDUSTRY REPORT 2016 | AGRICULTURE
14

areas where majority of the smallholders operate, farmers are unable to take up new innovations aimed at
inadequate infrastructure constitutes a major constraint to boosting their productivity and, by extension, their output.
agricultural investment, production and trade. In many The low level of productivity translates to a vicious cycle of
parts of the country physical and marketing infrastructure poverty, thereby leading to low level of production.
is poorly developed, storage facilities are rudimentary and The technical constraint is further sustained by high input
access to information and markets is highly restricted. prices, which is a consequence of inflation in the economy
The situation represents the urban bias in the pattern of as well as the dependence of the agricultural economy on
development in the country. foreign inputs.
Infrastructure inadequacy is mirrored by restricted access
to the markets, which limit the availability of agricultural Inconsistent agricultural policies/ Inadequacies in past
products in many areas, and reduces farmers' income. policies and programmes
The Infrastructure constraint has persisted due to The political climate in Nigeria is such that every new
government neglect, poor governance, poor political administration will change the policies enacted by their
leadership, poor maintenance culture and poor funding. predecessor and this instantly destabilizes the system.
In terms of road facilities, the efforts of the Agricultural Earlier attempts at improving agricultural production in
Development Programs, the Directorate of Foods, Roads Nigeria such as the operation feed the nation, the green
and Rural Infrastructure, the National Agricultural Land revolution program and other laudable interventions in the
Development Authority and the Petroleum Trust Fund agricultural sector emphasized increased production
have not been sustained to ensure good road networks in without commensurate efforts at post-harvest management
the rural areas where the bulk of agricultural activities takeand industrial utilization. Most of them handled the
place. In addition, the railway system that is expected to various aspects of the post-harvest system such as
provide relief has been comatose for years thereby processing, packaging, marketing, storage, distribution and
restricting the movement of agricultural inputs and outputs transportation in isolation from one another. There was no
to the road transport system. The constructed roads do effort to make the system comprehensive and holistic in its
not often last for more than three to five years before they management. Also, industrial utilization of agricultural
start to crumble due partly to poor maintenance culture. commodities is constrained by inadequate linkage of
As regards educational and health facilities, these are largely
agriculture to industrial sector. Each program followed
urban-biased. Supply of potable water has not been haphazard implementation that creates more problems
adequate for a majority of rural dwellers. Electricity supply without achieving anticipated goals.
is often epileptic and communication system is still poor. Although, most of the programs yielded seasonal increases
Although recent expansion of the Global System of Mobile in agricultural output, inefficient and ineffective post-
Communication (GSM) infrastructure and Internet services harvest management and generally low level of industrial
has improved the communication situation somewhat, the utilizations have always resulted in substantial agricultural
services are urban-biased and too expensive for the average wastages, food losses, reduction in available food, restriction
people in its spread over the year, and also reduction in
employment and rural income. The difficulty confronting
Quality of seed/raw material the local industrial utilization of agricultural commodities
The productivity from the seed our farmers plant today is is how to initiate and sustain the momentum for
much less than it used to be. This has severely affected the diversification of raw agricultural commodities into agro-
productivity and profitability of the crop production sector. industry for transformation into high value added products
in order to realize and optimize high growth potential that
Outdated agricultural technology undoubtedly exists in agricultural commodities. This
Technical constraint in Nigeria affects both the upstream remained worrisome by the dilapidating state of rural
and the downstream segments of agriculture. The infrastructures that hampered effective linkage of
constraint manifests in poor technology, poor quality of agriculture to the industry. This undoubtedly makes
raw materials and inadequate supply of modern inputs. investment unattractive to the private sector and thus
The main causes of the constraint include low support limiting agricultural development in the country.
from government, poor government policy, poverty, low Excessive dependence on a narrow range of products as
level of awareness, lack of adequate research and increases sources of income and foreign exchange earnings bring
in the prices of inputs. Poor government support and poor about a number of unfavorable consequences on the
government policy prevent the emergence of innovations economy. Firstly, it exposes farmers unduly to the vagaries
from research institutes, thereby curtailing the level of of climate, pests and diseases and to price fluctuations.
available technically feasible and efficient agricultural Secondly it leads to fluctuations in farm income and
practices. Even when they are available, there seem to be government revenue. Thirdly, it contributes to
communication gaps between farmers (end-users of environmental degradation. Fourthly, it may result in failure
research efforts) and the researchers. to take advantage of complementarities (e.g. between
The existence of unified agricultural extension system livestock and crops) and has negative effects on diet, food
notwithstanding, there is still poor coordination between security and welfare of Nigerians. In addition, an adverse
researchers, extension agents and farmers. This situation is international term of trade facing the primary agricultural
worsened by the low extension-farmer ratio, which hovers commodity sector is a further constraint to growth of the
around 1 to 1000. The poverty incidence among farmers, sector.
which is the highest in the economy, also contributes to the There is a clear need to diversify production and export
persistence of technical constraint in Nigeria. Thus,
 INDUSTRY REPORT 2016 | AGRICULTURE
15

base, both horizontally and vertically, from low value a Promoting education and training: The transfer and
dded to high value added products. High growth communication of knowledge in the agricultural sector
potentials and opportunities available in diversifying would help ensure more effectiveness and productivity in
agricultural commodities to agro-industry for generation the sector. The business world should seek to find a link
of high value added products had been limited and thus with the academic world to ensure that the required
underexploited in Nigeria due to irregular supply of raw information and skill set needed for agro-businesses to
materials from the agricultural sector to the agro-industrial thrive is transferred and as such applied in businesses. As
firms. illustrated in above, R&D coupled with training would not
only ensure productivity of the agricultural sector but also
RECOMMENDATIONS increase the earnings recorded by the sector and its
contributions to GDP. We will stop exporting our raw
Development of Farm Estates: Some state governments materials and rather export finished products hence we
like Ogun, Lagos, Osun and Abia states have commenced gain competitive advantage and adequate returns on
plans to create/revitalize the farm estates in their states. investment.
However, there is the need for private investors to step
into this opportunity. Farm estates are large allocations of
land designated for the use of farmlands. Land is divided
and allocated to farmers who cultivate these lands.
Amenities are provided for the famers such as a market for
their produce, accommodation for the farmers and farm
workers, banks etc. In turn, the farmers can leverage off
themselves, agricultural institutions and related agencies
such as Institute of Agricultural Research and Training
(IAR&T), National Institute for Horticulture (NIHORT),
Cocoa Research Institute of Nigeria (CRIN), International
Institute of Tropical Agriculture (IITA), and Forestry
Research Institute of Nigeria (FRIN)

Provision of appropriate seedlings: A fruit is only as good

as the seed planted. One of the major problems being
faced by exporters of agricultural produce is the quality of
products being exported. The issue of food quality needs
to be addressed and one of the ways to do this is to
provide farmers with quality seedlings. Certain species of
products being cultivated in Nigeria do not meet the
international standards on food quality hence produce
exported by Nigeria gets rejected by European countries.
Also this would help facilitate better storage of food and
livestock produce and prevent wastage.

Investment in research and development: The significance

of research and development as a driver for innovation
cannot be over emphasized. Despite having arable land in
Nigeria, we have not gained economies of scale and as
such the level of activity in the agricultural sector in the
country is yet to translate to earnings. We export raw
materials of low value, the buyers of our exports process
our raw materials reaping both the byproducts and the
main export. We end up importing finished products
made from our raw materials at exorbitant prices losing
both ends. We keep giving away our competitive advantage
remaining in the vicious circles of poverty.
Again some of our seedlings do not meet international
specifications and their shelf life is very low. For instance,
the specie of tomato, pineapple and palm kernel planted in
Nigeria has a lower acceptance level and as such commands
less earnings in the global market. A huge investment in
research and development by the private sector in
agriculture would lead to insight into the market demands,
value chain of the various products as well as developing
innovative technological advancement and efficiency
promotion in the sector.
Financial Services
 INDUSTRY REPORT 2016 | FINANCIAL SERVICES
17
The Nigerian financial system encompasses various
institutions, instruments and regulations. According to
Central Bank of Nigeria (1993), the financial system refers
to the set of rules and regulations and the aggregation of
financial arrangements, institutions, agents that interact
with each other to foster economic growth and
development of a nation. The financial system plays an
important role in the organization and apportionment of
savings for industrious purposes. It also assists in the
diminution of risks faced by businesses in their production
processes, improvement of portfolio variation, and
protection of the economy from external shocks (Nzotta,
2004). In addition, the system provides connections for
various sectors of the economy and supports a high level
of specialization and economies of scale.
The Nigerian financial system can be categorized into two
sub-sectors: the formal and informal sectors. The informal
sector has no formalized institutional framework, no
formal structure of rates and comprises the local money
lenders, thrift collectors, savings and loan associations and passive role in economic development- trailing behind in
all forms of “Isusu” associations (Nzotta and Okereke,
2009). According to Olofin and Afangideh (2008), this
sector is poorly developed and not integrated into the
formal financial system, therefore, its exact size and effect
on the economy remain unknown and are a matter of
speculation. The formal sector on the other hand
comprises of bank and non-bank financial institutions.
Bank financial institutions are the deposit-taking
institutions. As financial intermediaries, they direct funds
from surplus economic units to deficit ones in order to
expedite trade and capital formation. They include central
bank, commercial banks, development banks, co-operative
INDUSTRY ANALYSIS: NIGERIAN INSURANCE INDUSTRY
REGULATORY ENVIRONMENT
Nigerian insurance activity is regulated by two main Acts
and supervised by NAICOM. The Insurance Act, No. 1 of
2003 (IA) governs the licensing and the operation of
insurers, reinsurers, intermediaries and other providers of
related services. Insurers must be established as limited
liabilities companies under the Companies and Allied
Matters Act, 1990, with the exception of the National
Insurance Corporation of Nigeria (NICON) and Nigeria
Reinsurance Corporation.
The National Insurance Commission Decree, No. 1 of
1997 (NA) established NAICOM as the supervisory
institution with power of inspection, remedial and
enforcement actions, and composition of fines. Functions
of NAICOM include licensing; approval of premium rates,
commission rates and policy terms and conditions; and
protect policy holders and beneficiaries to insurance
contracts.
MARKET STRUCTURE & INDUSTRY
PERFORMANCE
The Nigerian insurance sector comprises of insurers,
reinsurers, brokers, agents and loss adjusters. According to
NAICOM, there are 41 insurers, 2 reinsurers, 420 brokers,
and commerce banks, etc. while, the non-banks financial
institutions include; the money markets, capital markets,
insurance companies, pension fund administrators, etc.
These institutions are not deposit-taking institutions, but
some perform intermediation functions of directing funds
from surplus to deficit units for economic activities, e.g.
Money and Capital markets. The regulatory institutions in
the financial system are: the Federal Ministry of Finance,
Central Bank of Nigeria as the apex institution in the
money market, the Securities and Exchange Commission
(SEC) for the capital market, the National Pension
Commission (PENCOM) for pension fund administrators;
Nigeria Deposit Insurance Corporation (NDIC), and
National Insurance Commission (NAICOM).
In many countries, the insurance industry is a major driver
of financial activities and actively plays an increasing role
in stable and efficient risk diversification thus, contributing
vastly to economic development. However, in the case of
Nigeria, the insurance sub-sector appears to be playing a
major policy reforms required for harnessing the huge
economic potential that remains largely untapped in the
industry. In addition, the sector has attracted relatively
large volumes of foreign private investments in recent
years owing to the nation's population, its emerging middle
class and lingering low insurance penetration. Putting these
together, a solid justification can be formed for focusing
on this industry. This report will explore the industry's
current status, a discussion of weaknesses and
opportunities that exist and recommendations going
forward.
2450 agents and 50 loss adjusters.
The Nigerian Insurance Industry contributes less than 1%
of the nation's gross domestic product in a country of
about 180 million people. This performance has been
blamed on the nation's low income per capita ($1092 per
annum). However, although 70% of Nigerians are poor
(National Bureau of Statistics), the population's top 20% -
responsible for 59% of national consumption expenditure.
LIFE NON-LIFE TOTAL ASSET GROWTH
2009 198,108.85 388,350.69 586,459.54 -
2010 193,274.19 391,741.60 585,015.79 0%
2011 213,662.92 407,432.22 621,095.14 6%
2012 212,827.81 497,799.43 710,627.24 14%
2013 267,601.93 526,277.81 793,879.74 12%
In spite of the challenging landscape of insurance in the
country, the industry recorded N319.1 billion in 2014.
From the available records, the total assets of the
insurance sector rose from N488bn in 2008 to N793.6bn
at the end of the first quarter of 2015.
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 INDUSTRY REPORT 2016 | FINANCIAL SERVICES
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COMPETITIVE ENVIRONMENT
Barriers to Entry (High)
Sources of entry barrier in the industry are few but highly
significant and they include: capital requirements and the
industry's feature of regulators. As at 2003, the minimum
capital for insurance companies was 150 million Naira, 200
million Naira, 350 million Naira and 350 million Naira for
life insurance, general insurance, composite insurance and
reinsurance, respectively. In 2005, this was increased to
strengthen the inefficient and rather weak industry and
companies were given 18 months to implement this. The
new minimum capital became 2 billion Naira for life
insurers, 3 billion Naira for general insurers and 10 billion
Naira for reinsurers. The sector is highly regulated through
the issuing of licenses by the National Insurance
Commission (NAICOM), whose function is to ensure
effective administration, supervision, regulation and
control of insurance business in Nigeria.
Bargaining Power of suppliers (Medium)
There are different categories of suppliers. They include:
- Suppliers of Capital comprise of investors (both private
and public). There are numerous suppliers in this category
and are not as concentrated as in the industry to which
they sell to. This category is one of the industry's most
important suppliers.
- Suppliers of Infrastructure: this category features few
suppliers and they are as concentrated as the industry to
which they supply. They are also as important as the
suppliers of capital.
Bargaining Power of Buyers (Medium)
The following conditions contribute to industry buyers'
power:
- Higher proportion of buyers being corporate bodies,
owing to statutory obligations.
- Products purchased from the industry most times
represent a significant percentage of the buyers' cost.
- Profits earned from this sector are very high.
- Buyers' ignorance of the roles and importance of
insurance; scope of benefits as well as terms and
conditions of policies.
Threat of substitutes (Low)
In this industry, the threat of substitute is very low,
considering that there are none.
Industry Rivalry (High)
The intensity of rivalry can be attributed to the following
reasons: slow industry growth and lack of differentiation
in product offerings. Over the years the industry has
experienced lingering growth, evidenced by a penetration
of 0.6% compared to the 3.3% African average. In
addition, there are quite a number of players in the industry
and their survival depends on the ability to capture market
share thus, contributing to intensity of rivalry. Furthermore,
products are perceived as commodities and customer choices
are determined by price.
PRODUCT RANGE
Available products in the industry include compulsory and
non-compulsory products. Compulsory products are hose
made compulsory by law with the aim of providing
protection to third parties and the general public.
Compulsory insurance is of six types:
- Builders Liability – under the Insurance Act 2003/under
the Lagos State Building Control Law 2010
- Occupiers Liability – under the Insurance Act 2003 and
Lagos State Law
- Employers Liability – (Group Life) – under the Pension
Reform Act 2004
- Employers Liability – under the Workmen's
Compensation Act 1987
 INDUSTRY REPORT 2016 | FINANCIAL SERVICES
22

