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Columnists

Nigeria’s biggest oligopolies: Who are the real beneficiaries?

Backward Integration policies have only worked to help a few people boost their already fat pockets.

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Dangote reiterates stance on job creation 

First came Sugar… then Cement… now, petroleum refining. The cycle of seeking protectionist Backward Integration Policies to protect a few players in limited industries keeps repeating itself. Only in this case, what should strengthen our collective economy is protecting a few big businesses and shutting out others, therefore holding Nigerians to ransom.

Let us say it as it is: We have seen this before, with all sorts of ventures in various sectors. One of Nigeria’s biggest businessmen sets out to enter a new industry in a big way. Government pulls out all the stops to support the actualization of that dream with several incentives because presumably, “it will support the economy and make the products/commodity more accessible and affordable.”

What has always happened next is that the government-backed backward integration plan is championed by this same player who is almost always a first mover in the private sector. What follows is a systemic closure of the operating space to others starts to occur, amid as well as a gradual increase in price. This is despite local production of a said commodity going up. Why then does Nigeria keep granting such policies to favor a few despite the benefits not trickling down as promised? Have these so-called backward integration programmes ever helped or done so sustainably?

Let us take a look at the Nigerian Sugar Industry – a glaring example of the success and failures of a protectionist Backward Integration Policy (BIP). Twenty years ago, during the then President Olusegun Obasanjo-led administration, the Backward Integration Policy of the Nigerian Sugar Industry was championed to ensure that the “big three” Sugar refineries – Dangote, BUA, and Flour Mills developed sugar plantations and were able to use homegrown sugar to substitute imported raw sugar. This was intended to bring down the price of locally available sugar as well as deepen the Nigerian sugar industry. Has it worked so far? Is sugar cheaper? Is the market more accessible for smaller players?

Twenty years ago, Dangote Group took over Savannah Sugar after acquiring it in the privatization process. How have they fared? Many suggest Savannah Sugar may be poorer for it. Asides from marginal investments in new sugar fields, nothing else appears to have been done. To date, the plantation has received no major upgrade and still cannot produce white sugar because it has no sugar refinery on site. About five years later, Flour mills of Nigeria, producers of the Golden Sugar brand, took over their own Sunti BIP site. Despite receiving over a 40billion Naira in FG intervention funds, their Sunti backward integration site still cannot produce edible sugar and only has a sugar mill similar to the one at the Dangote’s Savannah Plantation. The third producer, BUA is hardly any different. BUA took over its own Lafiagi site 10 years ago and didn’t start on time in developing the site. They claimed it was due to the government not handing over the land and associated infrastructure till 2014. Till date, work on their Sugar refinery and ethanol plant on-site in addition to its plantation is still some way behind – just like the Dangote and Flour Mills, on delivering on their agreed BIP deliverables. Which serious companies take one to two decades to put the right things in place?

What has this led to? Prices of sugar have grown astronomically since the BIP programme started, even hitting NGN25,000 per bag during the COVID pandemic. It took a public outcry and the intervention of the government for prices to be reduced. Word on the street is that there may be another price increase towards the Muslim fasting period. Why is it that sugar is always expensive at this time of the year? Who shall successfully regulate these all-powerful oligarchs? New players are finding it difficult to break into the industry and those who try to are summarily pushed out.

To make matters worse, it seems there is also oppression among our oppressors. Any of the players who try to break ranks is ganged up against by the others, as possibly demonstrated by the recent debacle on BUA’s new export-focused sugar refinery in the Bundu Free Zone in Port Harcourt. A recently leaked memo written by the two other players to the Minister of Trade urged the Minister to shut down BUA’s operations in Port Harcourt, despite the fact that increased operations would potentially solve supply-side issues and by extension bring down the price of the finished commodity – issues – even when necessary duties are paid to bring the sugar into mainland Nigeria. To put it in simpler terms – imagine a sugar company unable to meet its target fighting for the shutdown of another, even when revenue is being expended to import sugar into mainland Nigeria. What hope then exists for the smaller producer or the consumers, who bear the brunt of these machinations?

