N10 billion rocks Celtel/Zain Board: Otudeko leads directors against Bayo Ligali, others

As published in the September 01, Issue 32. ULD by ol’Victor Ojelabi

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L-R, Oba Otudeko, Celtel logo, Bayo Ligali, Zain logo

L-R, Oba Otudeko, Celtel logo, Bayo Ligali, Zain logo

The decision by the managing director of Zain, Mr. Bayo Ligali, to disregard the objection raised by some members of the board of directors of the company over a five year rent of a property at the Banana Island, Ikoyi, Lagos for a pricely sum of $27million (N3.1billion) has caused a bitter row among directors representing the interest of Celtel BV, the controversial majority shareholders of Zain and the minority shareholders.

The dissenting shareholders are aggrieved that rather than build its own head office with the sum, the Managing Director, was allegedly pressured by Zain’s parent company in far away Kwait to rent the Plot 2, Zone L, Banana Island property for the said sum even when Etisalat, a newly set up competitor of Zain, actually bought outrightly, a property of nearly the same size at $20.8 million.

The dissenting shareholders led by Mr. Oba Otudeko have filed papers at the Federal High Court, Lagos asking a reversal of the $27million rent for the building and a declaration to stop the re-branding of the company’s product from Celtel to Zain.

Otudeko had in different letters (which were also attached to the originating summon) to the Chairman of the Board of the company, Mr. Gamaliel Onosode, accused the majority shareholders of the company of wasting a total $58million (N6.7million) on rebranding the company within two years, adding up to a record five times the company has changed its name in its seven years existence. A sum of $30million (N3.4billion) was said to have been expended on rebranding the company from Vmobile to Celtel and just under two years thereafter, the same company is now expending a sum of $28million (N3.2billion) on its current rebranding effort which dissenting directors describe as wasteful for a company that is yet to declare dividend in the seven years of its existence.

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Seven years since Econet joined other global system of telecommunication operators to usher in a new generation of mobile telephony in Nigeria, the Econet progenitor brand had since changed ownership four times within those seven years and with each change of ownership comes peculiar disagreements that have become celebrated issues of settlement at different courts of law in Nigeria and abroad.

For most telecommunication industry watchers, reviewing the seeming protracted bickering that continues to snap at the heels of the brand since its inception could be confounding. However, an industry analyst says it is best to qualify the genesis of the unremitting crises in the company as that of the right of ownership between Econet, the first operator of the GSM license and the two others, Vodacom and Celtel BV (now Zain) that had acquired majority stake in the company in quick succession.

While the outcome of who holds the right ownership of the company is yet in view, a new and perhaps, more troubling dimension have emerged, and again, aggrieved directors are heading for the court. At issue in the present conflict on the board of the company are allegations implying breaches of the underlying principles of corporate governance.

In court papers, shareholders of the company, including Mr. Oba Otudeko, Broad Communication Limited, and Foluke Otudeko are alleging that Celtel BV, the majority shareholders in Celtel Nigeria, through its appointed directors, had consistently foisted its desires on the company without regard to the appropriateness of the action or the investment held by other shareholders.

For a company that is yet to pay a dividend to its shareholders seven years since its inception, the complaining shareholders have alleged that a sum totaling $85million, about N10billion have been expended on projects that are questionable and unjustified.

The immediate precipitation of the current crises of confidence on the board of Celtel Nigeria was the decision of Celtel Nigeria’s Managing Director, Mr. Bayo Ligali to disregard the objection of some shareholders/directors of the company to pay a sum said to be about $27million (N3.1billion) to acquire a five- year leasehold of a property at Plot 2, Zone L, Banana Island, Ikoyi, Lagos, Nigeria.

Court documents averred that when Ligali proposed a resolution, at a board meeting, for the company to relocate from its present head office location at Plot1678, Olakunle Bakare Close, Victoria Island, Lagos, Nigeria, to banana Island property, the proposal was vigorously put to debate with several directors querying the rationale for incurring such an expense. Besides, there were suggestions that it would make more sense and be more prudent for the company to expend such resources in erecting its own head office building rather than expending $27million on renting new premises.

Most of the board members also noted that the lease hold rentals proposed were prohibitively expensive and that the was not conducive. The director insisted that the shareholders who had not received any dividend from the company since inception would not approve of such wasteful expenditure.

