BusinessDay
Nigeria's leading finance and market intelligence news report.

Why Nigerians raise concern over FG’S move to tap from dormant accounts

…analysts welcome initiative but advocate for accountability, transparency …. over 45m bank accounts to be affected

Following the signed Finance Act 2020 which provides that the federal government can borrow from the unclaimed dividends and dormant account balances under the Unclaimed Funds Trust Fund, many Nigerians, industry players and several institutions have raised concerns over the move by the federal government.

As a result, organizations like the Socio-economic Rights and Accountability Project (SERAP) and Independent Shareholders Association of Nigeria (ISAN) called out the Federal Government to cease from implementing the signed initiative.

Some independent organizations, NGOS have also threatened to take up the matter in court should the government pull through with its plans.

To find out the reasons why most Nigerians are not in support of the new initiative, even though it is being practised in the US (escheating), Businessday conducted a survey. Trust in the government, transparency and accountability were the findings from a pool of five analysts that were engaged in the survey.

“I think there have been so many concerns because we operate in an environment where government to citizens, there has not been so much done on the part of the government in terms of providing to meet the needs of its citizens,” Christian Orajekwe – Managing Director, Cordros Securities, a Financial Services group said.

According to Orajekwe, the initiative is a novel idea as FG’S access to the dormant funds will mean that the fixed income market will allow yields to settle where demand and supply judge.

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“Like all over the world, the government are always looking for the most innovative and cost-efficient way to borrow funds. I think this is one of those, perhaps, in the case of Nigeria, a novel idea,” he said.

According to the Finance Act 2020 recently signed into law by President Buhari, the unclaimed dividends and deposits in dormant bank accounts will be available as special credit to the Nigerian government through the Unclaimed Funds Trust Fund.

“There are issues around trust and transparency. If these issues are addressed, I think the move is a fantastic initiative,” a Lagos-based investment analyst said.

According to the analyst, if the Nigerian government has come up with an avenue where it can take the unclaimed funds at a risk and it’s ready to utilize the funds for productive economic purposes that will at the end of the day impact the life of the citizen, then it is a good idea.

Meanwhile, CBN Guidelines define dormant accounts as any account not operated by the owner for more than one year. According to data from the Nigeria Inter-bank Settlement System (NIBSS), as of May last year, there are 44.5 million dormant bank accounts. Businessday estimates put the funds in Nigeria’s dormant accounts at over N500 billion.

Outstanding unclaimed dividends on the other hand is estimated at N158 billion, this means that the total amount of money that would be likely borrowed by the FG may be over N700 billion.

The process that will be implemented to ensure transparency was another concern for an Abuja-based head of research.

“I don’t think the government in the past have proven to be an institution that provides transparency and that is the major challenge. If they can come up with a process that is traceable and accountability is guaranteed, then there won’t be any problem as the initiative is a great one,” the head of research who pleaded anonymity said. Meanwhile, the move by the federal government to tap from unclaimed dividend and the dormant account is to reduce its borrowing cost which is sucking more than 20 percent of the 2021 budget.

For 2021, the Nigerian government is committed to meet debt service obligations, amounting to N3.12 trillion. An increase of N445.57 billion from the N2.68 debt service in 2020.

Report by the Debt Management Office put Nigeria’s total debt stock (foreign and domestic), as of June 2020 stood at N31. 01 trillion ($85.9 billion) – 8.31 percent increase when compared with N28. 63 trillion ($79.3 billion) recorded in March 2020.

According to the Finance Act 2020, the monies transferred to the trust fund will be a “special debt owed by the Federal Government to shareholders and dormant bank account holders”. It also said that the original owners of the money can claim it at any time. But many shareholders and other members of the capital market community do not seem confident in the government as they opposed the provisions of the law, saying the government lacks powers to manage funds belonging to private sector investors.

“Dividends are private wealth of investors, either individuals or corporate entities. The idea of converting such private wealth to federal wealth negates the relevant provisions of the rights to own property as guaranteed by the 1999 Constitution. Our opinion is that S39 to the extent of its inconsistency with S44 of the 1999 Constitution (as amended) is null and void.

The law expressly states that there shall be no forceful takeover of any private movable property of any Nigerian without due and appropriate compensation and or valid court order,” ISAN had said

Also, SERAP advised the Federal Government to drop the plan to borrow from unclaimed dividends and funds in dormant accounts using the

“patently unconstitutional and illegal Finance Act, 2020.”

In an open letter to President Muhammadu Buhari, SERAP urged him to ensure full respect for Nigerians’ right to property. The letter was copied to the Attorney General of the Federation and Minister of Justice, Abubakar Malami (SAN) and Minister of Finance, Budget and National Planning, Zainab Ahmed.

SERAP, in the letter dated January 9, 2021, and signed by its Deputy Director, Kolawole Oluwadare, stated that the property right is sacred and fundamental. “Borrowing unclaimed dividends and funds in dormant accounts amount to an illegal expropriation, and would hurt poor and vulnerable Nigerians who continue to suffer under reduced public services, and ultimately lead to unsustainable levels of public debt.”

The organization further argued: “The property right extends to all forms of property, including unclaimed dividends and funds in dormant accounts. Borrowing these dividends and funds without due process of law, and the explicit consent of the owners is arbitrary, and as such, legally and morally unjustifiable.”

To SERAP, the borrowing is neither proportionate nor necessary, especially given the unwillingness or inability of the government to stop systemic corruption in ministries, departments and agencies, cut waste and stop all leakages in public expenditures.

“Rather than pushing to borrow unclaimed dividends and funds in dormant accounts, your government ought to move swiftly to cut the cost of governance, ensure review of jumbo salaries and allowances of all high-ranking political office holders, and address the systemic corruption in ministries, departments and agencies as well as improve transparency and accountability in public spending.

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