Nigerian entrepreneurs and abuse of indigenisation policy

Before the promulgation of the Nigerian Enterprises Promotion Decree (now Act) in February 1972, the Nigerian market operated in isolation. However, a deliberate government policy, popularly known as indigenization, aimed at increasing the participation of Nigerians (indigenes) in the management and ownership of businesses. While a few Nigerian entrepreneurs took advantage of this policy and succeeded, others abused the opportunities, resulting in the collapse of their companies.

For instance, before the advent of indigenization, companies like Nigerian-German Chemical (formerly Hoechst, a pharmaceutical company), Unic Insurance, and Niger Insurance were among the industry leaders. Today, however, these companies are mere shadows of their former selves, raising the question of whether Nigerians can effectively manage businesses.

The latest in a series of companies that Nigerians acquired from foreign ownership and subsequently mismanaged is the once-famous paint manufacturing company IPWA PLC, formerly known as International Paints West Africa. Currently, a storm is brewing on the Board of IPWA PLC, signalling a test of corporate governance. Many shareholders are increasingly frustrated by what they view as opaque governance practices by the majority shareholders, the Daniyan Group, which holds over a 30 per cent stake.

When this leading manufacturer of marine oil and gas paints was listed on the former Nigerian Stock Exchange (now NGX) in 1992, expectations were high that it would contribute significantly to Nigeria’s Gross Domestic Product (GDP) through increased employment, output, and shareholder value. However, due to a lack of innovation, the company has struggled under the burden of persistent losses and a weakened balance sheet.

By 2016, IPWA could no longer meet the NGX’s post-listing requirements, including regular information disclosure and statutory fee payments. For nearly a decade, IPWA did not hold an Annual General Meeting (AGM), prompting the NGX to delist the troubled company as an investor-protection measure.

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The blame for IPWA’s struggles cannot be placed solely on Nigeria’s challenging operating environment. Market observers note that the company had already lost focus when the majority shareholder sidelined other directors who might have offered fresh ideas. It is concerning that IPWA’s board consists of directors with a median age of 70, who continue to use the same strategies year after year, hoping for different results.

Stakeholders are increasingly alarmed that IPWA’s properties are either being sold or leased, which may explain why the company is operating well below capacity, leaving many staff members redundant. Concerned shareholders have the right to demand an Annual General Meeting.

The Securities and Exchange Commission (SEC), Nigeria’s primary capital market regulator, could intervene, requiring IPWA’s board to convene an AGM with SEC representatives present to document proceedings and take necessary action.

Although IPWA is highly leveraged, there are potential strategies to reposition the company. At this stage, floating a rights issue could be risky, as disillusioned shareholders need clear evidence of a renewed direction before investing further. Significant capital is needed to upgrade the company’s equipment, possibly in phases. IPWA’s listing on NASD PLC after its NGX delisting offers an opportunity to recalibrate operations.

The company urgently requires capital injection from angel investors, private equity, and experienced turnaround managers who can bring fresh energy and innovation. Substantial working capital would enable IPWA to re-enter the oil and gas sector, where it previously demonstrated competence.

Additionally, as a last resort, the company could approach government development agencies like the Bank of Industry (BoI) for a special loan at a subsidized interest rate.

However, the board must be restructured to allow for fresh perspectives. Investors will require clear evidence of strong corporate governance and rebranding efforts to capture new market share and enhance profitability. IPWA should not be allowed to meet an avoidable end.

To address similar challenges faced by other companies in Nigeria, regulators should take a more active role in their oversight. This would reinforce the commitment to investor protection at the heart of market regulation. The time for regulatory intervention is now.

Oni, an Integrated Communications Strategist, Chartered Stockbroker, Commodities Broker and Capital Market Registrar, is the Chief Executive Officer, Sofunix Investment and Communications.