The Nation Newspaper

Category: Issues

  • Banks’moment of truth

    The Central Bank of Nigeria, at its last Monetary Policy Committee (MPC) meeting, introduced a new variant to the Cash Reserve Ratio (CRR). It retained the ratio for private deposits at 12 per cent and raised that for the public sector. This, inadvertently, reduced the money available for lending, reports, COLLINS NWEZE.

     

     

    •Race for deposits over CRR hike begins

    It is common knowledge that government, whether at the centre, or states, is the biggest spender in the economy. That is why banks depend most on public sector deposits, which are often sourced cheaply from Ministries, Departments and Agencies (MDAs).

    The Nigerian National Petroleum Corporation (NNPC), Nigerian Maritime Administration and Safety Agency (NIMASA) and other revenue generating bodies fall in this category. The funds which are lodged with the banks are advanced as loans to customers, whether corporate or individuals at given or negotiated interest rates.

    This practice, which has seen some banks holding over 75 per cent of their balance sheet in government deposits, is being threatened by the recent decision of the Central Bank of Nigeria (CBN), at its last Monetary Policy Committee (MPC) meeting. CBN is getting increasingly worried over the rise in liquidity from banks purchasing short-term government securities using public sector deposits. The CBN fears that strong liquidity growth could trigger a rise in inflation.

    The MPC’s decision to hold the interest rate steady at 12 per cent at its July 22 and 23 meeting while raising the Cash Reserve Ratio (CRR) on public sector deposits to 50 per cent is being interpreted as an indirect tightening of loanable funds to banks.

    The CRR is the portion expressed as a percentage of bank’s deposit balances, which lenders must have as reserve in cash with the CBN. It is usually determined by the apex bank. The reserve ratio is one of the instruments used to influence the money supply in a country, and drain out excess liquidity in circulation from the system. By increasing the ratio, CBN has reduced the percentage of funds available to banks to lend and do business with.

    Currency Analyst at Ecobank Nigeria Olakunle Ezun said the CRR move is significant given that public sector deposits which stood at N2.5 trillion at the end of March, account for around 20 per cent of total deposits in the banking system. He said aside the existing CRR funds being forfeited to the CBN, an additional N955 billion would be removed from the economy, suggesting the tightening effect will be immediate.

    He said the effect of the decision was expected to be significant, with the yield curve likely to shift up, particularly at the short end, and a likely supportive effect on the exchange rate.

    Before August 7, when the policy took effect, many lenders had sold liquid assets and dollars to replenish their cash balances in preparation for the withdrawal which went on as planned.

    Ezun said the immediate result of the MPC’s decision would be a rise in interbank money market rates, which will increase pressure on investors to divest from longer maturity fixed income securities and to shorter dated securities.

    “Not only will there be the attraction of higher yields at the shorter end of the curve, but, for foreign investors, there will be the benefit of reducing currency risk exposure by moving down the curve,” he said.

     

    Effects on exchange rate

    He said the move to indirectly tighten monetary policy was partly aimed at restoring some level of stability to the exchange rate. The naira remains volatile and has been on a depreciating trend since the start of the year. With a year-to-date loss of 2.9 per cent, the naira weakness reflects a robust import demand that has increased demand for dollar at the Wholesale Dutch Auction System (WDAS) and on the interbank market, thus, weakening oil prices.

     

    Impact on banks

    Analysts have said the new policy would have a negative effect on banks. An analyst with Renaissance Capital, an investment bank, Adesoji Solanke, said though it signals the desire to tighten monetary policy, the measure has added to the challenges facing the Nigerian banking sector this year, and on the balance, the effect is negative for the sector.

    “We view the impact of this as negative for the banks. This is a new measure in addition to the 12 per cent CRR on all deposits, which we believe signals tightening of monetary policy, most likely to protect the naira,” he said.

    The Managing Director, Financial Derivatives Company, Bismarck Rewane, had estimated that the introduction of a 50 per cent CRR on public sector funds equaled N650 billion quarantined, or interest free.

    “The quarantined amount is equivalent to one month and two to three weeks of Federal allocations. Imagine a situation where the Federation Account Allocation Committee (FAAC) allocations are delayed, interest rates will rise sharply due to the cash shortage,” he said.

    He noted that the hike of the CRR on public sector funds by 38 per cent is expected to tighten liquidity, creating a funding gap.

    His words: “The commercial banks’ initial reaction will be to scramble for funds to cover their positions. To do this, banks will repurchase their Asset Management Corporation of Nigeria bonds, sell down on their Net Open positions (NOPs), or seek for more deposits from the government or private sector. The liquidity gap created at the market is expected to result in a three to four per cent spike in interest rates, which are currently at an average of 11.2 per cent per annum.”

    The thinking among banks is that the policy, aside tightening liquidity, would slow down credits, increase interest rates and the delinquency of loan defaults. But the CBN Deputy Governor (Operations) Mr Tunde Lemo said issues on the CRR would be addressed accordingly via dialogue.

    “Don’t forget that as banks get government deposits, the CBN mops it up at Open Market Operation (OMO). CBN cannot just move the CRR from 12 per cent to 50 per cent. It should have been a gradual process because the CBN is not paying any interest on these deposits, one bank CEO, who does not want to be named said, adding that “the equities market will be impacted. This is already happening. People will be compelled to divest from the capital market and this would cause equity bubble.”

    Lemo insisted that the arguments do not hold water because 50 per cent CRR is applicable to only government’s deposits.

    He said: “Liquidity cannot be tight because the stipulated liquidity ratio is 30 per cent and the average in the industry is 68 per cent. So, the excess liquidity should have gone into credits by now. Most of the banks are seating on excess liquidity.

    “In fact, they collect these monies from the government and purchase treasury bills with it, and lend back to the government. The implication is that the government is spending undue percentage of their revenue to pay for their deposits with bank.”

     

    Impact on the naira

    A day after the CRR hike, the naira firmed to a four-week high against the dollar. The local currency closed at N159.9 to the dollar, its strongest since June 19.

    Ezun added that as the indirect tightening takes effect, the holding capacity of banks to speculate against the naira is likely to lessen. This is because there will be a rise in money market rates, which should help underpin the naira.

    A further level of support is also likely to come from banks selling dollars in order to fund short-term naira liquidity requirements.

    “The initial rise in yields would also help generate an attractive entry point for foreign investors, thereby boosting capital inflows, which in turn would be naira-positive,” he said.

    “The fundamental problems that the CBN faces are how to balance competing pressures on the naira that stem from the forces that drive purchasing power parity (mainly through the current account) and uncovered interest parity (via the capital account). Managing these opposing forces remains a struggle that has not been helped by high levels of liquidity that the CBN has struggled to manage effectively,” he said.

    Managing Director, Afrinvest West Africa Plc, Ike Chioke, expressed concerns over both policies, saying there would be ‘unavoidable impact’ of the new 50 per cent CRR on majority of the banks going forward.

    In a report, he explained that the CRR policy implied a significant increase in the banks’ cost of funds, a tensed pressure on the Net Income Margin (NIM) as a larger proportion of the deposits will be held in CBN’s coffers as reserves.

    He predicted that banks may have to sell down on investment securities to call back the 38 per cent, and may re-navigate their deposits mobilisation strategies, re-price risk assets in line with their “cautious” lending strategy and adjust business model.

    Consolidated Discount House Limited, however, raised strong fears on the naira’s stability, adding that CBN Governor Sanusi Lamido Sanusi will ensure the defence of the local currency till his departure from the bank.

    Beyond these, it said the depletion of the naira would have strong domino effects on the system. It would lead to negative carry trade and higher import costs for local businesses. It said the single digit inflationary outlook for the second half of the year is largely anchored on stable exchange rates.

     

    Banks’ strategic responses

    Aware that the CBN is committed to implementing the policy, many banks, last week, held emergency meetings during which they reviewed the percentage of their public sector funds and how to address the likely impact of the policy on their operations.

    Group Head, Retail Banking, Skye Bank, Mrs Arinola Kola-Daisi, said the only option for the banks was deposit mobilisation.

    She said:” The government is the biggest spender but there is also the need to focus on retail business because of immense opportunities there, too. Banks are now mobilising deposits because that’s the only way out.”

    She said banks needed to expand their retail banking bases, and improve customer services.

    “The truth about the CRR hike is that there is nothing to do other than to mobilise deposits. We have a significant deposit of public sector funds. It is a tough time for everyone. Everyone is looking for institutional investors that will give them money. The banks are also building their retail banking businesses. As I said earlier, retail banking is a game of numbers,” she said.

    Mrs. Kola-Daisi said banks have to focus their attention on getting deposits from other areas, stating that people must go wherever the money is to ensure that they get the needed deposits. That, she said, will make everybody sit up. It will also make people put in their best because there is no magic except to bring in more deposits. Now, all the banks are looking for one thing, it is tough, but we will get on with it.

    “There is nothing we are going to do and they are not going to change the policy. We have to work with what is good for now, and make sure that we go out and get more deposits and get more customers too. You also make sure that we work aggressively on the inside to improve your services. It is one thing to bring deposit, and another thing to retain that deposit in the system”.

    “Retail business is also difficult because you need to know what people want. People are not looking for complicated products, they are looking for simple, cheap and easy to access products that can add value to their businesses and lives,” she said.

    Stanbic IBTC Regional Head, Nigeria, Lincoln Mali said he would be adopting the Standard Bank in South Africa approach to retail lending in Nigeria. He said that the bank is not yet strong in retail business in Nigeria but that is going to change going forward. “In Nigeria, we are not all that known for the retail part of the business and that is what my team and I are bringing into the country. In South Africa, we are strong in retail lending. We will be strong in Nigeria as well. We have started to lend in the retail part of the business,” he said.

    Mali, however, said to succeed in retail lending, there should be more people bringing in deposits than the loans that are given out. Also, there is need to understand the transaction history and balance turnover with demand for loans. He said the bank will also be focusing on lending through credit cards and will ensure that its products and services are visible in every commercial part of Nigeria.

    “We can’t be in the business of risk avoiding. We have to be in the business of risk management. To avoid risk, then you should not be in banking. You need to understand the risk, price the risk and manage the risk,” he said concerning the bank’s commitment to lending.

    Mali said the bank is also committed to getting more of the unbanked into the financial system. “We have been thinking of how to get the unbanked into the banking system. We want to make easier for the unbanked to get into the banking system through our products and services. We have some plans here to do more of agent banking, mobile money and so on. For now, our priority is to get the retail part of our business structured in the quickest possible time. We are also looking at high net-worth individuals,” he said.

    Unity Bank has also emphasised its commitment to deepening retail banking services in the country through branch expansion. The bank’s Divisional Head, Retail Banking, Usman Abaji,s said the plan is not only in line with its strategic direction, but also a natural progression from its history and antecedents of being close to the people.

    Heritage Bank is also eyeing the retail sector of the business with promises of giving out loans to support grassroots businesses. The bank unveiled plans to provide funding for the micro, small and medium enterprise (MSME) sub- sector of the economy.

    Speaking at the bank’s MSME Clinic held in Lagos, the bank’s Managing Director, Ifie Sekibo, expressed the lender’s commitment to assisting MSMEs to become large corporate organisations that can be quoted on the Nigeria Stock Exchange in the next three years.

    Sekibo said the bank was looking beyond deposit mobilisation to assisting subsector to realising their goals, by identifying and solving challenges that challenge their businesses with a view to providing the necessary solution to make them function better.

     

    Interest rate

    Interest rates in Nigeria have been broadly stable since ending of 2011, hovering 200 basis points around the Monetary Policy Rate (MPR) that has been held at 12 per cent since October 2011. The MPR increased steadily from September 2010, from a then low of six per cent to 9.25 per cent in early October 2011 before it was raised sharply to the current 12 per cent.

    This helped to reduce liquidity and strengthen the short end of the curve, along with earlier changes to indirect monetary policy instruments on 24 July 2012 the CRR was raised to 12 per cent from eight per cent and the Net Open Position of Shareholders’ funds was cut to one per cent from three per cent.

     

  • Wanted! Young farmers

    With many of those in charge of farming getting old, there is need for young ones to take over from them. But many youngsters are not interested in farming, because of what they call the challenges. DANIEL ESSIET examines the obstacles on the way of young farmers.

     

    AFTER years of neglect, agriculture is again getting the attention of government, business leaders, communities and development donors as driver of the economy.

    The government is determined to use agriculture to boost the economy, create jobs, reduce poverty, grow enough food for consumption and export. To achieve this objective, there must be those to till the soil. The present generation of farmers is aging, with many of them reaching their retirement age. With their retirement, there is a reduction in the number of farm operators. Who will replace them? This is the big question. attracting and retaining young people on the farm is an age long problem.

    Many factors make farming unattractive to the youth. They include lack of agro-entrepreneurship skills, Land Use Act, access to finance, inadequate infrastructural linkages, poor extension services.

     

    Young farmers

    While the government acknowledges the need to attract young people to the farm, agricultural policies seem inadequate to provide their needs. In many cases, conflicting policies constitute barriers to young people seeking to build their own farm businesses. With almost one-quarter of all farmers expected to retire in the next 20 years, greater focus and resources are required to sustain farming.

    Prospective young farmers face obstacles such as availability and affordability of land and competition from established farms and larger farms.

    Babasola Oyeleye, the Chief Executive, LATOSA Farms, Lagos is a young farmer running a piggery. A young farmer is generally considered to be between 18 and 35 years. Funding is Oyeleye’s biggest challenge.

