The Nation Newspaper

Category: Money

  • CBN creates Retail Dutch account for authorised dealers

    The Central Bank of Nigeria (CBN) yesterday released guidelines for the operations of the foreign exchange market. The apex bank also created a designated account for authorised dealers.

    The account named, Authorised Dealers Retail Dutch Auction System (RDAS) Account was opened at the CBN with account number 1000011194.

    A statement signed by N.T Igba for CBN Director, Trade and Exchange, said authorised dealers are required to fund the account, inclusive of the one per cent commission, using the Real-Time Gross Settlement (RTGS).

    This, he said, should be done by the close of business on every Thursday for Monday RDAS auction session, while funding for Wednesday auction session shall be done on Mondays. He said funds in respect of disqualified or cancelled bids and any balances shall be credited to the current account of the authorised dealer by the end of the auction session.

    The regulator had last September, replaced Wholesale Dutch Auction System (WDAS) with RDAS because of the ineffectiveness of the former in addressing hitches in the forex market.

    It also withdrew the licences of 20 bureau de change (BDCs) operators for violating forex rules, an indication that more licences withdrawal may be seen in future, should the violation continue.

    Under the RDAS, banks and other authorised dealers place bids on behalf of individual clients who qualify to buy forex at the official auction. The change from WDAS to RDAS allows the authorities to monitor more accurately various sources of forex demand and any potential duplication of forex demand in the system. Banks will remain responsible for all documentation requirements.

  • FirstBank, GTBank, Zenith named best banking brands

    First Bank of Nigeria Limited, for the third consecutive year, has been ranked as Nigeria’s number one banking brand in the 2014 The Top 500 Banking Brands Ranking of the world just released by The Banker Magazine, Financial Times Group in its February edition and Brand Finance in the United Kingdom.

    The Country Representative – Nigeria, The Banker, Mr. Kunle Ogedengbe, said in a statement that FirstBank was also ranked number one banking brand in 2012 and 2013, came top amongst the Nigerian banks and was joined in the ranking in second and third by Guaranty Trust Bank and Zenith Bank respectively.

    First Bank is ranked 382 in the world from 414 last year. The brand value of the bank also increased to $228 million from $201 million from the preceding year. Guaranty Trust Bank ranked 422 from 415 while Zenith Bank is ranked 453 from 454 last year. Apart from the three banks, no other Nigerian bank made the ranking.

    Brand Finance is the world’s leading brand valuation consultancy which advises branded organisations on how to maximize their value through the effective management of their brands and intangible assets.

     

     

  • Service delivery key in business, says Fidelity Bank

    Fidelity Bank Plc has said service delivery remains the most critical factor in starting new businesses.This fact emerged recently at the Fidelity SME Forum, a weekly radio programme sponsored by Fidelity Bank Plc.

    Speaking on the theme: “Managing and Growing a Retail Business in a Fast-Growing Market”, the Managing Director & Chief Executive Officer, SLOT Systems Limited, Nnamdi Ezeigbo said that rather than running around looking for capital to set up a business, potential entrepreneurs should focus more on how to render quality service to the customer.

    “The most important thing when it comes to business is the question of how do you start? Most people always run around looking for start-up capital and how they would raise money to start business. I think the best way to start is by rendering services and that is what I did”. He explained that he invested in social capital when he found out that he could not raise the needed fund to start his business. “I could not have afforded to raise money to start a store as at that time, so what I did was to invest in myself, train myself and acquire the technical know- how and then with that I was able to build what is called social capital and not financial capital”.

    Ezeigbo, whose company is one of the leading brands in the mobile phone sales and distribution segment of the telecommunications industry, advised entrepreneurs to invest in the capacity development of their workforce. He acknowledged the fact that organizations are made up of people, processes and systems/infrastructure but insisted that employees are the central pillar upon which any business stands.

     

  • Banks to raise interest rate, credit facility

    Banks to raise interest rate, credit facility

    • ‘How FirstBank, GTBank, others can become stronger’

    Banks will this year raise in terest rates and the volume of loans.

    According to an Equities Analyst at Renaissance Capital (RenCap), Adesoji Solanke, lenders are going to implement strong loan growth, as they try to offset the lost income from higher Cash Reserve Ratio (CRR) implemented by the Central Bank of Nigeria (CBN).

    In a report titled: ‘Nigerian banks: Tier-one-growth precariously balanced’, Solanke said with an average CRR of 20 per cent, the banking environment does not allow for significant earnings growth, a trend that would be felt by the banks.

    He explained that with yields on Treasury bills having declined, the scope for lower funding costs remains feasible.

    He said Access Bank should begin to witness improved earnings with most of its Asset Management Corporation of Nigeria (AMCON) bonds having been redeemed at end of December 2013 for more liquid assets. “These assets could be deployed into higher-yielding loans while reducing the bank’s reliance on expensive fixed-term funding. The key risk to our forecast is execution; in the past we have expected improved performance only to be disappointed as the year progresses. Nevertheless, we believe Access’s valuation is attractive,” he said.

    For FirstBank, RenCap said although the bank’s September 2013 result was disappointing, a better result is being expected going forward, given its scale and cheap funding base. “We believe management will have to rebuild investor confidence in the Group’s strategy. In our view, the market needs a clear understanding of First Bank’s competitive edge and how this is being exploited to deliver attractive returns to shareholders,” it advised.

    Its report on Guaranty Trust Bank said the lender continues to deliver the best quality of earnings and most sustainable returns. “For investors who want hassle-free exposure to the sector, this remains our top choice,” he said.

    The report said although United Bank for Africa returns have rebounded from the 2011 losses, its Return on Assets (RoAs) require further improvement to drive an ongoing re-rating in the stock.

    For Zenith Bank, Solanke said the lender’s liquid and highly capitalised balance sheet was a key part of its strength in a challenging 2013 banking environment.

    “We expect 2014 to be tougher for the bank, given the decline in Treasury yields and its high exposure to CoT revenue as against other banks. We note that management is confident it can offset these revenue challenges with new sources of income, but delivery will be key to a continued re-rating of the stock,” he said.

