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CBN Sanction: A Dis-Incentive To Capital Investment

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By Cheku Alkali

A fundamental objective of financial regulation is the safety and soundness of financial institutions, and the ability of regulators to mitigate systemic risk through effective policy/reforms.

This assertion represents the statutory mandate of the Central Bank of Nigeria (CBN) under the Central Bank of Nigeria Act, 2007; the Banks and Other Financial Institutions Act (BOFIA); and the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act 1995 and other subsidiary legislations.

Admittedly, financial systems cannot function effectively without confidence in the markets. However, due to the volatile nature of the financial market, regulatory actions or inactions may cause disruption to the financial system; thereby reducing confidence in the ability of markets to function effectively.

This in turn could impair the availability of credit and overall economic activities in the country. It is against this background and the overarching responsibility of the CBN to ensure soundness of the financial system (whilst encouraging foreign capital investment) that this writer examines the impact of CBN’s sanction on MTN Nigeria Communications Limited (MTN).

The Central Bank of Nigeria on Wednesday, August 29, 2018, directed MTN to refund the sum of $8.13 billion for alleged illegal conversion of shareholders’ loans to preference shares; and the repatriation of same out of Nigeria.

Other affected parties are four Banks namely – Citibank, Diamond Bank, Stanbic IBTC and Standard Chartered Bank (the Banks)- all directed to refund the sum of NGN2.5 billion for allegations of illegal remittances of foreign exchange with irregular certificates of capital importation (CCIs) issued on behalf of some offshore investors of MTN between 2007 – 2015.

CBN’s investigation was primarily on three key “infractions” to wit; issuance of Certificates of Capital Importation (CCI’s) for the following items; foreign currency sourced locally; falsely declared capital importation; and interest-free loans converted to preference shares without authorization.

In response, MTN described the allegation as regrettable, and reiterated its intention to vigorously defend its position before a court of competent jurisdiction.

At the time of going to print, we understand MTN has instituted an action in this regard at the Federal High Court of Nigeria.

CCI is a certificate issued by an authorized dealer (usually a licensed commercial bank) confirming an inflow of foreign capital either in form of cash (loan or equity) or goods.

CCI is usually issued in the name of the investor with 24-48 hours of the inflow of the capital into Nigeria.

Its primary purpose is to guarantee access to the foreign exchange market for the repatriation of capital/returns on investment – dividend, interest and capital on divestments, as well as repayment of principal and interest accruing on a foreign loan.

Assuming to be correct, the allegation against MTN and the Banks, the question which arises is whether the CBN has effectively discharged its responsibility of financial supervision given the length of time (8 years) it took to realise, investigate and sanction the affected parties.

As stated, foreign investors are permitted to import capital or invest in any enterprise in foreign currency, through authorized dealers – who are permitted to issue CCIs within 24 (sometimes 48) hours of receiving the capital inflow.

It may then be argued, that the inability of the CBN to effectively and promptly monitor the inflow and outflow of foreign capital, is effectively a failure to discharge its statutory obligation.

Put differently, the CBN should have sanctioned the affected entities long ago to avoid the disruption now caused because of the delay in this regard. An unintended effect of this regulatory lapse may be the resultant lack of confidence and transparency in the financial market, that tends to stifle foreign investment activities.

The CBN Manual 2006 (the operating manual at the time the actions of the above-named entities were carried out) provides that foreign investors are guaranteed unconditional transfer of their capital, profits and dividends attributable to their investments in any convertible currency through authorized dealers.

This means that a company/investor intending to repatriate its capital will be required to provide a CCI as evidence that the original investment was imported into Nigeria.

Following the CBN sanction, MTN has witnessed a drop in its share price by 23%. Even in the event the allegations are false and MTN succeeds in its claim against the CBN, the reputational damage to the nation may be irreversible.

For the savvy investor desirous of repatriating capital returns, economic headwinds would seem to warn against bringing in capital investment. Investors would find it easy to conclude that bringing in funds would be unwise because of a perceived inability to access and repatriate same when required.

Thus, by failing to proactively supervise the instant issue, the CBN; despite acting within its statutory powers, may occasion a ripple effect on investor’s confidence in Nigeria’s financial system.

Looking forward, instead of taking similar (delayed) reactionary measures, this writer suggests that the CBN should look to strengthen its monitoring, and processing of CCIs of foreign investment flows in and out of the country.

