Doing Business in Nigeria | |
Doing Business in Nigeria | |
3034 VIEWS | |
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Sunday, January 26,
2020 / 08:47PM / THIS REPUBLIC By Shaka Momodu,
Thisday / Header Image Credit: Kirk Halpin
Since 2004 when the former governor of the
Central Bank of Nigeria (CBN), Professor Charles Soludo, carried out reforms of
Nigeria's financial infrastructure, the system has grown in leaps and bounds.
The reforms have dramatically transformed the banking landscape from an
unfit-for-purpose financial system with 89 fragile banks that could neither
support the economic transformation of the country through private
sector-driven initiatives nor compete with foreign banks into (22 as of now)
bigger and stronger banks. According to Soludo, "Confidence in the system was
very low. All the banks put together were smaller than the fourth-largest bank
in South Africa, and none of them was in the top 1,000 banks in the world. If
any private sector entity needed a loan of US$500m, it had to syndicate it from
all the banks put together - or go abroad."
Nigeria's total banking sector assets amounted
to less than 20% of GDP at the time, and bank loans were about 4% of the
country's GDP. "Talk about a private sector-led economy was simply a slogan, as
there was no financial system to power that," continued Soludo. "We concluded
that the system needed to be brought down and recreated from scratch..... Nigeria
had never experienced a policy revolution of that magnitude", he told Lawrie
Holmes of Public Finance International in 2012.
From that pathetic pre-reform situation, the
banking system has witnessed a massive turnaround to a very robust, strong, versatile
system that now finances multi-billion dollar private sector projects. Dangote
Group's massive expansion and growth are owed partly to capital financing by
our local banks; something previously impossible pre-consolidation. Some of the
banks are now so big and have gone global that anything that smells of
corporate greed, incompetence or scandal can wreck the system very quickly. The
revolution and evolution have been truly phenomenal.
But the gains of that consolidation that have
put several Nigerian banks among the top 500 in the world are in danger of
unravelling as a result of heavy-handed regulatory interference and broader
considerations beyond pure business imperatives.
The agencies that investigated and are enforcing
the outcome of the Orji Kalu case have hurt the dispassionate outcome of it by
introducing into the enforcement process an interpretation outside the judgment
of the court that goes against the grain of professional governance and
regulatory administration. Indeed, the manner of enforcement of the court
judgment against Kalu could easily hurt the steadily repaired reputation of
Nigeria's business environment and the Ease of Doing Business. The recent
interrogation of the Managing Director of Access Bank by the Economic and Financial
Crimes Commission (EFCC) over a dispute concerning the conviction of the former
Abia State Governor, Orji Kalu and the winding-up order against his company,
Slok Holding, is yet another disturbing development in the series of
misadventures by investigative authorities.
Available information seems to suggest that the
defunct Diamond Bank, which merged with Access Bank last year, financed the
acquisition of 3 vessels by Slok with depositors' funds amounting to $85m. The
vessels, it is understood, have a long-term contract with Mobil Producing.
Last December, Orji Kalu, the principal
shareholder of Slok, was convicted by a Federal High Court in Lagos of
corruption and stealing of Abia State money and sentenced to 12 years in prison
while his company, Slok, was ordered to be wound up and its assets forfeited to
the government. The conviction was a commendable job done by the EFCC, no
doubt.
But fellow Nigerians, does it make sense that
the agency, which prosecuted Kalu, should now confiscate the vessels that were
financed by Diamond Bank (now Access Bank by virtue of the 2019 merger)? In a
real sense, are the vessels a part of the assets of Slok Holding when huge
depositors' money loaned to Slok to acquire the vessels is unpaid? So when EFCC
moved to take inventory of Slok's assets, the understanding is that the bank
attempted to explain to the anti-corruption agency that Slok has an obligation
to Access Bank, now the creditor bank and that the vessels in question do not
belong to Slok or Orji Kalu. The loan obtained by Slok was secured by the
vessels and the Mobil contract. One doesn't have to rack one's brain to
understand the underlying structure of the transaction. It is therefore
difficult to understand the insistence of the anti-corruption agency to vitiate
a valid commercial contract between private sector entities. By pursuing this
approach to asset recovery, the agency would, inadvertently, be creating
dangerous precedence capable of discouraging private investment by both local
and foreign investors.
The obvious questions are, should the EFCC have
its way, who will repay the depositors' funds used to finance the acquisition
of the vessels? Is this not another way of shortchanging the shareholders of
the lending bank? The normal practice is that when a company is going into
liquidation, all liabilities are factored in so that no one gets the short-end
of the stick. What will EFCC do with the vessels? Sell them in compliance with
the winding-up order and remit the money to the government when Slok's
financial obligation to Access Bank has not been met? The solution would be a
learning moment and a defining point in the resolution of a commercial loan
involving the company of a politically exposed person.
