Leading members of Nigeria's industrial sector are lamenting that regulatory agencies are worsening the ease of doing business and stifling investment flow into the country, writes Dike Onwuamaeze
The fear of regulatory bullying is becoming the beginning of wisdom for investors in the Nigerian industrial sector. The bullying may come from any agency of the government that is entrusted with the ordering of affairs of specific sectors of the economy. The agency could be the Central Bank of Nigeria (CBN), as being witnessed in the bank's alleged refusal to honour its obligations at the foreign exchange (FX) forward contracts it entered with businesses to supply them with US dollars at agreed future dates that have now matured.
The bullying could also come from regulators in the oil and gas that wants to perpetuate the country's importation of refined petroleum products as seen in the goings on between the Dangote Group and the Nigerian Midstream and Downstream Regulatory Authority (NMDPRA) that declared the products of Dangote Refineries as inferior.
Moreover, the harassment may come from a seemingly innocuous regulator like the National Lottery Regulatory Commission (NLRC) that is in a duel with the Nestle Nigeria Plc.
Prosecutorial attitude
Last week, the National President of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA), Mr. Dele Kelvin Oye, recounted the prosecutorial attitude of the NLRC toward Nestle.
According to him, the NLRC invaded and sealed Nestle's headquarters with armed policemen. The invasion and sealing of Nestle's offices by the NLRC was declared illegal and unconstitutional on November 29, 2023, by Justice Daniel Osiagor of the Federal High Court in Lagos. The court ruled that the NLRC's actions violated Sections 44(1) and 34(1) of the 1999 Constitution, which protect property rights and the dignity of individuals.
The NACCIMA, which is the umbrella body for all chambers of commerce in Nigeria, said that it felt compelled to address the recent events involving long-term investor and distinguished multinational brand, Nestle in order to draw the attention of the coordinating minister and President Bola Ahmed Tinubu.
According to Oye, it is important to acknowledge that some of the actions taken by various government agencies (MDAs) against legitimate private business operations are interconnected and unfortunately, some of these MDAs often hinder rather than support business enterprises.
He said: "We must express our concern regarding those agencies utilising extrajudicial means on law-abiding legal entities. To be clear, this affects all Nigerian companies.
"We commend and support the courageous steps taken by Nestle in following the law by approaching the Federal High Court. In an environment where many unethical alternatives exist, such actions are commendable."
NACCIMA said that the government should review how existing investors are treated if it is serious about attracting more investment into the country. "By looking at other examples within the African continent, we can find alternative approaches to economic management," Oye said.
It further advised that government should adopt policies and approaches that promote business growth through incentives, simplified tax regimes, and robust legal frameworks that protect investors' rights. A stable and predictable regulatory environment is crucial for attracting and retaining investments.
To improve the investment climate, the government should undertake several key steps, which include regulatory clarity and consistency by providing clear guidelines and ensuring consistent enforcement of regulations so that businesses should not be left to navigate conflicting directives.
Respecting judicial processes
NACCIMA also stated that regulators must respect judicial processes and court rulings because rule of law is fundamental to maintaining investor confidence.
It said: "Simplifying processes for business registration, licensing, and compliance will reduce the administrative burden on businesses.
"Ensuring that businesses' properties are protected from unlawful seizures and invasions will bolster investor trust.
"Offering tax breaks, grants, or other incentives for compliance with regulations can encourage businesses to operate within the legal framework and training and equipping regulatory staff to understand the business landscape and their roles in fostering economic growth."
Oye said that it is not too late to start with the Nestle's case that highlighted the need for relentless advocacy to ensure that businesses are not unduly hampered by regulatory overreach.
"The cases of Nestle Nigeria Plc and Dangote Refinery underscore the challenges businesses face in Nigeria due to the unexpected actions of some government MDAs. These incidents have raised concerns among current local investors and prospective foreign investors about Nigeria's status as a viable investment destination.
"Nigeria has the potential to create an environment where businesses thrive, ultimately driving economic growth and development.
"NACCIMA stands ready to support and serve as a beacon of hope for a more prosperous Nigerian business landscape," he said.
Unsettled FX Forward
Similarly, the Manufacturers Association of Nigeria (MAN) also lamented that the implications of the continued unsettled FX Forward transactions by the CBN on the country's manufacturing sector. It should be recalled that the CBN recently announced its inability to honour $2.4 billion worth of forward contracts, citing an ongoing investigation by the Economic and Financial Crimes Commission into some foreign exchange transactions. But MAN stated that even though no clear allegations or infractions have been communicated to any of its members and none have been indicted for any infractions the forwards have remained unredeemed.