To achieve this, it can adopt a twin approach to its supervisory role to ensure transparency, market integrity, and consumer protection. This approach of coupling the power of sanction with proactive regulation, will also ensure that the CBN acts as a catalyst for foreign direct/portfolio investment as opposed to becoming an inadvertent market disruptor. It will better reinforce the CBN’s commitment towards ensuring a transparent and stable financial system.

A regulator such as the CBN must always weigh the outcome of its actions or inactions on the market before taking any step. Although it is difficult to have near perfect supervision, it is possible to implement stronger financial supervision measures to reduce the chances of putting foreign capital investment to flight.

Financial regulation in this regard can serve as not just a means of maintaining stability, but as an instrument for growth and development of the financial system.

 Cheku Alkali is an Associate of Perchstone and Graeys


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AXA Mansard Empowers Female SMEs with Financial, Digital Skills

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AXA Mansard, a member of AXA has empowered 200 female Small and Medium Enterprises with financial literacy and digital business skills.

In collaboration with SME 100 Africa, the two-day training, which was held in Lagos, is part of AXA’s lined-up programmes to commemorate this year’s International Women’s Day.

Speaking, Olusesan Ogunyooye, Head of Marketing AXA Mansard, said the training was aimed to empower female SME owners with skills to improve business output and position them for the increasing economic opportunities available in an increasingly digital marketplace.

Ogunyooye noted that the move was in line with AXA Mansard’s sustainability agenda, explaining that the company was convinced that support for women through its inclusive protection programmes was pivotal to its purpose of acting for human progress by protecting what matters and its mission of moving from being a payer to a partner.

He further said that focusing on digital skills was important because the company realised the importance of digital skills to the growth of the SME sector in Nigeria and wants to ensure that women were empowered enough to be a consequential part of that growth.

“It’s almost trite to say that SMEs are the engine for economic growth, especially in developing countries like Nigeria, where over 45 million adults are business owners. What needs to be continually discussed is how Nigeria is going to unlock that potential for economic development and how much of that potential will be unlocked by women and for women.”

“For us at AXA Mansard, we are aware that digital will play a major role in unlocking these current opportunities and Nigeria’s economic future. So, to ensure that women are equally represented in unlocking these future potentials, that’s why we have collaborated with SME 100 Africa to support them in developing the required skills”.

“Our choice of digital and financial literacy skills is deliberate. We understand the power of the duo. We understand that helping these SMEs with the skills to attract more customers will be a faster means to empower them.

“We see that they have amazing products and services, but they need to understand how to attract value for themselves by attracting the right customers, and you will agree with me that virtually all customer segments are online in one way or another today.

“So, if we can empower them with digital business skills, we would have helped them with the heavy lifting of trying to find and attract customers”. Ogunyooye explained.

According to him, AXA Mansard believes that for the world to experience progress truly, there must be an equitable distribution of creation and access to opportunities for men and women. This quest for balance informed the SHE for Shield initiative, a women-centred inclusive protection programme of AXA Mansard.

SHE for Shield is a group of initiatives designed for the Nigerian woman. The goal is to see them grow, add value, and help them mitigate risks at every step.

According to the company, research has found that access to health care is one of the most important things to Nigerian women, regardless of their economic segment. They desire to be financially independent, secure, and respected in the community.

 


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IFC Invests in New 4DX Ventures Fund to Support Tech Startups in Africa

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IFC is investing $10.5 million in a new fund by 4DX Ventures, a New York-based venture capital firm focused on supporting early-stage African technology companies across a broad set of sectors, including fintech, e-commerce, edtech, climate tech, and health tech.

IFC’s investment in 4DX Ventures Fund III will come from IFC’s $225 million venture capital platform, which was launched last year to strengthen emerging VC ecosystems and invest in early-stage companies in Africa, the Middle East, Central Asia, and Pakistan.

Africa is among the regions least served by venture capital, receiving just 2% of global venture deal volume in the third quarter of 2023. Access to capital on the continent has been further exacerbated by a slowdown in global venture capital investment.

Tech ecosystems are nascent, or even nonexistent, outside of more established markets such as Egypt, Kenya, Nigeria, Senegal, and South Africa.

“IFC and 4DX Ventures share the commitment to supporting tech entrepreneurs with innovations that will help Africa leapfrog in critical areas such as climate, health care, fintech, e-commerce, and education,” said Walter Baddoo, Co-Founder and General Partner of 4DX Ventures.

“We look forward to partnering with IFC to help promising tech startups build transformative businesses and realize sustainable development impact on the continent.”

