Monday, February 08, 2016 03.29 PM / FDC
The business environment in Nigeria can best be described as a jungle: survival of the fittest, winner takes all. In the past, a lax regulatory environment encouraged business entities to take advantage of consumers and even to cannibalize competition. Fast forward to post election 2015 and the regulators seem to have jumped into action.
From the banking sector where the Central Bank of Nigeria (CBN) and the Federal Reporting Council (FRC) have fined erring banks billions of naira for Treasury Single Account (TSA) lapses and poor reporting standards, to the telecommunication sector where the National Communication Commission (NCC) has dished out some heavy fines to National Food and Drug Administration and Control (NAFDAC) and its sudden love for hygiene controls, the message seems clear: Fall in line or get whopped.
The ultimate beneficiaries of this new regime are the government and citizens of Nigeria. While several bodies have called out the Nigerian government for issuing excessive fines to raise an ambitious budget of N8.5 trillion in the face of dwindling oil revenues, one cannot help but wonder why organizations (both local and foreign) operate with so much disregard for the mandates of the government, while they adhere strictly to the laws of other nations where they operate.
In short, while there is no doubt that fines should be disciplinary, and not punitive in nature, enforcement must also follow to avoid the flagrant disregard for regulation that Nigeria has witnessed in years past.
Fines Without Enforcement
In 2014, for example, Coca-Cola was indicted for failing in its responsibilities to the Nigerian consumers and fined N100million. There was a flagrant disregard for the orders of the council and the office of the Attorney General of the Federation had to intervene and call the organization to order. By implication, Coca-Cola is indifferent to the standards set by the regulatory body and showed no remorse for its actions either.
At about the same period last year, the National Food and Drug Administration Control (NAFDAC) slammed a fine of N1billion on Guinness Nigeria for using expired raw materials for production. Guinness Nigeria has also gone to court and is yet to pay the fine.
The story is same for Stanbic IBTC, which is also challenging the N1billion levied on it by the Federal Reporting Council (FRC) in court. It is interesting to note that foreign companies are quick to run to court in a bid to subjugate the efforts of the regulators.
Fines in Excess (??)
However, it is also imperative that we consider the short and long -term effects such fines have on the business environment. Last October, the Nigerian Communications Commission (NCC) fined MTN $5.2billion for failing to disconnect 5.2 million unregistered SIMs on its network. MTN Nigeria’s total revenue in 2014 was $2.6billion. In effect, the fine was two times the company’s annual profit in 2014. The fine sent shock waves around the business world and reverberated particularly in South Africa where the company is headquartered. Although the fine was reduced to $3.9billion, three months later, the company is yet to pay the fine and has dragged the NCC to court.
Excessive fines that are not properly enforced sends out mixed signals to both local and foreign investors. Foreign investors who wish to do business in Nigeria get to hear of these fines and become hesitant. For investors already in Nigeria, it is an indication that they can go and act as they wish without regard to the laid down laws knowing fully well that they can take advantage of a weak judicial system to get away with their misdeeds.
As the government tries to woo foreign investors to come and do business in Nigeria, there is a need to ensure that the business environment is made conducive
The Long Term Effects
Only last week, South Africa announced that it may soon stop buying crude from Nigeria following the lifting of sanctions on Iran.
Conspiracy theorists say its retribution for the fines levied on its business in Nigeria. It may sound far-fetched, but it is indeed plausible. According to the EIU, Foreign Direct Investments (FDI) was as high as $8.1billion in 2011 and fell to $1.4billion in 2014 down by over 82%. FDI has crashed to almost zero in the last few months. With the current posturing by the new administration, a net reversal of FDI’s is imminent.
Fines should be more disciplinary than punitive. There should also be some form of enforcement of these fines so defaulters do not take them for granted. Regulators on their own part need to be more proactive than reactive as their primary purpose is to standardize and not to drive revenue.
Nigeria’s business environment is already perceived as being a volatile investment destination and any indication that the country sees fines, as an avenue to generate revenue will do more harm than good.