    The Nigerian banks have had to operate in an environment of tightening monetary policy for the past three years, which in relative terms has been unfavourable to the tier two banks.

    Also, he said the big banks, otherwise called tier-one lenders, must watch their cost of operations and manage asset depreciation charges to remain profitable, an Equities Analyst at Renaissance Capital (RenCap), Adesoji Solanke, has said.

    The tier-one banks include FirstBank of Nigeria, Guaranty Trust Bank, Zenith Bank, United Bank for Africa and Access Bank. He said the banks’ headache remained the impact of higher Cash Reserve Ratio (CRR) on public sector deposits, now at 75 per cent and cuts in commission-on-turnover (CoT).

    The CRR is a portion of banks’ deposits kept as reserves with the CBN and remains at 12 per cent for all other deposits. The CoT which was N5 per mille was last year cut to N3 per mille and is currently at N2 per mille until next year when it will be zero CoT on all transactions.

    Solanke advised that the lenders must be disciplined on the cost line and properly manage their depreciation charges before they could deliver earnings growth. “We think there is a precarious balance between these headwinds and a number of tailwinds, and think it remains challenging for banks to deliver attractive earnings growth; the risk of another year of flat-to-negative earnings growth cannot be ruled out,” he said.

    The CBN had at the last Monetary Policy Committee (MPC) meeting raised the CRR on public sector deposits from 50 to 75 per cent. That was after initial increase from 12 per cent to 50 per cent in July last year. The CRR is a portion of banks’ deposits kept with the CBN. Analysts said these policy changes in less than a year represent a major policy challenge for the lenders.

    Also, the banks’ heavier reliance on term deposits has left many of some of them competitively disadvantaged as against the scale banks, and the concentration of market share by tier one banks has forced tier two banks to work harder to deliver improved returns in this environment.

     

  • Access Bank extends $20m loans to women-owned enterprises

    Access Bank has grown its loan portfolio of women-owned businesses to over $20 million in less than six years.

    In a statement, the lender said such feat is an indication of its commitment to partnership and entrepreneurial development of women-owned businesses.

    It said over 500 female entrepreneurs have benefited from its capacity development programmes and special sessions on how to grow their businesses successfully, adding that it has always assisted such businesses in getting securing funding.

    Also, WEConnect International, a global non-profit organisation committed to sustainable economic growth by increasing opportunities for women-owned businesses, has appointed the bank to its National Advisory Board.

    The appointment, the lender said, was in recognition of its numerous contributions to the development of women entrepreneurship in sub-Saharan Africa.

    Similar to some of the objectives of the Access Bank Inclusive Banking strategy, WEconnect International identifies, educates, registers and certifies women business enterprises that are at least 51 per cent owned, managed and controlled by one or more women.

    By this membership, the bank becomes the only financial institution partner of the international women-empowerment organisation which draws its membership from over 70 countries across globe. The lender also said it will continuously leverage its alliances, partnerships and collaborations with reputable international organisations to promote women entrepreneurship across Africa.

    The bank’s Group Head, Inclusive Banking, Mrs Ope Wemi-Jones, said the lender is encouraged by the recognition of its defining role in women entrepreneurship across sub-Saharan Africa, adding that it will continue to support, promote and boost women-owned businesses dedicatedly and innovatively.

    The bank’s Executive Director, Personal Banking Division, Victor Etuokwu said with the lender’s positioning as the national champion for women banking and over 2.6 million female customers on its books, it, therefore, has a responsibility to innovate and evolve strategies that will ensure women-owned businesses receive the necessary funding.

     

  • How we are fighting fraud, by Visa chief

    Visa invests heavily in ad vanced fraud-fighting technologies and continues to develop and deploy new and innovative programmes in mitigating fraud and protecting cardholders, its Country Manager in West Africa, Ade Ashaye has said.

    He told The Nation that the global payment firm’s efforts have helped to keep fraud rates steady near historic lows, enabling accountholders to use Visa with confidence.

    “In fact, with technological innovations and advances in risk management, global fraud rates have declined by more than two-thirds in the past two decades. Because VisaNet processes more electronic card payments globally than other networks, it has an enhanced ability to identify fraud on individual accounts and coordinated attacks on multiple accounts across the system, enabling issuers to stop potential fraud at checkout, before it occurs,” he said.

    He said the firm’s advanced authorisation remains an industry-leading security technology that analyses and scores in real-time every Visa transaction for its fraud potential. Risk scores are based on a global view of fraud and spending patterns across the entire Visa network providing an analysis of fraud trends.

    “In less than one second of processing, the Visa network can analyse transactions and provide risk scores accurately. This speed and clarity help issuers prevent fraud from occurring in the first place, rather than just reacting to fraud after it occurs,” he said.

    At the global level, Visa, MasterCard and American Express, the biggest United States payment networks, have proposed using “digital tokens” instead of account numbers for processing purchases made online and with mobile devices.

    “Tokens provide an additional layer of security and eliminate the need for merchants, digital wallet operators or others to store account numbers,” the companies said in a joint statement.

    The standard, to be applied worldwide, they said, would be presented to other payment firms and industry trade groups in coming weeks, according to the statement. Tokens would be the digital equivalent of magnetic stripes on the back of plastic bank cards that contain customer information.

    They also may help to reduce fraud by providing uniformity as companies, such as Google and Starbucks embrace mobile commerce and offer consumers new ways to pay.

     

  • Mortgage Refinance Company to narrow N25tr housing gap

    The Mortgage Refinance Company (MRC), which last week, got its operating guidelines from the Central Bank of Nigeria (CBN) would help bridge the N25 trillion housing deficit, analysts have said.

    Nigeria, which is sub-Sahara Africa’s largest economy after South Africa, is struggling to deliver housing to its 160 million population because of the high prices of houses.

    This constricts demand for housing, while also exposing mortgage finance institutions (MFIs) to increased risk of default as mortgages are priced at unhealthy double digit rates.

    Across the continent, home financing is largely accessible by mainly the upper class and the upper middle classes. This can be traced in part to the preference of the mortgage lenders for mainly corporate clients while individuals are left to access mortgage finance at exploitative rates.