It doesn’t end with sugar; Nigerians have witnessed the same thing with the Cement Industry, with the same cast of characters. Despite a series of waivers, pioneer status incentives, and a backward integration policy championed initially by Dangote Cement and later enjoyed by Lafarge and BUA – the two other players in the Nigerian Cement Industry, retail prices of cement have grown astronomically in a way that makes everyday Nigerians question the benefits of Backward Integration in the Cement Industry. In a recent interview, BUA Chairman Abdul Samad Rabiu who is a part and beneficiary of this system, ironically admitted that Nigerians are paying the highest for cement in most of Africa. His peers have not considered Nigerians worthy of hearing such truth, preferring to keep mum.
I must say, a Backwards Integration Policy should not create more unwieldy, extremely profitable monopolistic enterprises that somehow end up holding Nigerians by the pocket and therefore by the jugular. Rather, such policies should engender a more open, competitive industry, giving opportunities to all comers without the fear of the system and a few players frustrating them.

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At a briefing over the weekend, Nigerians were shocked to learn again that one of these same players who is building a 600,000barrels per day petroleum refinery, is actively pushing for purchases of Crude in Naira as well as a new backward integration policy for refineries. This was more or less confirmed by the recent visit of the Senate Committee visit to the Dangote Refinery last week.

Here’s the clincher – the same company which has benefited immensely in other sectors to the detriment of Nigerian consumers are now requesting that this policy should only be extended to those who have ACTIVE refining licenses. What this means – just like in Sugar and cement, is that only these companies with active licenses will be able to import these products into Nigeria. This will effectively narrow the market for Dangote’s 600,00barrels per day refinery. In view of their current plans, the Dangote Group will be the only ones to enjoy the benefits of this policy and possibly, BUA, when its own 200,000 barrels per day refinery comes up in 2024.

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What is baffling, however, is that this policy if instituted, will ensure that only the usual elite group will be able to import petroleum products, just like we have seen in Sugar and Cement. It will also ensure that even our dear own NNPC will be forced to buy its refined petroleum products from these companies, ensuring unsustainable profits and arbitrary price-fixing which is detrimental to Nigerians. Crude oil across the world is sold in dollars. Why will they pay for our crude in Naira and then sell it back to Nigeria in dollars? The same thing will likely apply to BUA and these two companies may as well be controlling over one-third of our GDP.

Here’s the clincher – the same company which has benefited immensely in other sectors to the detriment of Nigerian consumers is now requesting that this policy should only be extended to those who have ACTIVE refining licenses. What this means – just like in Sugar and cement, is that only these companies with active licenses will be able to import these products into Nigeria. This will effectively narrow the market for Dangote’s 600,00barrels per day refinery. In view of their current plans, the Dangote Group will be the only ones to enjoy the benefits of this policy and possibly, BUA, when its own 200,000 barrels per day refinery comes up in 2024.

What is baffling, however, is that this policy if instituted, will ensure that only the usual elite group will be able to import petroleum products, just like we have seen in Sugar and Cement. It will also ensure that even the NNPC will be forced to buy its refined petroleum products from the companies, ensuring unsustainable profits and arbitrary price-fixing which is detrimental to Nigerians. Crude oil across the world is sold in dollars. Why will they pay four of our crude in Naira and then sell back to Nigeria in dollars? The same thing will likely apply to BUA and these two companies may as well be controlling over one-third of our GDP.

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To rescue our country, the Government must do away with the true backwardness of these Backward Integration Policies, except it guarantees truly free markets. It has never worked for Nigerians. Rather, it has only worked to help a few people boost their already fat pockets. At this rate and if left to subsist, Nigerians could likely end up paying triple for petrol as has happened in Sugar and Cement. The Policy of backward integration as implemented thus far has only enabled a monopoly that strangles the country’s chances at sustainably developing its commodities market and we must not mortgage our oil in this manner. The government must force these oligarchs to sit down and renegotiate all terms in these core industries as is being done in other countries like Senegal, for example.

Bottom line is, Nigerians and their stake in the oil industry appears to be heading towards a precarious end. So I ask again: BACKWARD INTEGRATION IN SUGAR, CEMENT AND NOW, PETROLEUM: WHO ARE THE REAL BENEFICIARIES? Certainly not Nigerians

 

‘Tayo Irantiola writes from Lagos Nigeria.

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    Columnists

    How EFCC’s proposed lifestyle audit will affect your finances

    While enforcing lifestyle audit, the relevant agencies must take note of the fact that social media influencing has become a serious business in Nigeria.

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    Access, GTBank, two others pay PWC & EY N1.5 billion as Audit fees in H1 2020 

    On Wednesday, the 24th of March 2021, Lauretta Onochie, a presidential aide, took to Twitter, to announce the legality of lifestyle audit in Nigeria, with a view to tackling corruption. She also mentioned that those who flaunt lifestyles they cannot afford can now be investigated by any of the antigraft agencies such as the Economic and Financial Crimes Commission (EFCC) and Independent Corrupt Practices Commission (ICPC) to give information about their source of wealth.

