Eben Joels is the managing partner, Stransact Chartered Accountants and Audit, an RSM correspondent firm in Nigeria. In this interview with BusinessDay’s Joshua Bassey, he assesses why the FG should be worried about the exit of multinationals from Nigeria, the recapitalisation for banks, and the role of CBN in stabilising the volatile economy. Excerpts.
Diageo, owner of Guinness Plc, is pulling out of Nigeria and has sold its 58 percent equity in the business to Singapore-based Tolaram. What is your thought on this, and what does it portend for the immediate future?
Diageo’s decision to withdraw from Nigeria and sell its stake in Guinness Plc to Tolaram indicates that it sees better opportunities elsewhere or perceives challenges in the Nigerian market that outweigh the potential benefits. This move might reflect a strategic shift in Diageo’s global portfolio or a reassessment of its investment priorities. Very clearly, Diageo has fashioned a more profitable way to derive income from Nigeria without having to deal with the harsh operating environment for businesses.
For Tolaram Group, they probably see this acquisition as an opportunity to solidify their presence in Nigeria. They already operate in Nigeria primarily through their subsidiaries in various industries, such as Dufil Prima Foods Plc, which produces the popular Indomie instant noodles and the Lekki Deep Sea Port project. The acquisition of Diageo’s stake in Guinness indicates that they see value in the Nigerian market and are willing to invest in it. Tolaram may bring a different perspective and strategy to the table, potentially leading to changes in how Guinness Plc operates in Nigeria. It could also signal increased competition or consolidation within the Nigerian beverage industry. While Diageo’s exit raises questions about the attractiveness of the Nigerian market for multinational companies, Tolaram’s investment suggests continued interest and opportunities for growth in the region.
Kimberly-Clark, an American producer of baby products, Huggies, GlaxoSmithKline, Sanofi-Aventis Nigeria Limited and Procter and Gamble are some of the multinationals that have recently shut down their operations in Nigeria, either fully or partially. Should we be worried about these exits?
The departure of multinational companies from any country, especially ones as significant as those you mentioned, should ordinarily raise concerns. Such exits can impact employment, economic growth, and overall stability. These multinationals are some of the few places where you can find best practices in recruitment, training and compensation of personnel. They are some of the few companies where graft is not enshrined. Many Nigerian-owned businesses are not committed to best practices. However, it’s essential to understand the reasons behind these exits. They are driven by various factors such as economic challenges, regulatory issues, security concerns, leading to strategic business decisions by the companies to exit the market. Addressing these underlying issues could potentially attract and retain multinational investments.
The new recapitalisation for banks has been hotly debated because of some of the clauses. Do you think the Central Bank of Nigeria (CBN) means well for the banking sector?
Overall, whether the CBN means well for the banking sector depends on the balance it strikes between strengthening financial stability, promoting competitiveness, and ensuring that the needs of the economy, businesses, and consumers are adequately addressed. Open dialogue and collaboration between the CBN, banks, regulators, and other stakeholders are crucial in navigating these challenges and achieving positive outcomes for the banking sector and the broader economy. Overall, I will be hopeful. The last round of capitalisation spurred the capital market and boosted the economy. I hope this will be the same result.
Most banks still have a high percentage of non-performing loans despite measures by the CBN to reduce this. What can be done to make the banks solvent, so that they don’t carry too much debt burden?
To address the persistent challenge of high non-performing loans in Nigerian banks, a multi-faceted approach is necessary. Firstly, banks should prioritise proactive risk management practices, conducting thorough credit assessments, and implementing stringent monitoring mechanisms to identify potential defaults early on. This involves restructuring loans for struggling borrowers and adopting robust recovery strategies to mitigate losses effectively. Simultaneously, regulatory bodies like the CBN should enhance supervision and enforcement of prudential regulations, ensuring that banks maintain adequate capital levels to absorb potential losses and remain resilient in the face of economic volatility. Additionally, improving credit information systems and promoting economic diversification away from volatile sectors can reduce systemic risks and enhance banks’ stability, ultimately mitigating their debt burden and fostering a healthier banking sector. The CBN should above all mandate regular stress testing. Mandatory reporting of impairment indicators on a regular basis should be considered.
The value of the naira has been severely eroded with its unprecedented crash in the foreign exchange market. Do you think the CBN is doing enough to hedge the naira against the dollar so far, with the recovery strategy?
The CBN has implemented several measures to hedge the naira against the dollar, including interventions in the foreign exchange market, adjusting the monetary policy rate, and introducing various forex management policies. Despite these efforts, the naira has continued to depreciate, indicating that the current strategies might not be sufficient to combat the underlying issues affecting the currency’s value. Structural economic challenges, such as dependence on oil exports, limited foreign reserves, and a high import bill, especially the continued importation of petroleum products continue to exert pressure on the naira.
Stabilising the naira will require a multifaceted approach that goes beyond short-term interventions. The CBN must focus on diversifying the economy, enhancing domestic production, and improving the overall business environment to reduce reliance on foreign exchange. Additionally, policy consistency and transparent communication are essential to restore confidence among investors and market participants.
Access to credit remains a challenge for businesses, especially SMEs because of the high risk quotient. What can be done to ease this burden and create easy access to credit for businesses at rock bottom rates?
