The recent heavy-handed approach by Nigerian regulatory authorities towards foreign-owned companies has not done the country’s business environment any favours.
Two months ago, the Consumer Protection Council (CPC) shut down a branch of Krispy Kreme in Lagos over claims that expired items were used in the preparation of its products. In the same month, the CPC also obtained a court order preventing MultiChoice Nigeria Limited from raising DSTV subscription rates. And then more recently, the Office of the Attorney-General handed MTN Nigeria a $2 billion tax bill just days after the Central Bank of Nigeria, in a separate move, ordered the company to return $8.1 billion the bank says was repatriated improperly. These regulatory decisions, primarily based on claims whose veracity are yet to be fully established, have only worsened the perception that Nigeria remains a difficult environment for doing business.
Already, there is evidence that some mistakes might have been made. The Krispy Kreme outlet which was shut down has since been reopened after it was found to be compliant with all health and safety standards. Furthermore, the attempt by the Attorney-General’s office to assess tax matters relating to MTN, while not entirely unlawful, should purely be within the remit of the Federal Inland Revenue Service, the federal body which regulates taxation matters. Logically, MTN has sought redress in court stating that it has always fulfilled all its taxes and financial obligations to the Nigerian Government.
Irrespective of the outcomes of pending investigations and court cases, the uncertainty from these acts of regulatory overreach leaves much to be desired. Furthermore, an examination of the conflicts reveals a pattern of behaviour. There seems to be a trend whereby foreign-owned businesses are scapegoated as causes and enablers of the nation’s unpleasant economic situation. This nature of economic nationalism does not bode well for a country already rated high on the Global Expropriation Risk Index, as it unwittingly confirms suspicions that the country remains very risky for foreign investments.
Alarmingly, the nation’s risk perception has worsened amid weakened investor confidence. In the days following the CBN’s $8.1 billion MTN claim, the stock price of Guaranty Trust Bank, a bellwether for foreign investors’ confidence in the Nigerian economy fell by over 12%. Prospective investors at the road show organised in New York by the Debt Management Office have also raised concerns over the treatment of foreign businesses by Nigerian regulators, signalling unease at recent developments.
This is unsurprising as the allegations against MTN wiped 20% off the group’s valuation, with other South African businesses exposed to Nigeria also taking a dive. Already, MTN’s planned listing on the Nigerian Stock Exchange has come under question while there are also speculations that the company might be seeking an exit from the Nigerian market entirely. When MTN, which has been the most successful example of foreign investment in Nigeria in recent decades, is continually subjected to excessive and baseless scrutiny, it would be difficult to convince investors that the country is open for business.
Also, the recent acts of regulatory overreach are regarded as further proofs of the long-standing tendency of the Nigerian government to shun free-market policies and influence businesses operating in the country, a situation which will only have negative consequences on business performance and future foreign direct investment.
Overall, the ultimate purpose of business regulators is to ensure that businesses can create and preserve value while adhering to set standards. However, a regulator which continually harasses firms will neither aid the creation or preservation of economic value. Furthermore, a country which espouses free market economy and aims to be an attractive destination for foreign business and capital should not operate as Nigeria does.
It is important to stress that not all regulations are evil-natured. Fines imposed by the Nigerian Communications Commission on telecom companies over poor service quality led to improvements, while the war on substandard drugs by NAFDAC under the late Professor Dora Akunyili saved the lives of thousands of Nigerians. However, when regulations are excessive and without reasonable cause, they make value creation, economic development and improved standard of living extremely difficult.
Although it is expected that the other regulatory conflicts will be amicably resolved like Krispy Kreme vs CPC, the ensuing damage to the perception of Nigeria as an investment destination will be difficult.
That proper regulation is essential to promote public safety is not debatable. However, when regulatory authorities go beyond their remit, as has recently been the case in Nigeria, the consequences are often detrimental even to the consumers they seek to protect.
Follow this writer on Twitter @Numero_1ne. Subscribe to read more articles here.