- Healthcare Professional Indemnity – under the NHIS suffer injury, sickness or fatality while working for the
Act 1999 employer. It also protects employers from the risk of large
- Motor 3rd Party Liability – under the Insurance Act 2003 claims for injured employees. The penalty for non-
compliance is twice the amount that would have been paid
Builders Liability Insurance as premium.
This is a type of insurance that all owners or contractors
of buildings under construction (more than 2 floors), must Healthcare Professional Indemnity Insurance
purchase to provide compensation in event of bodily injury, This is a type of insurance that all medical professionals,
death and property damage to workers at construction sites institutions and centres are required to have under NHIS
and affected members of the public following collapse of act 1999 section 45. The law requires all medical institutions
the building and other construction risks. A penalty fee for registered under the NHIS and working therein. It provides
non-compliance is N250, 000 plus 3 years imprisonment, compensation for the NHIS patients who suffer Death,
record of conviction, sealing-off and demolition of the Sickness, Permanent Disability, Partial Disability and Injury
building are the penalties provided under the Federal and from mistakes, negligence, errors of commission or
Lagos State laws. omission of medical practitioners and institutions. The
penalty for non-compliance with the law is Personal
Occupiers Liability Insurance prosecution for involuntary murder and/or revocation of
This is a type of insurance that all owners or occupiers of the permit of medical institution.
public buildings, are required to provide under the National
Insurance Act 2003 and the Lagos State Building Control Motor 3rd Party Liability
Law 2010. A “public building” is any building that is not This is a type of Insurance that is compulsory for all
100% used by the owner for residential purposes according owners of Motor vehicles whether private or commercial.
to the Nigeria Insurance Act 2003. Public buildings include The law states that “no person shall use or cause or permit
tenement houses, hostels, residential buildings occupied by any other person to use a motor vehicle on a road unless a
tenants, lodgers or licensees, and any other building to liability which he may thereby incur in respect of damage to
which members of the public enter and exit for the the property of third parties is insured with an insurer”.
purpose of educational, recreational or medical services Motor vehicle 3rd party liability provides compensation in
(e.g. schools, cinemas, hospitals, malls, petrol stations, etc.). the event of death, bodily injury, and property damage to
members of the public. The penalty for non-compliance is
Occupiers Liability Insurance provides compensation in a fine of N250, 000 or imprisonment for 1 year or both.
events of bodily injury, death and property damage to the Non-compulsory insurance products are not required by law.
business users and members of the public in case of They include but are not limited to the following:
building collapse, fire, earthquakes, storm or flood. The - Fire/Special Perils Insurance – This covers damage or
penalty for non-compliance is N100, 000 plus 1 year loss to property resulting from about 26 perils including
imprisonment, and sealing-off or demolition of the Fire, Flood, Earthquake, Lightning, Explosion, Riot, Storm,
building under the federal and the Lagos State laws. Civil Commotion, etc
.
Employer's Liability (Group Life) Insurance - Burglary or Theft Insurance – This covers damage or
This is a type of insurance that all employers of labour loss to property as a result of burglary or theft.
with more than 4 employees are required to have (stated
under the Pension Reform Act 2004). The law requires the - Accident, Death & Disability Insurance - This covers
employers to have insurance that will provide for economic loss to the insured (and relatives) as a result of
compensation in the event of death, disappearance, personal bodily injury, disability or death.
disability, or critical illness suffered by staff while in service
and to subsidize pension provision in the event of mental - Child's Education Insurance – This insurance provides
or physical disability. This law applies to both public and for primary, secondary and/or tertiary education of
private sector employees. This means that employees (and children whether the parents are dead or alive.
their families) have the right to demand compensation and
payment from their employers in the event of injury or - Household Contents Insurance – This covers loss or
death. The penalty for non-compliance with this law is damage to clothes, shoes, jewelry.
N250, 000, record of conviction. In addition, the business
premises may be sealed up. - Goods-In-Transit Insurance – This covers loss or
damage to goods being transported from one place to the
Employer's Liability (Employee's Earlier other either by rail or road.
Compensation) Insurance
This type of insurance focuses on factory workers - Life Protection Insurance – This covers Income,
(including domestic servants and apprentices) and all other Mortgage, etc.
categories of employees. The law requires employers to
have insurance that will provide compensation for workers - Professional Liability/Product Liability Insurance – This
that suffer from injury, contract diseases or die in the type of insurance covers one's business or product by
course of employment. This means that employees (and providing for economic loss in the case of claims by
their families) have the right to demand compensation and consumers/clients.
payment of medical expenses from their employers if they
 INDUSTRY REPORT 2016 | FINANCIAL SERVICES
23

