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PAPER DELIVERED BY
2 3 rd N o v e m b e r , 2 0 1 0
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Preamble Globalization: Characteristics, Pros, and Cons Market Protection: Benefits and Costs An Overview of The West African Region Globalization and The West African Insurance Industry Case Study: Nigeria Protecting The West African Insurance Market The Future of the W/A Insurance Market Conclusion and the Way Forward
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Preamble
Until the second half of 2008, the global economy was purring along with little or no bumps. For a period of about three decades, the fortunes of many nations and societies have irrevocably changed for the better.
For the three decades these nations embraced the concept of globalization and free trade, their human development indices improved dramatically.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
A lot of countries were able to modernize their economies by developing competitive advantages in modern technologies and other industries.
The foundation of this unprecedented economic growth and rapid transformation in many countries was laid in the seventies. And there is no doubt that the driving force behind global economics was globalization.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Wikipedia defines:
Globalization as the process by which regional economies, societies, and cultures have become integrated through a global network of communication, transportation, andtrade.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
ORIGIN OF GLOBALIZATION
The historical origins of globalization is still subject to on-going debate. While some scholars situate the origins of globalization in the modern era, others regard it as a phenomenon with a long history. The popular Wikipedia website states that the 19th century witnessed the advent of globalization into its modern form as industrialization allowed for the cheap production of household items using economies of scale, while rapid population growth created sustained demand for such commodities.
However, this first phase of "modern globalization" began to break down at the beginning of the 20th century, with the first world war.
The second wave of globalization began roughly after the Second World war with the Bretton Woods conference, an agreement by the world's leading politicians to lay down the framework for international commerce and finance, which led to the founding of several international institutions e.g. International Monetary Fund (IMF) and the General Agreement on Tariffs and Trade (GATT) which are intended to oversee the processes of globalization.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Globalization involves:
one fundamental project: that of opening up the economies of all countries freely and widely to the global market and its forces.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
CHARACTERISTICS OF GLOBALIZATION Globalization is characterized by liberalization of the world economies and economic activities that are free from institutional control and which fosters and promotes free market mechanism, private enterprise, open competition, professionalism and excellence in corporate governance
Globalization
Liberalization
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
The Cons
Exploitation of labor
Job insecurity
Local industries being taken over by foreign multinationals Hostility between the host and the foreign nationals Imposed reforms and capitalization
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Promotion of a credit-based economics leading to an unsustainable growth of debt among developing nations
Widened arbitrary inequalities Use of substantial and sophisticated legal and financial means by foreign investors to circumvent the bounds of local laws and standards.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Market Protection on the other hand refers to the advocacy, system, or theory of protecting domestic producers by impeding or limiting, as by tariffs or quotas, the importation of foreign goods and services.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Market protection also known as Protectionism is the economic policy of restraining trade between states, through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to discourage imports, and prevent foreign take-over of domestic markets and companies. Protectionism is often regarded as a barrier to free trade which the advocates of globalization dread to hear.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Employment Law
Complex regulatory environment
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Prior to 1980, many countries quite deliberately adopted policies that were designed to insulate their economies from the world market in order to give their domestic industries an opportunity to advance to the point where they could be competitive.
Even the likes of China, South Korea, and others became more developed using measures to protect their industries and so on, with various forms of controls.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
had higher industrial protection than Brazil, China and India today when they had similar per capita income levels.