Ligali and other representatives of Celtel BV on the board were said to have responded to these arguments against the proposed transaction was that the “Group,” had approved the transaction. By “Group” Ligali and those on his side were referring to the parent company of Celtel BV in Kuwait. The other directors were said to have made it clear that their fiduciary (the responsibility to look after someone else’s money in a correct way) duties were owed to Nigerian law and not to the so called “Group” and that the decisions with regard to the company should be taken in good faith by its board and not by any “Group” outside the company.

As a means of resolving the impasse, Mr. Gamaliel Onosode, Chairman of the board set up a committee of the board to look into the proposed lease transaction. The committee, known as the ad-hoc committee on the new head office building, was made up of four members of the board namely: Mr. Alex Otti (Chairman), Mr. Ligali Ayorinde, Ms Tsega Gebreyes and Mr. Paul Usoro.

The committee was said to have met on several occasions with the management of the company. The committee, in its report to the board, noted the discrepancy in the rents quoted in different documents presented to the board. It (the committee) indicated that while some quoted $1,050 per square meter, others quoted $1, 175 per square metre and yet some other documents had figures like $1,200 and $1,300. A management letter to the ad-hoc committee, in its report, said it considered that taxes were alien to rentals in Nigeria, thus, acting on the objection of the committee, the management came back to it (ad-hoc committee) with rent proposition devoid of the objectionable taxes of $1,050 per square metre. The ad-hoc committee also observed in its report that the proposed rent was out of tune with existing rent in Nigeria market.

What might have persuaded the committee in this regard was the revelation during the course of its investigation that Etisalat, a competitor company who had just set up in Nigeria, bought outrightly a property of over 5, 000 square metres in the same Banana Island at a price of $20.8million just about the same time Celtel’s management were negotiating to rent for five years at about $27million.

Besides, the ad-hoc committee also raised, among other issues, the potential health hazard for the occupants of the building. It is noted that the building is close to high tension wires while also observing that the building has only one lift with a maximum capacity of eight people. This, the committee, considered grossly inadequate.

In its conclusion, the committee submitted that it was unable to give final approval for the lease of the Banana Island property.

Even before the committee submitted its report to the full seating of the board, Ligali was said to have reported that he had the approval of the “Group” to go ahead and pay for the property irrespective of the outcome of the report of the committee. The dissenting directors protested. In a letter dated 7th July, 2008 addressed to Mr. Onosode, chairman of the board, the directors, the dissenting directors alleged that the chairman “clandestinely and in collaboration with other directors proceeded to authorize the acquisition and have since made the payment of a sum of about $27million to cover the purported lease.”

In further protestation of what they describe as failure of corporate governance, the dissenting directors in the letter to the chairman, submitted that they considered the action “to have been both imprudent in gross violation of your fiduciary duties to the company and a diminution and erosion of our personal rights and interest as shareholders of the company.” They then asserted that “the board of directors is the organ entrusted with management of the affairs of the company and no director or group of directors is entitled to deprive that organ of its authority in the manner which you have done.

“The irresistible conclusion to be drawn from your action when viewed against the background of the extensive and negative findings of the committee set up to look into this matter”, the dissenting directors observed in the letter, “is that the decision to proceed with this transaction without waiting for the committee to submit its report and for the board to deliberate upon it was borne out of interest in other than those of the company.”

In the letter to Onosode which is supporting document to the sworn affidavit in the support of the originating summons, the dissenting directors also raised issues on the multiple brand names under which the company operated.

“As you must be aware”, the dissenting director observed in the letter, “the company has operated under four different brand names in its seven years of existence. First it was Econet Wireless Nigeria Limited, and then it was Vodacom Nigeria Limited, Vee Networks Limited and now Celtel Nigeria Limited. When the last re-branding to Celtel Nigeria Limited was mooted, we voted against the proposal on the basis that the acquisition of a majority shareholding in the company by Celtel Nigeria BV was still the subject of legal challenges and that it would be prudent to await the outcome of these challenges before expending resources on another rebranding exercise. Our protestation was ignored.

“Another re-branding has now been proposed at the last board meeting, this time to Zain, the new name of the parent company of Celtel Nigeria BV. Again, we had voted against this proposal and as on the previous occasion we have been outvoted.”

While noting that the benefits, if any, of the re-branding exercise would only ensure to the de facto majority shareholders whereas the burden of the rebranding in terms of costwould have to be shared by all the shareholder, the dissenting directors posited that the company had already changed its identity four times since it commenced business in 2001 and these changes of identity have been detrimental to the company business and confusing to its customers.

