With the signing of the new Companies and Allied Matters Act (CAMA 2020) into law on 7th August 2020 by President Muhammad Buhari, the feeling of elation across the Nigerian business community is visible and expected. Not only did it replace the out-dated CAMA 1990, the new CAMA 2020 came with revisions and additional provisions that can be described as current, innovative and business friendly. Divided into seven parts and 870 sections, there is no doubt that good thinking and foresight were applied in drafting the act. Reading through the pages of the act rekindles the hope for a better Nigeria given the issues covered with about 167 new provisions, the refinements made in addition to the clarity and details provided.
Of the revisions and new additions, a most interesting one is the expansion of the board of Corporate Affairs Commission (CAC) to include a member each from the National Association of Small and Medium Enterprises and Institute of Chartered Secretaries and Administrators of Nigeria. This commendable inclusive approach will undoubtedly lead to a more diverse and skilled board, and the accommodation of the interests of all relevant stakeholders.
With the revisions made and new provisions included, the CAMA 2020 can be said to be principally focused on three key areas: Growth of Small and Medium Enterprises (SMEs), promotion of better management and corporate governance of Nigerian firms, and enhancing ease of doing business in Nigeria. For promotion of SMEs growth, some of the key provisions include the opportunity for an individual to register a business (single director and single director small firms), reduction in fees for registering a business, the exemption of small companies with single shareholders from the requirement of holding annual general meetings and having company secretaries.
A common demand of many businesses especially SMEs is the need to reduce the multiple formal and informal regulations and costs they are faced with. A situation where a small business will have to attend and comply with the demands of over ten regulatory agencies from federal, state and local government areas is counterproductive.
In pursuit of better and more accountable management and corporate governance of firms, the provisions include i. the separation of the positions of the chairman and that of the managing director that cannot be held by one individual mainly for public quoted companies. ii. the restriction of the number of board membership that an individual can hold to five in public companies and the requirement for disclosure of individuals with significant control. iii. The requirement for public companies to display in their websites the audited accounts on the business. iv. The need for disclosure of both board members and managers remuneration and requirement to increase the number of independent non-executive directors from one in CAMA 1990 to five in CAMA 2020 for publicly quoted firms. v. Disclosure of not only shareholders with significant ownership which has been reduced from 10 percent to 5 percent but also individuals such as managers with significant control in a firm.
Other provisions that can be described as enhancing ease of doing business in Nigeria include the acceptance and validity of electronic copies of business documents and provision for private firms to hold virtual annual general meetings provided it is done in line with the Articles of Association of the firm. There are also provisions for ease of mergers and acquisitions and the introduction of “Minimum Issued Share Capital” to replace “Authorised Share Capital” and Electronic transfer of shares among other encouraging provisions.
Even as there is no doubt on the importance of the new CAMA 2020 act, the challenge will be more in the effective implementation of the act. The problem with Nigeria is not really the lack of excellent laws and policies; it is in the determined leadership to ensure execution and achievement of results. As CAMA 2020 will be used within the Nigerian economy and business environment, the question is if the supportive business environment is available for effective execution of CAMA 2020 act. The effectiveness of a law depends on the extent to which the law is understood, accepted, internalised to enhance willingness to comply.
While the CAMA 2020 act is widely perceived as a big improvement of the CAMA 1990 act, it is important that wider awareness and advocacy are pursued to deepen its understanding and benefits especially for informal small and medium scale enterprises. This will help in reducing the perception of the Act as a somewhat deliberate strategy to lure informal businesses into the formal sector for better regulation and tax purposes. With a clear and continuous explanation of the benefits, the understanding and acceptance of the Act as being in the interest of business will increase and expectedly will widen participation and willingness to use and comply. While there is no question whether the CAMA 2020 is a good act, achieving its aim starts with effective and robust engagement of the relevant stakeholders on the benefits of the act especially SMEs.
In addition to the need for wide sensitisation of the benefits, CAMA 2020 is just one of the factors needed for a better business environment in Nigeria. Its success depends on how it is complemented with other policies. A common demand of many businesses especially SMEs is the need to reduce the multiple formal and informal regulations and costs they are faced with. A situation where a small business will have to attend and comply with the demands of over ten regulatory agencies from federal, state and local government areas is counterproductive. To realise the benefits of CAMA 2020 particularly to attract SMEs into the formal sector, it is important that the number of regulatory agencies and consequent burden and costs to businesses are reduced.
As it is with SMEs, so it is for the large firms. A very good example is the financial sector where banks for instance will have to comply to the rules and regulations of the Central Bank of Nigeria, Nigeria Deposit Insurance Corporation (NDIC), Securities and Exchange Commission (SEC), Financial Reporting Council (FRC), Federal Inland Revenue Service (FIRS), Economic and Financial Crimes Commission (EFCC) among other agencies even in Federal, state and local governments.
As most of the regulatory agencies in the financial sector are focused on two major issues- prudential and conduct regulation, a bold approach to complement CAMA 2020 is to merge many of the regulatory agencies into two- Prudential Regulatory Authority and Financial Conduct Authority. It is this kind of approach of deliberate reduction of regulatory burden and costs that will complement and enhance the acceptance, usage and benefits of CAMA 2020.
Dr. Ngwu, is an Economist/Associate Professor of Strategy, Risk Management & Corporate Governance, Lagos Business School and a Member, Expert Network, World Economic Forum. E-mail- [email protected]
