A presentation made by Yekini Iskilu Ojo, Chartered Accountant and Fellow of the Institute of Chartered Accountants of Nigeria(ICAN) at the Nigerian International Film and TV Summit (NIFS) 2022 held in Lagos from August 30, 2022 to September, 2022.
‘You really need to be on top of what you own and you’ve got to be on top of your record keeping’-Anonymous.
The Nigerian Film Industry-Nollywood is widely reported as the second largest film sector worldwide after Bollywood and Nigeria’s second largest employer of labour after Agriculture with about one million estimated work force!
This prominent Nigerian story-telling industry has huge revenue potential estimated at $6.4 billion (N3.2 Trillion) in 2021 which was about 25% of Nigeria’s Federal budget for that year! And produces about 2,500 films yearly.
Unfortunately, the Nigeria Film industry growth has been dwarfed due to the perennial industry challenges such as poor funding, low film quality, poor distribution network, and high rate of piracy, poor remuneration, poor retirement plan, inadequate government support and incentives among others.
When the consolidated numbers in the industry are rightly showcased with the aid of proper record keeping, the above perennial challenges inimical to the Business success of industry players will be declared as an emergency by all and Nollywood would rule the world and move up to number 1.
OPPORTUNITIES ABOUND IN THE NIGERIAN FILM INDUSTRY
Nigerian Films enjoy global viewing more than ever before and the rapid use of internet and smartphones is making global distribution of Nigerian films faster through streaming of films dominated by big players led by NETFLIX and AMAZON as a growing means of consuming the rich Nigerian story telling business all over the world, it is only a matter of time before Nollywood rules the world if all hands are on deck especially government support.
Proper record-keeping by the industry practitioners would enable better business successes, reveal the true contributions of the industry to the Nigerian economy as well as showcase other intrinsic values which would enhance greater visibility for the industry to the government, investors and the public at large.
The reported milestones for the Nollywood industry was largely characterized by estimates and projections which makes planning and decision making by government and potential investors difficult.
Global deals are being facilitated between Nollywood practitioners and their international counterparts for co-production of movies which will enhance foreign exchange earning-capacity of the industry.
CHALLENGES CONTINUE TO IMPAIR THE GROWTH POTENTIALS OF THE NIGERIAN FILM INDUSTRY
Despite the widely reported milestone reached by Nollywood and its enormous potentials to become Nigeria’s largest foreign exchange earner according to the PWC Global among other contributions to Nigeria, the main 3 challenges remain high rate of piracy, poor government support and poor structure in the industry which is responsible for low access to funding. This was corroborated by a recent private survey conducted in the industry.
PROPER RECORD KEEPING WILL FACILITATE GREATER LOCAL AND GLOBAL BUSINESS SUCCESS
Proper record keeping if well embraced by the Nigerian Film industry practitioners would facilitate good industry structure that will not only drive greater business successes locally and internationally but also provide sustainable access to reliable information that can aid planning, control and decision making by the practitioners in the industry.
Better access to funding will be enhanced with proper records and also negotiations can be profitably done leading to faster signing of business deals and co-production.
Empirical evidence has shown that film practitioners with better business records were able to access funding made available to the creative industry as well as foreign grants.
Streaming wars are currently going on in the world and Nigerian Film Industry must shoot out their accurate numbers so as to survive these global wars and be victorious. This can only be achieved through keeping of proper books of accounts.
NOLLYWOOD INDUSTRY AND MUSIC PRODUCTION RANKED THE 6TH LEAST CONTRIBUTOR TO GDP
According to my analysis of the GDP data from the National Bureau of Statistics(NBS), Motion pictures(Nollywood industry), sound recording and Music Production contributed less than 1% to Nigeria’s GDP in the last 3 years- 2021, 2020 and 2019 ranking as the 6th least contributor out of 22 group activity sectors of the Nigerian economy which saw Agriculture, Trade, Manufacturing, Telecoms, Construction and Mining & Quarrying as the top 6 biggest contributors accounting for 75% of the Nigerian GDP! This is an unimpressive contribution from a world-class Nigerian industry ranked as the second biggest in the world.