properly insured. Both regulatory agencies further agreed to

RECENT EVENTS enforce compliance with Section 5(2) of the NHF Act,
which "prescribes that every registered insurance company
Takaful Insurance and Strategic Partnerships for Retail shall invest a minimum of 20 percent of non-life funds and
Insurance 40 percent of life funds in real property development of
Selling an insurance policy to the average Nigerian was which not less than 50 percent shall be paid into the NHF
almost impossible some years ago but, this has improved through FMBN."
slightly over the years. This slow progress can be attributed
to factors such as religious beliefs, size of disposable The landmark partnership would provide mutual benefits
income, perception of insurance, degree of financial to both parties by helping on one hand, to boost insurance
literacy, etc. Patronage largely came and still comes from penetration and the other hand, provide scarce funds
corporate bodies and government agencies. Retail has required by the National Housing Fund to enable it try to
experienced growth but still has a long way to go. The bridge the huge housing deficit.
industry is still broker-dominated, as insurance brokers
play a central role in the sector, accounting for as much as NAICOM to Adopt Name-and-Shame Policy for Erring
70%-90% of industry revenue. Brokers act as intermediaries Insurance Operators
between the corporate organizations and insurance
companies; underwriting contracts and contracting the The Commissioner for Insurance/Chief Executive,
underwriting policy to insurance companies. Although National Insurance Commission (NAICOM), Mr.
regarded as significant influencers, their activities have been Mohammed Kari, the agency would adopt the name-and-
fingered to be contributing to stifling insurance penetration. shame policy in trying to restore sanity to insurance practice
Over the years, insurers have made efforts to improve the in the country. He said the proposed strategy would among
retail segment. According to Auwalu Muktari (Group other things deter bad behaviour among operators in the
Executive Director, Royal Exchange Plc) with the coming industry. He stated that the chief executives of all insurance
of retail businesses set up by the various underwriters and companies in the country had agreed to the policy which
micro-insurance, insurance awareness will get to the would have names of defaulting operators publicized to
common man at the grassroots and it will be embraced as keep them “away from doing bad.” He also argued that
a way of life. Many insurance companies are re-strategizing NAICOM had been able to restore some measure of
and working towards capturing the retail market segment. consumer confidence in the industry through recent policy
This has led to the birth of new products to meet the needs initiatives including an outright directive to settle all
of the underserved market. Some of these newer insurance legitimate claims. He also said some of the recent negative
products include micro insurance, designed for low-income publicity about the industry was largely based on perception.
consumers. These products feature policies that are easy to He said: “You find the majority of people that tell you
understand, low premiums and room for customization as insurance is not good don't even have an insurance policy,
well as simple collection and claims processing. it's just what somebody told them or what they've heard
and they amplify it without having a personal experience.”
In 2015, NAICOM introduced Takaful insurance as part of
efforts towards promoting inclusive insurance participation The International Labour Organization (ILO) impacts
in Nigeria. “Takaful” is an Arabic word meaning insurance in Nigeria, 15 other countries
“guaranteeing each other” or “joint guarantee”. It is a The International Labour Organization (ILO) has helped
practice where individuals in communities guarantee Nigeria and 15 other countries in developing their markets t
themselves against loss or damages. Takaful insurance is hrough its Impact Insurance Facility to garner an all-
said to be the opposite of conventional insurance hence, inclusive insurance and sharing of good practices among
the commission's perceived attractiveness to Nigerians African countries. The ILO has in tandem with this,
irrespective of religion. While conventional insurance substantially supported market development activities in
entails insuring assets without losses, Takaful insurance Tanzania, Morocco, Kenya, Mozambique, Ethiopia, Zambia,
ensures reimbursement of extra funds made by the insurer Senegal, Ghana, Pakistan, Indonesia, Bangladesh, Colombia,
to contributors if no losses were recorded at the end of Dominican Republic, Peru and Brazil. It was in the course
the year. of this that the organization entered into partnership with
African Reinsurance Corporation (Africa Re). The team
The dynamics in the retail market is also undergoing leader of 2016 ILO's Impact Insurance Facility, Mr. Craig
changes as underwriters now seek to directly promote and Churchill said the ILO has substantially supported market
distribute their products to consumers via strategic development activities in those 16 countries. He said that
partnership with corporates, community-based the partnership between the ILO's Impact Insurance Facility
organizations, micro-finance banks, non-governmental and Africa Re will develop the capacity of insurance
organizations, religious organizations and other employers providers to offer valuable insurance products to the
of labour. financially excluded population, and is enabling the insurance
sector, governments, and their partners to realize their
NAICOM and Federal Mortgage Bank Of Nigeria potential by promoting impact insurance. He recounted that
(FMBN) Strengthen Partnership ILO's Impact Insurance Facility in 2015, witnessed an
In 2015, the National Insurance Commission (NAICOM) exciting transition after years of pushing the frontiers of
and the Federal Mortgage Bank of Nigeria (FMBN) agreed inclusive insurance by supporting innovations, adding, “We
to work together towards ensuring that all mortgages are switched gears and started to proactively promote the
 INDUSTRY REPORT 2016 | FINANCIAL SERVICES
24
experiences of leading insurance providers, and the lessons
they have learned, to enable others to follow suit without
reinventing the wheel or stumbling over the same obstacles.
“It would allow us to compare countries and identify the
most promising strategies for particular ones. We have
therefore designed a country-scoring tool which assesses
insurance markets in terms of both quality and scale.”
Throwing more light on the partnership, Mr. Michal Matul,
Chief Project Manager of the ILO's Impact Insurance
Facility said the partnership between the ILO's Impact
Insurance Facility and Africa Re will develop the capacity
of insurance providers to offer valuable insurance products
to the financially excluded population, and will promote
cross country collaboration and sharing of good practices
among African countries. “We are thrilled to collaborate
with Africa Re to extend better insurance coverage to more
low-income households, small enterprises and smallholder
farmers. We believe that Africa Re's relationship with the
insurance industry and governments across the continent
will provide a strategic entry through which we can jointly
promote the impact insurance agenda,” said Matul.
NCRIB Set To Re-enlist 21 Delisted Broker by
NAICOM
In January 2016, the President of the Nigerian Council of
Registered Insurance Brokers (NCRIB), Mr Kayode
Okunoren, announced the re-enlisting of 21 of its
OPPORTUNITIES IN THE INSURANCE VALUE CHAIN
The Insurance Value Chain
Product/Service Marketing
Primary Activities
Development & Sales
- Underwriting - Promotion
- New Products - Target Markets
- Product Management - New Customers
- Delivery Channels - Cross Selling
Value Proposition
- Research - Up Selling
- Prevention &
- Mitigation
Support Activities
Company Infrastructure (Finance, IT, Risk Management)
Human Resources Management
Opportunities identified in the value chain are as follows:
Outsourcing of Claims management process
Competitive success in the insurance industry globally is
based on the innovative efforts of today designed to
favorably influence the operating models, processes,
products and customer relationships in the future.
Availability of operational support options permits
businesses to compare providers, analyze the insurance
value chain and identify efficiency, enhancement and
organizational transformation opportunities. Outsourcing
is one mechanism to achieve these gains. An outsourced
claims management process can transform an insurance
members de-listed from practice in 2015.
According to him, the council had opened dialogue with
the National Insurance Commission (NAICOM) on the
issue. He added that NCRIB is determined to restore the
businesses of its de-listed members to make them
contribute to nation building.
He applauded NAICOM's efforts at sanitizing and
repositioning the insurance sector but argued that more
was expected from the regulator. “This council is not
opposed to NAICOM's plan to sanitize the industry but
we are not happy that the final and official list of de-listed
companies did not get to NCRIB before being published.
“It is only 21 out of the 108 delisted brokers that are
registered members of NCRIB. “I said and repeat, 80 per
cent of delisted brokers are not members of NCRIB and
we don't have members that flaunt regulatory requirements.”
Okunoren said, however, that the council had kicked off
the first phase of its engagement with NAICOM to bring
delisted members back to reckoning. “All things being equal,
we expect them to be back in business by March.”
He appealed to NAICOM to ensure sustenance of
communication channels with the council. “In other words,
our members should be notified in good time on any aspect
of compliance in which they are on the wrong path.''
Policy Claims/Benefits Asset
Administration Management Management
- Transaction Processing - Claims Submissions - Portfolio Management
- Payments - Claims Settlement - ALM
Value to Customers
- Payment - Risk Analysis
- Fraud
Margins
Data Analytics
Reinsurance
company, but it necessitates careful planning, partnering,
transition and execution with great skill.
Outsourced processes are typically offered through either
“full service”, “prime vendor with subcontractors” or
“selective” outsourcing arrangements. Outsourcing
organizations can gain process capabilities through joint
ventures, groups and other resource-pooling models.
Further, an organization that offers an internally-built
to the marketplace in effect creates an independent profit
center, responsible for delivering services internally and
externally.
 INDUSTRY REPORT 2016 | FINANCIAL SERVICES
25
IT infrastructure
Communication and information technologies have had
astonishing impacts in developing countries. Subscriptions
for mobile phones in developing countries grew from a
few hundred million at the beginning of the century to
three billion in 2008, and in Africa there are on average 40
mobile phone subscribers per hundred people. The spread
of the internet is lagging behind mobile phones but is
showing similar growth trends.
The internet, mobile phones and chip cards have the
potential to reduce costs and increase the outreach of
micro insurance throughout the supply chain. Agents and
clients can submit applications electronically, policies can
be automatically generated and distributed online, and
electronic/automated premium payments will all further
increase efficiency. For example, Tata AIG in India already
provides online information, application forms and
premium calculators for its micro insurance products.
Additionally, Microcare in Uganda provides online client
registration and application forms. A significant benefit in
the move from paper-based to electronic processing is the
quick generation of detailed data, which allows for better
mortality and morbidity studies, better pricing and
broader understanding of the risk within a particular
market. If used effectively, it can offer the potential to
create products that are better fitted for a market. Clearly
if micro insurance is to reach massive numbers,
technological innovation will make it happen.
Social media for Marketing and Customer
Relationship Management
Social media can be used in:
Researching products: With the growth of internet usage
and activity on social media, countless lives are “going”
digital. In view of this, consumers are tending to conduct
price comparisons when researching products (including
insurance). They're also asking questions through social
media, to their connections and friends, seeking advice on
benefits, reliability of insurers, etc.
Obtaining quotes: Some insurers are using new
technology like phone applications to generate, buy and
renew insurance quotes.
Service policy: Social media allows for interaction with
customers, and vice versa. This can enable insurers learn
more about their customer's needs and educate them
about the best policies, the benefits of their current
policies etc.
Renewal/Terminate policy: Websites can be used to fulfill
consumers' renewal and termination needs, thus the same
potential is available for insurers to use social media as a
means to improve renewal numbers.
KEY CHALLENGES
Over the years, the Nigerian insurance sector is largely
focused on corporate businesses. The retail insurance
market is limited with a key barrier to the expansion of
this market, being a lack of trust. Since 1987, the
government has made 6 products mandatory, including
third party motor, health care indemnity, group life,
builders' liability and occupiers' liability; yet enforcement
of compulsory insurance is a big challenge.
Of concern is the high incidence of fake compulsory
insurance, such as third party motor vehicle insurance.
These products are sold by companies that have not
officially registered as insurance companies and therefore
will not make any insurance pay-out. In principle, they
only sell the insurance certificate so that motorists can
show their certificates and are not liable for fines. Earlier
research (World Bank, 2008) estimated that 60-80% of all
motor vehicle insurance policies were provided in this way
and recent industry conversations and press articles
suggest that the practice is still rife.
Seemingly comfortable in the corporate niche, the
insurance market has generally been relatively slow to
innovate and to meet the challenges of expanding the
market to the low income segment. In addition, the large-
scale roll-out of insurance products is complicated by the
absence of a well-established payment infrastructure.
Most premiums are collected on an annual basis and
collecting premiums in cash is reportedly the single
biggest challenge facing the retail insurance market. Due
to the challenges of cash collection (most notably getting
customers to make cash premium payments on a regular
basis), insurers typically have a preference for direct debit
collection. In Nigeria, however, direct debits are not
feasible at scale, since only 30% of the population are
banked.
RECOMMENDATIONS
Intensification of Consumer Orientation Campaign
According to the financial inclusion theory, drivers of
exclusion relate to either usage or access factors. Access
barriers include: physical proximity, affordability,
eligibility, appropriate product features/terms and
regulation. Should either of these criteria not be met, it
will not be possible for the person to access the service.
Usage barriers involve the exercise of judgment by
individuals on the value of the product and its ability to
meet their needs based on their experience and
knowledge. Sometimes a person may have access, but still
choose not to use financial services. Usage drivers may
include: the level of financial literacy; the value
proposition of the formal product; relative cost (e.g.
compared to informal alternatives); the “hassle factor”
(e.g. of filling out forms); and perceptions of and lack of
trust in formal products and institutions.
In a survey by ELFINA, usage barriers accounted for
84% of reasons for not being insured. Of this, 36% cited
lack of knowledge of benefits as the reason for being
uninsured. This suggests the essential need for a massive
orientation of consumers if insurance penetration is to
improve.
Strategic Investment in IT infrastructure
Strategic investment in IT infrastructure is required in
order to achieve bigger scale and leverage the potential in
the country's population. Consider the Indian and
Ugandan examples stated earlier (opportunities in the
value chain).
 INDUSTRY REPORT 2016 | FINANCIAL SERVICES
26

Strategic Partnerships
The banking industry has conducted strategic
partnerships with other industries such as
telecommunications, mortgage, automobile retail, etc. in a
bid to increase deposits and interest income. The insurers
can also tow this route by exercising creativity in
partnerships in a bid to increase premiums.