    According to him, money/capital is the biggest barrier for young people establishing a career in farming. Lack of access to start-up capital and the high costs of acquiring farm equipment, have impaired the prospects of many. Oyeleye wants a government grant scheme to assist genuinely hardworking young entrepreneurs gain a foot on the ladder . He called for specialised or low interest loans ‘to help them through the first year of operation as there is no income from crops for a whole year. He said that as long as there is sufficient funding and support, young farmers can start a farm.

     

    The challenges

    The President, Federated FADAMA community Association, Alhaji Abiodun Oyenekan, said agriculture is seen by many as an unproductive sector, offering few livelihood opportunities. He said to make the sector attractive, the nation needs a special programme devoted to a new generation of farmers. The programme, he noted, should provide young educated people interested in agriculture with training in entrepreneurship.

    Besides, he said the young farmers should be given financial and technological support. According to him, profitable agribusiness is important to keep an emerging farming entrepreneurial group engaged and stop desertion of the sector by young Nigerians.

    If talented young people are to lead the fight for food security, Oyenekan said they must be convinced of agriculture’s potential to provide business openings and opportunities for decent employment.

    The right incentives must be put in place so that they would be willing to go into the sector.

    The Director, Africa Region, Cassava Adding to Africa (CAVA), Dr. Kola Adebayo, said young farmers should be encouraged to start mini-livestock businesses.

     

    Access to farm land

    There are rising concerns about land tenure system. Access to farm land is restricted. The Programme Coordinator, Farmers Development Union (FADU), Mr Victor Olowe, attributed this to the land tenure system. Besides, the sector is confronting surging farmland prices, which, according to him, has compounded the difficulties young farmers must overcome.

    As a result, a growing number of young farmers choose to rent land before taking on the fixed costs associated with land purchases. Olowe said the government should make efforts to expand opportunities and remove barriers for young farmers and those who wish to pursue a career in agriculture.

    With the average age of the Nigerian farmer put at 55, Oyenekan said ensuring that the next generation of farmers is able to provide the nation with a safe, abundant supply of food should be a top priority.To accomplish this goal, he said the government should provide youths with the training and tools they need to set up their own farms.

    Oyenekan said the government should help new and aspiring farmers’ access land to start or expand their farming operations. He said the law should give priority to preserving farmland that is accessible and affordable to new farmers.

     

    Financial conditions

    Although agricultural lending seems to be rising, obtaining finance still appears to be more difficult for young farmers. This is because they have less equity. On the balance, young and beginning farmers present greater risks to commercial banks. As a result, they face tighter credit markets and higher collateral requirements than more-experienced farmers.

    Generally, financing is needed to enable farmers use improved input and better on-farm practices to increase supplies and improve yields, as well as generate enhancements in quality and better post-harvest practices. Across the country, lack of access to finance continues to persist especially for farmers despite recurring interventions attempted both by the public and the private sectors. Lending to the agricultural sector is unattractive due to high costs, high risk, and low returns.

    The Director, African Region, Cassava Adding Value for Africa(C:AVA), Dr Kola Adebayo, told The Nation that the government and banks need to adapt agricultural finance to reflect agricultural cash flow cycles.

    He said young farmers face challenges in securing finance for farming businesses because many banks don’t participate in agric lending. To bankers, young farmers present greater risk. For this reason, banks require additional collateral for farmland purchases.

    Adebayo said only youths in groups can access loans now, adding that non profitability of production agriculture has played a critical role in credit quality and quantity at banks.

    Stakeholders complained that they work with loan officers with little or no knowledge of agriculture. Because of this, they can only treat loan requests on working capital; investment, machinery, and equipment for various activities, such as crop production, animal husbandry (meat or dairy production), aquaculture, chicken farming, and apiculture. Besides, farmers on arable crop farming are not favoured.

    Oyenekan said the presence of microfinance institutions have not been felt in the agric sector, adding that minimalist microfinance is not enough as credit alone is insufficient to raise agricultural productivity.

    Addressing a forum organised by Lagos Business School, the Managing Director, Best Foods, Mr Emmanuel Ijewere, said when banks understand farmers, they will be able to structure their payment schedules and better evaluate their repayment capacity.

    Unlike with typical short-term loan schemes, he said agricultural loan products must reflect the unique characteristics of agricultural production. Products, he noted, must cater for seasonal production with long and diverse gestation periods.

    He said agriculture is very seasonal with long gestation periods, from planting or livestock birth to harvest or slaughter. The result is that cash flows are highly seasonal and sometimes irregular, with earnings concentrated in certain times of the year.

     

    Long-term financing

    Olowe said there are challenges to farmers looking for long-term financing for investments in agro businesses such as planting of cocoa or cashew trees. This is because cocoa takes three years before it can bear fruits. Banks have few instruments at their disposal to manage the risks arising from the agricultural sector.

    However, agricultural borrowers’ assets are less suitable as collateral. In fact, farmers and their producer associations frequently lack the collateral traditionally required by banks for larger and longer-term loans.

    Due to legal and administrative impediments as well as cultural factors, rural assets are often not registered and consequently may be more difficult to foreclose and sell. Even where these constraints are less binding, collateral is a poor protection against massive defaults due to covariant risks.

    For banks, the primary source of repayment is usually the farm’s conversion of working capital into cash flow through the production season. If, for some reasons, this conversion fails to generate sufficient cash flow to service the loan requirements, the bank has to consider other options, many of which are still dependent on the farmers’ ability to generate cash flow or liquidate various assets to repay the loan.

    For some banks, agricultural financing involves higher transaction costs than in urban areas given distances, lower population densities, and lower quality infrastructure.

    Together, these factors make it hard to aggregate agricultural loans into portfolios that make branches viable. In addition, it can be costly to have branches and staff in remote areas handling small transactions.

     

    Prospects

    Recently, the Central Bank of Nigeria (CBN) emphasised on banks’ lending to agriculture. Rising demand for agricultural commodities as well as increased competition in urban areas have prompted financial institutions to reconsider working with this sector.

    Lenders are beginning to recognise the growing potential and profitability of lending to agricultural enterprises.

    Lagos Commissioner for Agriculture and Cooperatives, Prince Gbolahan Lawal, has been on the vanguard of bringing more young people into farming by providing low-interest loans and transfer programmes geared toward the younger generation to help obtain farmland and build up their operation.

    Lawal said the new agricultural entrepreneurs are the cornerstone of a vibrant rural Lagos and the future of agriculture. He said the Lagos State government was ready to support young Nigerians to make a living through agriculture.

     

    States’ support for agric

    To tackle the high rate of unemployment in Imo State, Governor Rochas Okorocha launched the Youth Must Work programme aimed at engaging and empowering all unemployed youths in the state.

    As part of the action plan mapped out for the programme, the state government had set aside an interest-free loan of N5 billion for thrift arrangement, which will aid the youths to set up integrated farming in their communities.

    Okorocha stated that one of the cardinal objectives of the programme is to develop the economy of the state through agriculture for which the state government had provided one hectare of land in each of the 560 communities in the state.

    The Lagos State Agriculture Youth Empowerment Scheme, popularly known as “Agric-YES” aimed at empowering youths, has far empowered over 300 youths with an additional 100 participants undergoing training at the moment. The overall aim of the scheme is to breed a new generation of agro-entrepreneurs in poultry, fish farming, bee-keeping and all season vegetable farming.

    Students of the institute go through six months training and internship before they are allowed to take off.

    Rice for job is another lucrative project that has helped to provide job opportunities to most youths as well as increase the volume of rice produced in the state.

    One of the beneficiaries of the Rice for Job project, Mr. Adeniyi Ayino, said the programme has helped him a lot, adding that he could now operate a tractor very well and work perfectly as a rice farmer.

    Also, Ekiti State Governor, Dr Kayode Fayemi, has said the vision of his administration to make the state the food basket of the Southwest as well as generate 50 per cent of Internally Generated Revenue (IGR) from the agriculture sector by next year would soon become a reality as some of the agric programmes put in place by his administration are already coming to fruition.

    The state has achieved eight different projects under the Youth Commercial Agriculture Development (YCAD) programme spread across different parts of the state.These include fish farms in Efon, YCAD Nursery point at Igede and cassava plantation in Iyemero, the Farmer’s Academy at Isan Ekiti, among others. He expressed satisfaction that the YCAD participants are up, doing and are working towards a shift from subsistence agriculture to commercial agriculture..

    The Special Assistant on Media and Strategy, Office of the Minister of Agriculture and Rural Development, Dr Kayode Oyeleye, said the government is providing young entrepreneurs opportunities to take part in decent agricultural work for food security and poverty reduction. This, he explained, informed the idea of Youth Empowerment through Agriculture Programme (YEAP).

    He said YEAP is intended to fashion out programmes adaptable to the youth to encourage them to invest in agriculture, with support from the government. Although two states (Lagos and Ekiti) have started youth programmes in agriculture at various times, the Federal Government will work with all stakeholders to expand the scope and coverage to span through the entire country.

    Besides, agriculture experts from Germany have commenced training of youths across the 30 local government councils of Osun State. A statement by the Director, Ministry of Information and Strategy, Mr. Dapo Ajayi, said the training programme was approved by Governor Rauf Aregbesola.

    The statement said 48 youths would be picked from among those trained across the councils and sent to Germany for further training. The Commissioner for Agriculture and Food Security, Mr. Wale Adedoyin, and a special adviser in the ministry, Mr. Dele Ogundipe, said 40 of the 48 selected youths, who showed proficiency in the German language, would make the trip.

     

    Recommendations

    Adebayo said financing agriculture is more effective when it is part of a broader package that combines both financial and non-financial services to the farmers with the objective of improving yields and quality and ensuring access to markets for selling their produce.

    He said the government should create a new programme that would make loans available to young, start-ups and old farmers seeking capital to help cover start-up costs, such as purchasing seeds land, buildings, equipment, or livestock.

    Oyenekan stressed the need for a national fund to support and provide loans to youths who are interested in starting agricultural businesses. According to him, the Youth Fund will be an important means to curb the problem of youth unemployment.

    He supports the government in allocating money to fund youth’s entrepreneurial spirit, but said for the programme to be successful it should be managed by young people who can inject new ideas to tackle the unemployment problem.

    Adebayo said the funding programme will be used as a complement to existing efforts that help finance and empower youths to create their own employment opportunities.

    Oyenekan said the government should support young farmers through equipment finance rather than give them cash.

    Adebayo said the government should be encouraging young farmers to invest in mini-value added agro enterprises. The Government and donors, he added, should provide grants to farmers to scale up their businesses and add value to their products in order to meet surging consumer demand for high quality, farm-based, value-added food products.

    He said the government should support new agriculture entrepreneurs, by investing in training programmes and grants to help farmers capture more of the retail food through value-added enterprises.

     

  • When two elephants fight…

    The court has been busy trying to resolve the dispute between Nigeria Liquefied Natural Gas Limited (NLNG) and Nigerian Maritime Administration and Safety Agency (NIMASA) over payment of levies. But beyond this litigation is the need to find a lasting solution to the agencies rift in the national interest EMEKA UGWUANYI, Assistant Editor and OLUWAKEMI DAUDA report.

     

     

    In the last two weeks, the court seemed to have stepped up efforts to resolve the disagreement between the Nigeria Liquefied Natural Gas Limited (NLNG) and the Nigerian Maritime Administration and Safety Agency (NIMASA). During this period, a Federal High Court in Lagos has heard the case more than three times, which underscoring the importance of the feuding government agancies to the economy.

    The Nation gathered that besides the court’s efforts to determine the contentious provisions in the Acts establishing the NLNG and NIMASA and the disagreement over payment of levies or exemption, those in authority are trying to persuade the organisations to reach an understanding and perhaps, settle out of court.

    Last week, the court sat more than two times on the case and would still sit on September 19 on it, while other concerned groups also met with the organisation’s officials to broker peace.

    At the weekend, both the plaintiff and defendants reached an agreement, which their solicitors confirmed in the court. By this agreement, NLNG has accepted to pay the $158 million to NIMASA. It has earlier paid $20 million. NLNG, however, insisted that despite agreeing to paying the said money, it would continue with the legal battle to determine the legality or otherwise of payment of the levies and charges demanded by NIMASA.

    The Managing Director of NLNG, Mr Babs Omotowa said: “We feel we have no option than to now make these payments under protest. In doing this, we have taken into account the overriding national interest; in particular to stem the huge financial and reputational loss the country has suffered as a reliable LNG supplier.”

     

    Background

    On May 3, 2013, NIMASA used the operatives of Global West Vessels Specialist Platforms to mount a blockade against all NLNG’s vessels, denying them access to the Bonny Channel from the fairway buoy, at the beginning of the Channel to buoys 17 and 18. Its action was based on what it described as NLNG’s unwillingness to abide by the country’s maritime laws, especially sections of the NIMASA Act that mandates payment of levies based on gross freight on exports and imports and the Cabotage Act.

    NIMASA’s Acting Director, Shipping Development, Captain Warredi Enisuoh, said the blockade was to prevent NLNG from continuing in business and would not be lifted until NIMASA was satisfied that NLNG had complied with its Act and Cabotage law.

    Enisuoh said there were no gas imports and exports during the period. Ships laden with gas were prevented from exiting the terminal while two vessels that were for loading could not enter the terminal.

    The Federal Government asked the Attorney-General of the Federation, among other top government officials, to look into the case. Afterwards, NLNG was asked to pay some of the arrears of the levies demanded by NIMASA. The organisations were asked to meet to agree on modality of payment.

