Status of Services Sector Regulatory Reforms in Nigeria

Abiodun Bankole

TPRTP, Department of Economics, University of Ibadan, Ibadan, Nigeria.

Sectors• Financial Sector

– Banking and Related Financial Institutions – Insurance

• Telecommunication • Tourism• Transport

– Road transport– Maritime transport – Air transport

• Distribution Services• Education• Health and Social services• Construction and related Engineering • Business services

Financial Sector• Banking and Related Financial Institutions

– The Nigerian financial services are governed by regulatory and supervisory institutions

• Central Bank of Nigeria (CBN) - apex regulatory institution• the Ministry of Finance, (cooperates with the CBN on

monetary matters); • the Nigeria Deposit Insurance Corporation (NDIC), (provides

deposit insurance); • the Securities Exchange Commission (SEC); • the National Insurance Commission (NAICOM), • and the National Board for Community Banks (NBCB)

(scrapped by virtue of abolition of community banks)• Financial Services Regulation Coordination Committee

– All regulatory institutions to coordinates the supervision of all financial institutions.

Financial Sector– Foreign investors (individuals and corporate entities) are

permitted to own up to 100% equity in any enterprise in Nigeria including banking. Hence commercial operating licences granted to foreign banks

– Universal banking system adopted in 2000 allows all banks to undertake activities related to traditional banking, capital market and insurance business.

– minimum capital requirement for banks increased to N25 billion. • mergers and acquisition in the banking industry, 25 banks • Performance requirements • minimum of 40% liquidity ratio • 10% capital adequacy ratio; • less than 20% of non-performing loans; • a 9.5% minimum cash reserve ratio; • All banks must be incorporated in Nigeria and comply with the Nigerian

banking rules and regulations. • Foreign banks are disallowed from establishing their branches in

Nigeria.

Financial Sector

• Insurance• Nigerian Insurance Commission recently increased the

capital base of the insurance companies : – Life Insurance Business N2 billion, General Insurance Business,

N3 billion and Reinsurance N10 billion• micro finance institutions issued licences as upgraded

community banks • minimum capital requirement: N20million. • Other financial institutions e.g. stock exchange and

commodity exchanges, discount houses, primary mortgage institutions, finance companies and bureaux de change operate alongside banks and insurance companies

• bureaux de change allowed to operate retail trading in the official foreign exchange market

Telecommunications

• Ministry of Communications : for formulation, implementation and monitoring of the Telecommunications policy

• Nigerian Communications Commission (NCC) regulates the telecommunications industry:

– Made up of • Nigerian Telecommunications Limited (NITEL), the national carrier, • One private national operator (Globacom) • other private fixed wireless and mobile operators and service providers

• Restrictions removed on foreign equity participation • import duties on telecom equipment reduced from 25% to 5%; • pioneer status (i.e. five-year tax holiday) granted to qualified investors. • Telecommunications Act of 2003,

– NCC authorised to grant and renew communication licences, – monitor and enforce compliance with licence terms and conditions by licensees, – promote competition and approve tariffs of telecommunications companies. – ensures that network service providers allow interconnectivity with their communication

systems when requested by other providers, and all agreements involved must be registered with NCC.

– NCC manages and administers frequency spectrum. – The National Frequency Management Council (NFMC) responsible for national frequency plan. – NCC to facilitate universal access of telecommunications. – After granting several licences and incentives, the country’s telecommunications sub-sector has

expanded

Transport• Federal Ministry of Transport formulates and executes transport policies

• scope includes infrastructure and manpower development in the sub-sector

• supervision of some implementing agencies – the Nigerian Ports Authority; National Maritime Authority, Nigerian Unity Line Plc;

National Clearing and Forwarding Agency; National Shippers Council; Nigerian Inland Waterways Authority; Nigerian Railway Corporation; Maritime Academy of Nigeria; Nigeria Institute of Transport Technology; and the Joint Dock Labour Industrial Council.