    A report on the mortgage industry titled: “Retrogressive view on the Mortgage Refinance Company (MRC), said Nigeria has an estimated 18 million units housing deficits, which grow by two million units yearly.

    The establishment of the MRC, it said, was aimed at increasing the liquidity within the mortgage sub-sector and mortgage credit, reducing mortgage and related costs, and making residential housing more affordable.

    The MRC is being established to provide short-term liquidity and/or medium to long-term funding or guarantees to mortgage finance lenders. It is expected to increase yearly mortgage to 200,000 from the current average of 20,000 mortgages in the next few years, representing an increase of 900 per cent.

    The firm is also expected to act as an intermediary between originators of mortgage loans and the capital market, who are typically looking for long-dated high quality securities. The operations of the MRC are expected to enhance the development of the secondary mortgage market, which till date remains largely untapped. Already, the World Bank has committed $300 million interest-free capital to the project while other local investors have equally shown optimism.

    The CBN said the regulatory framework is drawn pursuant to the provisions of the CBN Act 2007, Banks and Other Financial Institutions Act (BOFIA) CAP B3, Laws of the Federation of Nigeria (LFN) 2004, other relevant Laws, and extant CBN guidelines and circulars.

    The framework prescribes the basic regulatory requirements for the MRC’s principal line of business of re-financing credits to borrowers on the security of residential mortgage assets and other qualified collaterals. It also sets the capital adequacy requirements for the MRC, including its minimum paid-up capital, maximum leverage limit, and the minimum risk-weighted capital requirement.

    Furthermore, it specifies the types of collateral that a borrower can pledge for the MRC’s advances, and the discount that the MRC shall apply in determining how much it can lend against any qualified collateral. It also prescribes procedures for the management of the MRC’s interest rate risk, its permissible investments and liquidity requirements.

    According to the CBN, the benefits of such mortgage liquidity facilities are well documented and globally acknowledged. “As a financial institution, the MRC would be under the regulatory and supervisory purview of the CBN. This regulatory framework is, therefore, designed to ensure that the MRC operates in a safe and sound manner, on internationally accepted principles, standards and best practice in mortgage liquidity facilities,” it said.

     

  • All for a stronger naira

    All for a stronger naira

    The naira remains unpredictable despite the efforts of the Central Bank of Nigeria (CBN) at defending it. CBN is to poised to stabilise the naira, even at the expense of exernal reserves, writes COLLINS NWEZE.

    When the Central Bank of Nigeria (CBN) Governor Sanusi Lamido assumed duties about five years ago, one of his major plans was to achieve exchange rate stability. While the currencies of most emerging markets lost appreciable value, in double digit range, as at January 30, the naira has lost only 1.3 per cent of its value in the last one year.

    The currency’s stability was partly driven by CBN’s direct intervention, and to a lesser extent, improved dollar supplies from its twice weekly Retail Dutch Auction System (RDAS) window. The currency closed at N162.4 to a dollar last Friday. Still, the currency remains under pressure because of structural imbalance between dollar supply and demand; and lower United States oil demand.

    Sanusi described as unnecessary and uninformed, the occasional criticism that the CBN has been unduly protecting the naira exchange rate, to the detriment of other macro-economic variables. The critics, he said, did not give due consideration to the negative implications of the attendant loss of confidence by international investors in the economy.

    Managing Director, Financial Derivatives Company, Bismarck Rewane, said the divergence between the official and parallel markets had widened to N20 or 12 per cent of the official exchange rate, adding that the economy is more exchange rate sensitive than interest rate. This, he said, means that a depreciating currency will have a direct impact on inflation and could be counterproductive.

    External Reserves

    The economy had last year recorded some impressive macroeconomic achievements despite some challenges. In specific terms, the country recorded strong Gross Domestic Product (GDP) growth, single digit inflation, exchange rate stability and capital market recovery.

    However, contrary to the government’s projection of a $50 billion gross external reserve, it managed to close the year at $42.85 billion. The figure represented a decrease of $0.98 billion or 2.23 per cent compared with $ 43.83 billion at end- December 2012.

    The Monetary Policy Committee (MPC) meeting of January 17, 2014 noted that the decrease in the reserves level resulted largely from a slowdown in portfolio and foreign direct investment flows in the fourth quarter of last year. This also led to increased funding of the foreign exchange market by the CBN to stabilise the currency.

    The MPC, again, expressed concern over the continued depletion of the Excess Crude Account (ECA), which balance stood at less than $2.5 billion on January 17, 2014 compared with about $11.5 billion in December 2012. “This absence of fiscal buffers increased our reliance on portfolio flows thus, constituting the principal risk to exchange rate stability, especially with uncertainties around capital flows and oil price,” the committee noted.

    It said accretion to external reserves remained low while much of the previous savings have been depleted, thereby undermining the ability to sustain exchange rate stability. The Committee, therefore, urged the fiscal authorities to block revenue leakages and rebuild fiscal savings needed to sustain confidence and preserve the value of the naira.

    Currencies analyst at Ecobank Nigeria, Olakunle Ezun said by raising the public sector deposit, the CBN raised concerns about rising inter-bank liquidity and huge cost of monetary operations. “While there was no change to exchange rate policy, the CRR effect will be positive for the naira given the expected reduction in liquidity,” he said.

    He said there was no immediate impact of the policy on interbank rate, since market liquidity is still over N1 trillion. According to him, the short end of the curve remain attractive, as concerns over naira and inflation outlook continue to influence CBN’s monetary policy regime in short term.

    Global economy

    Emerging markets, including Nigeria, that were major beneficiaries of cheap money from the developed nations stimulus could experience financial market instability as tapering begins. However, the United States authorities have made it clear that they remain sensitive to the impact of their domestic policies on global markets and will, therefore, aim to minimise disruptions.

    Besides the concerns over the United States quantitative easing plan, Nigeria’s heavily reliant on oil revenues which at the time was witnessing a fall back in prices, were of grave concerns to stakeholders and key operators of the economy. Nigeria depends on oil shipments for 80 per cent of government revenue and 95 per cent of its export income, according to data from the Federal Ministry of Finance.