There is an urgent need for Nollywood industry leaders to put strong record keeping and reporting framework in place for the practitioners to chunk out its own numbers so as to showcase its real contributions to the Nigerian economy which will enable the industry to attract the much-needed attention and support from potential investors, lenders, public as well as government at both Federal and state levels. Proper record-keeping will also place less reliance on the use of estimates and projected numbers for planning..
CREATIVE INDUSTRY RANKED 5th LOWEST CONTRIBUTOR TO TAX REVENUE FOR GOVERNMENT
An analysis of data made available to NBS by FIRS, Planning, research and statistics department showed that Q1, 2022 VAT revenue generated by the Federal Inland Revenue Service(FIRS) from 21 activity sectors revealed that Arts, entertainments and recreation(Creative industry) group including Nigerian Film industry featured at the bottom 5 and contributed less than 0.2% of the Value Added Tax(VAT) collected by FIRS locally. The creative industry further contributed about 0.99% of the total Companies income taxes (CIT) collected by FIRS during the same period and ranking as the 6th lowest contributor
Manufacturing, Telecoms, Mining & Quarrying, Financial Services and public administration were the
top 5 biggest contributing sectors accounting for over 77% of local VAT collected by the Federal tax authority and 70% of Companies Income Tax collected by FIRS.
The above analysis shows that Nollywood contribution to government revenue is one of the lowest and does not fully support the reported milestone achieved by the industry.
One could read the less importance place on the Nigerian Film industry by government with the low budget allocated to the regulators of the Nigerian Film Industry by the Ministry of Information and Culture which allocated just 4% of its 2022 budget to both National Films and Video Censors Board (NFVSB) and also Nigerian Film Corporation!
Nollywood practitioners must keep accurate numbers of their transactions and present it to show how important the industry is to the Nigerian economy and government will accord it the much-needed respect.
FILM BUSINESS IS A RECORD- KEEPING & REPORTING BUSINESS
- The first of the 3- stage record keeping process involves obtaining and maintaining safe custody of business transactions source documents such as contracts, invoices, bills, technical agreements, and bank statements among others. These source documents can be likened to writing of scripts by script writers in preparation for shooting of movies.
- Next is the extraction of data from the source documents for recording into the various books of accounts which can be maintained using an Enterprise Resource Planning (ERP) or using non-ERP reporting system. This is like recording or shooting a movie from the scripts into different scenes.
- The last stage has to do with preparation and presentation of management reports and audited financial statements from the books of accounts kept. This can be likened to distribution of recorded or shot movie through exhibition in cinemas, streaming online or through home videos using TV screens.
The above underscores the fact that Film business itself is a record writing, keeping and reporting business and Nollywood industry should pay more attention to it as a way of telling its own success story.
The records are presented to evaluate the business success using the following 3 trackers:
- Financial Performance: Using the income statement tracks the revenue(Sales), cost(expenses), and residual profit or loss from the business transactions. Profit=Revenue-expenses using income statement.
- Financial Position: Using the balance sheet also known as the statement of Financial Position which reveals the strengths/weaknesses of a business by showcasing its resources(Assets), exposures(Liabilities including tax obligations), reserves(Accumulated profit/loss) and Capital base(start up fund).
- Cashflow statement measures the liquidity which is the lifeblood of business by tracking cash inflows(Receipts) and cash outflows(Payments).
Sadly, too much emphasis is laid on revenue earning potential or historical earnings of Nollywood practitioners in evaluating the business without checking the capacity to deliver by tracking the strengths and weaknesses through the balance sheet as well as cash flow backing through the cashflow statement.
There were reported cases of businesses that collapsed suddenly despite their good track records in revenue earning. Their autopsy reports were analysed on their untimely deaths which showed that attention was not paid to their failing health as revealed by the balance sheet as well as low blood count as revealed by their cashflow reports.
Nollywood practitioners are advised to always look into their business dashboards to view the 3 trackers and also have a corresponding views of the trackers from the records of their prospective party(s) for which a business deals are to be signed. This can only be achieved through proper record keeping.