    But NLNG felt mistreated, claiming that the Act that established it exempted it from paying such levies. It went to court to seek proper interpretation and determination of the provisions of the Act and NIMASA’s demand.

    NLNG’s General Manager, External Relations, Kudo Eresia-Eke, in a statement titled “NLNG complies with government’s directive to pay, seeks judicial interpretation on NIMASA issue, said: “NLNG has today (June 18, 2013), filed a case in the Federal High Court, Lagos against the Nigerian Maritime Administration and Safety Agency (“NIMASA”) seeking judicial clarity and interpretation on the legality or otherwise of the various levies imposed on NLNG by NIMASA, while complying, under protest, with the government’s directive to pay the said levies.

    “The protracted dispute between both parties arose as a result of perceived conflict in the enabling Acts of both organisations, namely the Nigeria LNG (Fiscal Incentives, Guarantees and Assurances) Act on one hand and Nigerian Maritime Administration and Safety Agency Act, Merchant Shipping Act and Coastal and Inland Shipping Act on the other hand.

    “NIMASA contended that its levies were applicable to NLNG, while the latter argued that they were exempted from such levies and charges by virtue of the NLNG Act.

    “NIMASA had filed a suit against NLNG in 2010 claiming entitlement to these levies. After preliminary proceedings were taken and concluded, and the matter was ready for hearing, NIMASA filed an application to withdraw the suit, and on 3rd May 2013 resorted to self-help by blocking the Bonny Channel for two days, thereby preventing ingress and egress of NLNG chartered vessels with attendant financial losses and reputational damage to NLNG and Nigeria in general.

    “Following this blockade incident, a series of meetings were subsequently directed by the Federal Government in the past few weeks resulting in the instruction to NLNG to pay the NIMASA levies. NLNG has thus commenced installment payment, under protest, to NIMASA in compliance to the government’s directive, but without prejudice to its right to seek judicial interpretation in the court of law.

    “It is instructive to note that Nigeria LNG Limited and its Shareholders still firmly believe in the rectitude of their earlier position that NLNG is duly protected by the provisions of the NLNG Act against the payment to NIMASA of the Sea Protection Levy, the three per cent freight levies on cargo exports shipped by NLNG, and that the two per cent Cabotage Levy on LNG carriers is inapplicable because NLNG’s LNG vessels are not involved in coastal trade or cabotage.

    “NLNG is a Nigerian company involved in, almost exclusively, international export business and is thus subject to all relevant national and international laws, standards and ethos with which it must comply. This, amongst others, requires that all its dealings are governed and premised on the universal principles of the rule of law to which the Nigeria Government also affirms its commitment.

    “The company has often clarified that the issues it has with payment of any levy, charge or impost has little to do with the amounts involved, but more with the principle of the rule of law, so that it can safeguard its international business which rests squarely on its reputation as a law abiding company, as well as Nigeria’s reputation in the global community.”

    NLNG got an injunction restraining NIMASA from demanding levies from it or disrupting its operation through blockades. NIMASA, allegedly disrupted NLNG’s operation by blockading the channel, with NLNG crying out over what it calls violation of court order.”

    Eresia-Eke condemned NIMASA’s action in a statement titled, “NIMASA blockades NLNG again, violates court order, saying: “On Friday 21st June 2013, two NIMASA boats, with 15 naval officers on board, ordered that one NLNG vessel, LNG Imo, and one chartered vessel, Torm Thames, remain at NLNG’s loading bay, whilst another NLNG Vessel, LNG Oyo, remains outside the Bonny Channel until further notice.

    “NIMASA subsequently issued Ship Detention Orders on 22nd June 2013, specifically detaining three NLNG ships (LNG Enugu, LNG Oyo, LNG Imo) and barring them from accessing or leaving the Company’s loading bay.

    “These developments are in flagrant disregard of the court injunction issued by the Federal High Court in Lagos in Suit No FHC/L/CS/847/2013 by Honorable Justice M.B. Idris, presiding, on Tuesday 18th June 2013, against the Attorney General of the Federation, Global West, and any other parties including Nigerian Maritime and Safety Agency, NIMASA, from imposing any charges or taking any steps to block, detain or prevent access by the company’s owned or chartered vessels, whether inbound or outbound from Bonny channel or elsewhere in Nigeria.

    “It will be recalled that on 3rd May 2013, NIMASA blocked the Bonny Channel preventing entry and exit of NLNG vessels. This led to a series of meetings at the instance of the Federal Government which eventually ordered that the company should pay NIMASA its purported levies.

    “In deference to the government, NLNG made a payment, under protest, in the sum of $20 million (approximately N3.2 billion) into NIMASA’s designated account and subsequently approached the court to seek proper judicial clarity and a lasting resolution to the conflict between the NLNG Act and NIMASA Act.

    “The potential implications of this current action by NIMASA on NLNG operations are enormous and would impact negatively on its international LNG Buyers, the international financial market, Nigeria to which NLNG contributes four per cent of the country’s GDP, its Shareholders and the investment climate in Nigeria, let alone the reputational impact this may have on Nigeria’s image within the international investment community.”

    Some industry stakeholders condemned the action of NIMASA. They were of the view that NIMASA could have exercised self-restraint as a responsible corporate citizen by allowing the court to determine legality or otherwise of NLNG’s demand for exemption from payment of the three per cent freight levies on cargo exports shipped by NLNG, and that the two per cent Cabotage levy.

     

    Why blockade

    NIMASA said it mounted a blockade against the NLNG following a collapse of the negotiated settlement between the two parties. NIMASA had also dragged NLNG before the Federal High Court, but when the case dragged on for four years without progress, it withdrew the matter from court in March, this year.

    NLNG was said to have opposed the withdrawal but the court allowed the withdrawal and struck out the suit. Following the ruling, NIMASA began enforcement of the provisions of its 2007 Act.

    NIMASA, said the Act, which exempts NLNG’s wholly-owned subsidiary, Bonny Gas Transport Limited and other chartered third party vessels had been repealed by section 63 (1)(a) of the NIMASA Act of 2007, while the new Act provides in Section 15 (a) that NIMASA shall be funded by money accruing to it through the three per cent of gross freight from all international inbound and outbound cargo from ships or shipping companies operating in Nigeria to be collected and paid over to the agency to meet its operational costs.”

    NIMASA’s Deputy Director and Head, Public Relations, Isichei Osamgbi, in a statement titled “NIMASA serves detention order on NLNG vessels,” explained reasons for the blockade. He said: “The Nigerian Maritime Administration and Safety Agency (NIMASA), has today in its enforcement of Nigerian laws, served detention notices/orders on vessels belonging to/chartered by the NLNG.

    “This course of action was forced on NIMASA by the NLNG’s subsequent refusal or/and failure to abide by the outcome of the negotiated settlement arrived at through the mediation process it willingly instigated and subscribed to, after reaching agreement with NIMASA on its outstanding debt and paying $20 million out of it and its continued flagrant disregard for Nigerian laws.

    “Contrary to NLNG’s position, NIMASA is not aware of any court order against it or any suit brought by NLNG against NIMASA.

    “By its action, the NLNG has trivialized the mediation process and the position of the Federal Government of Nigeria whose Nigerian National Petroleum Corporation owns and holds 49 per cent of the shares in NLNG and which endorsed the agreement reached that NLNG should pay its taxes/levies and observe all its obligations under the laws of Nigeria in which it is operating.”

     

    Issues

    The provision on which NIMASA stands is the first schedule of the Fiscal Incentives, Guarantees and Assurances of NLNG Act, which says: “Tax relief period Notwithstanding the provisions of section 10 of the Industrial Development (Income Tax Relief) Act, the tax relief period of the Company shall commence on the production day of the Company and shall continue for a period of ten years, so however that the tax relief period shall terminate at the first anniversary date after the first five years when the cumulative average sales price of liquefied natural gas reaches US 3 dollars/mmbtu as calculated in the First Schedule to this Act in accordance with which such calculation shall only be made annually at each anniversary date.

    First Schedule. Early Termination of Tax Relief Period (Section 2.)

    “1. The cumulative average sales price is calculated at each anniversary date as follows (a) for each period ended on an anniversary date, calculate the annual average sales price of liquefied natural gas by dividing the total invoiced sales of liquefied natural gas in the twelve months ending on the anniversary date in US$, by the total invoiced deliveries of liquefied natural gas in Millions of British Thermal Units, in the same period; (b) calculate the Nigeria LNG Index for each of the periods between the production day and the anniversary date, by multiplying the US Dollar/SDR index at the end of each period with the CPI at the same date, dividing the result by 1.9924344, or such other denominator as gives an answer of 100 for 31 December 1987, in the event that the CPI is rebased; (c) divide the annual average sales price for each period (i) by the Nigeria LNG Index for the same period; (ii) to calculate the adjusted price for the period; (d) calculate the cumulative average sales price for the period from the production day to the anniversary date by dividing the sum of the adjusted prices (c) for each period from the period in which the production day falls to the period which ends with the anniversary date by the number of such periods.

    “2. For the purposes of this Schedule (a) anniversary date means the anniversary of the Production Day and each anniversary thereof until the ninth anniversary; (b) the US Dollar/SDR Index shall be the figure published by the International Monetary Fund in the publication titled “International Financial Statistics” for the end of the month in which the anniversary date falls for the United

    States dollar/Special Drawings Right Index (series “su United States”) or if that publication ceases then in its successor or a comparable United States publication of good standing; and (c) the CPI shall be the figure published by the International Monetary Fund in the “International Financial Statistics” for the end of the month in which the anniversary date falls for the Industrialised Countries Consumer Price Index (series 110) or if the publication ceases then in its successor or a comparable United States publication of good standing; (d) period means 365 calendar days (366 in a leap year) preceding an anniversary date. Others include section 15(a) of the NIMASA Act 2007 and section 43(a) of the Cabotage Act 2003.

    The NLNG stands on the provision of the second schedule. Second Schedule Guarantees and Assurances to Nigeria LNG Limited and its Shareholders (Section 9.) 1993 No. 113.

    “The Federal Government of Nigeria (in this Act referred to as “the Government”) in recognition of the magnitude of, and in consideration of the investments which shall have to be made in order to prosecute the venture described in the shareholders’ contract dated 19th May, 1989 between the Nigerian National Petroleum Corporation, Shell Gas B.V., CLEAG Limited and Agip International B.V., as amended, from time to time (such shareholders’ contract, as so amended in this Act referred to as “the contract”) hereby grants to the Company, its successors and to each of the shareholders, from time to time (in their capacity as such), the guarantees, assurances and undertakings following hereunder. These guarantees, assurances and undertakings shall have effect from the date hereof, and so long as the Company, or any successor thereto, is in existence and carrying on the business of liquefying and selling liquefied natural gas and natural gas liquids within and/or outside the Federal Republic of Nigeria.

    “The guarantees and assurances are as follows: 1. The Government shall do nothing to render invalid unenforceable rights and obligations arising under the contract and the other contracts and arrangements contemplated in the contract, to the extent that such rights and obligations are not illegal in Nigeria and do not offend against Nigerian public policy and provided that such contracts have been kept validly subsisting by the parties thereto, it being understood that such other contracts or arrangement s will not be deemed to be illegal or contrary to Nigerian public policy for the sole reason that the requisite government actions referred to in clause 6 hereof have not been effected.

    “2. The venture shall be subject to the fiscal regime contained in the provisions of this Act. Such fiscal regime shall not be amended in any way, except with the prior written agreement of the Government, the Company an d each of the Company’s shareholders.

    “3. Without prejudice to any other provision contained herein, neither the Company nor its shareholders in their capacity as shareholders in the Company, shall in any way be subject to new laws, regulations, taxes, duties, imposts or charges of whatever nature which are not applicable generally to companies incorporated in Nigeria or to shareholders in companies incorporated in Nigeria, respectively.”

     

    Legal battles

    The Federal High Court, Lagos, has heard the preliminary objection brought by the defendants in a suit by the NLNG Limited against the Attorney-General of the Federation and others. Justice Mohammed Idris refused to re-affirm an order he made restraining NIMASA from detaining NLNG’s vessels.

    Justice Idris made the order on June 18 against the Attorney-General of the Federation, Mohammed Adoke (SAN), Global West Vessel Specialists Nigeria Limited and its Managing Director Mr Romeo Itima.

    The order, restrained the defendants, either acting for or deriving authority from the Federal Government, including NIMASA, from charging three per cent of gross freight earnings, tax, charges or dues on all of NLNG’s in-bound and out-bound cargo owned by it or its contractors or subsidiaries, pending the hearing and determination of the motion for interlocutory injunction.

    The government and Global West had asked the court to discharge the ex-parte order because it was made against NIMASA, who is not joined as a party to the suit, adding that full facts were not disclosed to the court in seeking the order.

    But Justice Idris struck out the Attorney-General’s application on the ground that it was filed outside the time permitted by the court rules.

    The court also dismissed Global West’s application because there was no suppression of any material fact, noting that the company could be sued on behalf of its principal (NIMASA).

    Shortly after the ruling, NIMASA’s lawyer Wole Akoni (SAN) urged the court to reaffirm the ex-parte order. But Global West’s lawyer Abiodun Owonikoko (SAN) opposed the application, urging the court not to be tempted to fall into such trap.

    Justice Idris ruled that since the defendants were challenging his jurisdiction to entertain the suit, he would deal with the issue first. He said: “The only jurisdiction I have now is to hear the objections of the defendants.”

