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Columnists

AfDB’s debarring of 4 Nigerian companies: Consequences and effects

The effects of this sanction are far-reaching, either long term or short term.

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e-Learning Platform, Africa Development Bank. AfDB develops Index to aid women empowerment , African Development Bank awards $1.1 million to boost food production in Africa , AFDB increases capital to $208 billion in bid to secure Africa’s future , African Investment Forum: AfDB eye $67 billion deals , ECOWAS backs Adewunmi Adesina’s re-election as AfDB election nears , AfDB bows to pressure from U.S., orders an independent probe of Akinwumi Adesina, Fitch rating agency affirms AfDB's AAA rating with stable outlook, Digital Nigeria e-Learning Platform registers 16,000 users in 24 hours - African Development Bank

Background

The African Development Bank Group announced its decision to debar four Nigerian companies duly registered for 24months as a result of fraudulent practices. This shocking revelation was made by AfDB’s Communications and External Relations Department on Thursday in Abuja. It revealed that the companies were Sangtech International Services Limited, Sangar & Associates (Nigeria) Limited, Mashad Integrated and Investment Co. Limited, and Medniza Global Merchants Limited.

This decision was implemented following an investigation that was conducted by  AfDB’s Office of Integrity and Anti-corruption to the effect that the affected companies were found to have been engaging in fraudulent and collusive practices. It was discovered that these fraudulent practices occurred when there was a tender for supply of water meter, automatic meters as well as house connection materials which were to be used under the Zaria Water Supply Expansion and Sanitation Project in Nigeria which apparently were co-financed by the African Development Fund which is an entity of the African Development Bank Group.

READ: AfDB bans 4 Nigerian companies for engaging in fraudulent and deceitful practices

Current situation

Right now, Sangtech International Services Limited, Sangar & Associates (Nigeria) Limited, Mashad Integrated and Investment Co. Limited and Medniza Global Merchants Limited have been sanctioned by AfDB to the effect that they will not be qualified for any bank-financed projects during the duration of the debarment. This debarment is to last for twenty-four (24)months during which other development banks that are under the Agreement for Mutual Recognition of Debarment Decisions can also cross debarr; banks which include the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank as well as the World Bank Group.

READ: World Bank’s statement on Africa’s debt status is inaccurate, misleading, AfDB replies

Grounds for legality

On this, the African Development Bank Group explicitly frowns on corruption, fraud and other sanctionable conduct or practices and views them as deterrents in achieving its mandate. AfDB’s focus on putting a stop to these questionable practices has resulted in adopting proactive approaches which include setting up the Integrity and Anti-Corruption Department( IACD) whose responsibilities involve risk assessments, sensitization programmes tasked with trying to prevent fraudulent activities that may arise in operations and procurement incidents within the African Development Bank Group.

The IACD has an overriding mandate to independently embark on investigations of allegations of corruption, fraud and other sanctionable practices that have occurred during the Bank Group’s Financed Operations. Surveillance measures are also encouraged during the investigations.

READ: S&P Global affirms AfDB’s AAA rating, projects stable outlook

Consequences

The effects of this sanction are far-reaching, either long term or short term, the end result is the same. The African Development Bank Group and  IACD have not stated in very clear terms what constitutes the fraud. And this was not explicitly stated during the announcement of the debarment. However, this does not mitigate the sanction one bit, as the effects extend beyond the duration of 24 months.

The four affected Nigerian companies affected will undergo difficulties in operations and getting awarded contracts. This is so as the credibility of the companies have been called into question. Furthermore, the companies have no way of defending themselves or their actions before a court of law or legally constituted hearing. A public apology by the companies in question will do more harm to the integrity of the companies and is not an option to consider, in which case, the companies have been blacklisted and there is an unspoken word out not to conduct business with the companies. This, the companies will continue to suffer for many months to come even after the sanction is over and extend to years. Whether other development banks act on this remains to be seen but this incident will constitute a major roadblock in the affected companies getting the chance of working in financed operations, irrespective of the bank in question.