    Policy measures

    The MPC had left its policy rate unchanged at a record 12 per cent for more than two years consecutive meeting on January 17, concerned that excess naira in the system would trigger dollar demand, weaken the naira and exacerbate inflation.

    Also, the CBN raised the level of Cash Reserve Ratio (CRR) on public sector deposits from 50 per cent to 75 per cent. Despite these measures, the naira declined as dollar inflows slowed.

    Also, last month, the CBN removed the maximum weekly forex sales to Bureau De Change (BDC) operators. The action, contained in a circular to Authorised Dealers and BDC operators, said the step was meant to shore up liquidity in the forex market. Dollar scarcity in the market had affected naira exchange rate in recent months, hence, the policy review.

    The circular, signed by CBN Director, Trade and Exchange, Batari Musa, said the policy review followed the circular of September 26, last year in which a limit of $250,000 was put in place.

    “All authorised are hereby informed that the provisions of paragraph (1) of the circular under reference have been reviewed with immediate effect. Consequently, the limit of $250,000 as the maximum weekly forex sales to BDC is hereby removed in order to shore up liquidity in that segment of the foreign exchange market,” he said.

    Henceforth, authorised dealers are free to sell forex to BDCs subject to compliance with the provisions of extant Anti-Money Laundering/Financing Terrorism laws and regulations in the disbursement of forex.

    “Furthermore, all transactions between authorised dealers and BDCs as well as the latter and end-users must be supported with appropriate documentation,” he said.

    Musa said authorised dealers and BDC operators are to continue to render weekly returns on their transactions to the CBN and other relevant regulatory agencies, failing which appropriate sanctions, including revocation of operating license shall be imposed.

    RDAS

    In September, the regulator replaced Wholesale Dutch Auction System (WDAS) with Retail Dutch Auction System (RDAS) because of the ineffectiveness of the former in addressing hitches in the forex market.

    It also withdrew the licences of 20 bureaux de change (BDCs) operators for violating forex rules, an indication that more licences withdrawal may be seen in future, should the violation continue.

    Under the RDAS, banks and other authorised dealers place bids on behalf of individual clients who qualify to buy forex at the official auction. The change from WDAS to RDAS allows the authorities to monitor more accurately various sources of forex demand and any potential duplication of forex demand in the system. Banks will remain responsible for all documentation requirements.

    By adopting the RDAS in place of WDAS, the CBN is now able to closely monitor forex utilisation of each customer and sectors of the economy for documentation and policy formulation. This protects foreign reserves from depletion and saves the naira.

     

    Inflation

    Even though inflation has stayed under 10 per cent for more than a year, somehow meeting CBN’s target, analysts are of the opinion that it would return to its familiar double-digit terrain, if the bias towards weaker naira continues. This, mainly a fallout of the import dependent economy.

    Rewane said the pressure on the naira will persist in the absence of foreign capital inflows, and especially if there are further outflows.

    He insists that there is no reason markets cum economy should swerve to the slightest wind emanating abroad. Whether one likes it or not, the impact of external forces on Nigerian markets is still pronounced, and will remain so until there is paradigm shift that considers other sectors of the economy, outside oil.

    Managing Director, Afrinvest West Africa, Ike Chioke said the pressure on the naira arose from a combination of falling oil production and portfolio outflows as foreign investors adjusted their positions in light of Fed comments.

    “The import of that is; could there have been multiple foreign exchange earning sources, nobody would have lost sleep over oil as an oil price tumble wouldn’t have created undue uncertainty about future external reserves position and the ability of the CBN to defend the naira,” he said.

    He said there is need to consistently monitor the impact of hot money in Nigeria’s markets and to grow local participation from nationals and in the Diaspora.

     

    Naira’s long history of depreciation

    The naira depreciated by N101.50 to N102.10 to dollar in 19 years, from 1980 to 2000, when compared with N0.6 to dollar it traded as at 1981, Afrinvest Research said.

    In a report obtained by The Nation, the firm said not even the Structural Adjustment Programme (SAP) introduced in 1985 could have predicted this steep slide. It said the naira first hit double digits moving from N9.9 to dollar in 1991 to N17.2 to dollar in 1992, a significant 73.7 per cent change. Thereafter, a gradual slide ensued, attaining triple digits in year 2000.

    It said though, the local currency was considerably stable between 2000 and 2003, below N120 to a dollar, the recent adverse global capital flows among other factors has culminated in the current all time low of N164 to a dollar rate at the interbank market.

    Afrinvest listed potential strategies for more effective exchange rate management to include the incorporation of a long term diversified strategy in fiscal policy which would help cushion shocks in various segments of the economy.

    It called for diversification of the economy, adding that the current over reliance on oil receipts which constitute about 96.8 per cent of the country’s total exports by the government, poses a huge threat to the stability of the economy.

    It said Nigeria’s dependence on crude oil, 70 per cent of total forex earnings, makes economic growth susceptible to oil price shocks. “A decline in crude oil price therefore leads to a corresponding decline in oil receipts; which forestalls the accumulation of external reserves, creating a negative signaling effect that leads to capital flight, thus depreciating the naira,” it said.

    The research firm said it has been able to establish a strong positive correlation between the exchange rate and crude oil price in Nigeria. “Based on our model, when oil price declines by $1 per barrel, the naira depreciates by about 10 cents. Assuming oil price reduces to $100 per barrel from the current $117.80 price, we should expect the naira to depreciate by N11.53 to N173.33 to a dollar,” it said.

     

  • Import duty waivers: In whose interest?

    Import duty waivers: In whose interest?

    As the granting of import duty waivers remains contentious, so are the figures tied to it. The figures on waivers from the Federal Ministry of Finance and Nigeria Customs Service do not tally. Customs officials say most of the waivers issued since the return of democracy are out of place. Maritime Correspondent OLUWAKEMI DAUDA reports.