The government and financial institutions need to adopt several strategies. Firstly, the CBN can enhance its existing credit intervention programs, such as the Anchor Borrowers’ Programme and the Micro, Small, and Medium Enterprises Development Fund (MSMEDF), by increasing their funding and streamlining the application processes. These programmes can be expanded to cover more sectors and offer lower interest rates. Additionally, financial institutions should be encouraged to develop tailored financial products that cater to the unique needs of SMEs, including flexible repayment terms and lower collateral requirements.
Moreover, improving the credit infrastructure in Nigeria is crucial. This includes establishing and maintaining a comprehensive credit registry system to track the credit history of businesses, which can help reduce perceived risks by lenders. Strengthening credit guarantee schemes can also provide additional security to banks, encouraging them to extend more credit to SMEs. For example, I am not aware of any credit insurance company in Nigeria. On a broader scale, fostering a stable macroeconomic environment with low inflation and consistent policies will help lower the overall risk profile, making it easier for businesses to obtain credit at more affordable rates.
The inflation rate, almost at 40 percent, has eroded the standard of living with excruciating cost of goods and services. What can be done to mitigate this?
A multifaceted approach is necessary. Tighter monetary policies to curb excessive money supply have not worked. Raising interest rates and increasing reserve requirements for banks has also not worked. I believe the government should focus on stabilising the exchange rate by boosting foreign reserves and reducing dependency on imports. This is the time to strengthen the agricultural sector through subsidies and support programs to improve local food production so that we can look forward to reduced food prices.
On the fiscal policy front, the Nigerian government should be more efficient in public spending and curb wastages. Investing in infrastructure, particularly in transportation and energy, can lower the cost of doing business and reduce the prices of goods and services. Implementing social safety nets and targeted subsidies for essential goods can help alleviate the immediate burden on low-income households. Encouraging competition in key sectors, like telecommunications and energy, can also drive down prices through market forces.
Among the challenges bedeviling businesses in Nigeria, is multiplicity of taxes and other levies across the subnational making the ease of doing business a mirage. What measures can be put in place to ease these burdens for businesses and to boost productivity and efficiency?
To address the challenge of multiplicity of taxes and levies that hinder businesses in Nigeria, a comprehensive tax reform is necessary. The government should streamline the tax system by consolidating various taxes and levies into a single, simplified tax regime. This can be achieved by implementing a harmonised tax policy across federal, state, and local levels to eliminate overlapping and redundant taxes. Establishing a centralised tax collection system would reduce administrative burdens on businesses, making compliance easier and more efficient. Additionally, providing clear guidelines and ensuring transparency in tax policies can help businesses better understand their tax obligations and plan accordingly.
The government can also enhance the ease of doing business by improving regulatory frameworks and reducing bureaucratic red tape. By creating a more business-friendly environment, Nigeria can stimulate productivity, attract investment, and ultimately drive economic growth.
With the state of infrastructure near comatose, Nigeria is grappling with power outages and other problems in different areas. How much does the government need to invest in infrastructure to set the country on the path of progressive growth and socio-economic development?
The government needs to make substantial investments in infrastructure. Estimates suggest that Nigeria requires approximately $3 trillion in infrastructure investment over the next 30 years to bridge the existing gaps and support its growing population. Immediate priorities should include significant allocations towards the power sector to resolve the chronic power outages that stifle business operations and daily life. Investment in renewable energy sources, upgrading the national grid, and expanding electricity access can transform the energy landscape, fostering industrial growth and enhancing the quality of life.
The government must also prioritise investments in transportation, healthcare, and education infrastructure. Modernising and expanding the road network, railways, and ports will improve connectivity, reduce transportation costs, and enhance trade efficiency. Similarly, upgrading healthcare facilities and educational institutions is crucial for building a healthy and skilled workforce. Public-private partnerships (PPPs) can play a vital role in mobilising the required capital and ensuring efficient project execution. By committing to comprehensive infrastructure development, Nigeria can create a more conducive environment for economic activities, attract foreign investment, and achieve sustained socio-economic progress.
President Bola Tinubu’s administration is one year on the saddle. In your own assessment, what has he done right or wrong, and what are the low-hanging fruits he can easily pluck?
In his first year, President Bola Tinubu’s administration has taken some notable steps, such as prioritising economic reforms. He needs to show more bite in tackling corruption. His efforts to attract foreign investment through improved business policies have been met with cautious optimism. The administration’s focus on infrastructure projects, like road construction and the expansion of power generation, aims to address critical issues affecting economic growth. However, there have been criticisms regarding the pace of these initiatives and their immediate impact on the lives of ordinary Nigerians. The administration has also faced challenges in effectively managing the country’s security situation, with ongoing conflicts and insecurity still prevalent in several regions.
President Tinubu can focus on low-hanging fruits such as strengthening the agricultural sector through targeted subsidies and support programs to boost food production. They can also focus on simplifying the tax system to reduce the burden on small and medium-sized enterprises (SMEs). They can address power shortages through quick-win projects, such as deploying renewable energy solutions in underserved areas. By concentrating on these achievable goals, President Tinubu can build public confidence and lay a stronger foundation for long-term development.
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