In an opinion piece in February last year
titled, 'Things Fall Apart, But is the President Aware?', a former Chairman of
Stanbic IBTC, Mr. Atedo Peterside had lamented the damaging effect of the
actions of regulators and law enforcement agencies on businesses/investments
and stated that it was beginning to undermine business confidence with the
potential of scaring away investors. He said the biggest negative of
Buharinomics was allowing hard-working but sometimes overzealous law
enforcement officers to go after private sector businesses in a manner that
could discourage investment. "The business community then takes fright and
investors flee, thereby sending the economy into a tailspin", he added.
In June 2019, the United Nations report, as
published by Reuters, stated that Foreign Direct Investment into Nigeria,
Africa's top oil producer plunged by as much as 43 percent to $2 billion in
2018. The report cited two significant hindrances to investment in Nigeria,
namely regulatory activities and harassment by security agencies. Following the
publication of that report, Atedo Peterside took to twitter to once again vent
his anger on Nigerian regulators and law enforcement agencies who appear too
willing to shakedown top chief executives of companies over one form of
regulatory infraction or the other with the following tweet: "Nigeria's rogue
regulators finally succeeded in chasing away Foreign Direct Investment, (FDI)?
Ghana had more FDI in 2018 than in Nigeria. Rogue security agencies contributed
also. Nigerians no longer wish to invest here either."
The blame for the huge drop in FDI and
investors' apathy towards Nigeria was allegedly the result of the dispute
between the government and South African telecom giant, MTN over repatriated
profits. As a result, Banks HSBC and UBS both closed their representative
offices in Nigeria in 2018. The situation was compounded by EFCC when it
entered the political arena, accusing the HSBC of money laundering immediately
the bank predicted that if President Muhammadu Buhari was returned to office,
it would "stunt the economy." EFCC had, apparently, for the optics, vowed not
to "rest on its oars" till all the looted funds allegedly in possession of the
bank were repatriated back to Nigeria.
For those who don't know, HSBC is one of the
largest banking and financial services organisations in the world. Its
international network comprises around 7,500 offices in over 80 countries and
territories in Europe, the Asia-Pacific region, the Americas, Africa and the
Middle East. Its mere presence in Nigeria was a huge confidence booster for our
economy, and to have the bank exit on the altar of politics, undermined the integrity
of our system. Apart from the fact that it is a correspondent bank to many of
the local banks, many of our country's international transactions such as Euro
bonds, are packaged jointly with it.
Again, in September 2018 after the CBN ordered
Standard Chartered and three other lenders to repay $8.134bn for allegedly
issuing irregular Certificates of Capital Importation on behalf of some
offshore investors of MTN Nigeria Communications Limited, armed operatives of
the Economic and Financial Crimes Commission (EFCC) stormed the headquarters of
Standard Chartered Bank in Lagos during working hours, presumably to arrest
Bola Adesola, the managing director of the bank in the full glare of the bank's
customers who were later escorted out of the premises by EFCC operatives. It
was a strange move by the anti-graft agency.
The bank confirmed it then that EFCC operatives
indeed entered its head office building but left shortly afterwards as there
was no reason for them to be there. It is saddening that straightforward
commercial disputes between regulators and business institutions which could
have been resolved without any fuss with the cooperation of the latter have
degenerated into a public spectacle.
The EFCC, on its part, said that it never
sanctioned any raid on the headquarters of Standard Chartered Bank in Lagos,
adding that the act might have been carried out by overzealous personnel. The
commission noted that it's modus operandi when probing any transaction was to
invite officials of financial institutions after discreet investigations and
that it does not use strong-arm tactics. It added that what happened in
Standard Chartered Bank was a breach "of the standard operating procedures of
the commission, as it is not the style of the EFCC to openly raid the offices
of banks and other financial institutions." I remain unpersuaded by EFCC's
statement.
It is important to note that the investigative
agency's governance framework involving private enterprises should build
credibility in the legal system and protect enterprises from avoidable
reputational damage. Dramatic actions of anti-graft bodies could discourage the
much-needed foreign direct investments (FDIs). In recent times Nigeria's loss
has benefited Ghana, which is in the midst of an oil and gas boom. With inflows
of $3bn, it dethroned Nigeria and became West Africa's leading destination for
foreign investment.
To reverse the migration of the much-needed FDI
across the borders, the Nigerian government and its crime-fighting agencies
must take the processes of institutional governance in commercial matters more
seriously and protect the integrity of the financial system and the credit
management process. Forfeitures should protect those that provide loanable
funds.
The recent EFCC/Slok/Access Bank dispute could
erode business confidence and stall the inflow of foreign investment capital
into the economy. Rather than insist on seizing Slok's contracted vessels and
auctioning them off to third parties, EFCC should follow not only the letter
but also, the spirit of the law. Open and frank discussions should commence
with Access Bank towards finding an amicable solution to the matter in such a
way that no party gets the short-end of the stick.
The Slok incident should serve as a learning
moment for all parties and provide useful takeaways that will serve as a basis
for due governance processes in future. For sure, the local and international
business community is keenly watching as events unfold and would be deeply
interested in how the tango ends. I'm watching with keen interest to see
whether depositors' funds will be protected.
Credits
The post Kalu's Conviction: EFCC and Sanctity of Commercial Transactions first appeared in Thisday on Friday, January 24, 2020.
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