    The Nigeria Customs Service (NCS) intends to generate about N1.2 trillion this year. To many operators, this will remain a wishful thinking if the government continues to grant waivers to agencies and individuals not listed under, or covered by Schedule Two of the Common External Tariff for import duty exemptions.

    For Customs to surpass its projected revenue for this year and beyond, government agencies, operators say, should be mandated to pay for all imports made by them to reduce revenue shortfall. A senior Customs officer, who craved anonymity, told The Nation that most of the waivers issued since the return of democracy are questionable.

    “Since the army returned to the barracks, the import duty waivers given from 1999 to date should not have been granted. Apart from military hard wares, hospital and agricultural equipment, educational materials and projects that can create jobs for the millions of unemployed youths, no other import under whatever guise deserves duty waiver,” the officer said.

     

    How waivers are used in other countries

     

    The President, Association of Nigerian Licensed Customs Agents (ANLCA), Alhaji Olayiwola Shittu said that import duty waivers are mechanisms used by countries to meet their economic goals, especially in protecting local industries, creating jobs, promoting exports, generate and preserve foreign reserves.

    A waiver, Shittu said, is also used to exclude local industries from paying import duty on certain goods for a fixed period. Countries such as Malaysia, Japan, India, China and others, at various times, have used import duty waivers, concessions and exemptions to protect and build up their local manufacturing, agricultural, textile and motor industries. Today, he said, all these countries have become export-led economic power giants.

     

    Indiscriminate issuance of waivers

     

    Part of the objectives of the waivers in Nigeria, the ANLCA chief said, are to boost local industries, make the much-needed raw materials, or goods available in the short-term and generate employment.

    But for many years, he said, none of these lofty objectives has been achieved. He observed that most of the local industries have closed shop for lack of raw materials, resulting in the growing army of unemployed youths in the country.

    Also, an industrialist, Mr Muyiwa Olabintan said an enquiry by the House of Representatives, found that former President Olusegun Obasanjo, over time granted about 1,843 waivers with several billions of naira lost by Customs. The enquiry, he said, alleged that not only were some of these waivers “illegal and indiscriminate,” they were given to “totally undeserving firms and individuals”.

    Investigations by the House, Olabintan said, showed that some organisations that got waivers for equipment, used them to import furniture, cars, clothings and other luxuries that have no direct bearing on the economy.

     

    Abuse of waivers

     

    Olabintan said import duty waivers, exemptions and concessions which are used to protect local businesses and jobs elsewhere, have been abused many times in Nigeria, causing huge losses to the economy.

    He added that those responsible for granting the waivers have abused the system, and denied the country and the economy of the much-needed revenues and the usual benefits associated with it.

     

    Waivers, foreign companies and loss of jobs

     

    The granting of waivers to foreign companies by the Federal Government has led to loss of several billions of naira and millions of jobs, the Managing Director, Nigeria Gas and Steel Limited, Hasib Moukarim, has said.

    He urged that the issuance of waivers and concessions to importers of finished products must stop, stressing that such waivers are depleting government’s earnings while enriching some companies abroad.

    He said for the Customs to meet its revenue target this year, the Federal Ministry of Finance, the Budget Office and the Federal Ministry of Trade and Investment must synergise and ensure that the waivers achieve its objectives.

    He urged Nigerians to defend the interests of local manufacturers against government unfavourable policies and foreign domination of the nation’s robust market.

    “When finished goods are brought into the country duty free, we are directly creating employment for workers of the foreign companies because such goods imported with waivers will become cheaper than the locally produced goods and this will escalate the demand and sales of the foreign manufacturers,” Moukarin said.

    He said by giving waivers to foreign companies, locally produced goods have become more expensive and demand for them shrinks, noting this threatens the survival of local companies which the waivers were fashioned to protect.

    “This type of scenario has forced many companies to retrench substantial percentage of their work force with the consequence of worsening the unemployment situation in the country,” he said.

     

    Ways to grant waivers

     

    Moukarin suggested that for waiver or concession to be given to any applicant, thorough investigations must be carried out by the Federal Ministries of Finance as well as Trade and Investment to verify the authenticity of the items the beneficiaries intend to import into the country without paying duty.

    Nigerian manufacturers had complained in the past that some forein companies are abusing waivers by importing more than what they need for their projects and flooding the markets with the surplus, thereby killing local industries.

    Foreign firms, the manufacturers alleged, have been obtaining waivers from the Federal Government to build airports, roads and other projects, but end up importing more products than they deserved.

     

    Contradictions between Minister of Finance and Nigeria Customs Service

     

    There were contradictions between the amount given as waivers by the Comptroller General, Nigeria Customs Service, Alhaji Dikko Abdullahi and the Coordinating Minister of Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala to the National Assembly.

    Abdullahi spoke when he was invited to explain to the parliament the shortfalls in projected revenue last year.

    The Customs boss said the country in the last three years, lost a staggering N1.4 trillion to import waivers, but the Finance Minister said the amount was N171 billion.

    A senior Customs officer, who does not want his name in print told The Nation that more than 65 percent of beneficiaries received the grant for goods not approved by the government, which ordinarily should be limited to raw materials, machinery and spare parts.

    But in a new memo signed by the Minister of State, Finance, Yerima Ngama, and dated December 11, 2013, says the Federal Government has expanded the scope of the Negotiable Duty Credit Certificate (NDCC) to cover “other goods,” a decision, Mr. Ngama said was reached by the Federal Executive Council (FEC).

    Investigation however, revealed that the list of beneficiaries include private individuals and businesses whose imports appear not valuable to the economy.

     

    Questionable waivers

    The Customs officer said there were so many questionable waivers. For instance, he said, a total of N91.506 billion was given as concessions to 290 beneficiaries between January and December 31, 2011.

    He said one of the firms (name withheld) which he claimed was the biggest beneficiary, got N32.774 billion, stating that there was no indication about the line of business for which it was given the incentive.

    Other beneficiaries, he also alleged, included the Aluminium Smelter Company of Nigeria, ALSCON, Ikot Abasi (N47.789 million) and (N13.715 million), despite the fact that it has not being producing since 2007.