Dr. Yilmaz Akyz, former Director of Division on Globalization and Development Strategies at United Nations Conference on Trade and Development (UNCTAD)
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
The Cost of Market Protection: The America Steel Industry In 2002, the U.S. government headed by President Bush slapped a 30 percent tariff on imported steel, making other steels 10 percent more expensive than U.S. steel. The American hubcap (wheel cover) industry who rely on steel for their material had to pay 20% more for the steel to produce their wheels. Since the government had not put a tariff on hubs, Japanese hubs into the market came cheaper than those produced in US. The result: Americans started buying from Japan, the industry faced declining revenue; some of the firms laid off workers whilst some completely went out of business.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Lack of technical Skill Loss of jobs Stunted Economic Growth Higher Prices of goods and services Higher taxes Declining revenue Lack of exposure Lack of Innovation Restriction of Consumers rights
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
poor infrastructure,
poverty as many dwellers live below $1 per day High dependency on industrialized economies for financial integration. Low insurance penetration Poor infrastructure Galloping inflation
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
DRIVERS OF GLOBALIZATION
According to the Swiss Re (Sigma No.4/2000), there are drivers for globalization and these are the: Push Factors: are the motives behind the movement of foreign insurance companies
Global Trade
Growing Direct Investment
Pull Factors:
Factors are the motives behind allowing the foreign companies to operate in local market: Strong and Enduring regulatory framework Strong Economic Growth Availability of infrastructure facilities Availability of large capital in the market to cover major risks
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Local Economy Mobilization of domestic savings Improvement in financial stability Facilitation of production and trade Improvement in the efficiency of capital allocation
Spill-over effects
Foreign Insurers
Knowledge transfer
Increase efficiency
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
The growth in the premium encouraged Nigerian Insurance companies to move offshore and establish offices in some other West African sub-region like Ghana, Gambia, e.t.c.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Nigerian Insurance Industry: Opened doors with Protectionist Measures The Insurance Act 2003 Registration Requirement Section 72: Restriction of transactions of insurance business to Nigeria Empowerment of the Commission (National Insurance Commission) The Local Content Act Section 49 of the Nigerian Content Act specifically stated that all operators, alliance partners and Nigerian indigenous engaged in any form of business, operations, or contract in the Nigerian oil and gas industry shall insure all insurable risks related to its oil and gas business, operations or contract within and through an insurance broker or brokerage firm or an insurer registered in Nigeria under the provision of Insurance Act 2003. No risk should be placed offshore without the approval of the National Insurance Commission (NAICOM)
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Efficient insurance markets are an essential basis for emerging markets to achieve integration into the global economy and strong economic growth Klime Poposki (Faculty of Tourism and Hospitality, University of St. Kliment Ohridski, Bitola, Maccedonia). Generally speaking, companies have to participate in the consolidation phenomenon in recent years to attain the global scale needed to compete, because it is impossible to achieve that scale through organic growth alone Patrick G. Ryan - (Chairman, President and CEO, Aon Corporation, Chicago, USA)
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
However, to ensure an enviable insurance industry in the region, we need to take the following radical steps: Establish a robust and protective legal and regulatory system Introduce Micro-insurance mechanisms to help to deepen the market especially among the low income (informal) sector of the region. Develop indigenous information technologies suitable for the environment. Develop innovative strategies to enhance the channels of distribution of products and services
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
The role of the media in the needed reformation of the insurance industry cannot be overemphasized as they would be helpful in the Massive education and enlightenment programmes needed by the industry.
Build and enduring industry capacity capable of accommodating large risks and investments Easy access to credible statistics that would enable insurance companies to design comprehensive policies to meet the needs of prospective clients.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
CONCLUSION
I believe that all economies even the developed ones like US, UK inspite of openness to globalization still have some measure of market protection e.g. the automobile industry in the US is protected by the high tariff imposed on vehicles from others parts of the world e.g. Japan. This is to ensure that the automobile industry continue to exist and contribute to their GDP.
However, the issue is in the balance which should be maintained at an equilibrium that the economy does not deprive itself of the benefit of globalization.
Africa is the future investment destination , it is becoming what we can term as the last frontier of investment. This is because of the growth potential of the African economies. Whereas the developed economies are matured now or approaching maturity. The continent and the West African sub-region has so much room for growth and development. Consequently, investors world wide are interested in the region and such would aid growth and development. Unnecessary or over protection of this would not augur well for this growth and economic expansion that we badly need.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
Echoing the Lagos State Commissioner for Finance at the just concluded AIO Life Seminar in Lagos, - Africa is plagued by two things : Capital and Technology and its time we put on our thinking caps on how to generate more income and mobilize profit.
We must open our doors to one another, learn from each other and share experiences. Africa has a lot of untapped investible resources to take care of her capital needs.
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
According to Napoleon Hill in his classic boo Think and Grow rich, he said one of the most common causes of failure is the habit of quitting when one is over taken by defeat. We all are guilty of this mistake and need to rise up to globalization. Furthermore, quoting Abraham Lincoln I will work and I will prepare and my time will come. In the light of this, we need to get together so we can get wiser. With every convinction, in view of prevailing trends I want to attest that Africa our time has come, lets come together and take on the world!
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc
THANK YOU
Paper delivered by Mrs. Seyi Ifaturoti Managing Director/CEO CrystaLife Assurance Plc