Understanding the workings of the Nigerian economy is like trying to read a doctor’s prescription. It is never an easy task. That explains why when I see two or more ‘experts’ arguing about movement of share capital, ‘bullish runs’ and all that, I try as much as possible to keep my distance. Because they could be con-men! The death of a political leader, electricity failure for as insignificant a period as three minutes and even the bedroom antics of political leaders can affect the movement of shares on the Tokyo, London or New York stock exchange markets with far-reaching consequences for the global economy. But the Nigerian Stock Exchange (NSE) is immune to political or economic factors.
In the last two years of democracy, with its deluge of drama, our stock market has remained unmoved. Political intrigues in the National Assembly have seen to the downfall of two Senate Presidents and a House of Representatives Speaker with no effect. Anywhere else these issues would have seriously impacted the trading floor of credible stock markets. But in our country today, quoted prices are rising even for companies that are not producing!
My conclusion is that the Market operates on sentiment, essentially on the whims and caprices of a small group of men and women who have turned themselves to the ‘market forces’–the ‘visible hands’ that Adam Smith made no allowances for in his book, “Wealth of Nations”. They simply allocate share prices based on criteria that cannot be plotted as either supply or demand on what economists describe as ‘curve’…
In a press statement last Friday, the Securities and Exchange Commission (SEC) released the report of their investigation into the operations of Oando Plc, spanning a period of two years. The findings “revealed serious infractions such as false disclosures, market abuses, misstatements in financial statements, internal control failures, and corporate governance lapses stemming from poor board oversight, irregular approval of directors’ remuneration, unjustified disbursements to directors and management of the company, related party transactions not conducted at arm’s length, amongst others”, said the statement.
On Monday, SEC tightened the noose by constituting an interim management team headed by former Shell Managing Director, Mr Mutiu Sunmonu to oversee the affairs of Oando. The Sunmonu team was further mandated to conduct an Extraordinary General Meeting on or before 1st July to appoint new directors who would subsequently select a management team to replace the Group CEO, Mr Wale Tinubu, his deputy, Mr Mofe Boyo and other affected board members who had been sacked and barred from being directors of public companies for a period of five years.
Although Oando has secured a court injunction to restrain SEC, this is an issue of public interest that will not easily go away. In Nigeria, there is always a focus on public sector corruption with scant attention paid to promoters of private companies who play ‘kalo kalo’ with other peoples’ money. Yet, when most people buy shares in a publicly-quoted company, they do so to secure their future and that of their families. That explains why whatever happens in such companies is of public interest. Sadly, the corporate environment in Nigeria is governed by impunity.
According to Léonce Ndikumana, a renowned professor of economics with a focus on Africa, “private sector corruption deserves as much attention due to its equally debilitating effects on economic activity”, especially in Nigeria. “A common form of corruption in the financial sector is insider trading, which allows influential insiders including top-ranking managers in the industry to make profits from moving ahead of the market. At the same time, such speculative trading causes drastic losses for honest investors who are often stuck with undervalued assets” Ndikumana wrote in his thesis ‘The Private Sector as Culprit and Victim of Corruption in Africa’ where he made copious references to Nigeria.
In the larger context, the private sector cannot be excused from the rot that pervades the Nigerian public space. Corruption, according to Ndikumana, “often entails complicity between private agents and public officials who either provide privileges to the former or turn a blind eye to illicit behaviour by rent-seeking private operators. Under protection by influential politicians, corrupt private actors behave as though they are above the law, benefiting from impunity. This again demonstrates that the political economy dimensions of private sector corruption must be taken into account in strategies to eradicate the problem.”
Aside some bank promoters who were jailed under the Failed Bank Decree of the late General Sani Abacha and one who, in 2010, got a slap on the wrist, no other member of Corporate Nigeria, to my recollection, has ever been seriously punished for fraud. Yet, I know many business men who raked hundreds of millions of Naira for companies that became insolvent shortly after selling their ‘shares’. Many of these businessmen are still walking the streets with a few of them currently holding political offices.