    When the case came up again, Akoni told the court that settlement talks had failed, while the defendants proceeded with their pending applications.

    “It appears to us that NIMASA is bent on stifling our business. NLNG has paid dividends to the Federal Government in billions. We even offered to continue to pay but they rejected our offer,” Akoni said. After Akoni’s submission, the government’s counsel, Fabian Ajogwu (SAN) moved his application seeking to discharge the ex-parte order on the grounds that the order was essentially made against NIMASA, which was not joined as party. NIMASA has also filed an application seeking to be joined as a party to the suit. According to Ajogwu’s application, the government is contending that NIMASA is a body corporate with statutory powers to sue and be sued in its own name and that its non-inclusion as a party was a violation of the principles of fair hearing.

     

    Consequences

    Owing to the NIMASA blockade, the company said it lost over N76 billion ($475 million) in revenue, 65 per cent of which belongs to the Federal Government, which has thus lost about N50 billion in dividend and taxes, among others.

    The blockade had also led to scarcity of cooking gas with attendant spiraling cost and worsening hardship on the populace, reduction of domestic gas to power, shutdown of offshore and onshore production facilities, among others. In addition it has caused huge reputational damages to NLNG and Nigeria.

    The price of liquefied petroleum gas (LPG) also called cooking gas, has risen from between N2,800 and N3,000 to N3,500 and more for 12.5kg cylinder.

  • ‘Why housing for all remains elusive’

    Nigeria’s desire to provide houses for her citizenry remains a dream,14 years after the first attempt to address the issue, reports Seyi Odewale.

     

     

    As the nation celebrated the 14th anniversary of democratic rule last Wednesday, Pa Olasunkanmi Adepoju, a pensioner and his colleagues were not happy. Reason: What they envisaged when democracy began in 1999 was not what they got years after. They had thought the political dispensation would, at least, give them and many others the opportunity to be house owners. To them, the military that handed power to the politicians was more benevolent than the civilians on land matters.

    Barely five years into democratic rule, the land, which they bought from the previous military government and which they had started developing,was suddenly taken over from them. What has been their lot is an endless hope that they will repossess the land. They said successive civilian governments since 1999 have failed woefully in housing matters.

    Adepoju argued that one of major policy thrusts of the Nigerian National Housing Policy during the Chief Olusegun Obasanjo regime was accessing funds for housing development through co-operatives. He said it was a policy aimed at tackling the housing problem of the country. But, unfortunately, he said, Obasanjo’s government did not deliver.

    “Look at our experience at Aboru Housing scheme, which we got under site and services scheme; look at the way we were dispossessed of our land, rightly bought from the government. We are yet to resolve that issue,” he said.

    As laudable as the policy was, it, however, died with the exit of Obasanjo’s regime. Policy of this nature, directed at solving a fundamental problem like residential accommodation, experts said, should not die with the government that initiated it because the crisis of inadequate housing facilities did not die with the expiration of the initiating regime.

    The late President Umaru Yar ‘Adua’s administration, recognising that Nigeria has a huge housing deficit, evidenced by low levels of the real estate sector and mortgage credits to the sector, accounting for less than one per cent and 0.5 per cent of the Gross Domestic Product (GDP), planned an evolution of the National Policy on Urban Development and Housing that provided for a private sector-led housing policy with the government providing the enabling operating environment. This formed the fifth item on his seven-point agenda.

    But the lack of long-term funds, which has been the bane of housing in Nigeria, and the banking sector’s perceived aversion to financing home ownership, did not make the policy to fly. Added to this is the legal and regulatory environment characterised by archaic laws, which inhibited efficient land transaction. The Land Use Act which needed to be addressed and the untimely death of President Yar ‘Adua, who initiated the policy, dealt the final blow to this laudable policy.

    President Goodluck Jonathan on mounting the saddle professed a revolution of the sector by translating the National Housing Policy and National Urban Development Policy into a roadmap for housing development.

    Speaking at the Presidential Stakeholders Retreat on Housing and Urban Development at the State House last year, Jonathan said reinvigorating as well as revitalising housing and urban development was a core priority of his administration.

    The policies, he said, were to be translated into action through a roadmap for the housing and urban development sector. The roadmap, he explained, would address the challenges of achieving a housing revolution in in the country, within the shortest possible time. “It would also provide the pathway for transforming our cities into livable and functional human settlements,” he said, emphasising the importance of cooperation of all stakeholders to achieve this objective.

    Jonathan had estimated the housing deficit to be between 16 and 17 million units, a fact corroborated by his Housing and Urban Development Minister, Ms. Amah Pepple.

    “If this deficit is to be bridged, we must continue to seek ways to provide affordable housing, especially to the no-income, low-income, lower-medium income, and the informal, sector worker. A variety of housing delivery schemes, including social housing, rental schemes, regeneration and Housing cooperatives must be evaluated.

    “We must also seriously concern ourselves with how we can meet the global benchmarks in housing building standards, proper land use and space standards and institutionalisation of a vibrant mortgage system, based on long-term repayment terms.

    “In the same manner, we must focus attention on how to overcome the issues of capacity gaps, poor quality of building materials, inappropriate technology and dearth of technological innovations, in support of mass housing delivery,” he said.

    Experts have said the huge deficit is yet to be bridged. They said the 17 million shortfall, which Nigeria is experiencing, is a farcry from the United Nations’ minimum standard for housing. This has necessitated an endless clamour by experts in the sector for a more critical look at bridging the gap

    The Nigerian Institute of Building (NIOB), President, Chucks Omeife, said no government worth its salt would overlook the sensitive issue of housing as it concerns its citizen. He said the Jonathan administration should not treat the issue of mass housing with levity.

    Housing, he said, has come to be regarded as a major national issue which should be taken as such. He noted that the huge deficit was worrisome.

    A former President of the Nigerian Institution of Surveyors (NIS), Olushola Atilola, said the nonchalant approach of previous governments to the issue of housing in the country was regrettable. He noted that government should allow more private developers participation in driving the housing sector if it wants to achieve housing for a larger percentage of the populace before 2020.

    Finance Minister and the Coordinating Minister of the Economy Dr Ngozi Okonjo-Iweala said the country needed to add 23 million homes by 2020 to bridge the supply gap and another 2.6 million homes yearly.

    Atilola, however, noted that acute housing is not a tea party. He said unless the government mustered the political will to address the matter, it would continue to be a recurring problem. He noted that with the President’s comment on the sector it would be unwise to relegate the matter to the background.

    The Real Estate Developers Association of Nigeria (REDAN) has, therefore, asked to be involved in a committee set up by Ms Pepple to solve the deficit issue. A situation whereby about 85 per cent of the populace is homeless, experts said, is lamentable.

    Dr. Okonjo-Iweala said delivering on housing would require a more forceful action across four key areas, which include simplifying allocation of land title and its registration processes; identifying three to four bankable housing projects to deliver at least 1million houses; recognising those who would not be able to buy a house if a mortgage facility is provided and considering what immediate regulatory requirements are to underpin and facilitate urban development in Nigeria. “The poor have a right to housing as well and the Minister of land and I are determined to come up with a low income housing solution for our country,” she had said.

    Experts have, however, insisted that the government has a serious business in real estate and housing. A former President of the Nigerian Institution of Estate Surveyors and Valuers, Chief Charles Olumide Adebiyi, said land in Nigeria and most other places, is under the jurisdiction and control of the government.

    “So to that extent, we can say that property, real estate, whether it is housing, commercial or industrial, because it requires land to be allocated and government is in full control of allocation and pricing of land, government by that has business in property and real estate,” he said.

    But the extent of such involvement, he said, has to be defined. What hampers Federal Government in delivering on its promise on housing, according to him, is the Land Use Act, which gives the states autonomy on lands domiciled in their territories.

    “It may be like a federal thing, but it is not important for the Federal Government to get fully involved in the area of housing since power over land now rests with the states,” he said.

    On the mistrust that the populace has for the government, Chief Adebiyi said: “I agree with you that there are many things government could have done, but because of lack of trust it has not been able to do them Not only in primary issues of land allocation and acquisition, but also on issues relating to developing property, bringing people together to undertake investment in property. It is possible in other places like real estate investment trust; securitisation and so on. It is possible to do many things and make supply available. It is very difficult in Nigeria because of lack of trust. There is lack of trust between the people and government; there is lack of trust among the people themselves in terms of what people say they will deliver; the ability, the willingness and truthfulness in delivery. That is a major problem and it is also one of the things we need to examine very closely.”

  • Between polymer and paper notes

    Between polymer and paper notes

    Next month, the Central Bank of Nigeria(CBN) will change the naira polymer notes to paper. AKINOLA AJIBADE looks at the cost and benefits of this exercise.

    Globally, Central Banks formulate and implement policies that enable them to restructure their countries’ currencies either in part or in whole. The policies, as contained in their operational guidelines, allow them to invent and re-invent these features of their currencies to achieve set goals.

    Through these policies, they are able to determine the composition of these currencies vis-a-vis the colours, security methods, personalities, types and textures of materials required to produce them from time to time. Many countries have at one time or the other changed the features in their legal tenders.

    Since its inception in 1959, the Central Bank of Nigeria (CBN) has been executing various currency management programmes. For instance, it has phased out some old notes and replaced them with new ones. It also introduced higher denominations of N100, N200, N500, and N1, 000. Every successive CBN governor seems to have a reason for tinkering with the currency.

    Last week in the United States (US), CBN Deputy Governor (Operations) Mr Tunde Lemo hinted of a plan to change the N10, N20, and N50 polymer notes to paper next month. He said the apex bank was phasing out the polymer notes because they fade quickly. He said when the notes were introducted, the CBN did not realise that they would fade easily, arguing that it was necessary to revert to paper notes, which are more enduring.The CBN, Lemo said, would begin to receive fresh paper notes from next month as part of efforts to phase out the polymer notes.

    Does it matter whether a country’s currency is in polymer or paper? Which is more durable: polmer or paper note? Should every successive CBN governor change the currency note? What are the cost implications of the exercise?

     

    History of Naira

    The naira was introduced in 1973, following the submission of the report of the Decimal Currency Committee. The committee was set up to provide modalities on how Nigeria would change to a decimal currency. The exercise gave birth to N1 as the major currency, which served as the equivalent of 10 shillings. The minor unit was named kobo, with 100 kobo, equaling N1.

    New currency notes of three denominations: N1, N5, and N10 were subsequently introduced. They were of the same size; that is, N151x78mm as the N20 note issued on February 1, 1977. The bank note was the highest denomination then. Its issuance followed the growth in incomes, the preference for cash transactions and the need for convenience.

    As part of the economic reforms, N50, N20 N10 and N5 notes and N1 and 50kobo coins were issued with new designs. A new N2 coin was introduced on February 28, 2007. Thereafter, N100, N200, among other higher denominations, were introduced. All the notes were printed in paper.

    Polymer notes

    Nigeria took a shot at the polymer notes during the regime of former President Umaru Musa Yar’ Adua. The President launched the N10, N20 and N50 polymer notes on September 30, 2009 to mark the country’s 49th Independence anniversary. The notes were introduced during the tenure of Prof Chukwuma Soludo as the CBN Governor.

     

    Cost implications

    According to former Chief Executive Officer, the Nigerian Security Printing and Minting Company (NSPMC), Mr Ehidiamen Okoyomon, Nigeria is one of the world’s five biggest spenders on currency printing. Others are the United States, Indonesia, India and China. At an e-Payment Thought Leadership Breakfast Series organised by Intermarc Consulting Limited, in Lagos, Okoyomon said Nigeria prints three billion notes per year. He said the cost of printing currency varies from denomination to denomination. He said Nigeria is printing one of the highest volumes of notes in the world.

    A Senior Lecturer at the Lagos Business School, Dr Austin Nweze, said though paper notes are less expensive to produce compared to polymer notes, there is no way the government will not incur additional cost when printing N10, N20, and N50 notes on paper. The change, he said, would further increase the cost, vis-a-vis the volumes of notes printed yearly by NSMPC. He said the CBN is in a better position to determine how much it will cost to print naira notes on paper.

    ” For us to know how much it’s going to cost CBN to print, we need to know the amount it spent on printing those notes before they were changed to polymer in 2009. It is the difference between the two that will determine whether the scheme is cost effective. But that can only be provided by CBN. But from all indications, the apex bank will spend money no matter how small it is to print the lower denominations on paper.”

    A former General Manager, Trade Bank Plc, Mr Jamiu Ekungba, said CBN as a matter of tradition, prints new notes monthly to replenish old ones, and may, therefore, not spend much on printing smaller notes on paper. He said the printing of naira notes is a cost that must be borne regularly by CBN, adding that the apex bank is the only authority that knows how much that goes into the printing of the currency.

     

    Politics of currency management

    Analysts believe that currency management is not only an econometric affair, but also a political-economic affair, with its intrigues and nuances. They accused successive leadership of the bank of changing the naira one way or the other. According to them, the issue is more of playing to the gallery than the desire to improve the quality of the naira notes.

    Former CBN Director of Research Mr Titus Okunrounmu said people and institutions were fond of making unfulfilled promises. He said it was one thing to promise to do something, another thing is to do it well.

    “If they want to improve the quality of the notes by changing them from polymer to paper, it is good for the economy. There must be policy change. This must be a positive one that can improve the economy,” he said. “But the picture must not be coloured to achieve underlying goals.”

    On the quality of the notes when compared to other countries, Okunrounmu advised CBN to look at what developed countries have done to improve the quality of their notes and use that as template. “It is then that we are sure that we would get something better in the next two or three years,” he added.