    Besides, about N389.15 billion, he said, was granted to 149 entities in 2011 through concessions on fuel, lubricants and allied products businesses.

    the list, he said, included major oil marketers that received over N145.7 billion worth of waivers, adding that the Nigerian National Petroleum Corporation (NNPC) and a few other companies received about N143 billion as waivers.

    For 2012, the customs official said a total of N191.545 billion was granted to 416 beneficiaries, including individuals and private businesses. He said another 287 beneficiaries, got a total of N83.260billion in concessions and waivers for imports between January one and September 30, last year.

    During the year, he alleged that one firm, ANL, was granted N8.588billion concession for importing kola nuts, while another was granted N5.643million to import tables, kitchen and household articles made of cast iron.

    Similarly, he alleged that while one Ayo Adeju got N2.035million for importing iron/steel wool, pot scourers and polishing pads and gloves, another, Asif Mohammed was allegedly paid N4.148million for importing tables and kitchen household articles.

    He alleged that a major motor dealer was granted N698.177million for importing fully built four-wheel drive motor vehicles, motorised tanks and other armoured fighting vehicles.

    Between 2010 and 2013, records showed that the motor firm received about N2.46billion concession from the government for the importation of vehicles valued about N7.932billion.

    Factional Secretary, National Council of Managing Directors of Licensed Customs Agents (NCMDLCA), Ben Ndee, said import duty waiver in Nigeria only serves as a tool to enrich politicians and should therefore be scrapped.

     

    Do we need the waivers?

     

    Ndee said import duty waiver in the country is a tool to enrich politicians and should therefore be scrapped, adding that “customs duty waiver speaks volume of profligacy in our country.” He said the Nigeria Customs Service should “be positioned to check this fraud to enhance its revenue target and boost the economy”.

    Chairman, Association of Nigerian Licensed Customs Agents (ANLCA), Ikorodu Chapter, Chief Tomi Aloba, said since duty free imports are sold in the market at expensive prices like those with payable duty, the benefiits of import duty waivers, he argued, are lost and therefore, needless.

    “A manufacturer importing raw materials that was given duty waiver sells his products at the same price as the same commodity imported without waiver, so, what is the need? There is no need for it,” he said.

    Another clearing agent and a chieftain of the National Association of Government Approved Freight Forwarders (NAGAFF), Ugochukwu Nnadi, also said the import duty waiver has been abused and should be scrapped.

    However, a member of the Ports Consultative Council (PCC), Ajanowu Vincent, said there are certain categories of imports for which waivers should be granted to boost local industries and their productive capacity.

     

    Effects of waivers on consumables

     

    Investigation revealed that in recent months, waivers granted to some individuals were used to import refined vegetable oil, soya bean meal and related products. This has put local vegetable oil producers on the verge of total extinction.

    For instance, investigation has shown that most of the oil mills in Kano, including Nigeria Oil Mills, Kano Oil Mills and PS Mandrid, located in Bompai Industrial Estate, have closed down with the attendant loss of over 20,000 direct and indirect jobs.

    Also in Lagos, Port Harcourt and Jos, where there are oil and related mills, the spokes-man of the producers, Mr Alaba Salau, said they were not finding it easy with many imported vegetable oil in the market.

    “While few of us are just managing to survive, many others are making arrangement to close down and start importation, but that is not a good omen for the country because one of the by-products of vegetable oil mill is used for animal feed by poultry farmers.

    “The irony of granting waivers is that while the Federal Government tells Nigerians of its resolve to promote made-in-Nigeria goods, in secret and under closed doors, it gives waivers to political associates and cronies to import and make cheap money, undermining local production,” he said.

     

    Task before the National Assembly

     

    Shittu said the National Assembly needs to wake up to its responsibility as a constitutional organ for checks and balance. The Constitution, he said, empowers the parliament to make laws and approve all public spending. Where the government serially flouts the laws, the lawmakers, are empowered to correct the situation.

    Olabintan also said the lawmakers must continue to perform their oversight functions and should not allow the Executive to carry on as it pleases. Such laxity, he said, had caused Customs to say that the country lost a staggering N1.4 trillion on import waivers through fraudulent manipulation of the Export Expansion Grant in the last three years.

    Since the waiver system has been so misused and abused, other operators said the National Assembly should stop the Presidency, the Finance Minister and the Customs from granting waivers except they are approved by the parliament.

    Government and its agencies, operators alleged, are doing little or nothing to stop corruption and cannot be trusted to transparently manage such discretionary powers. The operators, therefore, called on the National Assembly to protect the nation’s economy by forbidding import duty waivers.

     

  • Tax enforcement: Investigation and litigation under tax laws

    Tax enforcement: Investigation and litigation under tax laws

    Part 2

    i. Investigation of tax offences by FIRS:

     

    The Black’s Law Dictionary defines the verb ‘Investigate’ as: to inquire into a matter systematically; to make a suspect the subject of criminal inquiry….to make an official inquiry.

    It is often said that a good investigation begets a good prosecution and vice versa. Therefore it is best practice for the investigator to compare notes from time to time with the Prosecuting Counsel in course of his investigation.

    Generally, Tax Investigation is undertaken by the Tax Investigation & Special Enforcement Department (TISED) of the Service. Specific offences arising from petitions to the Executive Chairman’s office are investigated by the Special Enforcement Unit (SEU) of the Service. Apart from regular staff of FIRS, Special Purpose Tax Officers (SPTOs) are also utilised by the Service to undertake its investigations.

    The Investigation process entails review of Petitions or Information received from the ECFIRS or Whistle Blowers, interviewing Witnesses and suspects, recording of statements from witnesses and suspects under caution, writing of letters to authenticating bodies and writing Investigation Reports (Interim and Final reports) and applying for approval of appropriate authority to prosecute the allegations arising from the said Petitions or Complaints.

    At the conclusion of investigation, the duplicate copy of the case file is sent from TISED to the Legal Department while the SEU refers its Duplicate case files to its Legal Section for Vetting, Legal Advice and possible Prosecution. By virtue of the current organogram of the Service, all criminal prosecutions are supervised by the Legal Department which is under the Direct Reports Group in the office of the Executive Chairman.

    ii. Prosecution:

    Section 47 of the Federal Inland Revenue Act provides for the prosecution of offences by the FIRS as follows:

    The Service shall have powers to employ its own Legal officers which shall have powers to prosecute any of the offences under this act subject to the powers of the Attorney-General of the Federation.

