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Accelerate growth to transform Nigeria into the premier financial services centre in Africa

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Like in the 1980s and 1990s, Nigeria’s economy experienced a contraction in 2016 and 2020. At every point, growth returned to a positive trajectory. At the core of this positive growth is the contribution of the Financial and Professional Services (FPS) Sector. This is what EnterpriseNGR’s premier State of Enterprise (SOE) Report 2022 underscores. The report is the current-state assessment of the FPS sector and spotlights its contribution to national growth and development. The report also highlights key challenges that must be resolved to accelerate growth in each of the FPS sub-sectors, including Banking, Insurance, Capital Markets, Asset Management, Pension, Non-interest Finance, FinTech, Professional Services and Sustainable Finance. The overarching aim of the report is to jumpstart conversations required for policy reforms. In putting this report together, over 80 information sources were reviewed and 42 operators across nine FPS sub-sectors were interviewed.

Here are some insights from the report:

Banking led other sub-sectors on many performance indicators and demonstrated direct benefits to the economy and people. In 2021, Deposit Money Banks had total assets of ₦62.9 trillion, equivalent to 35.7% of the national gross domestic product. The entire financial institutions contributed 3.2% of gross domestic product. This means that the institutions contributed N3 of every N100 generated in the economy. The Insurance sub-sector, which provides resilience to businesses, individuals and families, experienced improved performance with premium income north of ₦600 billion in 2021. About 55% of the premium income was paid out in total gross claims. This demonstrates that insurance is actively helping individuals and businesses alleviate the impact of unexpected adverse circumstances. However, the sub-sector’s 0.37% contribution to national growth tells us that there are longstanding challenges, including low levels of insurance literacy and awareness that need to be addressed to accelerate growth.

Besides Banking and Insurance, Capital markets are critical to sustainable economic development. The equity market capitalisation reached ₦22.3 trillion, while the debt market turnover attained the ₦198.9 trillion mark. These values sum up the enormous trading transactions and businesses that were facilitated by the markets. Infrastructure fund investments grew by 79% over three years from 2019 to 2021, increasingly expanding growth opportunities for the national productive base. Closely linked to Capital Markets is the Asset Management sub-sector, which drives the bulk of the markets’ activity. The sub-sector is coming of age and has over 1,200 registered operators engaged in various aspects of the markets. In the first three quarters of 2020, these operators supported the issuance of new securities valued at ₦2.8 trillion. Private equity funds’ total investments grew approximately 20% in 2021, and the growth of total assets under management doubled that, climbing by 40%. These developments demonstrate that private equity funding is gradually evolving in Nigeria as an alternative source of funding to support companies’ formation and expansion.

Pensions is one of the regulatory success stories in Nigeria. With 9,586,291 pension contributors as of December 2021, the total pension fund assets under management grew by 3.7% to ₦13.4 trillion. The value of pension fund assets is equivalent to 7.6% of GDP at current market prices. More is required to speed up growth, particularly, improving pension penetration in the informal sector. For Non-interest finance, the impact is seen in how the sub-sector is broadening financial inclusion and accelerating ethical investments. The three non-interest banks, with ₦448.1 billion in total assets in 2021, facilitated ₦188 billion worth of loans and the six Sharia-compliant mutual funds listed on the market accumulated ₦17.4 billion in total investment. The enormous potential of non-interest finance in Nigeria can be realised by addressing the insufficient awareness of this genre of finance and slow pace of financial innovations to support it, among others.
With just a few Fintech companies in early 2000s to about 250 in 2021, FinTech in Nigeria has rapidly evolved. Fintech companies are supporting payments, insurance, credit, investment, identity management, on-demand services, among many other financial products. In terms of impact in digital payments, about ₦8.1 trillion mobile-based transactions were facilitated in 2021, compared to ₦3.1 trillion in 2020, a whopping 164.5% increase that affirms the important contribution the sub-sector is making to the national financial inclusion drive. While the potential of FinTech is enormous, challenges include weak interoperability and slow pace of regulation, among others.
For Professional Services, in addition to the Big Four auditing firms, there is a growing number of firms in Consulting, Accounting and Legal Services, that are helping businesses across all sectors of the economy to improve their operations. As of June 2022, there were 21,917 registered members of the Institute of Chartered Accountants of Nigeria (ICAN) and over 120,000 registered legal practitioners. 166 reporting accountants/auditors and 376 solicitors registered as market operators to provide support services in the capital markets specifically. The Professional, Scientific and Technical Services sector, of which Professional Services is a part, contributed ₦2.3 trillion, (about 3.2%) of GDP in 2021. The sector’s contribution to company income tax receipts in the last two quarters of 2021 was approximately ₦9.3 billion. EnterpriseNGR notes that performance can be higher if the lack of a central regulatory body, shortage of talent, and other challenges are addressed.

The global sustainable finance space grew in prominence, with about $3.2 trillion sustainability-themed funding available in 2021. As of December 2021, Nigeria’s green bond market was valued at ₦55.52 billion. While the space is gaining traction locally, it is important for Nigeria to explore ways to attract more of the globally available funds, and address over dependence on oil, foreign exchange risk exposure, among other challenges.

The performance of the FPS sub-sectors in 2021 demonstrates the pivotal role of FPS in Nigeria’s economy, particularly its contributions to governments, businesses and people. The FPS sector has the potential of driving Nigeria’s transformation into Africa’s premier financial center. EnterpriseNGR is an operator led professional policy and advocacy group with a mission to advance Nigeria’s transformation as Africa’s premier financial services centre. We are focused on advocating for the collective effort of all stakeholders required to address the current challenges bedeviling the sector.

Through this premier edition, EnterpriseNGR has identified existing gaps in sub-sector data, from a shortage of data to a complete lack of it. We will work with key partners to bridge the data gaps in future editions.
The State of Enterprise Report 2022 is available for free download at https://enterprisengr.com/policy-research/

Obi Ibekwe, Chief Executive Officer, EnterpriseNGR