     

    Benefits

    CBN introduced the cash-less policy to reduce the amount of physical cash in circulation. According to Okoyomon, cashless will reduce the amount of naira to be printed by the apex bank in the coming years.

    “The substantial part of the money we print is due to cash handling, but if we go cash-less, it will reduce the cost of cash handling for the government,the banks and individuals.” he said. Nweze said the development would help to counter the activities of those who have produced fake N10, N20, and N50 paper notes. He said CBN might have other reasons for trying to print lower notes on paper.

    “It may have got security reports that some people have printed fake notes. They do not disclose this kind of report in order not to cause problems. When currency notes are frequently changed in a country like Nigeria, there are other reasons beyond what the CBN has given the public,” he added.

     

    Challenges

    It is believed that changing the lower naira denominations from polymer to paper will not have much impact on the economy. Though the development will lead to uniformity since all the notes would be printed on paper, the cost implication is huge. Experts said the smaller notes are prone to abuse, adding that the development will cause government to dissipate energy on printing of additional new notes.

    The Chief Executive Officer, Distinct Associates, Dr Ayo Teriba, said printing the lower naira denominations on paper and vice versa is like running from pillar to post. He said such notes exchange hands easily because of their low value. He said the notes were used for frequent and smaller transactions, arguing that they would not last whether they are printed in polymer or paper.

    He said: “Imagine the number of times lower notes exchanged hands in a day. They are uncountable. The reason is because the notes are used to purchase satchet water, groundnuts, among other smaller products. The velocity of using lower naira denominations is higher compared to N200, N500 and N1000 notes. This implies that the notes would be mutilated easily, as well as costing CBN more efforts to print new ones.”

    The Managing Director, Kenobly Nigeria Limited (a banking consultancy firm), Mr Kenette Machinete, said the issue would have long-term effects unless measures are taken to ensure proper handling of cash.

     

    Way forward

    Experts said physical and mental re-orientation is needed to prevent abuse and frequent change of naira notes. Mr Ekungba said changing smaller notes from polymer to paper would amount to waste unless Nigerians change their orientation.

    He said Nigerians have a ‘poor culture’ when it comes to handling money, adding that the problems arising from abuse of currency will continue, no matter the amount of money allocated for printing new notes.

    “The truth of the matter is that Nigerians do not handle money well. Even, if the CBN or the Federal Government is to spend its entire budget on printing new notes, it does not change the character of Nigerians when it comes to currency handling. Nigerians do not see their currency as a national symbol that must be protected compared to the Britons and Americans. When the mentality of Nigerians is changed, naira abuse will stop. Whether naira is in polymer or paper, it does not matter because the life span of the notes is bound to be short once they are not properly handled.”

    Teriba advised CBN to change the lower denominations to coins, adding that this is the only way they can withstand the pressure of frequent use.

    He said when N5; N10 andN50 are converted to coins, they would have longer lifespan. The development, he said, would, reduce the burden of printing new notess.

     

  • Much ado about private jets

    Much ado about private jets

    Until few weeks ago, private jet owners flew about with ease. Everything changed on April 26 when a private jet said to belong to the Rivers State government was stopped at the Akure Airport in Ondo State for allegedly breaching the rules. Since then, the rules have been strengthened to avert a recurrence. Did government act in the best interest or with ulterior motives? Kelvin Osa Okunbor reports

     

     

    Something led to the action, though the government denies having ulterior motives in coming up with the revised Nigeria Civil Aviation Regulation (NCAR). Before the revision of NCAR, which is the bible for aviation operations, private jet owners were free to use their planes the way they wanted. They could give the jets out to whoever sought to use them without fear of breaching the law.

    With the revised NCAR, their control over their jets appears limited. Besides their family, they can no longer give out the planes to friends and associates. Then, who is a family? Who is a friend? Who is an associate? Can the revised NCAR identify who is who since these people are not defined under the regulations?

     

    The Amaechi saga

    Many watchers believe what last month’s altercation between Rivers State Governor Rotimi Amaechi and the aviation authorities led to the revision of the four-year old NCAR. On April 27, a Bombardier 700 Global Express with registration number N565RS, operated by Caverton Helicopters, was barred from taking off at the Akure Airport in Ondo State by the Nigeria Airspace Management Agency (NAMA) because of the crew’s alleged failure to declare the identities of passengers on board.

    The aircraft, purportedly owned by the Rivers State Government, was carrying Governor Amaechi and House of Representatives Speaker Aminu Tambuwal, among other high profile passengers. The plane was said to have violated airspace regulation. The Nigeria Civil Aviation Authoriy (NCAA) subsequently grounded the jet for allegedly using an expired permit.

    The permit was said to have expired on April 2, but the plane was not grounded until April 27. Addressing reporters in Lagos, NCAA’s Director of Airworthiness Standards, Benedict Adeyileka, an engineer, said the aircraft was operating illegally in the country. He said the aircraft was sighted in several places, including Owerri (Imo State) and Akure.

    He said, according to its certificate of registration, the aircraft is owned by the Bank of Utah Trustees of Salt Lake City, Utah, in the United States and not the Rivers State Government.

     

    Mode of aircraft registration

    How are aircraft registered? Aircraft can either be registered where they are bought or where they will be used. It is the country where an aircraft is registered that has oversight functions over the plane, according to an NCAR official, who asked not to be named.

    The official said only 10 private jets are registered in the country, while 61 others are registered abroad. He said: “Foreign registered means the aircraft is registered with the Civil Aviation Authority of another sovereign state or country while Nigeria registered means it is under the NCAA registry of aircraft. Where you register your aircraft has the oversight (function) over the aircraft. Any aircraft that has 5N at the tail means it is Nigeria registered. 5N was given to Nigeria by the International Civil Aviation Organisation (ICAO). Such aircraft fly in and out; they can be here today and elsewhere tomorrow. They pay for landing, parking, overflying and fuelling.”

     

    Road to NCAR’s revision

    In the heat of the face-off between Rivers State and NCAA, the NCAR was revised to, according to the Minister of Aviation, Princess Stella Oduah, “check abuses in air transportation.” Defending the measure, Princess Oduah said it is aimed at regulating private jet operations. She said the 2013 NCAR shall regulate the operations of non-scheduled operators, including private jet owners.

    According to the new regulation, owners of private jets are not allowed to carry members of their immediate or extended families. But some analysts contend that the new measures may have political undertones.

    According to global civil aviation regulations, private jets belonging to companies are not allowed to carry fare paying passengers. Such operators belong to the business category and do not hold an Air Operators’ certificate.

    Speculations are, however, rife that NCAA took the action because of the cold relationship between Amaechi and the Presidency.

     

    What the regulations say

    Part Seven of NCAR states. For reasons of safety and security, non-scheduled flight operations within the territorial waters of Nigeria will be monitored and controlled. The government’s objective is to strengthen the control and monitoring of non-scheduled flights into or over Nigeria.

    •For security and safety reasons, foreign non-scheduled aircraft flying into and within Nigeria and capable of air-dropping will attract detailed scrutiny and appropriate checks, and as such, it may not be possible to clear these flights within the usual notice period. In such situation, the Director-General, NCAA, will extend the period of notice provided that the operator seeks the special permission of the Minister of Aviation before conducting the flight.

    •Foreign non-scheduled flights will not be permitted to pick up passengers or cargo in Nigeria for carriage for subsequent disembarkation at any location in Nigeria. Overflying Nigerian territory with aircraft capable of air-dropping will also not be permitted and the technical landing at an international airport located nearest to the international border will be mandatory in such situation.

    •Any foreign non-scheduled aircraft intending to land at military airfields must obtain the requisite clearance from the relevant military authority in addition to the authorisation reference number clearance obtained from NAMA.

    •Retention of foreign registered aircraft in Nigeria will not be permitted beyond a period of 15 days from date of entry. However, the Minister of Aviation may in certain circumstances grant the extension of this period for up to 60 days.

    •Approval or clearance from the Director-General, NCAA, will not be required from Nigerians operating non-revenue flights with appropriate insurance policies in the following cases:

    a. For private aircraft owned or leased by individuals, only the family members of the owner/lessee of the aircraft will be permitted on board as passengers.

    b. For private aircraft owned or leased by companies or corporate entities only the employees and members of the Board of Directors of the company will be permitted on board as passengers.

    c. For aircraft belonging to non-scheduled or scheduled operators, only the employees and members of the Board of Directors of the company or the corporation may be permitted on board as passengers.

    d. All operators will declare the identities of all passengers on non- revenue charter flights in the appropriate General Declaration Forms prior to obtaining air traffic control (ATC) clearance.

    •Nigerian carriers operating revenue passenger charter flights will be required to have a current non-scheduled or scheduled operator permit with operations manual that contains flight duty time limitations which will be strictly monitored on regular basis.

    •Nigerian carriers operating international non-scheduled flights will comply with the following:

    a. Operators will be required to obtain the appropriate clearance from the NCAA and comply with applicable regulations of the relevant regulatory authorities at the destination countries prior to the operation of international flights.

    b. Where scheduled operators engage in international charter flight operations, they will give an undertaking to the NCAA confirming the non-disruption of their scheduled flights.

    Why is the government paying attention to general aviation operators now? Answering this question, Princess Oduah said: “General Aviation, which includes private jet and charter operators, has approximately 80 aircraft with the potential of growing to 500 by 2020 and it could emerge as a key driver of regional connectivity and economic development.

    “Hitherto, general aviation has largely been ignored and has operated in the shadow of commercial airlines as there has been no dedicated policy, regulatory framework, infrastructure or services to support it.

    “There has been limited consideration for general aviation requirements in air traffic management planning and in the development of dedicated infrastructure at airports other than Lagos and Abuja.”

     

    Veiled identity

    The ownership of private jets seems to be shrouded in secrecy. Many of the owners, who play in the big league, shy away from publicity.

    Some NCAA officials also refused to give out the names of the owners, insisting that most of the aircraft are registered under third party arrangement. They insist that as long as the private aircraft meet all regulatory requirements, their ownership does not matter.

    “It amounts to disclosing classified information details about the owners of the private jets, where the ownership does not constitute an infraction to the safety and security of the country,” an official said.

     

    State of the industry

    The Managing Director of Guaranty Trust Bank Plc, Mr Segun Agbaje, put the value of private jets, in the country at over $3.75 billion. He said there are over 150 private jets in the country, adding that they are owned by high networth individuals and organisations.

    Agbaje said an average private jet costs about $25 million, adding that most of those in the country have local and foreign registration. He said Nigeria has the highest number of private jets in Africa, listing the popular jets used by billionaires to include Gulfstream, Bombardier Global Express, Hawker Legacy, and Dassault Falcon.

    Most of the jets he said, are imported from the United States, Canada, Europe, Brazil and South Africa, adding that they were acquired with cash which constituted over 70 per cent of the ratio of acquisition. Leasing, he said, constituted 14 per cent, and direct lending, 16 per cent.

    He said: “Aircraft financing is one of the ways to deepen banking relationship with top private banking customers and corporate organisations. Risks and problems associated with commercial aviation are some of the problems confronting the industry. However, most financial institutions will prefer to support business aviation. Business aviation has fewer risks when compared to commercial aviation.”

     

    Private jet owners

    Prominent among Nigerians known to own private jets are telecommunications magnate Mike Adenuga; business mogul Aliko Dangote; Bishop David Oyedepo of the Living Faith Church; Arik Air Chairman Arumemi Ikhide; Ifeanyi Ubah of Capital Oil; one Dr Kashim; Chief Jimoh Ibrahim of Global Fleet; Pastor Ayo Oritsejafor, the President of the Christsin Association of Nigeria (CAN); Pastor Enoch Adeboye, General Overseer of the Redeemed Christian Church of God (RCCG) and Pastor Chris Oyakhilome, founder, Christ Embassy, among others.

    According to some NCAA officials, who declined to be named, all private jets registered to operate in the country have valid permits.

    The officials did not provide documents to substantiate their claims.

    The officials said it was mandatory for aircraft operating in the country, whether in private, charter and scheduled category, to carry valid permits.

    The now revised 2009 NCAR, states: “The regulation requires that no person may operate a civil aircraft that is eligible for registration under the laws of Nigeria unless it has been registered by its owner or operator under the provisions of the laws of Nigeria and the authority has issued a certificate of registration for that aircraft which shall be carried aboard the aircraft for all operations.

    “A person who wishes to register an aircraft in Nigeria must submit an application for aircraft registration to the authority. No person may operate a civil aircraft in Nigeria unless it displays nationality and registration marks in accordance with the provisions of the regulation.

    “On any change in the ownership of an aircraft, the aircraft registration and certificate become void from the date of the change and the documents must be returned immediately to the issuing authority with the appropriate section duly completed.

    “This certificate must now be handed over to the new owner. When the registration has become void, the aircraft may not again be flown until a new certificate of registration has been obtained.”

     

    Booming trade

    Manufacturers are making a kill in Nigeria where owning a private jet has become a fad.

    Last year, the number of private jets in the country was put at 70. Today, the number has risen to 150, according to Agbaje.

    The country is also emerging as the fastest growing market in the world for private jets after China.

    Two months ago, Bombardier led by its Sales Director for Africa, Mr Robert Habjanic, visited Lagos. He described Nigeria as his company’s largest market in Africa, with about 35 Bombardier-made business aircraft.

    Other private jet manufacturers are witnessing a similar boom in business.