According to MAN, this has triggered severe crisis for the manufacturing sector and Nigerian economy. Worse still, the commercial banks have continued to charge dollar account along with other Naira bank charges such as 35 per cent interest rate on the facilities that these companies have with their banks. All these have significantly eroded the working capital of the companies who barely make margins of 5.0 per cent on the sales of the products.
This rather worrisome breach of contract has further exacerbated currency risk for businesses, leading to substantial financial losses and operational disruptions.
The Director General of MAN, Mr. Segun Ajayi-Kadir, noted that businesses with substantial foreign exchange liabilities face acute credit and liquidity risks due to their inability to settle forward contracts. This has strained cash flow and jeopardised overall financial stability.
Ajayi-Kadir said: "While many small and medium-sized enterprises have been forced to close or temporarily suspend operations, larger corporations have incurred massive foreign exchange losses exceeding over N300 billion in the second half of 2023.
"This situation has been exacerbated by the continuous depreciation of the Naira, which has depreciated by more than 72 per cent, from N450 to N1600 per Dollar over the past year.
"Financial planning and budgeting have been severely compromised due to the uncertainty surrounding future exchange rates. The cascading effects on the economy are far-reaching, impacting production, employment, government revenue, and overall economic growth."
He added: "Quite frankly, the CBN's non-fulfillment of its forward contract obligations has led to a cascade of negative consequences.
"Manufacturing concerns have been worse hit. For instance, within the last six months, companies have incurred over N1.5 trillion in forex-related transactions losses, contributing to the poor and worsening performance of many businesses.
"The resulting exchange rate differentials and the burden of interest on loans to meet Naira deposit requirements have been entirely transferred to manufacturers, increasing production costs and impacting product prices."
Manufacturing supply chains
According to him, this crisis has disrupted manufacturing supply chains, hindered productivity, and jeopardised job security. Consequently, businesses are struggling to meet their loan repayments, leading to the rescheduling and restructuring of loan terms.
The MAN stated that reneging on these legally binding contracts potentially undermined the CBN's credibility and may damage investor confidence. Moreover, the resulting financial strain on manufacturing businesses has led to widespread closures, job losses, and economic turmoil. The manufacturing sector has borne the brunt of this crisis, with a staggering 108.7 per cent increase in job losses in 2023 alone.
To prevent further damage, MAN has called for collaboration between the CBN, the Federal Ministry of Finance and the private sector to develop a sustainable framework for resolving outstanding forward contracts and improving foreign exchange inflows. By prioritising the survival of the manufacturing sector, the government can mitigate the negative impacts of this crisis and foster economic recovery.
Worried about the growing incidents of regulatory irritations, distractions, and frustrations inflicted on the Nigerian manufacturing sector and other investors in the country's economy, the Chief Executive Officer of Centre for the Promotion of Private Enterprises (CPPE), Dr. Muda Yusuf, on Sunday, August 11, spoke on the need to ease regulatory burden on investors.
According to Yusuf, there are disturbing tendencies of overbearing regulatory dispositions toward disproportionate sanctions, obstructionist actions, outrageous fines and penalties, intimidation and high handedness. There are also worries about multiple regulatory fees and levies, duplications and overlapping responsibilities, regulatory repression and weak stakeholder engagement.
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He, therefore, appealed to the regulatory agencies to exercise more discretion in exercise of their powers and support the aspiration of the present administration to create and enabling environment for investment to boost domestic production, reduce import dependence, conserve foreign exchange and elevate investors' confidence.
Protecting consumers
This, according to him, would not detract from the primary responsibilities of the agencies to protect consumers, ensure competition, promote standards and quality and protect the environment.
He said: "But they do not have to suffocate investors in order to achieve this objective. Public pronouncements by some of the agencies had the unintended consequences of demarketing (spreading misinformation about) local brands, an action that is detrimental to the country's aspiration to boost domestic production, grow investment, expand exports, earn foreign exchange and create jobs.
"The regulatory agencies should appreciate the context in which businesses in Nigeria are operating. The headwinds are profound and multifaceted, which is why many large companies declared huge losses in their latest financial results. Many have shut down; some have scaled down their operations while several others have left the country.
"Businesses are grappling with the challenges of exchange rate depreciation, currency volatility, high energy cost, high electricity tariff, high cost of logistics, weak purchasing power, soaring inflation, high cost of funds, high cost of cargo clearing, insecurity in parts of the country and many more.
"These are enough troubles for manufacturers and other investors in the economy. The regulatory agencies should not be perceived as adding to this multitude of problems.
"It is important that the regulatory agencies bear this in mind. Running a business in the country at this time is a herculean task," Yusuf said.
The CPPE believed that the regulatory agencies can discharge their functions effectively without jeopardising investment sustainability and growth. Regulatory agencies should see investors as partners in the Nigerian project for the growth of the economy and not as objects from which to extract financial value of all types.
