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Seamless risk protection for mega-projects: Nigeria

06 April 2016 Santam
Karl Bishop, head: Niche Business at Santam.

Karl Bishop, head: Niche Business at Santam.

Infrastructure development is booming across Africa, due in no small part to significant economic growth and foreign direct investment. In line with this, and as part of Santam’s strategic expansion into Africa in partnership with Sanlam Emerging Markets, Santam Specialist Business has launched a Seamless insurance solution which offers comprehensive risk protection for mega-projects across Africa. In this series of articles, we speak to Karl Bishop, head: Niche Business at Santam, and explore the opportunities in individual African countries for infrastructure development and the specialist insurance business. This month, the spotlight falls on Nigeria.

Infrastructure for a growing economy

Now in its 17th year of democratic rule, Nigeria undertook a comprehensive gross domestic product (GDP) re-basing exercise in 2013, which catapulted the country to Africa’s number one economy with a massive US$568 billion GDP (World Bank, 2014). The anticipated GDP growth rate of 4% per year, despite a severe decline in oil revenues, remains one of Africa’ best. The West African nation’s economic strategy is driven by its government’s ‘Vision 20:2020’ plan which aims to grow the economy to reach the global top 20 bracket by 2020.

Since taking office in May 2015, the administration of President Muhammadu Buhari has embarked on a concerted transparency, governance and anti-corruption drive in all sectors and levels of government. The result has been much improved consumer confidence levels despite negative macro-economic pressures.

“Nigeria is now the leading economy in the Economic Community of Western African States
(ECOWAS) zone and a key player in regional integration and development programmes. At least 10% of Nigeria’s exports are to African countries,” says Karl.

The poor state of Nigeria’s infrastructure, especially in the energy sector, has been identified as the most critical factor to support sustained economic growth in Nigeria. Despite the government's commitment to public-private partnerships and transparent governance, many infrastructure projects still encounter problems largely due to a combination of corruption, inadequate funding and a weak policy framework.

Around 18% of Nigeria’s road network of some 197 000 km is tarred and only 27% of the primary road network is in good condition, according to a recent report by the African Development Bank. The report also states that the 100-year-old Nigerian rail network operates at around 25% of potential capacity. Nigeria’s estimated annual electricity demand is in the 10 000 MW to 20 000 MW range, but government-owned plants generate only 3 500 MW annually.

“Nigeria’s National Integrated Infrastructure Master Plan (MIIPM) estimates that the country needs US$2.9 trillion to fund its massive infrastructure gap by 2050. About 52% of these funds are expected to come from government, and the rest from private sector lenders.”

Nigerian infrastructure development does, however, have some success stories:

• The Lekki-Epe expressway toll road in Lagos, completed in 2011 by Aurecon South Africa, is Nigeria’ first public-private partnership project and the first major toll road project on the continent outside South Africa
• The Kashimbila Dam hydropower project on the Mambilla plateau is a 40 MW public-private partnership project, financed by among others China Exim Bank – it is the largest dam in Nigeria
• The Gurara pipeline water and hydropower project in the Kaduna and Usma basins in Kaduna State is a multi-purpose and multi-phase dam, irrigation and hydropower project with 75 km of pipeline.

Opportunities for specialist insurance

“Specialist business in Nigeria has the biggest potential in Africa outside South Africa, provided that planned infrastructure development projects take off,” says Karl. “Nigeria has a mature and growing corporate and industrial sector, which provides a good base for specialist insurance classes. Although the agricultural sector has diminished in recent years, the development of commercial farming will create business opportunities for specialist insurance. Nigeria’s foreign trade figures exceed US$140 billion annually, which translate into an immense opportunity for specialist marine and goods-in-transit insurance.”

Although the oil and gas industries contribute around two-thirds of total short-term insurance premiums generated in Nigeria, the complexity and sheer size of the risks involved mean that much of this premium income leaves the country to offshore reinsurers. Santam Specialist Business currently does not participate in off-shore business but does, however, underwrite on-shore projects.

“The phenomenal growth in the telecommunications and construction sectors, which is accompanied by supporting infrastructural development, provides much opportunity for the engineering, property and fire, and marine specialist businesses.”

Karl says Santam Specialist Business underwrites risks in Nigeria through various broker channels in the market. “However, there is much room for growth via the Sanlam Emerging Markets partnership with FBN Insurance. Although FBN Insurance is a relatively young business in a market with more than 40 registered insurers, with the support from Santam Specialist Business and the backing of parent company First Bank Nigeria, the market share is sure to grow rapidly.”

Why insure with Santam Specialist Business?

Karl says mega-infrastructure projects, such as dams, transport infrastructure, and renewable energy projects and plants have massive price tags with equally large insurable risks. “They require innovation, a high level of underwriting expertise and the special technical knowledge of a large insurer to effectively mitigate risk.

“Santam Specialist Business provides all these and more. We constitute teams of underwriting managers who are all experts in their respective fields, with a keen focus on entrepreneurial and big-thinking ideas. We are able to identify opportunities or threats to clients and, in turn, offer tailor-made solutions in order to mitigate those risks.”

Opportunities for Seamless Specialist Insurance in Nigeria

Karl believes convenience and appropriate risk identification are vital when placing cover for complex mega-projects. “However, projects of this size are extremely complex – cover may be required for public liability, professional indemnity, marine insurance, contract works, project delays, assets, travel insurance and riot cover, for example. The basis of our Seamless insurance solution is that it covers all bases of insurance via a single touch-point – the client, whether the insured or an intermediary, does not have to deal with a number of different insurance parties and risk gaps in cover.”

Policies are issued and administered by MIRABILIS Engineering Underwriting Managers, which covers all aspects of a project by distributing comprehensive cover and manages the entire process from policy issuing to claims handling and processing.

“We are marketing our Seamless solution through corporate and commercial broker firms, since clients in the specialist business sector expect to work with intermediaries and insurers that understand their needs and offer bespoke risk management solutions that are appropriate at different stages of their business journey.

“With the increased activity in development and infrastructure projects, Santam’s Seamless insurance solution – the first of its kind in Africa – is perfectly suited to the Nigerian market. The product caters for both medium and large projects and provides clients and brokers with a single policy and single point of contact throughout the project life cycle,” concludes Karl.

Quick Polls

QUESTION

As National Treasury mulls a two-bucket retirement system, mandatory contributions and preservation, regulation 28 is being amended to allow up to 40% of retirement fund assets to be invested in SA-based infrastructure… Which of the following retirement fund ‘tweaks’ would you consider most beneficial to your clients?

ANSWER

Give fund members emergency access to retirement savings
Let fund members invest 40% in infrastructure
Let fund members invest 40% offshore
Mandatory preservation when resigning from a fund
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