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Conclusion

This is why companies are advised to carefully acquaint themselves with the Bank Group’s guidelines and adhere strictly to avoid getting involved in fraudulent and corrupt practices and facing sanctions that damage the company’s integrity.

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Chacha Wabara-Ogbobine is a Legal practitioner with over 9years post call experience. A research Consultant, professional writer and a blogger at heart,owner of four thriving websites with well over 10years of experience.Totally in love with keeping fit and coaching weight loss enthusiasts. I love my quiet time, being with my kids, watching TV series for hours on end.

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Columnists

Central Bank of Nigeria; resuscitating an ailing economy

Since the emergence of the novel coronavirus, the monetary authority has continued to introduce measures to support economic recovery.

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Banks' stakeholders express 4 main concerns bothering the sector right now, CBN, MARKET UPDATE: CBN’s historic agriculture lending; Is it yielding the desired results? 

Recently, the financial policy and regulation department of the Central Bank of Nigeria (CBN), in a circular announced the extension of the regulatory forbearance on its intervention facilities to Institutions impacted by the dampening economic effect of the lingering coronavirus pandemic for an additional year.

Though the country has exited recession according to the latest GDP report, the beneficiaries of these facilities still require regulatory support to completely get back to business before assuming the burden of servicing those facilities.

Earlier in 2020, the CBN had given the initial forbearance following the complete stall in economic activities brought about by the need to community transmission following the emergence of the coronavirus pandemic is nipped in the bud.

Consequently, the interest on the facilities was revised from 9.0% to 5.0%, with a one-year moratorium given on all principal repayments from 01 March 2020. Following the expiration of this forbearance, the CBN has announced the extension for another 12 months of the discounted interest rates for the CBN facilities. However, the rollover of the moratorium on these facilities will be considered on a case by case basis.

Since the emergence of the novel coronavirus, the monetary authority has continued to introduce measures to support economic recovery. The Bank has continued to extend support to industries that were hit by the negative effect of the coronavirus through the Anchor Borrowers’ Programme (ABP) Commodity Association, Private/Prime Anchors, State Governments, Maize Aggregation Scheme (MAS), and the Commercial Agricultural Credit Scheme (CACS), among others.

Yesterday, the CBN considering the impact of the economic frailties on the Nigerian poultries value chain and industries, released 50,000mtn of maize to cushion shortage of supply. Consequently, the price per metric tonne of maize has dropped to N180,000/metric tonne from N200,000/metric tonne, with an expectation that it would further plunge.

We acknowledge that farming activities have been significantly affected in 2020 due to covid-19 movement restrictions during the planting season as well as abnormal rainfall patterns which led to flooding of farmlands and the farmers/herders clashes which remain a significant threat to agricultural productivity.

These unfortunate events have led to a spike in food prices reflected in the food inflation rate of 20.57% in January 2021, according to the National Bureau of Statistics (NBS). Thus, we consider the provision of reliefs for farmers important to restore farming activities and output level back to pre-covid levels.

While we welcome these interventions given Nigeria’s current precarious economic situation, and how it has burdened businesses, we are of the view that the government needs to also keep an eye on resolving long-standing structural bottlenecks to truly maximise the full potential of Nigerian businesses.


CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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Columnists

Why NNPC should be commercialised

A commercialized NNPC with more committed employees would mean better accountability and transparency in its operations.

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NNPC reports explosion at OML 40 facility

The Nigerian government is seeking efficient ways of positioning the country on its path to recovery and the petroleum industry which contributes about 90% of its exchange earnings would undoubtedly be critical on this journey.

The long-awaited Petroleum Industry Bill (PIB) which seeks to regulate the entire Nigerian Petroleum Industry and repeal a host of existing legislation is paramount in transforming the industry and introducing more efficiency particularly in its government-owned parastatals. The PIB has gained more traction in the current administration and is now awaiting deliberations by legislators.