• National Transport Sector Policy articulated in 2003 to – the promotion of efficient and affordable integrated transport network,

– improvement of the safety, security, quality, and speed of movement of goods and people;

– increase the involvement of the private sector in the financing and operation of transport-related services;

– to promote public transport over private car travel.

Transport• Road Transport

– The Nigerian governments -Federal, state and local - solely provide road infrastructure, through the Ministries of Works

– Federal Road Maintenance Agency is responsible for the inspection and maintenance of all existing federal trunk roads

– despite the absence of legislative restrictions and very poor and unsafe state of the roads, privately developed or commercially operated roads are not in existence in Nigeria

– Road sector reform programmes as enabling act and signed in November 2005• concessioning government road to the private sector in a public-private partnership

framework.

Transport• Maritime Transport

– Nigerian Unity Line (NUL) replaced moribund national carrier (Nigerian National Shipping line)

– private ocean lines granted the status of national carrier by the National Maritime Authority (NMA) operate

– the policy of NMA allocating cargo to shipping companies abolished and shipping companies now compete for available cargo

– Foreign private shipping companies dominate ocean shipping activities

– The Nigerian Unity Line (NUL) has been sold to Seaforce Shipping Company Limited, a subsidiary of Zenon Petroleum and Gas Limited

Transport• Nigerian shipping decree of 1987

– 100% of the crew, at least 75% of the shipboard officers, and wherever possible, the chief engineer must be Nigerians.

– indigenous shipping lines have exclusive rights to carry at least 40% of Nigeria's sea-borne trade, in line with the UNCTAD Code of Conduct for Liner Conferences.

– Fifty per cent of Nigeria's oil exports must be carried by the national carrier (currently there are six designated indigenous lines)

• The Nigerian Coastal and Inland Shipping Act of 2003, (i.e. CabotageAct) introduced a cabotage shipping regime

• permit foreign firms to engage in coastal shipping in the absence of required capacity by Nigerians

• acute shortage of shipping capacity to fully use shipping rights granted under the cabotage regime and the UNCTAD Code for Liner Conferences.

Transport• Port Reforms

– Federal government used to own Nigerian Ports. – The Ports Act adopted a landlord model – To allow ports and auxiliary services, such as container station and depot services, maritime

freight forwarding, maritime cargo handling, and repair of vessels to be operated by foreign suppliers

– private companies are concessionaires to operate at the ports. – Minister of Transport has authority to grant licences to private citizens or foreigners to use the

water front for commercial purposes. – The use of certain port services, including pilotage, garbage collecting and ballast waste

disposal, and navigation aids, is compulsory. – Port reforms and modernisation are implemented under the National Transport Policy – reinforces the Government as the main owner of strategic port assets, while it grants

concessions to private sector companies for a limited period. – the Nigerian Ports Authority will become the eventual regulator of ports activities

• Goal of port reforms: 48-hour clearance of consignments

• A newly-built private terminal commissioned in August 2006 promised a 2-hour clearance of consignments

• Reforms have been informed by the non-competitiveness of Nigerian ports relative to others in West Africa, leading to diversion of Nigerian imports which are then smuggled into Nigeria by road.

Air Transport• Regulated by

– the Federal Airports Authority of Nigeria (FAAN) • first maintains and upgrades facilities at Nigeria's airports to

international civil aviation standards

– the Nigerian Civil Aviation Authority (NCAA)• provides aviation safety and economic regulatory activities

– the Nigerian Airspace Management Agency (NAMA)• ensures international requirements for safe and economic air

navigation.

• International air services are guided by – a series of bilateral air services agreements (BASAs, give landing

rights for a fixed number of flights per week to a fixed destination)

– open skies agreements. (giving both countries unrestricted landing rights on each others' soil)

Air Transport• In Nigeria, International routes were traditionally and mainly served by

foreign airlines under single-destination type bilateral agreements,

• some foreign airlines now have multiple destination agreements, flying directly in and out of Lagos, Abuja and Port Harcourt

• Some indigenous airlines allocated rights to operate international routes

• The national carrier, Nigeria Airways, has been liquidated and plans to establish a new national carrier, Nigeria Eagle Airline have been overtaken by designation of a private foreign-majority-owned airline, Virgin Nigeria, operates as a national carrier

• A new civil aviation policy seeks to, among others– increase participation of the private sector– prohibit outdated aircraft (interpreted to mean aircrafts older than 22 years)

from flying Nigerian airspace – Between 1999 and 2003, 37 air transport licences, air operating permits, air

travel organizers' licences, and non-commercial licences have been granted.