    Some Nigerians have already expressed delight in the government’s action, hailing it as a great move, while others have heavily criticized it, adding that such lifestyle audit should be for those in public offices and those holding political positions in Nigeria.

    READ: $1.3 billion Malabu oil field sale was lawful – Former Shell Executive

    The implication of lifestyle auditing

    Lifestyle audit basically involves an inquiry into the lifestyle of individuals for the purposes of revealing unreported cases of unjust self-enrichment and suspicious affluence that may suggest that such individual perpetrates fraud or is involved in corrupt activities. In carrying out such an audit, there is a comparison of the living standards of the said individual with his known source of income.

    There is also an inquiry into the consumer index of such an individual, which includes the income of his or her spouse, the monthly expenses of the family, the declared assets of the family and related personal expenditure of such individual. It is considered a major tool in fighting corruption.

    Whether such audit is conducted in the public sector, i.e. on those in public offices or employees of government, or whether it is carried out in the private sector, the major goal of a lifestyle audit is to consider whether or not an individual is living beyond his or her legal means, and whether there is a possibility that such lifestyle is funded by corruption or fraud.

    If during the course of the audit, the individual is unable to prove the source of funds or income, such funds may be taxed as undisclosed income, and if it is discovered during such investigations that the individual is involved in fraud or any criminal related activity, such individual may be prosecuted.

    READ: FBI ranks Nigeria 16th in its 2020 International Crime Victim Countries

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    Is Nigeria the first to legalise lifestyle audit?

    Countries like Kenya and South Africa have been carrying out lifestyle audits. Kenya for instance has embraced lifestyle audit as a means to reduce corruption in both the private and public sectors. Government institutions in Kenya audit their staff by comparing the lifestyle of such staff with their income, in order to reveal any inconsistencies.

    In the private sector, lifestyle audits are also carried out on employees who declare their wealth, allowing for an investigation into the existence of any questionable source of income or revenue.

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    The Ethics and Anti-Corruption Commission of Kenya in 2008 took a financial controller who was earning Sh306, 000 a month to Court. But the EACC said he owned seven houses or plots, four vehicles, six bank accounts (one in London) and had Sh4 million in cash in his house. What the EACC wanted was for the court to agree he had “unexplained assets” and that the assets should be seized. The lower court rejected the EACC’s case on a variety of grounds based on the Constitution. However, the Court of Appeal held that the Financial Controller had not shown how he had acquired some of the assets.

    READ: 6 types of pension plans: Deciding which is right for you

    In 2018, the Kenyan Government intensified the war on graft by announcing that all public servants will undergo a compulsory lifestyle audit to account for their sources of wealth. In an article published by the Katiba Institute, Kenya, on 27 June 2018, it was reported that various corruption scandals have been exposed and over 40 persons have been arrested as a result of corruption scandals resulting from lifestyle audit in Kenya.

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    In South Africa, the government has carried out lifestyle audit for the public sector in order to curb corruption and fraud. However, lifestyle audit in South Africa is not limited to the public sector as the South African Revenue Service (SARS) since 2007 has been carrying out lifestyle audit on private individuals and using it for several criminal investigations. The SARS encourages members of the public to report people living a lifestyle beyond their known means of income. The SARS would usually ask the individual to fill a questionnaire to aid them in their inquiry.

    Business Insider South Africa has stated in an article published recently, that SARS has been using lifestyle audits on private individuals since 2007 and they have used it to conduct thousands of criminal investigations.

    READ: Corruption erodes the constituency for aid programmes and humanitarian relief – IMF

    Possible challenges Nigeria may face

    While enforcing lifestyle audit in Nigeria, the relevant agencies may need to take note of the fact that social media influencing has become a serious business in Nigeria today. What usually happens is that these influencers present a lifestyle to the public which they may not be able to afford or which cannot be said to be at par with their income.

    The reason for such presentation is to get more followers on social media and attract brands and businesses that would usually enter into an agreement with them to influence the public to patronize the products of such brands in return for a fee. The question now arises, what becomes the fate of such influencers in the face of the legalizing of lifestyle audit in Nigeria? What effect would it have on their businesses since they are not considered illegal?

    In an interview with Elsie Godwin, a YouTube content creator, Lekan Bamidele, the Managing Partner of Lekan Bamidele & Co stated that there is a huge possibility that lifestyle audit may lead to an invasion of the privacy of the audited individuals which is an infringement of their fundamental human rights as guaranteed by the Constitution of the Federal Republic of Nigeria 1999 (as amended). This is because, in carrying out such audits, the private properties of such individuals such as their phones, bank statements etc. may be looked into even without their consent.