A key highlight of the PIB is commercializing the State-run behemoth, Nigerian National Petroleum Corporation (NNPC). This move would see the NNPC incorporated as a Limited Liability Company and be known as NNPC Limited. This company would conduct its affairs on a commercial basis without resorting to using government funds.

While this might seem like a bold move by the government, it still should not come off as a surprise…

Owing to the fall in crude oil prices from over $100/barrel to below $50/barrel levels in 2020, Nigeria’s exciting story with crude oil slowed down but has picked up in recent months. The country’s heavy dependence on the volatile crude oil market and its ineptitude in diversifying during its “oil-rich” days have now thrown its growth story in jeopardy. The once 3rd-fastest growing economy with foreign reserves in excess of $40bn now wallows in rising inflation complemented and a weakened currency.

Why do we need to commercialize NNPC?

A core theme with a number of government-owned parastatals is the plague of inefficiency and obscurity in the way they are run. To give an idea of the NNPC’s lack of transparency, the corporation only published the group’s audited financial statements for the first time in its 43 years of operation in 2020. It’ll be right to commend this administration is pushing for transparency but you can go on to imagine what went on during those opaque years of operation.

As expected, the results were not impressive. The corporation reported a recurring loss, albeit 70% lower in 2019. The significant reduction in losses may prove the government’s will in improving the operations of the NNPC, however, comments on the report noted that “material uncertainty exists that may cast significant doubt on the Group and Corporation’s ability to continue as a going concern.”

Moving down to the State-owned refineries with a combined capacity of 445,000 bpd, capacity utilization well below 20%, and recurring annual losses in excess of ₦150bn, we can agree that the condition of these refineries is utterly worrisome. Despite the government’s annual budget for Turn Around Maintenance of these refineries, they have now been shut down with plans to undergo a Build, Operate, and Transfer (BOT) model.

Chief among the NNPC’s problems is corruption. A number of investigative reports have explained how subsidy payments, domestic crude allocation, revenue retention practices, and oil-for-product swap agreements are smeared with corruption. The Senate has initiated countless probes and new management seeking transparency has been introduced by the President, however, it just seems like the rot has eaten too deep into the system.

What does commercializing NNPC mean for the country?

The government-managed NNPC has proved to be inefficient and riddled with corruption. A commercialized NNPC with more committed employees would mean better accountability and transparency in its operations. The possible introduction of more shareholders would strengthen the amount of funding available to the NNPC and further shift the burden of being the sole-financier away from the government.

Exploring an NNPC IPO

An Initial Public Offering (IPO) would see the NNPC’s shares traded on Stock Exchanges and position the corporation to raise much more funding, build trust and endear to the international community. While this might seem like a daunting task, Nigeria can perhaps take a cue from Saudi Arabia whose National Oil corporation; Saudi Aramco began raising capital for its IPO in December 2019.

The Saudi Crown Prince; Muhammad bin Salman (MBS) announced a valuation of $2trn enticing the world’s largest investment banks, appointed a new set of leaders on the board of the corporation, and executed a highly engaging local marketing strategy. Although the valuation figure was brought down to $1.5 – $1.7 trillion by financial advisors, Saudi Aramco successfully achieved its IPO raising nearly $26 billion for 1.5% of Aramco’s value.

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NNPC’s fundamentals might not support an IPO currently as investors might be wary of the high level of risks involved but we can’t deny the immense opportunities an IPO would present not just for NNPC’s transparency and performance but Nigeria’s economic reform.

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In Conclusion

The recurring performance of the corporation with several corruption allegations, inefficiency, and unclarity is indeed worrisome. It is time to have the NNPC turn over a new leaf and operate on a commercial basis. This would afford the government the ability to deploy funds into other segments of the economy and have the NNPC focus on being a commercially viable entity.

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