     

     

     

     

  • The many faces of banking reforms

    The 2009 banking reforms introduced by the Central Bank of Nigeria (CBN) seems to be passing the test of time. No bank has failed and no depositor has lost money. But, many jobs have been lost. COLLINS NWEZE and DUPE OLAOYE-OSINKOLU report.

     

     

     

    THEN the National President of the Association of Senior Staff of Banks, Insurance and Financial Institutions (ASSBIFI), Comrade Olusoji Salako, predicted job cuts as a fallout of the banking reforms introduced nearly four years ago by the Central Bank of Nigeria (CBN), he was seen as a prophet of doom. Events since then have proved him right.The government, however, has allayed the fear of bank workers, saying the reforms will create more jobs in the long run, after the initial cut.

    Today, the reforms have claimed thousands of jobs and also removed the attraction of banking jobs. Reason: regular jobs have been converted to contract and casual labour.

    The reforms also led to a drastic reduction in workers’ salaries and emoluments. The good side is that the reforms forced banks to reduce cost, thereby preventing them from declaring “paper profits.”

     

    Labours’ grouse

    ASSBIFI data showed that over 7,000 jobs have so far been lost to the reforms. The number will get higher as the retrenchment which began in 2009 is still on. “It is something we thought would have abated by now but it has not. It also shows that something is still not right with our banking sector. All the reforms, efforts and intervention by government have not yielded the desired result in the sector,” Salako said.

    He said the CBN’s monetary tightening measures, which have left interest rate at 12 per cent in the last one year brought hardship on the real sector. Many firms are reducing production capacities and cutting jobs, he said.

    Besides, he added, loan growth is suffering, with banks concentrating on lending to multinationals and other blue chip companies where risk is minimal. The financial statements of the banks, however, indicated that their loan portfolios have risen.

    Concerned about the bank reforms-induced job losses, ASSBIFI said the government has not developed the right political will to implement its own policy. Salako said the government got the reforms process wrong. “You are doing reform and people are asking… where is the money collected from people that are indebted to these banks or people that were involved in the destruction of these banks? Where are they?

    “Now if you deploy money into a system, you must ensure that the system works. The regulator has not helped matters. A lot of people who have been found wanting in the course of the problems we have in these banks are around and enjoying their loots. They have properties everywhere and it is like the government is handicapped. If you don’t collect all thiss money, how can the banks survive?”

    Salako blamed the Asset Management Corporation of Nigeria (AMCON) “for not being fair”. He said AMCON has not helped the industry because it did not state its intervention in clear terms. “If AMCON wants to be fair, it should come out in clear terms stating its intervention, who will lose and gain. You see, when the government begins to do things and write several versions of its own policy, then there is a problem. The government must develop the right political will to tackle the issues involved,” he said.

    On why inherited workers are usually laid off by new owners of acquired banks without severance benefits, he said the issue with banks, such as Mainstreet is that the government is the owner of that bank under law. Under the law, any institution that is not up to a certain year of existence cannot pay gratuity.

     

    CBN intervention

    The CBN and NDIC had in July 2009 carried out a special examination of all the 24 banks with the aim of assessing their health, with particular focus on liquidity, capital adequacy, risk management and corporate governance practices.

    Ten banks were adjudged to be in grave states with deficiencies in capital adequacy. Of these, eight also had significant deficiencies in liquidity, risk management practices and corporate governance policies. The 10 banks got a lifeline of N620 billion in the form of Tier 2 Capital.

    The Managing Director/Chief Executive Officer, AMCON, Mustafa Chike-Obi, said the acquisition and transfer of ownership has been effected through a subscription agreement with each of the three banks. By the subscription agreement, AMCON has become the owner of the three banks, and provided sufficient capital to restore them to the level of capital adequacy stipulated by the CBN.

    Thereafter, the lenders assumed all the assets and some of the liabilities of the defunct legacy banks based on a Purchase and Assumption Agreement with NDIC as statutory transferor of the said assets and liabilities. The liquidation was gazetted in accordance with the law, thus bringing the process to a close.

    The bridge banks recognised the enormous people issues they inherited. Most of them temporarily retained their legacy staff as directed by stakeholders by issuing them new employment offer letters with terms and conditions, which included a six-month probationary period.

     

    Job cuts

    However, to tackle effectively the legacy people issues that they met on ground, the bridged banks management carried out a rationalisation in response to a performance review which identified, among others, staff with low and unacceptable levels of performance.

    But the sacking spree did not just end in bridge banks. There were also large job cuts in Ecobank Nigeria, Access Bank, Union Bank, Diamond Bank, among others, as the lenders’drive for deposits deepened.

    Ecobank had, at a go, sacked 1,000 of its workforce. Majority of the disengaged staff were those that joined the bank after it took over the former Oceanic International Bank.

    A staff member of the bank, who spoke anonymously, confirmed that over 700 staff were affected by the rationalisation. The bank later said in a statement that it was giving opportunity to 600 of its non-core staff to become permanent employees. The lender said it has also recognised after careful review, the need to disengage staff and provide severance pay to those affected in agreement with the workers’ unions.

    The Managing Director of the Bank, Mr Jibril Aku, explained: “Our focus in the new enlarged Ecobank is to ensure a smooth integration of the two banks as soon as possible while working to improve the quality of service to our customers and our operational efficiency.”

    He said the bank understands that people are its key asset, and, therefore, have emphasised the need to reward its best performers, and open up new opportunities for talented, committed people to join it as permanent employees. He added that the bank is taking steps to ensure that all disengaged staff are treated fairly in line with industry practice.

    Director, Centre for Social Justice (CSJ), Eze Onyekpere, however, regretted that the regulators did not keep to the deadline. “Revoking licences of the banks about seven weeks to the expiration of the deadline is not only an abuse of powers, but clearly a vindictive action without precedence. Why did the CBN fix a deadline if it had no intention of respecting same?” he queried.

    In defence, a top CBN official said the regulator had to move in to revoke their licences when it was obvious that the lenders could not find a partner to merge with, stressing that a particular bank was losing an average of N10 billion every month.

     

    Benefits of CBN’s reform

    CBN Director of Communication, Ugochukwu Okoroafor, said rather than thinking of how much jobs have been lost because of the reforms, there is need for labour leaders to also look at the grave cost of not reforming the sector.

    He said countries, such as Greece, Iceland and Spain, decided not to reform, and that has cost the economies a lot. “The alternative for the reforms would have been a disaster. And we have seen a drastic reduction in non-performing loans due to the role of the Asset Management Corporation of Nigeria in the reforms,” he said.

    The apex bank’s spokesman said Nigeria has benefitted a lot from the reforms, adding that no depositor lost his money.

    He said there have been no new jobs because no new banks have been established.

    Corroborating Ugochukwu, a top CBN official, who craved anonymity, said the banking reforms were carried out without any bank failing, no depositor or creditor losing money and at minimal fiscal costs, as the banks themselves bore some of the costs.

    He said: “Capital adequacy ratios averaged more than 20 per cent and non-performing loans, which had soared, are back below five per cent.

    “Besides, banks have transformed from places merely buying government bonds and funding blue-chip companies to focusing on the middle part of the economy, where growth happens and jobs are created. The middle part of the economy involves industries, such as agriculture and manufacturing, which have long been neglected by lenders.

    “We also have low inflation rate. This is the first time in years since moderate inflation rate was achieved, as Nigeria recorded a 8.6 per cent (as at end February 2013) inflation rate in January.

    “There is also stability in the financial system, which provided macroeconomic stability through maintaining zero-tolerance for infractions in regulatory requirements on data or information reporting.

    The Bank’s Financial Stability Committee works closely with a reinvigorated Financial Services Regulation Coordinating Committee (FRSCC), which is an umbrella platform for the coordination of activities of the various regulators in the financial system. The bank and its stakeholders are become conscious of the institutional relationships and market interactions among the various sub-sectors in the financial sector and the need to integrate regulations.

    “In addition to these, external reserves have been inching up, hitting $49 billion in the first quarter of the year, 2013.

    “The naira exchange rate has also been able to stablise the naira. For two consecutive years, the naira averaged N157.42 to N159.20 (end of first quarter, 2013) against one US dollar.

    “Non-interest banking, which provides additional window and opportunity in form of new products and there are attempts to bring in some of the unbanked members of the society through financial inclusion.”

    He noted that the CBN has also intervened in the real sector (agriculture, aviation, manufacturing and power sectors); Nigeria’s macroeconomic indicators rose by more than six per cent this year and the country has a account surplus equivalent to about eight per cent of GDP and its debt-to-GDP ratio is less than 20 per cent.

    He also spoke about the improvement of the payment system, which culminated into the launch of the cash-less policy.

    The CBN official said: “To strengthen governance practices, eliminate perceived ambiguities in and align the code with current realities and global best practices, the bank implemented the Corporate Governance Project. The banking system relies on the effective operation of a range of integrity systems for keeping the institutions and their management honest and accountable.

    “It also introduced the Shared Services. This project is geared towards reducing costs by about 30 per cent over the next three years. It is meant to reduce costs in the industry through the sharing of data centres, infrastructure, Automated Teller Machines (ATMs), banking applications and power, among others.”

  • Industrial sector still in doldrums

    In the past, the industrial sector, especially the textile industry, was one of the highest employers of labour. The story has since changed as most industrial estates have been turned into worship and event centres. Despite government’s consistent pledge to revamp the sector, the operating environment remains unfriendly, reports TOBA AGBOOLA.

     

    IN the past few years, Nigeria’s development has been private sector-led.

    There is no doubt that the industrial sector is still underdeveloped, despite various reforms being implemented by the Federal Government, especially in the manufacturing sector.

    The unconducive environment, especially lack of infrastructure, such as power, is the biggest challenge to industrial growth.

    According to the data recently published by the National Bureau of Statistics (NBS), the industrial sector of the economy, which comprises petroleum and natural gas, solid minerals and manufacturing, contributed an average of 40 per cent to the Gross Domestic Product (GDP) between 2007 and 2012. Sadly, manufacturing sector, which should be the bedrock of industrialisation contributed less than five per cent to the pool, while oil and gas contributed 95 per cent.

    Similarly, 2011 GDP statistics of countries published by the International Monetary Fund (IMF) show that, while the industrial sector of emerging economies, such as China and India contributed about $3.4 trillion and $482 billion, to their GDP, the Nigerian industrial sector contributed a mere $122 billion, of which 95 per cent was from oil sector.

    It is an indication that the industrial sector is still grossly underdeveloped.

    The manufacturing segment remains a fundamental pillar upon which enduring economic growth and development are hinged.

    However, manufacturers find it difficult to operate at optimal capacity due to many economic and environmental challenges that have continued to hamper productivity.

    Operational difficulties include epileptic power supply; decreasing credit facilities from banks and other financial institutions; importation of fake and substandard products, as well as inconsistent and unfavourable government’s economic policies, among other issues adversely affecting the sector.

    All these impediments have prevented the sector from contributing substantially to the overall economic advancement of Nigeria.

    Also, a recent survey by the Lagos Chamber of Commerce and Industry (LCCI) through its Business Confidence Index (BCI) for the second quarter, showed that unless the Federal Government addressed some of its unfriendly business policies, the nation’s goal of reviving its industrial sector as well as enhancing bilateral trades remains a dream.

    Though the report showed a modest improvement of 16.5 per cent from the 10.5 per cent in the first quarter of 2013, the BCI scores for the two periods remain far below the 50 per cent global confidence threshold.

    According to the LCCI, some of the factors responsible for the slow-paced growth are that investors and business leaders are still wary because the state of the economy and the unfriendly business environment.

    Specifically, the BCI, which assessed the peculiar factors that impact domestic business outcomes in Nigeria in 14 sectors and 37 sub-sectors, showed a gloomy outlook for 2013, noting that the real sector growth is largely constrained by rising socioeconomic uncertainties.

    According to the research, the factors that weakened the index score include: poor access to credit, inhibitive tendencies of monitoring and regulatory agencies, sustained insecurity situation across the country, dwindling public power supply and budget approval/implementation crisis.

    The President, LCCI, Goodie Ibru, reiterated the need for the government to give due consideration to economic diversification, noting that recent developments in the global economy underscore such urgent need, as the risks of oil prices volatility are real.

    He said: “We are concerned about the weak impact of the growth performance on private sector and the welfare of the Nigerian people. Virtually all business segments lamented the harsh operating environment. The power situation deteriorated as we now have a relapse into a chronic power failure. The refineries are still underperforming; unemployment level is still high and cost of fund is still high.

    “The credit situation is still a major problem for investors in the economy. As in the previous quarters, lending rates were well above 20 per cent. Many small and medium scale enterprises still have serious challenge in accessing credit even at this high rate. The tight credit situation is a major inhibiting factor to the capacity of domestic enterprises to take advantage of the robust Nigerian market.

    “We reiterate our call for both fiscal and monetary authorities to work together to ease the credit conditions, especially for the small and medium scale enterprises and more importantly domestic businesses. This is critical as well to stem the gradual crowding out of domestic entrepreneurs by foreign investors.”

    He urged the government to create a conducive operating environment for investors, considering the involvement in economic transformation, inclusiveness of nationals in the growth process, job creation and general improvement in the welfare of Nigerians.

    At the Fourth Manufacturers Consultative Forum in Ikeja recently, the Chairman, MAN), Ikeja branch, Rev. Isaac Agoye, said the manufacturing sector was on the throes of death and would witness total collapse if the government continued to deny it the enabling environment.

    The chairman said many manufacturing industries have closed shop, adding that most of the company premises have been turned to worship centres while others have become event centres.