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    He also added that lifestyle audit may result in abuse by the authorities, as the Nigerian Police having no right to conduct lifestyle audit on Nigerians may want to usurp the powers of the relevant agencies; and that lifestyle audit should generally be restricted to public officials.

    However, based on the provisions of the Nigerian constitution the right to privacy is not absolute and an invasion of privacy would not be considered as an infringement where it is for the purpose of public morality, public order, etc. The actions of the agencies carrying out such audit may be considered as falling under this exception and would not be illegal.

    Moreover, since Nigeria still battles with issues such as police brutality and sometimes, unwarranted profiling which led to the recent #EndSars protest, lifestyle auditing may give unscrupulous officials the leverage to treat citizens with indignity and may also lead to the abuse of the entire auditing process. It, therefore, opens a lot of Nigerians to the risk of harassment and unnecessary profiling.

    Additionally, it is a notorious fact that one of the major problems facing Nigeria is corruption. Corruption is a phenomenon that has eaten deep into the systems and permeated every level of governance in the country and even the agencies of government. It may, therefore, pose a major threat to the smooth running and enforcement of lifestyle audit in Nigeria.

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    Conclusively, the relevant body or agencies should take these and more into consideration, and a formal structure should be put in place, and legislation enacted, in order to effectively carry out lifestyle audit in Nigeria. Also, there should be no overlapping of duties in the enforcement. That is, only agencies that are vested with such powers should exercise them. This would ensure that Nigerians are not faced with a situation where just any person would claim the right to investigate the source of their income.

     

    Written by Nwankwo Tochukwu

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    Columnists

    State governments must devise innovative means to improve their IGR

    States need to create an enabling business environment to attract Foreign Direct Investments.

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    Based on the Q4 and full-year 2020 IGR data published by the National Bureau of Statistics (NBS), the Internally Generated Revenue (IGR) of the 36 states of the federation, including the Federal Capital Territory (FCT), declined by 2% y/y to N1.31trn in 2020 from N1.33trn in 2019.

    This performance reflects the effect of the Covid-19 pandemic, which caused significant macroeconomic headwinds especially in the first half (H1) of the year. To put it in context, the total IGR as of H1 2020 declined by 9% to N632.26bn from N693.91bn in H1 2019. The poor H1 performance outweighed the positive growth of 6% y/y to N673.82bn recorded in H2 2020 from N637.82bn in H2 2019, thus resulting in negative growth of 2% y/y for FY 2020.

    Further analysis of the data revealed that save for Pay As You Earn (PAYE) Taxes which showed moderate growth (+5% y/y), other components of the IGR declined in 2020; Direct Assessment (-22.2% y/y), Road Taxes (-6% y/y), Other Taxes (-24% y/y) and MDAs Revenue (-1% y/y).

    We think the decline in Direct Assessment reflects the low-income level of self-employed individuals and informal businesses arising from reduced work activities and tough business conditions. Similarly, restricted vehicular movements both within and out of states, closure of markets, malls, recreational centres and limited running of revenue-generating MDAs especially during the second quarter (Q2) contributed to the fall recorded across the remaining key constituents of the total IGR of all states including the FCT.

    Despite the complete shutdown of Lagos, Ogun, and Abuja in Q2 2020, Lagos State remained the leader in revenue generation with an IGR of N418.99bn (equivalent to 32.1% of total IGR), followed by Rivers with N117.19bn (9.0%), FCT with N92.06bn (7.1%) and Delta with N59.73bn (4.6%). On the other hand, Taraba with N8.14bn (1.9%), Adamawa with N8.33bn (0.6%) and Yobe State with N7.78bn (0.6%) recorded the least IGR.

    Worth noting is that while most states have continued to rely heavily on FAAC allocation to meet budgetary commitments, Lagos (78%) and Ogun (57%) states including the FCT (57%) had the most healthy composition of IGR revenue to its respective total revenue in 2020. The vast economic activities in Lagos and Ogun states, an offshoot of their positioning as a good spot for import and export of materials and finished products, enable a good flow of commercial activities.

    Many states continue to rely solely on FAAC allocations from the Federal Government which are totally dependent on dwindling oil revenues. State governments need to come up with innovative ideas to improve IGR and also create an enabling business environment to attract Foreign Direct Investments (FDI) to avoid the current situation where many states cannot as much pay salaries when oil receipts begin to fall.


    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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