    Where the Legal Department arrives at a conclusion that investigation is conclusive and offences are disclosed by the investigation and the proof of evidence, then Counsel reviewing the case subject to the approval of the Executive Chairman, prepares and prefers charges against the named Accused persons before the Federal High Court of Nigeria.

    Note that by virtue of Section 33(2) of the Federal High Court Act Cap F12, Laws of the Federation of Nigeria 2004 (As Amended) Criminal trials before the Federal High Court are Summary in nature as opposed to a Full trial before the State High Courts or the High Court of the Federal Capital Territory as the case may be. The prosecution is also required to comply with the Federal High Court (Criminal Procedure) Practice Directory 2013 to engage the case in full throttle and minimize unnecessary preliminary objections from the Defence.

    By a letter of application to the Registrar pursuant to Section 47 of FIRS Act, a Charge is filed along with the Proof of Evidence and the list of Prosecution Witnesses. Every filing done by the FIRS is official and need not be accessed or paid for at the Registry of the Federal High Court. For case of service, the Prosecution also prepares another letter applying to the Registrar to allow it serve the Charge on the named Accused persons who are usually in contact with the Investigation Police Officer (IPO). It is best practice to do an internal memo to the SEU notifying the IPO of the date of arraignment in order to facilitate the appearance of the Accused persons through their Sureties before the court.

    iii. Arraignment of accused persons and preliminaries of bail pending trial:

    Arraignment and Plea of persons standing Criminal Trial is for provided under Section 215 of the Criminal Procedure Act Cap C41, Laws of the Federation of Nigeria. On a date fixed by the court, the Charge is read to the Accused person(s) and they are asked by the Court to take their plea-Guilty or not Guilty. However there are exceptions to this rule where an Incorporated Company is involved.

    Where the Accused persons plead guilty to the Charge, the Prosecution reviews the facts of the case, tenders CTCs of relevant documents in support of the facts as Exhibits and applies for a Conviction. The Court will thereafter consider the facts and Exhibits tendered and give Judgments; Convicting the Accused Persons and sentence with appropriate punishments ranging from fines or imprisonment or both.

    Where however as in most cases the Accused persons pleads “not guilty” to the Charge, the Prosecution applies for a date for trial to prove the case against the Accused person(s).

    At this point the Accused person(s) through their Counsel applies for bail of the Accused persons pending trial. It is always good practice for the Prosecution to insist that all applications for Bail pending trial be brought formally. This would afford the Court the opportunity to hear the Bail application on the merits of the Affidavit evidence filed by the parties. But note that once a person has been properly arraigned before the Court, the Accused Persons shall be remanded in prison custody pending the Hearing of the application for Bail. However, in exceptional cases where the Charge was served late on the Accused person(s), the Courts have been minded to consider Oral Applications for Bail. In such circumstance, the Court restricts Counsel to Oral arguments on points of Law.

    iv. Laws relevant in criminal proceedings:

    Criminal trials before the Federal High Court of Nigeria is regulated by four major legislations; Constitution of the Federal Republic of Nigeria 1999 (As Amended), the Evidence Act Cap E14, Laws of the Federation of Nigeria 2004 (As Amended), the Criminal Procedure Act Cap C41 Laws of the Federation 2004 (As Amended) and the Federal High Court Act Cap F12, Laws of the Federation of Nigeria 2004 (As Amended).

    There is in addition the Federal High Court (Criminal Procedure) Practice Directory 2013 which creates responsibilities for the Prosecution and the Defence.

    Note that Section 34 of the Federal High Court Act provides that the Court shall give priority to Revenue causes and matters. A community reading of FHC Act, the EFCC Act and the FIRS Act reveals that Revenue matters have been placed in Accelerated Hearing by these statutes and Prosecuting Counsel must be alert in drawing the Courts attention to relevant Sections of these Laws in course of Trial.

    v. Order of trial:

    a. prosecution witnesses:

    These are persons; the Complainant- Federal Republic of Nigeria- intends to call to give evidence as Prosecution witnesses in proof of the Charge before the FHC in a Criminal trial. These must be persons who are very conversant with the facts of the case particularly the areas they are to testify. It is good practice for the Prosecuting Counsel to have pre-trial meetings with the intended witnesses and prepare them properly for trial.

    On a named date for Trial, the Counsel for the Prosecution calls his witnesses to lead evidence in order to prove the various counts on the Charge against the Accused person(s). This process is called Examination-in-Chief.

    At the end of the Examination–in-Chief of each Prosecution witness, the Court inquiries from the Defence Counsel whether he has any questions for the Prosecution Witness who has testified. If the Defence Counsel does, he will engage the witness in a process of Cross-Examination. There is no limit to questions asked by way of Cross-Examination. The sky is the limit.

    Where the Cross-Examination brings out issues that are nebulous or ambiguous in Evidence, the Court will allow Counsel for the Prosecution to Re-Examine the Witness and/or thereafter start the entire process all over with another witness until all the Prosecution Witnesses are taken.

    Note that there is no limit as to the number of witnesses for the Prosecution, but it is good practice to include all material witnesses.

    b. Defence witnesses

    At the close of the case for the Prosecution, the Court shall call upon the Defence Counsel to commence the defence of the Accused persons. However, the Defence Counsel has one of several options; He may take a date to address the Court on a No Case Submission that the Accused person(s) have a no case to answer; urging the Court to discharge him/her.

    Note that if the Defence Counsel makes a ‘No Case’ Submission and relies on it, the decision of the court shall be a judgment on the merit. If the no case submission fails and Defence Counsel does not rely on it, the Court will ask the defence to call its witnesses. The procedure for call of Defence witnesses is similar to the procedure of calling Prosecution witnesses as discussed above.

    vi. Addresses, conviction and sentence

    At the close of the case for the Defence, the Court may order written addresses or take addresses of Counsel viva voce (Orally).