Social media for Market Research and Customer

Relationship Management (CRM):
Industry players should consider using social media
monitoring to listen to find out what's being said about
their products. This will help to assess both the positive
and negative perceptions of the products and how this
influences the research stage of the customer value chain.
If they're not being talked about perhaps, this is an
indicator that marketing and promotional activities need
to be reassessed.
Insurers should consider enabling current and prospective
customers' access to price and data information on the go,
considering the continual increase in use of mobile
devices. This could be particularly valuable for travel and
car insurance companies.
Insurance companies need to assess the best way for
engaging with their market and audience. The best way to
do this is to come up with a social media management
plan and a content strategy that is personalized, useful,
relevant and targeted.
Social media can be particularly valuable in disseminating
useful information that could help to reduce claims. Claim
handlers could also mine Facebook, Twitter and other
social networks to assess the legitimacy of claims based
on the data, comments and conversations of the claimant.
One of the main benefits of social media is the potential
to gather valuable CRM data. For the insurance industry
this could be information like renewal dates, policy types
etc. If this information is gathered then engagement
could revolve around not only acquiring new customers,
but targeting them before their renewal date to encourage
them to renew the policy, or change to a different one,
rather than terminate.
FMCG
 INDUSTRY REPORT 2016 | FMCG
28

The Fast Moving Consumer Goods (FMCG) sector of the
Nigerian economy has faced a lot of challenges in the last
three years and no significant improvement has been
experienced up till February 2016. The challenges which
are a direct result of unfavourable macro-economic factors
have grossly reduced this sector records of losses by most
key factors – depreciating Naira, delay in appointment of
ministers to run the economy, the adamant government
posture concerning devaluation, falling oil prices and non-
payment of workers' salaries.
The performance of FMCG firms is inextricably linked to
the aggregate spending power in the economy, and with
the Nigerian economy hit by these macro-economic
factors, FMCG firms have particularly been hurt badly.
This report unravels the ills this sector has suffered in
recent past and a way forward in the near future, up till
2020

KEY PLAYERS

Changes in consumption pattern can be measured by
consumer price index (CPI), which shows changes in
prices paid by consumers for a basket of goods and
services. Given the recent uncertainties rocking the
Nigerian economy, it would be pertinent to consider the
price index in the face of inflation and other realities.
The graph below shows the trend of CPI between
October 2014 and September 2015.

To thoroughly review the industry, the Porter's Five Forces buyer and supplier, intensity of rivalry and threat of
framework would help us get a good understanding of the substitutes.
five basic areas – barrier to entry, bargaining power of

COMPETITIVE ANALYSIS - PORTER’S FORCES

Barriers to entry: Entry into the FMCG industry is procurement and maintenance, government regulations for
hampered by high capital required for equipment and land the industry (NAFDAC and SON), the technical skills and
 INDUSTRY REPORT 2016 | FMCG
29

the expertise required is also high. However, with the rapid
entry to market of small indigenous companies, the
multinationals cum big players constantly lose market share
to the small players in the rural areas. We consider the
barrier to entry medium.
toothbrush, fruit is an alternative for fruit drinks, soft
drinks and confectionaries, palm wine for alcoholic drinks,
shea butter for body cream and so on. Certain other
products within this industry generally have substitutes
that are within the same industry. For instance, as an
alternative for sanitary pad, toilet paper or tissue, which is
another product of the FMCG industry, can be used.
An informal study of the purchasing patterns of
consumers have shown that, consumers purchase
agricultural products for other purposes (example is the
purchase of fruit for healthy living), rather than as
substitutes to FMCG products. Also, due to increasing
urbanization and the ensuing fast paced environment,
consumers have a tendency to focus on products and meals
that require little or no processing time rather than
agricultural products that may be time consuming to
process and/or use, e.g. chewing stick, pieces of material
used instead of sanitary pads, etc. Following this analysis,
it is safe to say that despite the existence of potential
substitutes to FMCG products, these substitutes have little
effect on the industry, as such, the threat is considered as
low.

Bargaining power of suppliers: Raw materials used in Intensity of rivalry: Since the beginning of the discovery
this industry are dependent on the agricultural sector. A of the growth potential in the African market with South
simple analysis of the agricultural industry reveals that the Africa and Nigeria at the Centre of it, numerous FMCG
industry has few regulations and as such, there are no companies have been established in Nigeria. Currently,
established structures for pricing. Buyers of this industry, there are over 100 FMCG companies in Nigeria giving
like players in the FMCG industry, are therefore at liberty room for intense rivalry for margins, market share and
to dictate prices that are favourable to them. Also, because customers.
there is a proliferation of suppliers in the Agricultural
industry, there is competition between the suppliers and CHALLENGES IN THE INDUSTRY
there exists, no monopoly among these suppliers. All these
contribute to reducing the bargaining power of suppliers. Many local and multinational consumer companies are
already thriving in Africa and delivering handsome returns
Bargaining power of buyers: Buyers in the FMCG to their shareholders. However, to succeed, consumer
industry include distributors (wholesalers and retailers) and companies must address five major challenges, some of
individual buyers (customers). In its sales to Businesses and which are usual to businesses operating in other emerging
direct-to-customers, FMCG companies are faced with the markets.
issues which arise based on the proliferation of the different
brands of FMCG products in any given territory. This - Heterogeneous market structure: Nigeria has several
proliferation ensures that switching costs from one brand markets with large disparities in the demographics; there is
to another are very low for customers. This therefore entails a large difference in the spending power and consumer
that customer retention is usually low for the industry and behavior, so a one-size-fits-all approach will not work in all
as such, players in this industry constantly seek methods of the markets.
retaining customers including price reductions, concerted
efforts on marketing and advertisement. All these lead to - Varying affordability levels: Ninety-five percent of the
higher costs of operation and lower revenues for the population and 71 percent of the income remain at the
business. This may translate to low margins for the base of the pyramid. Companies thus will not be able to
individual business and the industry as a whole. Therefore, build sizable businesses through premium goods alone;
the high bargaining power of the customer is largely due to they will have to reinvent their business models to deliver
the existence of several brands of any one product. the right products at the right price point.