USERS OF FINANCIAL INFORMATION TO BE REPORTED BY FILM INDUSTRY PRACTITIONERS
- Management, personnel
- Lenders, producers, Cinemas, distributors, Vendors, customers, technical partners, e
- Business owners, potential investors
- Government, Industry regulators, International bodies, Tax authorities, Media, Reserachers, students, National Bureau of statistics(NBS) and the public at large.
WHO IS TRACKING THE INTRINSIC VALUE OF NOLLYWOOD INDUSTRY TO NIGERIA?
Nollywood industry was recently blamed by government for inspiring money ritual cases in Nigeria through their stories. This suggests that the perceived impact of Nollywood is being monitored.
There is a need to develop metrics to measure the positive impact of the Nigerian movies to the society. Some of the benefits to be measured include:
Education and Entertainment
Good citizenship, Unity & Morals
Family, Home & Nation building
History, cultural Heritage & Tourism
Provider of FOREX
Big provider of direct and indirect jobs
TAX INCENTIVES AVAILABLE TO NOLLYWOOD PRACTITIONERS FOR KEEPING PROPER RECORDS
According to the Nigerian tax laws, every small company with annual turnover(Gross sales) below N25Million is exempted from paying income tax on its profits as well as exempted from charging and collection of Value Added tax (VAT).
Medium sized company(Annual turnover of N25million to N100million) is given a 1/3 waiver in income taxes on its profits but not exempted from Value Added Tax(VAT).
It is instructive to note that further tax incentives may be granted to the Nollywood by government if a justification is made for it with the aid of records.
POTENTIAL OUTCOME OF SHOOTING OUT NOLLYWOOD NUMBERS WITH GOOD RECORD KEEPING
- Successful strategic Film business planning & risk management.
- Better access to Funding.
- Massive Public support to effectively battle piracy..
- Greater Investors’ confidence.
- Nollywood Legislative bill may be sponsored(Nolly bill).
- Adequate retirement plan and Insurance would be promoted.
- Right pricing of creative works.
- Film Free Trade Zone with tax incentives and enabling film business environment may emerge.
- Greater government attention and support to enable practitioners realize their full potentials..
A CASE FOR BETTER BUSINESS STRUCTURE TO BE PUT IN PLACE BY NOLLYWOOD PRACTITIONERS
According to the information obtained from the regulator of Nigerian film industry, most of the films verified and approved by National Films and Video Censors Board between February 2022 to June 2022 were produced by individual producers accounting for over 90% of production while corporate producer’s production was low.
Practitioners are encouraged to register their business as companies or business names as this will enable the application of entity concept which states that business owners are separate from the business. Corporate governance is more present in companies than individuals running businesses.
Mergers and acquisitions(M&A) may be adopted to bring two or more individual film producers together for greater business success.
Clearly, the Nigerian Film Industry achieved its milestone largely with practitioners individual resources and efforts and it is not impossible for Nollywood to rule the world if all hands are on deck especially government support. There is a limit to the extent of competing safely in the streaming war front without greater support from government and the public.
Proper record keeping would enable the right numbers to be chunked out by the industry players which would enable the industry to attract the needed support for greater business success.
While revenue base is a good measure of business potential, evaluating a business viability and ability to deliver on its promises can be fully measured with the use of balance sheet (Statement of Financial Position) and cashflow .
Before you signed off agreement with a partner/collaborator, measure the quality of your balance sheet and that of your intended partner for better business decision making.
Since film producers are very strategic to the growth and success of Film business in Nigeria, it is important that registration of production business as corporate entity will give better structure to the business which would enhance proper record keeping for greater business success.
The Nigerian Film Corporation (NFC) which was established over 40 years ago in 1979 by the Federal Government to see to the development of a viable and sustainable film industry and cinema culture in Nigeria still has 100% government ownership. The private sector should be part owners as this will enable rapid development of Film Industry in Nigeria. This will require an amendment of the relevant laws establishing the corporation.
The industry leaders should urgently constitute a team to develop a guide on how to assist members in simplifying their record keeping process for their local and global business success.
Let me close by quoting an important quote on record keeping by Stacy Duplease: ‘I can measure the quality of my life, at any given time period by how much or little I journal. They go hand in hand’
Yekini Iskilu Ojo, Chartered Accountant and Fellow, Institute of Chartered Accountants of Nigeria.