For dissenting directors, the cost of the re-branding exercise conducted since the purported acquisition of a majority in the company by Celtel Nigeria BV was disproportionate.

“The cost of re-branding carried out in 2006 was about $30million (N3.4billion) whilst the cost of the proposed re-brand to Zain is estimated at about $28million. All these costs are being incurred by a company that has failed to declare dividend in its seven years of existence,” the dissenting directors noted in the letter to the chairman.

The directors insisted that the current rebranding of Celtel to Zain is for the sole benefit of a shareholder group that is also in control of the technical and administrative management of the company.

They then averred that they considered the instance of the majority shareholders on proceeding with the re-branding to be unfairly prejudicial conduct which has a substantial and negative effect on the majority interest.

“If the majority shareholders feel a strong need to have the company rebranded to communicate its majority control to the public,” the dissenting directors reasoned, “there is no justification for the minority being compelled to share the burden and cost of this personal desire.”

In a veiled response to the allegation of the dissenting director, Ligali, during a chat with journalists made strenuous effort to justify the change of brand name to Zain; “Zain has expanded its network known as One Network 12 countries to 22 countries in both Africa and the Middle East. The 22 countries, according to Ligali, were across Africa and the Middle East thereby enabling the company’s customers in Nigeria to benefit from the globalization of the network.”

While highlighting the benefits of the globalization exercise, Ligali said the cost of operations would begin to go down due to the economies of scale of being a member of a large group.

What the Nigerian law says on protection of minority shareholders against illegal and oppressive conduct

Some of the section of the Company and Allied Matters Act on which the dissenting directors are pleading a redress so as to be protected against illegal and oppressive conducts are sections 300 and 303(1) which state:

Section 300: Without prejudice to the rights of members under sections 303 to 30S and sections 310 to 312 of this Act or other provisions of this Act, the court on the application of any member, may by injunction or declaration restrain the company from the following;

(a) entering into any transaction which is illegal or ultravires;

(b) purporting to do by ordinary resolution any act which by its constitution or the Act requires to be done by special resolution;

(c) any act or omission affecting the applicant’s individual rights as a member;

(d) committing fraud on either the company or the minority shareholders where the directors fail to take appropriate action to redress the wrong done;

(e) where a company meeting cannot be called in time to be of practical use in redressing a wrong done to the company or to minority shareholders; and

(f) where the directors are likely to benefit, or have profited or negligent or from their breach of duty.

Section 303(1): Subject to the provisions of subsection (2) of this section, an applicant may apply to the court for leave to bring an action in the name or on behalf of a company, or to intervene in an action in which the company is a party, for the purpose of prosecuting, defending or discontinuing the action on behalf of the company.

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Finally! Arisekola takes control at FirstBank

Arisekola - a turban in the bank?

Arisekola - a turban in the bank?

As published in the Sept. 28, Issue 33. Uploaded by ol’Victor Ojelabi.

Public attention, especially in the investment and banking sectors, have been riveted on Mr. Sanusi Lamido Sanusi, FirstBank Plc’s Executive Director, Risk and Management Control, whose appointment as the Managing Director-designate of FirstBank Plc was announced about two weeks ago.

For insiders of the bank, however, the board’s ratification of the appointment of Sanusi may not be without the deft hand of business mogul, Alhaji Alao Arisekola. Top level insiders confided that the elevation of Sanusi, an economist turned banker, was in consequence of a balancing act necessitated by Arisekola’s desire to further his interest in the bank.

A respected source in the bank’s senior hierarchy observed that Arisekola who holds substantial interest in FirstBank may have, by rallying the support of members of the board for the appointment of Sanusi who takes over from Mr. Moyo Ajekigbe who retires as the bank’s Managing Director in December 2008, he (Ariskola) would have positioned Dr. Ayoola Oba Otudeko, currently a non-executive director of the bank to assume the influential office of the Chairman of the Bank’s Board of Directors.

“Though FirstBank is not inclined to consider issues in appointment or other decision making process on grounds of ethnic origin or affiliation, it is obvious that a bank with the shareholding character and size of FirstBank, creating geographic balance in official appointment and occupation, may be necessary once in a while,” a source in the bank, said.