Threat of Substitutes: Key segments in the FMCG
industry are household care, personal care and food and
beverages. Especially for the household care and the food
and beverages segments, FMCG products are considered
essential for daily living. Products such as bathing soap,
body cream, toothbrush, toothpaste, beverages and milk
are included in this category. For most of these products,
their substitutes are within the agricultural sector. For
instance, chewing stick is an alternative for toothpaste and
- Underdeveloped distribution and route to market:
Modern trade is still nascent in most of Africa. The
traditional mom-and-pop shops, open markets, umbrella
vendors, and the like dominate the retail scene, making up
more than 85 percent of the trade volumes. Poor roads
and infrastructure can make delivering products to
consumers a daunting task, so companies must build
strong sales and distribution networks by leveraging a mix
of third-party, wholesale, and direct-distribution models.
 INDUSTRY REPORT 2016 | FMCG
30
- Nascent categories: In Africa, many categories still are
not fully developed. Data about consumers' needs and
behavior are scarce, making it harder to develop specific
consumer insights. Competing in Africa therefore is not a
share game. Rather, companies need to bring a market-
development mind-set, investing in consumer education
and nontraditional marketing techniques.
RECENT EVENTS
Companies in the FMCG sector have seen their bottom
line crumble as a result of the macroeconomic challenges
prevailing in the country. Firms in the industry have been
facing challenging times since 2015; with the continuous
depreciation the Naira and the steady inflation, the inability
of state governments to pay workers' salary and the recent
threat of a 45% hike in the price of power supply, the
players have had a hard stone to grind. Investor confidence,
though quite unpredictable, Nigeria is yet to witness any
form of capital flight despite the macro-economic
headwinds which has reduced investor value in the financial
markets. The oil price slump which the government solely
depend on for its purchasing power is said to be the first of
headwinds prevalent in the country – as at the time of this
report, the oil price had fallen to as low of $25 barrel.
VALUE CHAIN
GENERAL MANAGEMENT, ACCOUNTING & FINANCE
PROCUREMENT & SUPPLY CHAIN MANAGEMENT
HUMAN RESOURCES, STAFFING & CAPABILITY BUILDING
TECHNOLOGY & RESEARCH & DEVELOPMENT
INBOUND OPERATIONS OUTBOUND MARKETING
LOGISTICS (Manufacturing, LOGISTICS & SALES
(Quality production, (Dispatch, (Market Research, (CRM,
Control, packaging, Shipment Sales Strategy,
Scheduling) maintenance) handling, Promotions etc)
Delivery)
OPPORTUNITIES EXISTING IN THE VALUE CHAIN
To win in the FMCG sector, companies have to look
beyond core activities of the industry. Special attention
must be paid to four key areas:
a. Market research for consumer insight: Companies
in this sector need to give a keen focus to their
marketing function, using it as a tool for sustainable
competitive advantage. Companies that will win must
be at the fore of observing consumer behaviours and
making changes to attributes of their products that suit
the changing consumer requirements.
b. Capability Building: Human resource is the biggest
competitive asset in the arsenal of any business that
seeks to survive in the new global competitive
landscape. Companies need to revive their commitment
to growing and constantly developing their talent pool
that not only adapts to the changing operating climates,
but is also actively involved in shaping the market
- Talent shortages: Despite the abundant work
opportunities, talent remains scarce across Africa. Truly
competing and winning in the long term, however, will
require local know-how and talent. Local capability-building
programs, attractive career paths, and apprenticeship
opportunities will be critical to achieving long-term success.
Furthermore, the decline in the country's foreign reserves
led the CBN to shore up the value of the fast weakening
naira. The devaluation of the naira followed, which led to
high rise in the cost of imported raw materials. Prior to this,
FMCG firms faltered on high energy costs and the
insurgency in the northern part of the country. This can be
seen in the plunge in FMCG firms' net profit for 2014
financial year and even the first quarter of 2015.
Cadbury Nigeria for instance posted a loss of about 90%
in the first quarter of 2015, Nestle also recorded a top line
decline of -17.6% which is its lowest top line in 13 quarters.
Dangote Sugar's after tax profit fell by 29 percent. This
poor performance of these FMCG firms can be attributed
to the low purchasing power in the economy.
MARGIN
POST SALES
SERVICES
Customer
Service)
dynamics of the industry.
c. Supply Chain: A focus on improving companies'
supply chains, due to the import dependency of the
industry is expected to be a key priority for winners in
this sector of the economy. Integration of supply chain
into corporate strategy, investments in information
systems, and coordination with marketing activities are
key innovations that would be critical in delivering value
to the supply chain of these companies. To stall future
adverse effects of weak currency (Naira to Dollar
depreciation), companies should consider strategic
investments in the supply chain so that all raw materials
can be sourced and produced locally.
d. Sustainability: Closely tied to supply chain
management above is sustainability. At the fore of the
campaign for sustainability is Nestle who have aided
their suppliers through training and investment
 INDUSTRY REPORT 2016 | FMCG
31
support for them. They have also reached
memorandum of understanding with the suppliers
such that they would have a steady demand and supply
1. Inclusion of women in the labour force due to smaller
beneficial to both parties. FMCGs should focus on
developing the supply chain through backward
integration thereby creating sustainable long term
businesses for the society.
2. Due to the fact that Nigerians are highly optimistic about
CONSUMER INSIGHTS
Owing to the unpredictable macro-economic environment
of Nigeria which has been facilitated by the drop in oil
prices and the accompanying devaluation of the currency, 3. Due to the increasing demand for value for money,
change in Government and its accompanying drop in
economic activities and investments, consumer spending
and effective purchasing power has greatly reduced.
The result of the analysis conducted as at January, 2015 by
Trading Economics, which captures the prevailing
economic situation in the country, shows consumer
spending dropping from over 18 million in July 2014 to just recommend that firms should focus on the following
a little over 15 million by January, 2015. A further drop of economic trends;
3 million was observed in July, 2015.
Correspondingly, this drop has led to reduced margins for
firms, especially in an industry characterized by its low
margins, led to increased operational costs for industries
and a reduction of wages, as well as an increase in prices of
goods and services.
With the reduction in consumer purchasing power on one
hand, and the consistent increase in prices on the other
hand, there is a need to understand arising consumer
behaviour.
NIGERIAN CONSUMER CHARACTERISTICS
Generally, the consumers in Nigeria are:
- price sensitive
- increasingly seek convenience and speed of service
- increasingly focused on value for money (in terms of
a higher quantity for less price, good shopping
environment and shopping experience)
- increasingly health conscious
- increasingly shop at neighbourhood kiosks or
independently owned convenience stores
- increasingly women due to an increase in the inclusion
of women in the workforce which has led to higher
salary earnings for women
- increasingly have smaller family sizes
- highly optimistic about their economic future
- seek affordable and available products.
IMPLICATIONS OF CHARACTERISTICS
family sizes and urbanization, has led to an increased
consumer market in Nigeria.
their economic future, they are seen in most cases, to
spend unlike rational consumers. Nigerians spend above
their income levels, funded by friends, family,
acquaintances and in rare cases, loans etc.
convenience and speed, consumers make the choice of
shopping in nearby kiosks and open markets.
4. The price sensitivity of the Nigerian consumer entails
that in the face of the prevailing economic situation, the
added expense of added value on service is considered a
luxury. Therefore, consumers may be less willing to pay
for expensive products and increasingly willing to buy
goods that are considered affordable.
5. Due to the fact that consumers seek available products,
they may react to product stock-out by purchasing a
similar available product.
RECOMMENDATIONS
To gain competitive advantage in this industry, we
- Growing population: Nigeria's population is expected
to grow at 3% per annum. This means that by 2020,
Nigeria's population will be about two hundred and ten
million (210,000,000) people. This guarantees increase in
revenues if a company plays its cards well.
- Growing middle class and the quest for quality and
sophistication by the consumer. This growing middle
class income earners will mainly be comprised of youths
between the ages 18-40. This affords companies in the
FMCG to channel their focus wisely in the market place
because this middle class consists of about 40% of the
population.
- Rate of urbanisation: It has been forecasted by United
Nations survey that about 60% of Nigeria will be
urbanised by 2050. Nigeria is said to add about 212
million people to its population by that time. With
urbanisation comes better infrastructure thus the
challenge of underdeveloped distribution routes would
long be solved.
- Rapidly evolving shopping habits: With the spate of
globalization, Nigerians are catching up with the trends
of time and this has equally influenced shopping habits.
A lot more people aspire to shop in recognized centres
as well as identify with brands that appeal to them. Most
Nigerians buy things, not for functionality but for status.
 INDUSTRY REPORT 2016 | FMCG
32
- Growing family income especially with wives/mothers
now active in the labour force. A McKinsey report shows
that more African countries are fast out-growing the
destitute level of income of less $1000 per year. The
middle income level has expanded up $25,000 per year.
This is good news for the FMCG sector.
- Ever-increasing health consciousness in the urban
areas in Nigeria. Any FMCG company that overlooks the
place quality assurance and management may not live to
tell the story. This is especially so because of the rate
information travels in this age because social media
platforms. A product can lose its value once it loses
credibility on the social media. So for companies to play
profitably, they must watch out the health behaviour of
the target consumer.
STRATEGIC ROAD MAP
To develop a winning strategy, more recommendations
would be discussed in four (4) broad aspects:
(a) Customer Value Proposition (DPSM): To serve their prices.
customers satisfactorily, FMCG companies must lay
emphasis on the channels and how the channels are
managed;
Distribution: FMCG companies must lay focus on the
channels that deliver more value to the company and
not just create presence. There are products
manufactured and packaged for certain class of
customers thus be treated that way.
Pricing: Given the price sensitive nature of the
majority of the Nigerian consumer, FMCG companies
must focus on getting their pricing right. They must
master and maintain a flexible pricing strategy.
Shelving: A product that is not properly shelved loses
value. Most buyers buy products that are in the eye
level, thus, if your products don't get a good shelf
share, such would lose sales over time.
Merchandising: Another strategic sales focus for
FMCG is merchandising. Companies that get their
merchandising right will win in the market place all the
time
. bigger than the Netherlands, Thailand, or Malaysia. Trade
(b) Key Resources: To get the entire sales strategy right,
there must be qualified and well-trained sales personnel.
Companies that invest in the capability development of
its staff – especially sales and marketing stand the
chance of having a long term winning strategy. Smart
and well-trained personnel are the originators and
drivers of successful companies. At the fore-front of
this is Procter and Gamble, who is foremost in
capability development.
(c) Key Processes: Branding cannot be over-emphasized
in the FMCG sector. This starts from the quality of
products that are made to the quality of packaging that
it comes in. Many FMCG companies in Nigeria have
learnt hard lessons from product lines that had quality
issues. In recent times, many companies
(d) Sustainability: To win in this highly commoditized
market, companies would have to invest in the future
of their businesses by supporting their supply chain.
This would improve goodwill, profit sharing and a
better society rid of unnecessary violence and unrest.
Also, with the spate of globalization and ever increasing
need for environmental protection, future-focused
FMCG companies must pay attention to corporate
social responsibility as this would be a major source of
competitive advantage.
NIGERIA TODAY & IN THE NEAR FUTURE
A McKinsey report holds that Nigeria can live up to its
economic potential and make growth more inclusive, which
can bring more Nigerians out of poverty and up to the
McKinsey Global Institute (MGI) “Empowerment Line”—
a level of income and access to vital services that provides
a decent standard of living. The Empowerment Line, we
believe, provides a more realistic picture of well-being and
development progress than common poverty measures,
which tend to be based on pure income metrics, usually
$1.25 per day in purchasing power parity terms in 2005
Among the major findings of this research:
- Since 2010, Nigeria's GDP growth has been driven
primarily by improving productivity, which has
contributed 55 percent of total growth, more than
labour-force expansion.3 Most GDP growth is coming
from beyond the resources sector, which is now just 14
percent of GDP. However, historical weaknesses in the
agricultural sector and a poorly functioning urbanization
process have prevented most Nigerians from benefitting
from this growth. Poverty has barely declined, and
approximately 130 million Nigerians, or about 74 percent
of the country's population, live below the Empowerment
Line.
- Nigeria has the potential to expand its economy by
roughly 7.1 percent per year through 2030, raising GDP
to more than $1.6 trillion in 2030. This could move
Nigeria from being the 26th-largest economy today to a
top-20 economy by 2030 and would potentially make it
and infrastructure represent the majority of the growth
potential, likely contributing about a third of GDP
expansion through 2030. In addition, we estimate that
nearly 120 million Nigerians could move above the
Empowerment Line and 70 million could be lifted out of
poverty if growth can be made more inclusive than it has
been.
- Nigeria is developing a large consuming class. By 2030,
some 160 million Nigerians (out of a projected
population of 273 million) could live in households with
sufficient incomes for discretionary spending. That would
be more Nigerian consumers than the current populations
of France and Germany combined.6 Therefore, we
estimate that sales of consumer goods could more than
triple by 2030, to almost $1 trillion. To succeed in
Nigeria's evolving consumer markets, companies will
need to deal with a fragmented wholesale and retail
 INDUSTRY REPORT 2016 | FMCG
33

environment that favours local players. New players will

need to manage distributors effectively and take a city-
level view of markets.

RESOURCES
i All pictures in this document were downloaded from Google Images
ii United Nations Survey, http://esa.un.org/unpd/wup/highlights/wup2014-highlights.pdf
iii McKinsey &Company, MGI_Nigerias_renewal_Executive_Summary.pdf
Oil & Gas
 INDUSTRY REPORT 2016 | OIL & GAS
35
The Nigerian Oil and Gas industry is one of the most
viable industries in the economy, responsible for over 70%
of the country's revenue from exported products. In the
past three decades, the industry has been of strategic
importance to the country's economy as it accounts for
about 90% of the country's total earnings from foreign
exchange. The government-regulated Oil and Gas industry
comprises three major sub sectors: upstream, midstream
and downstream, with the involvement of local and
international private-owned companies.
Ranked the 13th largest producer and 8th largest exporter
of oil in the world, Nigeria's current production averages
about 2.55million barrels of crude oil per day, with the
selling price of Brent at about 34.5 dollars per barrel as at
the third week of February, 2016. Currently, refineries are
able to produce up to 6.76 million barrels per day from
combined capacities of the three refineries in Kaduna,
Porthacourt and Warri.
In 2010, the Federal Government of Nigeria passed the
Nigerian Content Act in a bid to develop local content.
Due to the resulting asset sharing amongst local and
international players, there was significant growth in the
industry, attracting about $5 billion in investment. However, imports at an expensive dollar rate will further reduce the
due to global oversupply of crude oil and the rapid
emergence of alternate forms of energy, this bloom
in the industry has since waned significantly, with a
OIL & GAS INDUSTRY IN FIGURES
persistent decline in the price of crude per barrel, from
>$100 in November 2014 to prices as low as $29 in 2016.
In addition to oil theft, vandalism and infrastructure gaps
in Nigeria, this decline in crude oil prices has caused
several International Oil Companies (IOCs) to suffer
losses in investment. The IOCs have therefore sought to
mitigate these risks by divesting from on shore assets to
country's offshore concession, giving the indigenous
companies the opportunity to acquire the unwanted assets
and become key players in the upstream sub sector .
Although the government is focused on growing local
content, indigenous companies face similar challenges,
even as they tackle the issues of funding while exploring
the entire value chain of the oil and gas sector.
The downstream sub sector -the basis of this report- is
particularly faced with high finance risks due to the current
exchange rate volatility and irregular subsidy payments by
the Federal Government. In other words, given the naira
devaluation against dollars, banks are unwilling to fund the
working capital that the players require to import refined
crude products. Given that the bulk of these key players'
revenue comes from subsidy, increase in petroleum
already thin margins in the downstream sector.
 INDUSTRY REPORT 2016 | OIL & GAS
36
 INDUSTRY REPORT 2016 | OIL & GAS
37