In the United States, one of the most celebrated of such cases was that of Mrs Martha Stewart, a famous retail businesswoman and television personality. In an attempt to avoid a loss of $45,673 in December 2001, Stewart sold her 3,928 shares in ImClone, after finding out that the company’s new cancer drug, Erbitux, had been rejected by the regulatory authority. That ‘small amount’ (we are talking of someone who was at that period a billionaire) triggered a fraud investigation and eventual prosecution. Aside serving a jail term and paying hefty fines, Stewart also bagged a five-year ban from being a director, CEO or playing any other officer role responsible for preparing, auditing, or disclosing financial results of any public company. Mr Samuel Waksal, the then ImClone CEO was also sentenced to 87 months in prison and fined $3 million upon pleading guilty to six counts, including insider trading and fraud.
While the board and management of Oando deserve the right to fair hearing, until we begin to hold people accountable for their actions and rules are applied to all on equal basis, our country will never develop. If the executives of Oando are found guilty of infractions, they should face the full wrath of the law. But this case has to be handled carefully. Amid speculations that SEC might be leaving out certain interested parties or acting at the behest of Mr Gabriele Volpi, the Italian investor fighting for the control of Oando, the only way forward is for the commission to publish the entire forensic audit report, in the interest of transparency.
More worrisome is that the issue has dragged for two years and in the process, value has been destroyed. Right now, Oando poses a serious systemic risk to the banking sector. According to the company’s first quarter report released in April, the debt profile has reduced from “$2.5billion as of December 2014 to $558million currently”. That, I understand, was achieved through an aggressive repayment regime that involved sale of prime assets. But we are still talking of a debt portfolio of about N200 billion. A good regulator will not take so long to intervene on issues affecting such a company. Nor be indifferent to the implications of taking actions that may unwittingly kill a business on which thousands of Nigerians depend for their livelihood.
Oando at a time accounted for not less than five percent of forex inflows through the secondary market. With an annual turnover of $1.2 billion, it is one of the 10 biggest sources of interest income for the Nigerian banking system. But the company is now in trouble, whatever may be the eventual outcome of the current crisis. Shareholders have in recent months lost hundreds of billions of Naira through price decline and the negative publicity that goes with this scandal will further erode the confidence of its foreign investors.
In all the foregoing, the person to blame is President Muhammadu Buhari who has refused to make appointments in critical sectors of the economy. For instance, portfolio investments which in the past raked in billions of dollars in foreign exchange and helped to firm up the Naira have practically dried up because there is no leadership in the capital market. SEC, like PenCom and some other important regulatory agencies, has been left with no statutory board for four years. With acting director generals who are not accountable to anybody, decision making in these important agencies has practically been left in the hands of sole administrators. That is not the way to run a country.
In an article on Investopedia titled, ‘Top 4 Most Scandalous Insider Trading Debacles’, Adam Barone traced insider trading in the United States to the early 18th century when William Duer, an assistant secretary of the Treasury used his office to guide bond purchases. But Barone also stated that the American SEC had in the past “made mistakes and accused innocent parties in cases that are borderline, at best” aside the fact that “Insider trading is often difficult for the SEC to spot, and detecting it involves a lot of conjecture and consideration of probabilities.”
That should compel SEC to be thorough and rigorous while ensuring that Oando directors are availed all their rights under the law. But this is one issue that cannot be swept away with the APC broom. In Nigeria, private sector corruption is part of what drives most of the looting we see in the public sector. This is perhaps the only country where quoted companies go bankrupt and the public loses huge investments yet no corporate big fish ever goes to jail. I have in recent days read stories of business people in several countries who served prison terms for insider trading and abusing the trust of their investors. To develop as a nation, we must also begin to instill the highest level of accountability in our private sector.
Source: Thisday Newspaper