“Of course, in the appointment of Salisu, he is highly exposed to the rudiments of modern banking and therefore deserving of his designated posting, but again, don’t forget that there are other highly skilled executives in the management cadre of the bank who could have been made the Managing Director, but it would not have been appropriate in the circumstance because Alhaji Umaru Mutallab, the current Chairman of the Board of the Bank, who is of Northern Nigerian extraction like Sanusi, would also be stepping down from that capacity as soon as he attains the age of 70,” Fortune and Class Weekly source, said.

According to our source, Arisekola, who is believed to be the name behind the large shareholding indirectly held by Oba Otudeko in the bank (Otudeko holds the largest shares of the bank, 2.46 per cent, indirectly, before the bank’s May-June 2007 public offer) decided to show his hands in who becomes who in the bank’s hierarchy.

“It is natural that if he wants his man (Otudeko) who hails from the Southwest to step into the shoes of Mutallab, the office of the bank’s Managing Director must, of course, go to the North,” Fortune and Class source, reasoned.

“It’s like taking control from behind the scene which I really don’t have any problem with. The Managing Director-designate is a superb professional and has shown himself to be a worthy scholar with an active mind on public and religious issues. I tell you, this may be the next level of evolution of CEOs of large private sector holdings like FirstBank. CEOs that are not just limited to their professional callings but are willing to contribute to the debate on developmental and other ancillary issues in the country, this, I believe from my reading of Mr. Salisu, is his inclination. On the other hand, If eventually Oba Otudeko assumes the office of the board’s chairman, I am assured of a well-heeled board room giant as the corporate governance face of the bank. Now, that is like benefitting from the best of two worlds,” another Fortune and Class Weekly source said.

Meanwhile, a statement from the bank has hailed the succession plan of the bank as being a furtherance of the bank’s corporate governance practice. The statement notes that Sanusi will be understudying Ajekigbe, with a view to assuming office in a seamless manner. “As is well known, the bank’s corporate governance posture has won it much respect and awards both locally and internationally, the appointment is expected to take effect from January 1 2009.”

The new managing director is coming from a background of championing remarkable developments in the bank’s enterprise, risk and management control mechanisms. He was General Manager at United Bank for Africa Plc (UBA), where he anchored the transformation of the previous Credit Risk Management Division into an Enterprise-Risk Management sector and spearheaded UBA’s Basel 2 focus by establishing the framework, policies, processes and systems necessary for compliance with the guidelines of the new capital accord.

Sanusi graduated with a B.Sc. in Economics from Ahmadu Bello University (ABU), Zaria in 1981 and was later in the M.Sc class and started his working career in academics, teaching undergraduate Economics (1983-1985) at the Ahmadu Bello University. He then proceeded to a banking career, first with ICON Limited (merchant bankers), where in a period of about seven years he gained wide experience in Issuing House activities, Financial Advisory Services, Privatization, Debt-Conversion and Credit and Marketing, before joining UBA.

Sanusi is expected to provide reinvigorated leadership taking the bank to the next level, drawing from the vast experience of Mr. Ajekigbe, an industry icon in his own right. The seamless transition will ensure that FirstBank remains focused and maintains its leadership position in the industry.

Mr. Ajekigbe is retiring at the impressive peak of an outstanding career with FirstBank, spanning over 30 consecutive years, the last six of which he is serving meritoriously as Managing Director/Chief Executive. He has been able to stabilize the bank from the crisis situation which he inherited on his appointment in 2002, thus reinforcing the confidence of the bank’s diverse stakeholders and the global financial public.