INDUSTRY ANALYSIS USING PORTER’S 5 FORCES

RECENT EVENTS

OPEC: Under Pressure NNPC Restructuring

With the dwindling price of crude oil, OPEC countries The newly appointed Group Managing Director of the
have reacted differently, causing the cartel not to function Nigerian National Petroleum Corporation (NNPC) has
as it ought to. Saudi Arabia, Kuwait, Qatar and the UAE started a restructuring process aimed at improving its
have been ranked as healthy states, with the capacity and processes and efficiency- the workforce is currently being
wealth to increase or withold production- they are able to rightsized while projects and accounts are undergoing auditing.
offer steep discounts to Asian crude buyers. The second
group in OPEC has Algeria, Ecuador, Angola, Venezuela
and Nigeria tagged as the declining producers, while the
third group -comprising Iran, Iraq and Libya- is called
“dysfunctional” (Iran, Iraq, Libya) because while they have
the capacity to increase production, they suffer volatile
economies due to their political climates.
 INDUSTRY REPORT 2016 | OIL & GAS
38
RECENT GLOBAL TRENDS
The trends lead to a general conclusion that there is a need
to increase efficiency and lower costs of exploration and
production, mostly through automation and innovation.
Global economic weakness
Growth has slowed in China and the financial woes have
continued in Europe. U.S. Energy Information
Administration estimates that in 2014 the increase in the
global supply of petroleum and other liquid fuels was
almost twice the increase in consumption.
Tougher fuel economy regulations
The European oil refining industry is experiencing a
systemic crisis. Ongoing trends such as the decrease in US
gasoline imports and the commissioning of new highly
effective oil refineries in the Middle East and Asia will
continue to have a long- term negative effect on European
producers.
Maintaining oil production in Russia requires large-scale
use of new technologies and supporting regulations.
Projects currently planned are unable to compensate the
production decline of brownfields. Without large-scale use
of new technologies and supporting regulations, oil
production in Russia will begin to fall in 2016-2017.
The Russian oil refining industry will undergo significant
modernization but risks of gasoline deficits remain.
Measures taken by the Russian government will promote
modernization of domestic oil refineries but the situation
concerning the automotive gasoline market will remain
quite tense until 2016-2017.
More viable forms of alternative energy
Renewable sources, such as wind power, are becoming
more economical and could crowd out fossil fuels. If wind
is used for the production of one-tenth of the energy
consumed globally, the production of up to one billion
tonne of carbon dioxide can be reduced each year.
According to British Petroleum (BP), four-fifths of These activities in the oil and gas industry are presented in
demand growth is currently attributed to emerging the charts below.
economies. But even their growing appetite for energy may
subside at some point. VALUE CHAIN
Efficient engines curtail the need for oil
The development of extraordinarily efficient engines on
equipment as varied as cars, earthmovers, and power plants
have all combined to dramatically curtail the need for oil as
electric cars begin to become more commonplace.
Oil reserves- not so special anymore
The development of horizontal drilling and hydraulic
fracturing technologies have made profitable a significant
amount of unconventional hydrocarbon reserves in the
United States. This began with the active production of
shale gas which led to the collapse of spot gas prices.
High oil prices in 2011-2012 forced many companies to
start active drilling in unconventional reservoirs containing
liquid hydrocarbons. In 2011 the number of drilling oil rigs
in the US exceeded the number of gas rigs. The United
States increased its production capacity of oil and gas from
Shale enabling it to cater for 90% of its energy needs in
2015 as compared to its 70% capacity in 2007.
The loss of the United States as a major buyer reduced the
demand for crude oil significantly making suppliers tilt to
other nations, with Asia at the top of the list. The reduced
demand consequently caused the price of crude oil to fall
steadily from $106.9 per barrel in July 2014 to $29 in
February 2016.
The demand is still threatened as some countries in Asia -
especially Japan- are making efforts to increase their
reliance on natural gas and resume the use of nuclear
energy.
VALUE CHAIN
The standard value chain for oil and gas sector runs
through about five areas. It begins from exploration
activities involving the search for oil resources, to
production activities which entails exploitation of oil and
gas.
Further activities include transportation of oil to refineries
and finally to consumers, through various modes such as
pipelines and vessels as well as road networks.
Refining involves the transformation of crude oil into
finished products such as fuel, kerosene and diesel. The
final stage is the distribution of finished products to
consumers.
For natural gas, the activities also start with exploration just
like in the case of oil, the next stage is drilling to bring gas
to surface. Then the natural gas is processed before it is
taken to the markets through various transportation means.
The final stage is the distribution of the natural gas to the
various consumers.
Along the value chain, opportunities exist in the refining
of crude oil. Given the naira devaluation against dollars,
importation of refined products will be more expensive,
thus refining locally may lead to wider margins. In view of
rapid development of alternate and more environmentally
friendly sources of energy, as well as the increase in global
oil production and exploration, the future demand for
crude oil may fall. It is therefore important to develop
alternate uses for crude oil by conversion to secondary and
tertiary products.
- Liquefied Natural Gas (LNG): There is clearly an
opportunity in the gas sector. Nigeria has the largest
natural gas reserve in Africa and exports the product to
Europe through the NLNG. Further infrastructure
 INDUSTRY REPORT 2016 | OIL & GAS
39
development will however be necessary to facilitate
business in this sector.
- Lubricants: Nigeria is the third largest consumer of
lubricating oils in the world, currently consuming about
386 million litres annually. There are 32 approved blending
plants with a total installed capacity of 965 million liters
per annum producing at 40% of installed capacity. The
estimated market size was N250 billion in 2015, 175 billion
in 2014 and N150 billion in 2013.
Major consumer segments include:
- Automotive
- Transport passenger cars, Buses, Trucks
- Marine
- Industrials
- Manufacturing, Power generation, Agriculture,
Construction ,Oil and Gas, Food and beverage
- Refining: the current crop of refineries in Nigeria cannot
meet the demand for petroleum products necessitating the
importation of refined products. If marketers sourced
their products from local refineries, the cost of products
would be much lower; there would not be a need for the
subsidy as competition would likely drive prices down to
the benefit of the consumer. The current devalued
exchange rate would offer an advantage for the export of
these refined products as Nigeria's prices would be
competitive in the international market.
- Increased demand for Liquefied Petroleum Gas (LPG):
Nigeria is the largest producer of LPG in West Africa and
has an estimated reserves of 182 trillion cubic feet of gas.
Nigeria has one of the lowest LPG consumption per capita
in West Africa (1.1 kg) compared with other West African
countries such as Ghana with 3.0kg; South Africa with
5.5kg; and Morocco with 44kg per capita. In Nigeria, 5%
of households use LPG, 4% use electricity while 91% use
biomass/solid fuels and kerosene for cooking. Only 8% of
LPG produced in Nigeria is utilized domestically with 92%
being exported.
With a potential consumption rate of 3.5 million metric
tonnes, demand for LPG has been on the rise in the
country necessitating an increase in its supply. The 250,000
metric tonnes of LPG supplied by the NLNG is
insufficient to cater for the needs of the country and
marketers frequently experience shortages.
This offers an opportunity for entrepreneurs, investors etc.
to become suppliers in this market which has the potential
for high Return on Investment (ROI).
- Construction of petrochemical industries for
transformation of crude into secondary and tertiary
products that can be exported.
DOWNSTREAM SECTORS
The downstream sector has different segments, including:
- Transmission and conveyance: this is the first part of the
value chain and it involves the transmission of crude oil
and gas through pipelines or tankers to the refineries
where they are processed. The Petroleum Product
Marketing Company (PPMC) is responsible for distributing
the crude oil to the country's refineries for processing.
- Refining: at the refineries, crude oil is processed into
other products such as fuels, lubricants and a variety of
products which serve as input into the petrochemical
industry. Nigeria has four refineries, one each in Kaduna
and Warri with 110,000 and 125,000bpsd respectively; and
two in Port Harcourt with a combined installed capacity of
210,000 bpsd.
- Distribution and Marketing: this involves the
transportation of refined petroleum products to storage/
sale depots. The refined products are transferred through
pipelines, coastal vessels, rail wagons, road trucks etc. The
PPMC is also saddled with the responsibility of supplying
petroleum products; through a network of pipelines, it
supplies to about 21 regional storage/sale depots where
Petroleum Marketers lift the products and deliver to their
various retail outlets.
- Liquefied Natural Gas (LNG): this segment handles the
supply of natural gas from dedicated gas field and the
distribution of these products to the end user. Currently,
the Nigeria LNG (NLNG) is the major player in this sector
and is an important supplier of LNG to European buyers.
The products of the downstream sector
Fuels: The primary fuels sold in Nigeria are the
Premium Motor Spirit (PMS), Automotive Gas Oil (AGO),
Kerosene (DPK) and aviation fuels. There is a huge
demand for these products in the country, however the
combined capacity of the refineries in the country cannot
meet demand and marketers have to import fuel to meet
local demand.
Lubricants: the market can be sectored into the
Automotive segment (which is believed to constitute 80%
of the total lubricant market) and the Industrial segment.
Passenger cars, trucks and buses make up the bulk of the
market for the product; other uses can be found in
manufacturing, power generation and the Food and
Beverage industry.
Liquefied Petroleum Gas: the market for this product is
growing as people switch to the use of LPG which is
considered a clean source of energy for domestic use.
 INDUSTRY REPORT 2016 | OIL & GAS
40
INDUSTRY CHALLENGES
The current challenges faced by companies in the
downstream oil and gas sector are highlighted below:
- Impact of exchange rate fluctuations: There may be
possible reduction in the availability of bank loans and
advancement to fuel marketers considering the uncertainty
in subsidy payment which is a major revenue source to the
marketers. Also, profitability is reduced due to increased
cost of petroleum imports making the “thin margins”
susceptible to further erosion by currency devaluation.
- Deregulation of the sector: Fraught with positive and
negative impacts, the benefits of “deregulation with
regulatory controls” probably outweighs the risks. Possible
benefits include attraction of investors, promotion of
efficiency, stimulation of economic growth through
innovation while saving the government from subsidy and
other spending on the oil sector.
- Dip in oil prices: Oil prices have been known to be very
volatile and this issue has affected the global oil market.
The dip in oil prices has affected the oil industry in
Nigeria, as most of the oil companies record reduced
profits compared to previous years and in some cases,
after-tax losses. This has forced oil companies to result to
aggressive cost reduction in order to weather the storm.
To successfully survive this, the industry must challenge
itself to improve innovation, radical cost reduction
measures, improved contracts, and improved efficiency,
amongst others.
- Slow growth in the Nigerian oil and gas sector:
According to a report by Mckinsey global institute, the
Nigerian oil and gas industry is expected at best to grow at
about 2.3% till 2030 (natural gas is however expected to
grow at 6%).
- Ageing assets: Most oil companies in Nigeria have
dilapidated assets such as pipelines, depots, etc. This leads
to very high operational costs and reduces efficiency.
- Neglect of the gas segment: Priority is given to the oil
segment at the detriment of the gas segment. This poses a
threat to the nation's gas production and income
projections.
- High tax and tariffs
- Capacity constraints: This is especially true of human
capacity and capabilities, as there is a wide professional
knowledge gap in the industry.
- Little or no flexibility in the mode of operation: Because
of the rigidity of structures put in place, a problem in one
area can in fact lead to a complete shutdown of the
nation's production and also affects exports.
- Delayed contracting process
- Poor policy implementation
- Uncertainty due to new government: With the
inauguration of president Buhari, there has been a lot of
uncertainty as to the possible policies that may be adjusted
or created. Also the appointment of the new GMD of
NNPC, Kachukwu, also poses a lot of uncertainty.
RECOMMENDATIONS
Short term
- Innovative and strategic approaches to gain market
position.
- More proactive in engaging technological innovations
(Training, research and development) to drive down
operational expenses.
- Mergers and alliances by smaller players to achieve
economies of scale
Long term
- Reactivate old refineries and build new ones to facilitate
local refining, avoid importation of products and lower
dependency on foreign currency
- Invest in infrastructure that will help monetise natural gas
production from enormous amount being flared yearly
(428Bcf representing about 15% of gas produced in 2013
was flared)
- Invest in petrochemical industries capable of converting
crude to secondary and tertiary products that are exportable
giving the current fall in demand for crude.
- Divest into production and exportation of other
environmentally friendly energy sources such as ethanol
currently used in developed countries, given that corn
(used to produce ethanol) is widely available and can be
easily cultivated in Nigeria.
http://www2.deloitte.com/content/dam/Deloitte/global/
Documents/Energy-and-Resources/gx-er-oil-and-gas-
reality-check-2015.pdf, (2015). Oil and Gas Reality Check.
[online] Available at: http://www2.deloitte.com/content/
dam/Deloitte/global/Documents/Energy-and-Resources/
gx-er-oil-and-gas-reality-check-2015.pdf [Accessed 4 Nov.
2015].
www.dmflex.com, P. (2015). Kachikwu Unfolds Three-
pronged Strategy for NNPC's Restructuring, Articles |
THISDAY LIVE. [online] Thisdaylive.com. Available at:
http://www.thisdaylive.com/articles/kachikwu-unfolds-
three-pronged-strategy-for-nnpc-s-restructuring/217452/
[Accessed 4 Nov. 2015].
Oyejide, T. and Adewuyi, A. (2011). Enhancing linkages of
oil and gas industry in the Nigerian economy. 8th ed. Ibadan,
pp.32-33.
Value Chain of the Oil and Gas Industry. (2015).
Nigerian oil and gas intelligence, financial issue 102, 134.
CNBC Africa, 2015 edition of annual Nigerian oil and gas conference
Telecommunication
 INDUSTRY REPORT 2016 | TELECOMMUNICATION
42
Nigeria's telecoms sector experienced a revolution in 2000
following the deregulation of the telecoms sector by the
then Obasanjo led administration. Before the introduction
of the Global system for mobile communication (GSM)
Nigeria's telecoms sector was monopolized and centrally
managed by the government under the hospices NITEL.
The telecoms sector was in a dearth state, fraught with
inefficiencies ranging from management, capacity, policy
shortage, corruption and low telephony in relation to its
population, only a selected few could afford the luxury of
having a fixed phone at home or in offices-most telephone
connection were found in government offices ,MNC's and
official residences. Nigeria practically lacked a nationwide
strategic plan for ICT-telecoms growth until 2000.
The introduction of GSM released a wide array of
opportunities for Nigeria's economy, as penetration rose
from 0.1% in 2001 to about 70% of the total population in
2015.The sector has since experienced tremendous changes.
There are 4 major GSM operators competing for the
overwhelming attention of the teeming populace as
opposed to the monopoly enjoyed by NITEL, mobile
phone usage led to an upsurge in value creation within this
sector (over 100million people use a mobile phone),
economic contribution to GDP posed an upward trend
with the sector contributing about 8.47% to the GDP with
a YoY 11% growth rate, the multiplier effect has also been
evident in other sectors of the economy such as Finance,
Utilities, Agriculture, Retail, Hospitality and entrant of new
businesses.
inflow, furthermore the call to bid for communication
infrastructure companies to invest in the Nigerian
communication industry has improved the investment
front. . This, in turn has led to a level playing field for
establishing legal and regulatory frameworks as well as
optimum utilization of abundant opportunities present in
the sector.
Despite the gowth of the telecommunication industry and
improved services, there is still a wide gap in telephone
service delivery to rural areas and small towns, also the cost
of voice and data service in relation to other African
counterpart is quite high. The regulators are trying to tackle
the issue by creating an OAM (Open Access Model) for a
wider and secure reach thus far the plan is still in the offing.
THE OPEN ACCESS MODEL
This is the model for optic fibre transmission network
development to bridge the current gap and deliver fast and
reliable broadband services to households and businesses.
The model is also envisaged to address the challenges of
congested and unplanned towns, the challenges around
infrastructure sharing and other issues such as high cost of
Right of Way.
The Open Access Model is expected to help optimize the
cost of broadband access across Nigeria and ensure that all
operators, whether large or small, have equal access to
broadband infrastructure.
CAPITAL IMPORTED BY SECTOR IN 2015 ($ million)