    He said the ever-busy industrial estates have become shadows of their past glories, lamenting that what the government at all levels keep saying indirectly is that they need more funds and the manufacturing sector must provide it without a commensurate provision of an enabling environment.

    “Our universities are churning out thousands of graduates without the hope of gainful employment. The level of abject poverty in the land has deepened, the degree of insecurity has become unprecedented simply because we have failed to bring the manufacturing sector out of the woods,” he said.

    He said a possible solution to the many questions about the country is for the manufacturing sector to be given the opportunity to thrive and live up to its bidding as a catalyst for employment generation.

    He further said there was the need for the government to urgently act in ways that would make the country attractive for investors.

    Agoye also criticised the Central Bank of Nigeria (CBN) over its practice of substituting naira for dollar–derived revenue, adding that this is responsible for the ever declining rate of the naira, as this framework translates to too much naira chasing relatively modest sums of dollars auctioned by the CBN every week.

    “We observe that the villain militating against our economic growth is the payment system in which the CBN captures national export dollar revenue and substitutes hundreds of billion of naira as monthly allocations to the three tiers of government.

    “We note the ever-present scourge of excess liquidity caused by CBN’s frontloading of naira in substitution for dollar revenue is also responsible for government’s accumulation of an unnecessary debt burden that attracts huge interest payments annually to predominantly the same bank that are the prime beneficiaries of the largesse of deposits of huge naira allocations every month,” he said.

    The President, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, (NACCIMA), Dr. Herber AJayi, canvassed an enabling environment for their operations, especially in power generation and security challenges to bolster the attainment of government’s development objectives.

    He urged the Federal Government to implement policies that would ease the business environment, especially policies that affect the Micro, Small and Medium Enterprises (MSMEs).

    The Director-General, Nigeria Employers Consultative Association (NECA), Dr Segun Oshinowo, also blamed dearth of infrastructure as one of the reasons for the poor business development in the country.

    He noted that the poor performance of business was as a result of the inability to access funds by members of the Organised Private Sector (OPS).

    According to him, another factor that negatively affected business is insecurity, which works against the private sector and the government’s goal of bringing more foreign investors into the country.

    “The security situation in the country affected both the local and discouraged many foreign investors from coming into the country, especially the northern part of the country. Federal Government must take drastic steps to arrest insecurity in the country and provide the necessary conducive business atmosphere.

    “There was no significant transformation in business environment in year 2012 because business and economic environment was typically characterised by upsides and downsides,” he said.

    Oshinowo said though last year and the first quarter of this year offered huge opportunities to investors, especially indigenous entrepreneurs, they were constrained by some challenges, which greatly affected the sector.

    He called on the Federal Government to create a conducive business environment.

    On a positive note, however, the country seems to be making modest achievements, especially in the manufacturing sector.

    For instance, the MAN reported that most of the variables for measuring the performance of the real sector have been on the upward swing.

    The report stated that the capacity utilisation of the sector was about 49 per cent compared to the 47.5 per cent average in 2011/2012, indicating that more companies are putting more resources to use in their factories than they did in previous years.

    It says the value of industrial production has also increased, though marginally, from N130 billion to almost N350 billion at the end of last year. New investments entered the sector and the firms like Dangote Group, Lafarge Cement WAPCO, De United Foods, Procter and Gamble as well as Guinness plc added more to their production lines, as well as built new factories, thereby creating additional industrial jobs.

    In his contribution, LCCI Director- General, Muda Yusuf, noted that the business and economic environment was typically characterised by upsides and downsides, but the latter seemed to have outweighed the former.

     

  • Protecting depositors’ funds from abuse

    The Central Bank of Nigeria (CBN) is taking extra measures to protect depositors’ funds in banks with Holding Company (HoldCo) structure. COLLINS NWEZE writes that the banking watchdog sees insider-related loan abuse as likely threat to the arrangement.

     

    SINCE the 2009 reform, there have been lots of activities in the banking sector. The activities include the

    overhaul of the risk management structures; adoption of 10-year tenure for bank chief executive officers; repeal of universal banking and the adoption of Holding Company (HoldCo) structure.

    HoldCo, a conglomerate formed for the purpose of holding controlling interest in several companies, enables a corporation to diversify its investments, manage other firms, and contribute to the growth of its subsidiaries in other sectors. Five banks have keyed into the HoldCo structure with four completing the process in November, last year. The banks that have adopted the HoldCo structure include FirstBank of Nigeria, Stanbic IBTC Bank, United Bank for Africa and First City Monument Bank. Union Bank is yet to complete the process.

    To curb excesses and insider abuses, the Central Bank of Nigeria (CBN) is watching closely the HoldCo structure. The CBN took the step to ensure that the lenders do not abuse lending privileges presented by the structure, which was introduced after the CBN set aside the universal banking regime in 2010 and gave banks the option to either divest all their non-banking subsidiaries and become pure commercial banks or form a HoldCo.

    The banks’compliance with CBN’s regulation on the Scope of Banking Activities & Ancillary Matters, No. 3, 2010 requiring the separation of commercial banking business from other financial services businesses led to the establishment of HoldCo.

    CBN Governor Sanusi Lamido confirmed during this year’s Renaissance Capital Investors’ Forum in Lagos that banks are restricted from lending to their HoldCos to protect shareholders’ funds from insider abuse. Any bank that violates the rule, he said, would have the loaned funds deducted from its shareholders’ funds as return capital.

    The thinking is that although the regulator has under the Bank and Other Financial Institutions Act (BOFIA) mandated the banks to adopt the structure, there is also need to monitor their operations to forestall abuse. The HoldCo structure allows commercial banks to be properly ring-fenced from the other non-commercial banking activities.

    CBN Director, Banking Supervision Mrs. Tokunbo Martins said should the HoldCos breach single obligor limits without the prior approval of the CBN, such loans would be regarded as impairment to capital, or deducted from the lender’s capital base.

    She said for the purpose of credit transactions, the rule covers banks’ related parties, listed as financial holding company (FHC), and other subsidiaries within the HoldCo structure.

    Also, credit transactions by the bank within the group would be treated as FHC lending to a bank within its group. Also, the bank should treat the loan as a liability, but credit by a bank to its FHC would be regarded as a return of capital and deducted from the capital of the bank in computing its capital adequacy.

    However, bank lending to subsidiaries within its group, especially where the credit is fully secured, would be assigned a risk weight of 100 per cent, otherwise it would be deducted from the capital when computing capital adequacy.

     

    What HoldCo entails

    The HoldCo, which will have a separate board, will own the bank and its subsidiaries as separate and independent entities, reporting directly to the board of the HoldCo. While some banks opted out of this structure for reasons favourable to them, few others believe it is the best way to go in their business while adding value to new and existing shareholders.

    According to the CBN, the review of risk weights assigned to some identified exposures is without prejudice to the risk management control functions put in place by banks to mitigate credit concentration risks. It is also in line with its risk-based supervisory agenda.

    Martins said the recent crisis in the banking industry highlighted several weaknesses in the system, key of which was the excessive concentration of credit in the asset portfolios of banks.

     

    Challenges before HoldCos

    The HoldCo structure adopted by some banks will face adverse tax implications, especially, excess dividend tax, tax experts have warned. Taiwo Oyedele, a chartered accountant, said based on the tax law, where the dividend paid by a company is higher than its taxable profit, the excess dividend will be subjected to 30 per cent tax.

    He explained that should a HoldCo receive dividend from its bank subsidiary, and then redistributes the dividend, it will be subjected to 30 per cent excess dividend tax, not withstanding that the subsidiary that earned the profit had paid 30 per cent income tax. Also, withholding tax at 10 per cent is always deducted before distributing the profit to the HoldCo. He said banks had previously faced the similar challenges under the universal banking model on their exempt income.

    “Where tax exempt income has been excluded from the determination of taxable profit, but forms part of the distributable profit available for dividend, this will result in the dividend paid being higher than the taxable profit,” he said. Oyedele said the problem will become more pronounced under the HoldCo structure since there will be at least one company between the bank and the shareholders.

    Also, the Managing Director, Partnership Investment Company Plc, Victor Ogiemwonyi, said banks that have adopted the HoldCo structure will have to contend with the burden of double taxation.

    Ogiemwonyi, who is also a Member of Council, the Nigeria Stock Exchange (NSE), said subsidiaries of banks that adopted the structure have to pay taxes as well as the quoted company. He said aside the challenge of taxation, the structure is in the interest of stakeholders. He said the HoldCo structure will increase earnings for investors and is also in line with the CBN’s policy boost transparency and accountability.

    But the management of FBN Holdings Plc has said the tax challenge has been handled. Its Chief Executive Officer, Mr Bello Maccido, said the HoldCos, at inception, faced a major concern over possible interpretation of tax statutes that would lead to the double taxation of dividends. There was also concern about the magnitude of transaction costs that would be incurred by the banks in responding to the change in regulations.

    “It was, therefore, necessary for HoldCos to seek mitigation of some of these costs through waivers and concessions from the regulatory authorities. It was very clear that without government’s intervention, the companies would have faced possible challenges in this regard,” he said.

    Maccido said the Financial Services Regulation Coordinating Committee (FSRCC) has created the platform for the HoldCos to table their tax and transaction costs problems to regulators and supported the idea of creating an industry working group.

    He said the Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, in concert with the Federal Inland Revenue Service (FIRS) team was instrumental to ensuring that the tax issues were heard and resolved in good time to meet the CBN deadline.

    He noted that the Securities & Exchange Commission, NSE and Central Securities Clearing System (CSCS) were receptive to discussions on ‘reduction of transaction costs’ for bank holding companies.

    Experts said the tax statutes, as at 2010, did not contain specific provisions for taxation of pure non-operating holding companies as envisaged by CBN. The tax issues that came up for discussion include: Avoidance of Double Taxation on Dividends Received by the companies, Minimum Tax, and Administration of Withholding Tax (WHT).

    However, a Council Member of Chartered Institute of Taxation of Nigeria (CITN), Ayodele Otitoju, said any tax resolution that does not involve the institute is not backed by law. He said taxation is legal and any action taken against its statutes will not stand.

    “The CITN should be party to that resolution. Any tax deduction not backed by law remains an illegal deduction and can be addressed in court. Any change to tax law should pass through the legislative process,” he said.

    However, Chukwuemeka Eze, a tax expert and lawyer, said taxing dividend from HoldCos amounts to overkill. He said it is only when the dividend is reinvested or transmitted into further ventures that it should be taxed. “The dividend can only be taxed if it is reinvested at a second venture; otherwise, it amounts to double taxation. The position of the law is that it is only when the money is reinvested, that it should be subjected to further taxation,” he said.

    Besides the taxation, analysts said managers in HoldCos also face other challenges. A banking analyst, Equity Research, at Renaissance Capital (RenCap), Adesoji Solanke, said as expected under this type of evolution, there is a lot of value moving around. However, he said it was too early to determine the extent to which value would be lost or created under this new structure, or the degree to which the need for new capital becomes more apparent or diminished post-deal.

    He said there were some challenges expected as the banks adopted new structures. For instance, since the HoldCo likely has a controlling interest in several corporations, he said management might have limited knowledge in the industry, operations and investment decisions of the controlled company. Such limitations, he said, might result in ineffective decision-making.

    Sylvester Okafor, a business Executive at Rockview Financial Services Limited, said there could also be a problem with a change of control. He said: “With a new reporting structure in place, former management reports to a larger group of shareholders and new board of directors even as it protects the interests of the subsidiary’s shareholders. Therefore, competing interests between management might result in contention and poor decision-making, which can negatively affect share prices,” he said.

    Okafor said minority shareholders might also face challenges with HoldCos, because while the HoldCos pay taxes on profits from their subsidiary companies, shareholders pay taxes on dividends received from them.

    He explained that with a new controlling shareholder, minority shareholders must pay more to maintain their previous shareholding and replace the directors. This change of control may cause contention between the shareholders and the HoldCos.

    “Additionally, many of the holding company’s investments may have unprofitable assets or business lines. If the holding company engages in similar industry sectors, management may face systemic risk, or conversely if the company is engaged in different industry sectors, the holding company may fall susceptible to several volatile market changes that make it difficult to mitigate risk. This can result in residual losses that the holding company may not have envisioned before purchasing the corporations,” he said.

     

    Which banks are involved?

    Already, five banks have keyed into HoldCo structure with four completing the restructuring as at last November. Already, FirstBank of Nigeria, Stanbic IBTC Bank, United Bank for Africa and First City Monument Bank have adopted the HoldCo sructure. But Union Bank is yet to complete the process.

    FBN Holdings has been listed on the NSE after delisting FirstBank of Nigeria Plc, transferring its shares to FBN Holdings. FBN Holdings comprises FirstBank of Nigeria Limited, FBN Capital Limited, FBN Life Assurance Limited, FBN Insurance Brokers Limited and FBN Microfinance Bank. FBN Holdings, the new entity, is organised along four major business groups, including commercial banking, investment banking and asset management, insurance and other financial services.

    The Managing Director, FirstBank of Nigeria Limited, Bisi Onasanya, said the new structure will present a better deal for its shareholders, especially as they got equal proportion of their shares in the FBN Holdings. He said the bank has off-loaded First Registrars and some other subsidiaries, while existing subsidiaries, including FirstBank, have become a subsidiary of the FirstBank of Nigeria Holdings (FBNH).

    Onasanya said the new structure would enhance its competitiveness, streamline operations across non-bank financial services and exploit opportunities for synergies among the subsidiaries.