NIGERIAN ENTERPRENEURS SCARE: GOVERNMENT POLICIES THAT DESTROYED BIG-TIME BUSINESSES

Only the naïve entrepreneur in Nigeria is excited with the contemplation of floating a manufacturing concern. The wise ones, schooled in the experiences they have had to contend with in the ever changing dynamics of manufacturing and other investments tasks in the production lines have fled the scene to the shelter of trading and merchandising. This, for good reasons. The challenges of conducting manufacturing and related production activities in the country, though, besetting, are however benign when compared with the ease with which government oft volte-face on policies and action stamp out the promises or existence of a once upon-a-time manufacturing plant.
In this review, we track some of the celebrated industrial concerns that had been heckled into non-existence by government policy summersaults over the years, official actions or inaction that have become the scare of entrepreneurs.
Presidential Initiative on Cassava Production
In 2002, cassava suddenly gained national prominence following the pronouncement of a Presidential Initiative. The intent of the Initiative was to use cassava as the engine of growth in Nigeria. In the ordinary sense, the perception is that cassava is indigenous to the country, official statistics claim that Nigeria grows more cassava than any other country in the world with a production capacity of about 34 million metric tones a year.
The Presidential Initiative on Cassava production and export was initiated in the year 2002. The goal of the initiative was to promote cassava as a foreign exchange earner in Nigeria as well as to satisfy national demand. The challenge of the initiative was to make Nigeria earn 5 billion US dollars from value added cassava exports by 2007. The objectives of the Presidential Initiative on Cassava was to expand primary processing and utilisation to absorb the national cassava production glut, identify and develop new market opportunities for import substitution and export stimulate increased private sector investment in the establishment of export oriented Cassava industries, ensure the availability of clean (disease free) planting materials targeted at the emerging industries, increase the yield, productivity and expand annual production to achieve global cassava competitiveness, advocate for conducive policy and institutional reforms for the development of the Nigerian cassava sector and integrate the rural poor especially women and youths into the mainstream of the national economy.
The federal government under Chief Olusegun Obasanjo backed the initiative with funding support while encouraging banks and other government and multilateral agencies to drive the initiative through funding support.
Suffice to say that in response to the government drive, an industry revolving around cassava plantation and processing started emerging. Opportunity seekers were encouraged to invest because of the obvious outward flourish of government. The signs were obvious too, under the Presidential Initiative on Cassava, Nigeria mandated millers to integrate 10 percent cassava flour to wheat flour in making bread, a percentage mix of ethanol in refined petroleum motor spirit (petrol) in the nation’s refineries. These were moves aimed at increasing the utilization of the tuber crop.
Other statistics pointed to the profitability of entrepreneurial engagement in cassava related activities; the domestic demand for cassava starch is about 130,000 tonnes per annum and 200,000 tonnes per annum for high quality cassava flour. The domestic demand for ethanol is 180 million litres – all ethanol is imported In Nigeria. None of these markets are being satisfied by local supplier even till today in Nigeria.
Individual entrepreneurs were attracted into the field and the buzz made the rounds of great things happening in cassava production in Nigeria. Unfortunately, the fancy was just for a time, even before the exit of the Obasanjo’s regime, there were obvious signs of government distancing itself from the clarion call to cassava farming and processing, soon after the assumption of office of President Umar Musa Yar’Adua, immediate successor to Obasanjo, federal government articulation of the cassava initiative lost its din.
The lacklustre enforcement of the policy of mandating flour millers to integrate 10 percent cassava flour to wheat flour in making bread and other confectionaries were altogether abandoned. Of course, the idealism of the refinery blend of ethanol with petrol had been a mirage according to entrepreneurs that had found their ways into cassava processing. “The nation’s refineries only functioned epileptically, rather, the bulk of refined products are being imported from foreign refineries, so the idea of the ethanol could not have worked out at all.” A cassava processor said
The government of Yar’Adua nailed the fledgling sector by abandoning the ethos of the Obasanjo initiated presidential initiative on cassava initiative. Importations of cassava processed by products and all have been allowed in the country with import tariff of 20 percent value.
“Apparently, this has sounded the death knell for that endeavour.” Another cassava processor said. “Local conditions have made it difficult to produce and process cassava, the thinking was to protect the industry until such a time that it would be able to compete favourably with importation but I understand that government decided to make this reversal because of the need to mitigate increased food prices. But then, we think that it would have been better to strengthen cassava production and processing in the country to boost food supply and to earn more income for government through export.
In the final analysis, the fact is that most entrepreneurs have had their investment and efforts gone up in smoke, another promise subverted by inconsistent government policy shift.
NIGERIAN LAMP PLC
One of the outstanding business endeveavour the recently demised Chief Beyioku Adebowlale of the Adebowale Store fame would be remembered for is his Nigerian Lamp Industry Plc. A courageous indigenous effort to play in the main stream manufacturing sector, when Adebowale built the Nigerian Lamp plant in his native Epe in Lagos State, it was reported to be the first of its kind in Africa. The plant was equipped to manufacture light bulbs and fluorescent.
It is reported that Adebowale was encouraged to make a foray into the manufacturing effort away from his electronic products trading concern in the Adebowale Electronic Store by the positive outlook of government incentive for indigenous manufacturers to commit to the economy in the 1980s.
Unfortunately, by the time the plant came on stream, it was like hitting dirt on first day of commission, government had made a reversal on policy, rather than protect local industries, government lifted the restricted importation of bulbs and fluorescents tube and other lamp forms. The market place was immediately flooded with Asian and Far East Asian countries bulb brands, which were cheaper though low in quality.