Surpassing South Africa, Nigeria has become the largest

mobile market in Sub Saharan Africa, with a subscriber
base of more than 149 million and market penetration of
70%. With the support of strong regulatory environment,
the country has witnessed an upsurge in the number of
companies providing Value Added Services and basic
telecommunication services. Thriving industries, such as
agriculture, telecommunication, fashion are witnessing
monumental increase in FDI as the global outlook on
Sub-Saharan Africa countries especially Nigeria is positive.
These can be attributed to the rebased GDP making it the
highest in Africa and also the posture of the Buhari-led
administration to counter one of the pressing issues of
investment in Nigeria-corruption.

Due to unified licensing regime in the country, the

competition level in the telecommunication sector has
increased. With the declining ARPUs, telecommunication
operators are diversifying their business by introducing new
services to attract new customers and increase their market
share. The figure above shows the value of capital imported by
the top ten sectors of the economy in 2015. The green
The telecommunication sector has also brought increased bars represent the sectors that have experienced a decline
level of FDI into the country. The private investment into in the value of capital imported while the blue bars
the sector after the liberalization and deregulation thereof represent sectors that have appreciated values of capital
has increased from $1.2bn in 2001 to over $27bn in 2012 importation relative to 2014.
Q1 (According to the four major mobile operators they
have deployed more than N 1 trillion into the industry). The Telecoms sector attracted the largest capital investment
The continued aggressive move of the regulators to in 2015 at $938.13 million, a slight decline from 2014 at
introduce a national broadband initiative for a wider $994.3 million which is in tandem with the general economic
coverage, faster and secure network has led to huge capital capital outflow.
 INDUSTRY REPORT 2016 | TELECOMMUNICATION
43
THE MARKET
GROWTH
Nigeria's mobile market grew by 2.7% the fourth quarter
of 2011 to reach 95.167mn active mobile subscribers,
according to market data published by the market regulator
(Nigerian Communication Commission). However it
recorded greater gains between the end of the fourth
quarter 2011 and that of the first quarter 2012. There
was a net increase of 3.28 million subscribers. This is a
3.44% increase and it has brought the number of active
subscribers on the networks to 98.56 million.
Although the mandatory SIM card registration exercise
implemented by the NCC threatened to increase
downward pressure on subscriber growth, we note that
promotional activities by the operators in the run-up to the telephony services was growing deeper in the country.
expiration of the SIM registration period has helped to
attract a considerable number of new phone users.
Meanwhile, seasonal demand during festive periods in the Over the past few years, the fierce competition amongst
second half of the year also had a positive effect on
subscriber acquisition.
PENETRATION
The market penetration according to the regulator stands
at 70% .The GSM segment continues to account for the
growth in the sector as the CDMA segment (and fixed
wired/wireless segment) keeps declining in growth rate
and subscribers number. The 2015 report shows that the
mobile segment stands at 98.52%, CDMA 1.36% and
fixed/wireless at 0.12%. MTN has the largest market share Technology, Nigeria accounts for 29% of all internet usage
with over 62million subscribers claiming 42% of the
market, Glo and Airtel are competing for the second
place with over 31million subscribers claiming 21% and
Etisalat with 23million subscribers claim 16% of the
market. The first time there was a drop in the number of
subscribers in the mobile GSM segment was Q211.
TELEDENSITY
The tele-density measures the number of telephone
subscribers per 100 people in a given region. The Nigerian
Communications Commission calculates this figure based
on the number of active subscriptions on mobile networks'
rather than the number of connected subscribers which
they had used in previous years. The NCC calculates its
tele-density value based on a population of 140 million.
In January of 2015, the Nigerian tele-density statistic hit
a milestone figure of 100% with a total number of active
lines of over 140 million. This meant that access to
TREND IN VOICE
Mobile network operators in the country has led to a price
war within the sector. Subscribers have benefited immensely
from this price war as they saw mobile tariffs declining
dramatically to as low as $0.12 per minute. According to the
NCC, the call rates between 2011 and 2013 decreased by
about 30% this also follows a 4% decline in the Average
Revenue Per User (ARPU) for the MNOs.
TREND IN DATA
According to the Federal Ministry of Communication
in Africa. Between the year 2009 and 2014, the number of
internet users in Nigeria increased by 133% from 24 million
to 55.9 million internet users.
 INDUSTRY REPORT 2016 | TELECOMMUNICATION
44
Despite the growing trend in internet connectivity, a
significant portion of the rural population are still lacking
in internet access.
As a response to the declining Average Revenue per User
(ARPU) caused by price competition amongst Mobile
Network Operators (MNOs) and price regulation by the
industry regulator, the MNOs are now shifting focus from
Voice to Data by investing in and promoting their mobile
internet capacity. Major investments by key players in the
industry have in recent times been geared towards
expanding their 3G services and upgrading to 4G.
SWOT ANALYSIS
NIGERIAN BUSINESS ENVIRONMENT
Strengths
A large population means an abundant supply of cheap
unskilled) labour and a growing consumer market.
Taxation is relatively low; with VAT just 5%, corporate tax
30% and individual income tax rising progressively to a top
rate of 25%. Compared to corporate tax of an average of
34.64% paid in South Africa.
Weaknesses
Corruption is endemic, with Nigeria scoring just 2.4 in
Transparency International's 2011 Corruption Perceptions
Index, placing it 143rd out of 182 countries worldwide.
Intellectual property protection is very poor.
Physical security, especially for foreign workers, is a
significant concern in some regions.
National infrastructure are lagging behind, chief among
them is power. This invariably increases the cost of doing
business.
Full repatriation of invested funds is possible, which will
also help boost the economy of the investing company,
leaving the host country in a flurry of capital flight issues.
Vandalism of equipment is still rampant in rural
communities where they are situated leading to capital loss
and inefficiencies.
Opportunities
Ongoing banking-sector reforms have the potential to
create a consolidated and much more efficient financial
infrastructure, thus providing better financial services to
deserving investors.
There has been some improvement in the anti-corruption
effort; and, with a pro-market government, this should
continue to improve.
The telecommunications sector is a destination of choice
for any investor, leading to an increase in the foreign direct
investment potential of the country.
Threats
Industrial action remains commonplace and can disrupt
normal business activity
Security threats especially in the Boko-haram infested
region could turn off investors
Investment in the energy sector has been frozen pending
an improved strategy for expanding capacity.
MOBILE SECTOR
Nigeria telecommunications subscription is mostly
dominated by subscribers to GSM technology which is
controlled by the four major Mobile Network Operators
(MNOs) in the country (MTN, Airtel, Glo and Etisalat).
In December 2015,the active lines in the mobile subscription
accounted for 98% (133 million lines) of the total number
of active subscriptions in the telecommunications sector.
Between October 2014 and December 2015, a the total
number of active lines increased by a total of 15.6million.
This represented an increase of 12% within a period of
13 months.
Only a few MNO utilize the CDMA technology as the
rapid expansion of GSM operators in the past few years
has led to a contraction of the CDMA segment. As at
December 2015, this segment accounted for only 1.7% of
the total number of active subscriptions. Major players in
this segment include Multilinks and Starcomms
Strengths
Growth of mobile sector remains robust, despite the
introduction of compulsory SIM registration.
All GSM mobile operators awarded 3G service licenses in
March 2007; the majority now offer, or are currently
deploying, 3G/4G services.
Competition and regulatory measures have helped bring
down prices in the mobile sector.
Mobile market boasts the presence of major international
investors, including South Africa's MTN, India's Bharti
Airtel and Etisalat of the UAE.
Mobile phone penetration has led to increase in mobile
product and large internet usage.
The use of new technologies to communicate various
offering has led to healthy rivalry amongst operators thus
commoditizing the market.
Weaknesses
Despite strong growth in the mobile market, poor network
coverage has traditionally been a problem, which hampered
customer growth and service usage.
Large cost implication for telcos as a result of erratic power
supply thus passing the buck to its consumers future.
Rapid subscriber growth and competition have put
downward pressure on Average Revenue per User (ARPU)
 INDUSTRY REPORT 2016 | TELECOMMUNICATION
45
rates.
CDMA segment of the market is very poor.
Operators' ability to serve rural communities continues to
lag behind their network presence in urban areas.
Verifiable data are not always available which makes most
of the work done on the industry more of estimates than
actual.
Opportunities
Leading operators such as MTN, Etisalat and Airtel
continue to invest in developing their mobile network
infrastructures to deal with ongoing service quality
problems.
As local operators realise the need to improve the quality
of their networks, a substantial number of contracts are
being won by multinational telecoms solutions providers.
The free and fair auction conducted by NCC for infracos
in the Lagos region could boost the confidence of local
and foreign investors to invest in communication
infrastructure.
The launch of mobile number portability should help give
the sector a competitive boost, by allowing mobile users to
change their service provider more easily.
Nigerian government may issue more 3G licenses in the
privatization of NITEL could open the sector to a new
strategic investor and revive M-Tel.
Nigeria's second-largest mobile network operator
GlobaCom launched an LTE (4G) network with the
ability to support more demanding applications.
Threats
Probable removal of tax breaks for cellular operators
unlikely to encourage further foreign direct investment
(FDI) in the sector.
The current lawsuit slam on MTN may send negative
signals to foreign investors
Vandalisation of operator base stations is a threat to the
quality of network provided
Regulator introduced compulsory mobile SIM registration