    According to him, there is also the need to align and cluster similar or overlapping businesses under four broad business groups namely Commercial Banking, Investment Banking & Asset Management (IBAM), Insurance and Other Financial Services.

    Onasanya said under the new structure, existing shareholders of FirstBank have been migrated to FBN Holdings via a share-for-share exchange between the shareholders of FirstBank and FBN Holdings.

    Also, FirstBank’s shareholdings in each of the HoldCo subsidiaries and the associated investments have been transferred to FBN Holdings while FirstBank’s shareholdings in each of the IBAM subsidiaries have been transferred to FBN Capital Limited, also owned by FBN Holdings. However, the restructuring will not alter the beneficial shareholding structure of the FBN Group, but it would enable it to grow its franchise both within and outside its borders.

    The Stanbic IBTC Bank has also completed its transformation into a HoldCo structure with the delisting of the bank’s shares and listing of the shares of the newly formed Stanbic IBTC Holdings Plc on the NSE.

    Before this decision, Stanbic IBTC Bank had struggled all through this year, its worst in recent times. The bank opened with year-to-date negative return of 11.45 per cent as at November 22, 2012. Although Stanbic IBTC Holdings’ listing market capitalisation of N130.3 billion fell short of Stanbic IBTC Bank’s closing value of N137.81 billion, the HoldCo structure could form a major springboard for significant capital appreciation in the period ahead.

    Analysts said subsequent capital gains could impact on underlying values of shareholders, who had benefitted through the share restructuring process. Chief Executive Officer, Stanbic IBTC Holdings, Mrs. Sola David-Borha, said the HoldCo would consolidate the strengths and expertise of different business unit and enhance the group’s ability to drive future growth.

    “The HoldCo would guarantee significant benefits to shareholders, employees and customers. Under the new structure, Stanbic IBTC will be averaging the global network of Standard Bank Group, Africa’s biggest banking group in terms of assets and earnings, to which Stanbic IBTC belongs,” she said.

    David-Borha also said HoldCo structure is consistent with the group-wide approach of the Standard Bank Group, which would allow the various subsidiaries to call on the group-wide expertise of the parent model.

    She noted that the HoldCo would ensure that the commercial banks retail depositors were not exposed to the risks associated with the non-banking activities of others in the group, and that customers of Stanbic IBTC and its subsidiaries would continue to enjoy the services provided through the other subsidiaries by keeping existing lines of business, “and so the employee base would not be affected adversely.”

    The Managing Director, United Bank for Africa, Phillips Oduoza, said given the bank’s exponential growth and investments across Africa, it was beginning to derive significant values from these investments hence the decision to have a HoldCo. That decision, he said, would keep its entire bank and non-bank subsidiaries in the group.

    Under the new structure, a non-operating company to be listed and known as UBA Holdings Plc, would become the parent company of three intermediate holding companies namely; United Bank for Africa Plc, UBA Africa Holdings Limited and UBA Capital Holdings Limited.

    The UBA, holds the Nigerian commercial banking businesses, including the bank’s branch in New York, UBA Pensions Custodian and UBA FX Mart; UBA Africa Holdings Limited holds and oversees all the African commercial banking businesses, excluding Nigeria, while UBA Capital Holdings Limited holds all the group’s investments in non-commercial banking businesses.

    Chairman, FCMB, Jonathan Long, said the decision to form a holding company was in line with CBN’s directive to banks to separate the non-banking subsidiaries from commercial banking. He added that the bank decided to adpot this arrangement, so that the non-banking businesses within a holding company would deliver and unlock value to the shareholders.

    He said the new arrangement would see the migration of shareholders of FCMB to the Holdco, via a share for share exchange, sale of other disposable subsidiaries and transfer of permissible non-banking subsidiaries and investments from the bank to the Holdco.

    According to him, the companies that would be transferred to HoldCo include: FCMB Capital Markets Limited, CSL Stockbrokers Limited, CSL Trustee Limited, First City Assets Management Limited, Legacy Pension Managers Limited and the bank’s investments in Samba and Kili Private Equity funds (managed by Helios Investment Partners).

    The Group Managing Director, FCMB, Ladi Balogun, said the arrangement was done in such a way that it would benefit the shareholders, stating that they should continue to support the bank in its efforts to deliver high returns.

     

     

    Shareholders’ views

    The Co-ordinator, Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, said the HoldCo structure remains a good arrangement, especially it is what the CBN wants. He said the shareholders have no choice because they cannot go against the will of the regulator, but can only watch to see how the structure pays off.

    “I don’t have any problem with the structure once there is food on my table. We have embraced the structure provided our dividends are paid and corporate governance is adhered to,” he said. He said in running the HoldCos, banks are not expected to go against the Bank and Other Financial Institutions (BOFIA) Act.

    The National Co-ordinator of Nigerian Shareholders Solidarity Association (NSSA) Sir Sunny Nwosu said the structure will protect shareholders’ value and lead to increased capital market valuations.

    Also, Farouk Umar, president, Association for the Advancement of the Rights of Nigerian Shareholders (AARN), said the restructuring will result in greater value and provide each entity with easier access to long term capital to finance growth.

     

  • Long road to quality service

    Long road to quality service

    It is an agony subscribers go through almost daily. They dial and dial without success. When they eventually get through, they can hardly make clear conversations. The line is full of static, making conversation difficult. This is the kind of service subscribers have been putting up with since the coming of the global system of communication in 2001. LUCAS AJANAKU writes.

     

    George Edet, a 37-year-old petroleum engineer, had a bitter experience recently with his mobile telephone service provider. He had bought a N1000 recharge card. After several futile attempts, he finally succeeded in loading the air time. After scaling that, he was faced with another hurdle, making calls to his family in Akwa Ibom State. “I needed to talk to my mummy in Uyo, concerning final plans for my wedding. My fiancee and I had earlier met with the head, Marriage Counselling Unit of our church the previous day and we had been advised to cut down some of the frivolous items on the list sent by the family of my fiancee. Mummy already had a copy, which she was going to act upon. So, I needed to stop her. But all my efforts were futile. It was either my service provider said: “The number you have dialled is incorrect, check the number and dial again” or it simply said: “The number you have called is not assigned to any customer,” Edet lamented.

    For Richard Adeyeye, Chief Executive Officer (CEO), Richbrands Limited, his problem was that he had to contend with incessant drop calls. A resident of New London in Baruwa, a Lagos suburb, each time his phone rings, he is reluctant to pick the call because he is sure that the conversation will snap in less than one minute after picking the call.

    “The quality of service has become so worrisome. Given of the nature of my business, I depend on my mobile phone to get across to my clients. But my experience has been most unpalatable. When a call comes in and I pick it, no sooner had the conversation begun than it snaps. When I also make a call, after the initial ‘hello’ that precedes conversation, the other person stops hearing what I am saying or I stop hearing what he is saying. This has compelled me to have three mobile phones,” Adeyeye lamented.

    In this era of universal licences, which allow operators to also do data services on their networks, it is not only voice calls that are affected by low quality of service, data is also affected as subscribers rarely get the speed and bandwidth promised by the service providers. Most times, the subscriber who has already signed up to either a monthly or weekly data bundle plan hardly enjoys it. Since it is mostly prepaid, whatever happens to the subscriber after payment becomes his/her burden, even when it is due to the operator’s inefficiency.

    These are just some of the pains the 113 million telephone subscribers in Nigeria pass through daily as they try to connect to business associates, family members, friends and even call for help in times of difficulty.

    A former Minister of State for Communications, Ibrahim Dasuki Nakande, aptly captured the feelings of subscribers when he said: “The spate at which the challenge of quality is going is becoming fraudulent. Calls are generated, but not finished and charges are made. We will no longer allow the challenge of the power sector as an excuse.”

    Stakeholders in the telecoms sector, argue that the Nigerian Communications Commission (NCC), which is the regulator, the Association of Licensed Telecoms Operators of Nigeria (ALTON),the Association of Telecoms Companies of Nigeria (ATCON) and the National Association of Telecoms Subscribers (NATCOMS) all agree that the level of services in the sector leaves much to be desired.

    But while the operators, comprising the global system for mobile (GSM) communication operators – Airtel, MTN, Globacom and Etisalat, with their counterpart in the Code Division Multpile Access (CDMA) sector, Starcomms and Visafone, have consistently blamed factors, such as vandalism, theft of generators at mobile phone Base Transmission Stations (BTS), extortion by officials of the three tiers of government, bureaucratic bottleneck in acquring approval to build BTS and the protracted issue of the grant of Right-of-Way (RoW), the regulator and the subscribers have insisted that what is required are the networks of the burdens of promotions and lotteries and massive investment in infrastructure, especially BTS, to make the networks more resilient.

    Executive Vice Chairman/Chief Executive Officer, NCC, said operators would need to invest massively on bakchaul infrastructure. According to him, it is the absence of this that is responsible for the low quality of telecoms services in the country.

    He said the telecoms facilities were grossly inadequate to cope with the increasing demand since the subscribers could make more calls as a result of lower tarriffs.

    “The subscribers demanded that the prices should come down and NCC did not force prices down. I have always said competition will force price to come down.

    “So, having forced down prices, more people are making calls. The demand on the network has been increased. So, people get drop calls in one way or the other because of congestion. It can only be solved by extra investment in the network. It is not an overnight issue. You cannot improve quality of service without investing more in the network. You have to build new base stations. You have to build new transmission facilities to carry calls. You have to also build new switching centres,” he insisted.

    Deolu Ogunbanjo, president, NATCOMS, agreed with the Juwah. According to him, promotions and lotteries designed to acquire more customers unwittingly congest the networks and compromise service quality. He therefore advised the regulator not to rescind its decision banning promos and lotteries on the network since the ban has not even translated to any appreciable stability in service quality.

    Ogunbanjo said operators must keep building network infrastructure. He also wants the NCC to stop issuing new subscriber identity module (SIM) number range, arguing that the SIM number range already in circulation has not been exhausted by the operators.

    Chief Executive Officer, Teledon Group, Emmanuel Ekuwem, also agreed with the infrastructure deficit issue. He said the operators were not ‘ploughing back’ enough of the gains they make in the country to grow the network. “The problem is lack of capacity. The operators should invest in building additional capacity,” Ekuwem, who is also past president, ATCON, suggested.

    The Chief Operating Officer, Phase3 Telecom (a telecom infrastructure firm),Olusola Teniola, said the number of BTS in the country was inadequate to meet the demands of subscribers. He called for investment in providing infrastructure rollout, adding that the Federal Government support was vital to achieve high quality services in the sector.

    ALTON Chairman, Gbenga Adebayo, who argued that the service quality woes were not the fault of the operators agreed no less with the others. According to him, if telecoms companies are to meet the service quality mandates of the regulator, operators will have to deploy additional 50, 000 BTS across the country.

    Nigeria is a huge country in terms of population and total land mass. With a population estimated at 167 million and subscribers’ base standing at 113 million, it is certainly not realistic that about 18 BTS will support the telecoms sector.

    According to the 2011 census, the total population of the United Kingdom (UK) is around 63,182,000 while there were approximately 52,500 mobile phone base station sites in the UK at the end of 2011.

    Adebayo said there were a little over 20,000 BTS sites in Nigeria serving a population of over 150 million people as at the end of year 2011.

    “In comparison, there were approximately 55,000 BTS sites in the UK at the end of 2011 serving a population of just over 60 million people. The latter figure could rise in years to come,” he said.

    Adebayo, whose opinion is fairly representative of that of the operators, lamented that efforts by operators to invest in BTS rollouts to ensure improved service quality is being frustrated by agencies of federal, state and local governments.

    He said one of the factors impeding quick rollout of BTS, which was critical to quality telecoms services, was the delay by the relevant authorities in approving the site building proposals for the operators, thus preventing them from achieving the number of BTS the country needed to guarantee better service.

    “Multiple taxation and regulation by myriad of Ministries, Departments and Agencies of the Federal, State and Local Governments increase considerably the lead time to roll out and costs of deploying such infrastructure.

    “Theft, vandalism and sabotage of network equipment, etc impede our capacity to carry out timely equipment upgrades contributing to protracted site deployment timelines,” he said.

    Mrs Omobola Johnson, Communications Technology minister, is not happy about the unending issues with telecoms service quality in the country. She said the Federal Government was working with the relevant agencies to ensure that certain bottlenecks militating against roll out of infrastructure were tackled.

    Corporate Services Executive, MTN, Akinwale Goodluck, confirmed that given the economic situation in the country, building a base station would cost a telecoms firm about $200,000.

    “In the reality, an operator will invest an average of $200,000 and $250,000 to build a base station, depending on the terrain,” he said.

    Etisalat Nigeria CEO, Steven Evans, also confirmed the huge cost of building a BTS.

    “The cost of building base stations from the time you secure the land where you want to install the BTS and the time it goes live is around $250,000,” he said.

    Goodluck, who is also the Vice Chairman, ALTON, said the BTS lost by the operators to the raft of senseless bombings and floodings also took a toll on service quality.While the operators have succeeded in restoring some of the BTS lost to flooding, the same could not be said of those lost to bombings in the Northeast part of the country.

    Airtel CEO, Segun Ogunsanya, corroborates this. According to him, Airtel has restored all the BTS lost to flooding in the Niger Delta while the volatile security situation in parts of the north has made it impossible to deploy engineers to the area for any restoration effort.

    The customer, it is often said, is king. Operators must, therefore, rise up to the occasion and offer seamless, hitch-free telecoms services to the subscribers.