4DX’s new fund will invest in companies with tech solutions that can improve productivity, efficiency and competitiveness across Africa. The firm’s first two funds invested in companies such as Egypt-based e-commerce platform MaxAB, an IFC portfolio company; Ghana-based health tech firm mPharma; and Kenya-based B2B e-commerce platform Wasoko, formerly known as Sokowatch.

“By supporting the development of tech ecosystems in emerging markets, IFC’s venture capital platform aims to improve access to key services, boost business competitiveness, and promote job creation through digital transformation,” said Mohamed Gouled, Vice President of Industries at IFC.

“Our investment in venture funds such as 4DX Ventures will help African entrepreneurs access more financing and resources they need to scale tech innovations and bolster sustainable growth across the continent.

In addition to providing capital, IFC will work with 4DX Ventures to implement their environmental and social management system.


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Climate Action Africa Announces CAAF24

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Climate Action Africa (CAA) has announced the inaugural convening of the Climate Action Africa Forum (CAAF24). This international event brings together stakeholders from across the world who drive thought leadership insights on how to encourage collaboration, catalyse actionable solutions, and urge governments, businesses, and individuals to invest in climate-smart initiatives.

The climate-focused event was announced at last week’s Friday international press conference held at the prestigious Transcorp Hilton Abuja. This marks a significant milestone in Africa’s journey towards a sustainable future. A precursor to the upcoming Climate Action Africa Forum scheduled for June 17-19, 2024, at the Landmark Events Centre in Lagos, Nigeria, this press conference brought together leaders, experts, and stakeholders from across the globe. The gathering’s main goal was to discuss the urgent need for sustainable development plans and climate-smart investments in Africa.

Framed by the theme “Green Economies, Brighter Futures: Innovating and Investing in Africa’s Climate-Smart Development,” the international press conference became a vibrant platform for insightful discussions, strategic collaborations, and impactful engagements. It convened an esteemed gathering of leaders, experts, and stakeholders to explore solutions for Africa’s pressing environmental challenges.

The event kicked off with a welcome address by the Executive Director and Co-founder of Climate Action Africa, Grace Mbah, who having announced the commencement of event registration as April 2nd, 2024, made the call for tech-driven solutions and innovations in the fields of emissions reduction, transportation, agriculture, energy, circularity and building and construction to apply to participate in the deal room.

Providing insights to attendees on how innovative approaches and collaborative action is at the heart of CAAF24, she extended an opportunity to like minded organisations who would like to partner by hosting side events and finally, a call for volunteers from across the continent.

“It’s no news that the world stands at a critical juncture, where decisive action is imperative to mitigate the adverse impacts of climate change. Against this backdrop, CAAF24 serves as a pivotal platform for key stakeholders to engage in meaningful discourse, and forge collaborative pathways towards a greener, more sustainable future.

The essence of CAAF lies in its commitment to shaping a climate-resilient Africa through co-creation, innovation, and sustainable investment. Through this initiative, we aim to catalyse solutions that enhance the sustainability and prosperity of the continent’s natural resources, people, and economies,” Grace stated.

During the International Press Conference, distinguished speakers and thought leaders emphasised the urgent need for collective action in tackling Africa’s climate challenges.

They delved into critical topics like renewable energy, sustainable agriculture, biodiversity conservation, and climate finance, offering practical insights and inspiring initiatives.

Jummai Vandu, representing the National Council on Climate Change, expressed optimism about the initiative’s outcomes. “Today’s discussions,” she said, “underscore the urgency of our collective efforts to combat climate change. The National Council believes working together is key to driving meaningful action and creating a more sustainable future for Africa and beyond.”

With the International Press Conference complete, the stage is set for CAAF24. Stakeholders will converge to translate ideas into action, forge partnerships, and drive progress towards a climate-smart Africa.

Mrs. Taiwo Fashipe, Head of Media for the Presidential CNG Initiative (P-CNGi), echoed similar sentiments, stating: “The theme of this year’s Climate Action Africa Forum aligns with our goals, vision, and mission at the Presidential CNG Initiative.

“We look forward to using this platform to advance interest in and investment in greener and cleaner energy sources like CNG.”

Standing at a crucial juncture in Africa’s quest for sustainable development, CAAF24, convened by Climate Action Africa in partnership with the National Council on Climate Change, Channels Media Group, and Founder Institute, emerges as a beacon.

It brings together the private and public sectors, guiding the continent towards a future marked by resilience, prosperity, and environmental stewardship.

 


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