Nigerian Lamp, unfortunately, had become a publicly quoted company, Nigerians had subscribed to is initial public offer, but with the influx of cheaper products and brands into the market, the company’s operation became blighted and soon after became literally comatose. The company that never took off for operation eventually was placed under a receiver manager. This officially announced the demise of the once upon a Time promising company.
ROKANA INDUSTRIES PLC
Rokana Industries, had, back in the late 1980s caught the attention of the dentistry world with its production of the uniquely styled Jordan tooth brush. The market penetration of the Rokana brand of tooth brush was fast and quite domineering. It is reported that in its first year of introduction, the Rokana brand had pushed other imported brands to the back of the shelves. Jodan tooth brush was, considered the authentic Nigerian brand though the brand is a British franchise.
The dominance of the brand won’t endure for long however, because the Federal Government felt no need to specifically outlaw the activities of importers who would rather import fake Jordan tooth brush into Nigeria than to import other brands.
This more or less killed the vibrancy of the brand in the market place, it is however to the credit of the endearing qualities of the brand that it still subsists till day despite the continuous import of its counterfeit. The limitation is that Rokana, the producing company which is also a publicly quoted company floated by the immediate past commerce minister in the Yar’Adua’s cabinet Mr. Charles Ugwuh, has remained more or less moribund on the stock exchange’s price listing as investors ignored it even when the stock market was upbeat.
DOYIN INDUSTRIES
Doyin Industries is still a flourishing concern, this would not have been so if the man behind the manufacturing concern had not been well grounded in the ways of manufacturing in Nigeria. Of course he had been badly burnt from his engagement with manufacturing.
Samuel Adedoyin, the man behind Doyin Industries started out in business as a trader and he made quite a success of it that he diversified into manufacturing of household and food items and body care products. By 1996 he mobilized credit to build an awesome factory to manufacture his company’s range of products, and he was daring enough to take on multi-national companies. Travails soon ensued, electricity limitation to power the factory and the credit sourcing for funding the factory project became a burden, the market was also flooded with cheaper products from Asian countries.
The operations of the company soon became hamstrung, credit issues from City Express Bank became a public embarrassment for the Kwara State born industrialist, eventually, a production line of the industry had to close down and workers lay off.
DUNLOP
Dunlop Nigeria Plc is the latest of once buoyant companies to hit the dirt. The company had endured the harsh economic environment and had over the years returned impressive earnings to investors in the company being a public quoted company a greater majority of 95 per cent of the company’s shares belongs to several state governments, public companies and no fewer than 93,000 private Nigerians.
In 1991, it acquired majority shareholding in PAMOL (Nigeria) Limited, a rubber producing company to ensure uninterrupted supply of the right quality natural rubber, a major raw material in tyre manufacturing.
The company pioneered the radial car tubeless tyres in West Africa; produced the first crossply tyre in tubeless in Nigerian market; was the first Nigerian tyre company to hold the E.C.E 30 Certificate, an export requirement for car tyres to Europe; and first manufacturing company in Africa (beside South Africa) to hold the ISO 9002 certification.
It would soon be revealed during the former minister of commerce visit to Dunlop factory late last year that the company was merely struggling to stay afloat. The managing director of the company had complained about infrastructural deficiency, especially energy (electricity and recently, gas outages) and import duty regimes, inconsistent tax regimes which combine to place local manufacturers at significant disadvantage.
A major gripe of the company was its N8 billion expansion into the Heavy Truck Radial segment which was frustrated by reversal of government policy on tariff for imported truck/bus tyres from 40 per cent to 10 per cent at the beginning of 2007. This according to the company’s officials, created unfair and inequitable advantages for importers of finished tyres.
The dichotomy between tariff for car tyres (50 per cent) and Truck/Bus tyres (10 per cent) is said to have been abused by importers, both in terms of tariff and haulage evasion.
The situation confers undue advantages on importation rather than local manufacturing, now, the company has declared its incapacity to continue manufacturing activities in the country. Unofficial source said it would resort to tyre importation with grave implications for the rubber from its subsidiary, Pamol.
FAMAD (FORMERLY BATA) PLC and LENNARDS NIGERIA PLC
Before the introduction of the Structural Adjustment Programme, Bata’s ubiquitous outlets were the ultimate in foot wear shopping for all ages, Bata with its lesser cousin, Lennards Nigeria Plc. After 1986, the promise of flourishing was effectively shut out of the footwear manufacturing outfits. Government could not stem smuggling activities.
Synthetic shoes from Dubai and other Asian countries and high quality leather foot wear from Europe smuggled large scale into Nigeria particularly suffocated indigenous production. Ironically, the nation’s export in their raw forms the materials needed for footwear manufacturing. The products are exported, refined, recycled and packaged abroad to be sent back to Nigeria as import.
Till date, no appropriate government policy has addressed the inadequacy in the sector that has turned FAMAD (BATA) and LENNARDS into moribund companies.
VOLKSWAGEN AND PAN NIGERIA
In the 1970s Nigerian was the centre of attraction in the African continent with its hosting of the Volkswagen and Peugeot Automobile Nigeria plants. Nigerians, before the economic deluge of the last quarter of 1986 were sure of brand new cars proudly assembled in Nigeria. The assembly plants were supposed to be transitional in the nation’s march to becoming a full fledged vehicle manufacturing country.
The dream was cut short by government policy. Government steel rolling mills could not produce an ounce to support the desire to attain full production capacity, just as the value of the naira had suddenly depreciated in the years running to the close of the 1980 decade, and government back in the days, unofficially gave the go ahead for the importation of second hand vehicle (Tokunbo) at outrageously low tariff without consideration for age of vehicle to be imported.