Tourism• Federal Ministry of Culture and Tourism (FMCT) chrged with

– formulation and monitoring policy in the Nigerian tourism sector

• National Council on Culture and Tourism – coordinate the planning and development of tourism in the country– Membership: federal and state governments, private sector travel agents,

hoteliers and catering associations, tour operators, and airlines operators

• Nigerian Tourism Development Corporation (NTDC) – regulates and supervises the registration and grading of hotels and restaurants– Activities cover marketing and dissemination of information related to tourism– tourism policy has tourism incentives

• tax holidays, import duty exemptions, augmentation of basic infrastructure in tourist sites, demarcation of tourism zones in states, increase in budgetary allocations to government tourism agencies, enactment of laws on tourists security; and levying taxes on tourism companies to finance the planned tourism development bank.

Energy

• The Nigerian energy sector is made up of the petroleum and gas, and electricity sub-sectors

• The services related aspects of the petroleum sector are distribution and pipeline networks and distribution of petroleum products and gas

• new policy direction since 1999 has some objectives – to raise the local content in oil production particularly in the areas of increasing Nigerian

professionals working in the oil industry– policy targets 40% local content in upstream petroleum activities revised to 70% by 2007– the sub-sector accounts for 5% of Nigeria’s labour force and there are quotas, currently about

25%, on the number of expatriates who can be employed in the oil sub-sector. • In the downstream petroleum sector, where distribution and storage activities are

key, the NNPC controls pipelines and storage depots, through its subsidiary, Pipelines and Product Marketing Company (PPMC),

• The PPMC controls 15 storage depots throughout the country and a distribution network of more than over 5,000 km of pipelines.

• the private sector dominates the retailing of petroleum products– largely multinational oil prospecting companies which transport petroleum products between

storage depots and filling stations – a large number of fringe suppliers made up of small independent indigenous oil companies.

Energy

• The Petroleum Product Pricing Marketing Committee (PPPMC) is responsible for setting wholesale and retail prices for petroleum products which affected distribution and investment. Subsequently, pricing system has been liberalized, while the Petroleum Products Pricing Regulatory Agency (PPPRA) has been established to take up the fixing of prices based on consultation among stakeholders since 2003. The PPMC is undergoing privatization along with the unbundling of NNPC and a complete liberalization and privatization of the downstream sector, which includes the distribution network. An independent regulatory commission would be set up for the sub-sector to ensure adequate regulation and competition among private investors.

• In the natural gas sub-sector, the Nigerian Gas Company (NGC), a subsidiary of NNPC, which buys gas and sells to domestic consumers, has monopoly over the supply of natural gas to the domestic market. It operates a 1,000 km gas gathering, transmission, and distribution pipeline network with a capacity of about 56.6 million cubic metres per day. The company has limited capacity to cope with rising consumption of gas as industrial and oil enterprises shifting to gas for fuelling for their power requirements increase in number.

• A planned Gas Act seeks to create a new and separate legal and regulatory framework through an independent Gas Regulatory Commission to deal with economic and technical regulation, and a National Gas Transportation Company (NGTC). The Act plans to allow private sector operators to construct and operate pipelines, and connect these pipelines to the network, license a single distributor for a geographically defined area designated as a local distribution zone; and prescribe the principles on which prices should be set. There are also plans for the construction of a Trans-West-African pipeline to supply natural gas to Benin, Togo and Ghana and a Trans-Saharan Gas Pipeline Project to carry Nigeria's gas to Europe.