    The Defence addresses the Court first and the Prosecution replies. If issues are raised in the Prosecution’s reply that can be resolved legally, the Defence rejoins on issues of Law only. The sequence is followed even when the Court orders the address/reply/rejoinder to be written.

    On a named date, the Court shall call upon Counsel to address it orally or to adopt their written submissions as the case maybe. The Court shall thereafter take a date for Judgment and Sentence. On a named date the Court delivers its Judgment for or against the Prosecution. Where the Judgment is against the Accused person (Conviction), he/she shall be sentenced subject to the discretion of the Court which must be exercised judicially and judiciously.

    There is no gainsaying the fact that either party to the litigation process (Civil and Criminal Litigation) has a Right of Appeal under the Constitution over decisions and Judgments of the Federal High Court of Nigeria. Appeals lie from the Federal High Court to the Court of Appeal and from the Court of Appeal to the Supreme Court of Nigeria.

    1. Suggestions on the way foward in raising the

    standards of tax enforcement in Nigeria

    •The gamut of Nigerian corpus juris (on Tax Laws) is very much in place in terms of their content and enforcement procedures. See all the Tax laws listed on the First Schedule to the FIRSA 2007; in addition to the various States and Local Government Laws on Tax Administration which draw their strengths as existing laws by virtue of Section 315 of the 1999 Constitution (As Amended).

    •Emphasis should now be shifted to enforcement of these tax laws; rather than engaging in discuss on further tax legislation.

    •All Stakeholders in Taxation: including but not limited to the Tax payer, the Tax Revenue authorities, the various organs of Government especially the Federal Ministry of Finance and the Judiciary should be alert in their responsibilities under these laws; ensuring that the various Tax laws are given their proper interpretation and effects in the course of enforcement. For instance Section 24 of FIRSA 2007 is rarely utilized by the Accountant – General of the Federation to deduct at source taxes owed from budgetary allocations of government MDAs.

    •Tax Revenue Authorities should be more proactive in triggering in administrative tax enforcement processes (Power of Substitution provided by Section 31 of FIRESA; Distrain, deduction at source by the Federal Ministry of Finance and the use of other Agencies of government such as the Police, SSS, Customs and Immigration, CBN to mention but a few) in the enforcement of the various tax laws. See Section 36 of FIRSA 2007.

    •The Judiciary should be equally proactive in handling tax enforcement processes brought before it; Judicial officers are urged to view cases of tax evasion more seriously and give them their pride of place as financial crimes defined in Section 46 of the EFCC Act 2004 and not shy away from the global best practice of placing such cases on Accelerated Hearing within the context of Section 19 of EFCC Act 2004 (As Amended)

    NB. Most countries without oil resources depend on tax revenue for economic development and their strong tax regimes are strengthened and supported by their courts.

    •Tax Revenue Authorities to increasingly utilize Mutual Legal Assistance by liaising with other countries in taxation agreement with Nigeria; so as to bring to justice the absconding tax defaulters. As a corollary to the above, courts are urged to welcome and expedite action in handling cases involving Interim forfeiture applications on taxation cases brought before them.

    •Tax authorities to enhance taxpayers’ education so as to engender Self-Assessment and encourage Voluntary Compliance on the part of the tax payer.

    NB: studies have shown that should every taxable person pay little tax voluntarily, the gross revenue yield would certainly increase.

    •Stakeholders to ensure that the taxation chain is not broken. Tax revenue flow should be tied up to the budgetary performance and economic development indices. In other words the taxpayer should be able to see and access the extent of budgetary performance vis-a-vis the percentage of tax collected.

    •Tax authorities to utilize, protect sourced information and enforce reward regimes for the Whistle Blowers so as to encourage them in volunteering information/leads on potential cases of tax evasion.

    •Tax authorities to avoid the abuse of Section 30A of CITA as it concerns the use of Best of Judgment or Turnover Assessments that are unfair, arbitrary and unreasonable; so as to maintain the integrity of the tax system. This case was adopted with approval in the case of I. D. SAM NIG. LTD. Vs Lagos State Internal Revenue Service where the court held that on discovery of new facts or issues, the use of Additional Assessments should be done with utmost caution and exactitude.

    NB: Additional Assessments based on BOJ are common to tax authorities across the world; indeed they are provided for by statutes. See Section 28 of Australian Income Tax Act 1922 and Section 80 of English Taxes Management Act 1970; are both pari materia with Section 30A of CITA. Lord Denning M.R, while interpreting the English Income Tax Act in the case of PARKINS Vs CATTELL had this to say: The word “discover” simply means ‘find out…. An Inspector of Taxes “discovers” (that income has not been assessed when it ought to have been) not only when he finds out new facts which were not known to him or his predecessor, drew a wrong inference from the facts which were then known to him, and further, when he finds out that he or his predecessor got the law wrong and did not assess the income when it ought to have been” (page 204).

    It is noteworthy that in either of these instances, the Tax Authorities are admonished to be fair, just and reasonable in making Additional Assessments based on Best of Judgment (BOJ); so as to maintain the integrity of the tax system.

    2. Conclusion:

    Tax Enforcement (Investigation, Civil and Criminal Litigations) remains a desideratum and indeed inevitable in an effort to administer all the Tax Laws in Nigeria. Investigations must be through and certain on all the elements of the offences and the sums alleged to be owed by the person under investigation. Recourse to Civil and Criminal Litigations should be made when the Service has exhausted all the Statutory and Procedural requirements involved in Tax Administration. It is important to note that an investigator and/or Law Officer entrusted with the official duty to investigate/prosecute must do so diligently and put in place all relevant evidence that would assist the Court to exercise its discretion one way or the other. Tax Enforcement has the effect of punishing offenders and acting as deterrence for other members of the public while engendering voluntary compliance to the Tax Laws. In all of these, stakeholders including but not limited to the Tax Revenue Authorities, the Tax payer and the Courts should exercise their various responsibilities diligently and conscientiously. The processes may be tedious but the prospects of their attainment are excellent.