REAL ESTATE INVESTMENT MAY BE IN TROUBLE SOON – EXPERTS WARN

Many investors have taken a flight to the safety of real estate in the aftermath of the worrisome protracted correction that had turned the Nigerian stock market into the grazing ground of the bears with stock prices continuously hitting new bottoms by the day.

Analyzing the prospects of a downturn in the real estate sector, a second tier bank managing director explained that the frenzy of investors’ movement to the real estate sector would end up in creating artificial value for property which, as result, will lead to a correction in the sector.

“Everybody is now rushing to the real estate sector because the stock market is no longer providing the kind of capital appreciation we witnessed up to March this year.” The bank’s MD observed.

“But the problem I see is that not many people are giving consideration to proper valuation of property. Like it happened in the stock market, the herd mentality is being enacted in the real estate sector, especially those that are rushing to take position in highbrow areas. For instance, in the Lagos area, most investors think that properties in the Lekki-Ajah corridor would continue to appreciate forever. This is a wrong notion because the price of these properties is high at this moment for reasons of high demand pressure.

“What I believe will eventually happen is that properties would soon be priced out of reach of usage. When you get to that point, people that had bought into these properties with intent at trading them off may not be able to free their investment because there would be nobody to buy, even letting may no longer be feasible because of over pricing. When we get to this scenario, the only plausible response would be another desperate bid to get out of the sector; the consequence would be too many properties asking to be bought by too few buyers. This leads to price crash” The MD argued.

“I will counsel that anybody who wants to go into property should consider newly developing areas that are just growing so that they can buy cheap and tend the properties with a medium to long term view.” He advised.

Mr. Ori Adeyemo, a forensic accountant, however, reviewed his consideration of the fate of the real estate sector from the background of the banking credit relationships with their customers.

“The logic is simple enough. The two most reliable forms of collateral for Nigerian banks are stocks and properties. Now with the protracted fall in the stock prices, stocks that have been pledged as collateral to banks have become more or less worthless such that stocks are no longer popular with banks as collateral.

“But there is a tie-in somewhere in the credit transaction between banks and their credit customer. Most customers had pledged their properties as collateral to secure credit to finance their stock market transactions, some had gone ahead to use the money from the credit transactions from their banks as margin participation funds with their stockbrokers and in some cases, their banks.

“Of course, I had always warned that the stock market was headed for a crash, but not many people heeded my call. Now that we found ourselves in this situation of price falling endlessly, it translates to mean that banks cannot redeem their funds from selling pledged stocks, so the next would be to start offering the properties pledged as securities in the open market in the desperate bid to recover their money from their credit customers. You will expect that so many properties would be in the market at the same time competing with those other properties investors had taken position in. The result is a saturation of the properties market on the supply side. What I see is properties prices falling drastically.

“At this point in time, I advise the average investor to remain calm and proper evaluation of whatever is his or her next investment step because situations tend to change drastically at time like this.” Adeyemo suggested.