for new customers. This could put a dent in subscriber
figures and hinder growth.
Global economic difficulties may yet have an effect on
growth or investment in the sector.
FIXED-LINE & BROAD BAND
The number of fixed line subscriptions in the mobile
communications sector has seen a dramatic decline since
the entrance of the GSM Mobile Network Operators in
the year 2001. This segment accounts for less than 1% of
the entire market.
Strengths
Liberalized licensing scheme allows for multiple fixed-
wireless operators to easily enter the market.
Positive attitude from the regulator towards achieving
widespread connectivity in rural areas.
Telephony services based on fixed-wireless technology
compensate for a lack of PSTN infrastructure.
Despite the difficulties facing beleaguered fixed-line
incumbent NITEL, the wireline sector is benefiting from
investments by Globacom, the country's second national
operator.
Weaknesses
Traditional copper fixed-line network is in a poor state.
PSTN operator NITEL is barely functioning.
Strong growth from the mobile sector has undermined the
viability of traditional fixed line services.
Fixed-line sector continued to exhibit sharp decline with a
percentage market share of 0.12%
Despite stepped up investment, the broadband penetration
level is low.
Opportunities
The inauguration of several new submarine cable systems
is leading to the introduction of greater quantities of
cheaper international bandwidth. This should boost the
telecoms market in general, but particularly broadband,
which should result in lower prices.
A new investor for NITEL could bring a new beginning for
Nigeria's fixed-line network.
The open access model is expected to support the national
broadband project and provide a faster and secure
broadband network thus stimulating the economy.
The licensing of collocation service providers for these
industry players will mean that they can now reach in to
the rural areas and under-served end of the market.
Threats
Continued strong growth from the mobile sector threatens
fixed-line growth with mobile substitution.
Global economic difficulties may yet have an effect on
growth or investment in the sector.
OPERATORS
MTN has the largest share of the overall mobile market at
42% in 2015 falling from 43.53% in 2012. MTN's
dominance in the market can be attributed to its first mover
advantage and also its successful set of strategies. Following
improvements that MTN made to its network in 2009, the
operator invested US$1bn in network capacity expansion in
2011 and announced plans to invest another US$1bn to
improve the quality of its network services in 2012. MTN
is keen to maintain a competitive advantage in terms of
 INDUSTRY REPORT 2016 | TELECOMMUNICATION
46
network coverage and quality, a strategy that bodes well for
the operator's long-term growth outlook. On numerous
occasions, network coverage has been highlighted by the
regulator and consumer groups as a major issue in
Nigeria's mobile sector. It is hardly surprising that the
market leader has given improved network coverage such
prioritization. Meanwhile, the operator ran successful
promotions offering free talk time or cut-price calls,
mostly during off-peak periods of the day. Promotions
such as these are understood to have had a positive effect
on net subscriber additions. Other operators offered same
with the introduction of different price slash in the first
quarter of 2011, however it seems that the network quality
enjoyed from MTN made them keep their place as market
leader in the telecoms industry.
COMPETITIVE ANALYSIS
Intensity of Existing Rivalry
Competition in the Telecommunication space is high. This
can be seen from the regular tariff wars, undifferentiated
products and the various players in this industry trying to
copy products through advertising in order to gain market
share. This is an indicative that the intensity of rivalry in the
Telecom industry is high. This competition is a strong force
affecting the industry. This competitive factor often lead to
a decrease in costs . This can be attributed to the industry
fast rate and the availability of few competitors which
means fewer firms competing for the same customers and
resources.
Threat of new Entrants
In the Telecommunication industry, the threat of new
entrants is low as barrier to entry is high. This is because
the industry requires large economies of scales, large
amount of capital required by a new Telecommunications
company. Also, acquiring the license to operate is rigorous
and costly. Given that the Nigerian Government has no
enabling environment for investors, companies or investors
who want to have a new telecommunications company
would have to build its own infrastructure, generates its
power and often this requires millions of dollars to operate.
Another reason is the fact that the products in this industry
are not differentiated and the switching cost is also high.
A lot of advertising and brand image needs to be carried
out for the new entrant to gain market share.
Threat of Substitutes
The threat of substitutes in the Telecommunication
industry is low. The substitutes here include fixed
telephone lines, letter writing which is a vastly ignored
means of communication in Nigeria. The internet is also a
substitute. Internet usage in Nigeria is growing at a good
rate in Nigeria. The internet is not completely a threat to
the Telecommunication industry as it may just affect a
small percentage of mobile phones. However the
Telecommunication companies provide mobile phones as
well as the substitute i.e. the internet. This is an indicative
that the threat of substitute in the industry is low.
Bargaining Power of Customers
The bargaining power of customers in this industry is low.
This is as a result of large number of customers can
leverage on his bargaining power. The implication of this
is that Telecommunication companies that are able to
retain their customers will experience greater profits.
Bargaining Power of Supplier
The bargaining power supplier in the industry largely
depend on the Telecommunication companies for income.
Some of the suppliers in this industry are advertising
agencies, generator suppliers, security firms. Therefore, the
bargaining Power of suppliers is low.
SUPPLY CHAIN ANALYSIS
The supply chain for the telecommunication sector in
Nigeria is centralized.
It's basically a supply chain split into two major process
areas: Supply side (Operator focused) and demand side
(Customer focused).
The supply side covers the distribution of goods and
information as a result of operator requests. The demand
side of the chain covers the fulfilment and distribution of
goods as a result of customer orders and requests.
The figure above illustrates how information from all
supply chain parties are centralized.
SUPPLY SIDE OF THE SUPPLY CHAIN
The supply side of the supply chain as shown above that
supports the request of the operators can be broken into
the following:
Original Equipment Manufacturers (OEMS): The
telecommunications industry has been dominated by a
fairly small number of OEMs (or NEMs, network
equipment manufactures).
Original Design Manufacturers (ODMs): Specialist
companies often best handle the skills required to design
and build components.
3rd Party Logistic (3PLs) Companies: Because todays
supply chains are more outsourced and complex than ever
before, companies are relying heavily on third party logistics
providers to cut cost and reduce time to market. Upstream
Suppliers: These are the infrastructure providers. The major
players here within the Nigerian Telecommunications
industry include Ericsson, Alcatel, Huawei and Nokia
Siemens. Services provided by these companies include but
not limited to: Geotechnical Exploration, testing and
reporting, Turnkey base station construction/SIMS,
Environmental assessment and NEPA Services, Fibre
optics installation and maintenance, Collocation
Infrastructure, Industrial Power and electrical installation
engineering, Data and switch centre construction,
Microwave installations,
Operators: These are the wireless carriers and they are at
the centre of the whole supply chain trying to meet the
demands of the customers. They provide wireless
telephony service platforms (voice, data, sms, etc.) to the
 INDUSTRY REPORT 2016 | TELECOMMUNICATION
47

customer along with billing and customer relationship

management services.

CONCERNS ABOUT THE SUPPLY SIDE

Despite the huge investment thus far on infrastructure, the
demand and pressure on the existing telecommunication
infrastructure has reached its breaking point making it
difficult for supply to meet demand. The infrastructure
inadequacy within the telecommunication industry has
resulted in poor quality of service.
To guarantee efficient network quality, there must be
adequate infrastructural equipment to be able to drive the
network. Consequently, the size of this equipment must
be in tandem with subscriber base. Where this is not the
case there will be lack of adequate channels to support
network functionality hence, network congestion becomes
inevitable. Industry experts believe that broadband
telecommunication is an instrument for sustainable
development, which can transform a nation and should
be a major focus. Infrastructure inadequacy has made the
deployment of broadband difficult hence the inefficiency
in data communication.

Some of the challenges facing the industry with regards to

this aspect of the value chain include man-made disasters,
criminal vandalism of infrastructure, theft and digging up
of cables for sale in black market, destruction of
infrastructure due to road construction, community
interference, etc. The critical infrastructure protection bill
when passed into law in Nigeria will recognize telecoms
infrastructure as critical to national and economic security
thereby making its destruction or theft a criminal offence.

DEMAND SIDE OF THE SUPPLY CHAIN

On the demand side of the supply chain, we have all those
parties responsible for ensuring customers' requests and
demand placed on the operators are met. Here we have the
Distributors who work directly with the network operators
and provide the Retailers with products and information
needed to meet customer demands.

Value-added Service (VAS) Providers: These are

organizations or persons that engage in the provision of
value added mobile/fixed services. There are usually four
entities that work together to bring value added services to
the end-users or customers. They include the VAS
providers, VAS aggregators, Application providers and
network operators.

INDUSTRY CHALLENGES

Poor quality of service emanates from environmental

constraint which limits the availability of installed network
capacity to carry traffic such as challenges with power
supply, vandalism and site lockouts by agents of
government and aggrieved communities typically account
for 90% of availability issues.

An average of four hours electricity supply from the

national grid is harnessed Pan-Nigeria daily. Less than 40%
of base stations are on the national grid, meaning that
telecommunication companies have to rely on 24 hours
self-generated power – for equipment that are not designed