• With high potential to generate electricity from rivers, oil, and gas, Nigeria is unfortunately depending on thermal power which accounts for two thirds of the electricity generated while the remainder is provided by hydro-electricity. The National Electric Power Authority (NEPA) (now Power Holding Company (PHC)) is the government monopoly responsible for electricity generation, transmission, and distribution; while the Utilities Charges Commission is charged with setting electricity prices. The country applies tariffs of 30% and 15% respectively to imports of electricity and electricity generation sets.

• Reforms in power sector regulation are being driven by the Electric Power Sector Reform Act 2005 which established a legal and regulatory framework. The PHC has been unbundled into six generation companies, 11 distribution companies, and one transmission company. The companies are in the process of being transferred to the private-sector. There is currently in place a National Electricity Regulatory Commission (NERC) that is responsible for licensing private companies wishing to operate in the sector. Universal access issues are also dealt with under the current reform. These measures, including the encouragement of private sector participation through Independent Power Producers (IPP), are directed at addressing the considerable power shortage in Nigeria. IPP operating in Nigeria are, Enron (in Lagos State) and Nigerian Agip Oil Company (AGIP) which have added 270MW and 350 MW respectively to the generating capacity in the country. Other oil companies are in the process of generating power for the country. Six gas turbines are scheduled for commissioning in 2006, part of government’s plan to generate 10,000MW by 2007.

Distribution services

• the distribution services sector fully liberalized and deregulated

• Traditionally, the sector dominated by wholesale and retail trade of imported goods which import restrictions and exchange rate depreciation have eroded since the early 1980s

• Currently, small businesses and informal sector operators dominate activities in the sector with little regard for standards and quality

• commencement of re-entry of foreign participation of the mega-market model, with two South African firms opening in Lagos in 2005 and many in Abuja

• located in largely high income urban areas while low and middle income areas are not served

• Access to the middle class is at additional costs since middle class customers, which are a growing proportion of the population; have to traverse to where these are located

• Hence, open to more investment are the growing middle class whose demand for quality service is not met by the unregulated informal sector

• Nigeria is currently experimenting with efforts to integrate informal sector activities into the mainstream economy.

Education sector• Specific trade policy directed at the education sub-sector • exemption from value added tax educational materials (laboratory equipment), and performances

conducted by educational institutions as part of learning. • Nigeria’s higher education sector is large• Despite that , unmet demand for higher education• admitted private sector participation• Majority of private universities owned and managed by religious organizations, but the orientation

is a commercially-provided education as students pay commercial tuition fees• Foreign demand and supply of education services has mainly been through cross-border (Mode 1)

and consumption abroad (mode 2) supply but also commercial presence and Mode 4.• Mode 1: Nigerians travel to acquire foreign education• Mode 2: students use the correspondence method to acquire higher degrees and certificates

because of its affordability. Chartered accountants, secretaries, bankers, stock brokers, purchasers and suppliers, architects, among others have been created through this mode

• The establishment of foreign universities (Mode 3) in Nigeria is uncommon but not so for secondary schools.

• one university can be so designated, Africa University, which metamorphosed from Lagos Business School.

• Another in the form of adult education in the computer related area (NIIT). • Joint venture is exemplified by ABTI American University in Maiduguri.

Health and Social services

• Health services in Nigeria are poor – public primary, secondary and tertiary health care moribund– situation boosted activities in the private sector

• most of government hospital doctors and other health professionals turn to augment their paltry public sector salaries

– situation also led to large migration of Nigeria’s health professional to other countries in Europe and North America (not mode 4)

– Rich Nigerians seek health services abroad (imports of health services)

• Health sector reforms since 1999 – National Health Insurance Scheme– upgrading of eight University Teaching Hospitals to international

standards

Construction (and related Engineering services)

• completely liberalized and deregulated

• Federal Government’s investments sold in construction companies

• NIPC Act 1995 is the current investment law– permits foreign investors to establish commercial

presence in Nigeria and own up to 100% of a company in any sector.

Business services• The legislation applicable to management consulting and

services related to management consulting in Nigeria does not discriminate against foreign services suppliers

• Foreign operators wishing to practice in Nigeria – may be required to possess requisite qualifications

– must be accredited by the relevant professional bodies where applicable.