The week ahead – Rising tide

Richard Teng, the CEO of Binance, claimed that some unknown persons had sought a bribe of cryptocurrency from its executives, Tigran Gambaryan and Nadeem Anjarwalla, before their detention on 28 February 2024. The Binance boss said that on 8 January, some unknown persons sought cryptocurrency bribes from Binance employees to “make the issues go away,” after which the executives were invited to meet with the Office of the National Security Adviser. Teng claimed that a meeting was set up with the Nigerian government through a committee of about “30 agencies.” However, it was discovered that the committee lacked the authority to issue the arrest warrant.

In the broader context of government officials demanding bribes from corporations, there have been numerous instances globally where such allegations have surfaced. One notable example is the case of the Brazilian construction conglomerate Odebrecht, which admitted to paying billions of dollars in bribes to government officials across several countries to secure lucrative contracts. In another case involving the Malaysian state investment fund 1MDB, high-ranking officials were accused of embezzling billions of dollars from the fund, leading to a major corruption scandal. But in Nigeria, it appears all too commonly, as the investor, Eghosa Omoigui, recounted in a series of posts on X (formerly Twitter) after the Binance allegations were broken by Bloomberg. Accusations of bribery involving high-profile government officials like those in the Tinubu Administration can further damage the country’s reputation and that of the administration itself. Such allegations can undermine investors’ trust in the government’s integrity and ability to conduct fair and transparent business dealings. When government officials are perceived as corrupt or willing to engage in unethical behaviour, it can deter foreign investment, undermine the rule of law, and hinder efforts to combat poverty and inequality. The truth is Nigeria has a love-hate relationship with cryptocurrencies. Individual citizens love them because of the investment and transaction opportunities they present, but the government and their agencies hate them because they take away the power of control. It has now been more than two months since the Nigerian government detained two Binance executives, although one escaped. Since he assumed office, President Tinubu has been travelling to various countries to woo investors. What would attract investors to a country that detains foreign business officials? No matter the allegations against Binance, it is essential to remember that the story of one foreign business will serve as a cautionary tale to others. If Nigeria is tagged as a country where company officials can be solicited for bribes and then detained indefinitely, convincing investors to invest will become exceedingly challenging. It is thus crucial for authorities to thoroughly investigate the bribery allegations and hold those responsible accountable to uphold the principles of transparency and accountability in governance. With that being said, the ongoing narrative around the arrest of the Binance executives is unflattering to the Nigerian Government, and it would be in the best interests of the Tinubu Administration to resolve the issue as quickly, fairly and diplomatically as possible.

Atiku Abubakar, the 2023 Peoples Democratic Party presidential candidate, has alleged that the Nigerian Government’s quick action on the Lagos-Calabar Coastal Highway is due to business ties between President Bola Tinubu and Gilbert Chagoury, the owner of Hitech, the project’s contractor. Atiku said the $13 contract award violated procurement regulations and placed Tinubu’s interests over those of taxpayers. Atiku highlighted the conflict of interest arising from Mr Tinubu’s son, Seyi, and some other associates serving on the boards of Chagoury’s companies. He also cited the lack of proper notice for demolishing the properties in the Oniru corridor, including the Landmark Resort, as a barrier to foreign direct investment.

It is important to highlight the hypocrisy within political circles. Atiku has been called out for engaging in similar business dealings during his tenure as Vice President, yet he now condemns others for doing the same. This hypocrisy undermines his credibility and exposes the double standards prevalent in Nigeria’s politics. Mr Abubakar, amongst other high-profile politicians who lost in the last general elections, has sought to stay relevant to the electorate by periodically commenting on front-burner national issues. But, having criticised Atiku on this issue, he is dead right. The circumstances surrounding the Lagos-Calabar Coastal Highway are very concerning. First, the government is swiftly initiating the project, although completion is projected to take at least five years. Rushing infrastructure projects can lead to numerous challenges. The haste to commence construction often results in insufficient planning and oversight, increasing the likelihood of cost overruns and delays. Second, enforcing the right of way has led to the demolition of some important structures, such as the Landmark Beach, disrupting communities and businesses. Third, the rush to demolish raises serious concerns about property rights, especially the enormous amounts of money invested in the Landmark Beach Resort. In keeping with our current theme, it would be difficult to convince investors to bring in money to an environment where all their investments could be destroyed on a whim. Fourth, funding the project solely through government resources neglects the potential benefits of public-private partnerships, which can bring in additional expertise and investment while mitigating financial risks. Assigning contracts without due process exacerbates these issues, opening the door to corruption and favouritism. Without transparent procurement procedures, contractors may be selected based on connections rather than competence, leading to substandard work and wasted resources. In summary, Mr Abubakar’s accusations highlight the need for accountability and transparency in governance. Rushed infrastructure projects and unchecked business ties only serve to undermine public trust and perpetuate a cycle of inefficiency and corruption.

The Central Bank of Nigeria (CBN) has ordered banks to charge a 0.5% cybersecurity levy on transactions beginning in two weeks. The levy, however, exempted loan disbursements/repayments, salary payments, intra-account transfers within/between banks for the same customer, intra-bank transfers between customers of the same bank, cheque clearing/settlements, ⁠Letters of Credits, ⁠Banks’ recapitalisation-related funding, and bulk funds movement from collection accounts, savings, deposits, and long-term investments. This follows the Federal Government’s approval of salary increases for civil servants on the six Consolidated Salary Structures and 20% to 28% increase for pensioners, different from the ongoing labour unions’ negotiations related to the fuel subsidy removal.

Despite operating a federal system of government, the federal government negotiated and fixed the minimum wage in Nigeria at ₦30,000 monthly and implemented it in 2019. At the time, the official exchange and inflation rates were $/₦365 and 12% respectively. Fast-forward to May 2024, the official exchange and inflation rates are around $/₦1,406 and 33.1%, respectively, while the federal government is proposing only a 25% and 35% salary increase for civil servants. One could argue that since the federal government negotiates on behalf of all tiers of government, it has factored in the financial capabilities of different state and local governments to afford such salaries. It is commendable that pensioners under the Defined Pension Scheme have been included in this review. However, given higher fuel prices and escalating taxes over time, the federal government cannot really justify this proposition. The FG has indicated that VAT could be increased imminently from 7.5% to 10%, which makes some sense. However, the 0.5% cybersecurity levy on bank transactions makes little sense and is ill-advised, considering that the projected trillions of naira in annual revenue that could be raised will not go into salary payments but to ambiguous expenditures under the Office of the National Security Adviser. The government is the country’s largest employer, so actions regarding employee compensation affect the economy. In recent times, the unions have been clamouring for an upward review of the minimum wage, but there has been no agreement. However, the government has tried to be ahead of the negotiations by approving a salary increase for civil servants on specific salary structures. This will undoubtedly improve the quality of life of civil servants in those salary structures. However, care must be taken not to jeopardise efforts being made by the CBN to rein in inflation. A situation with too much money in circulation will lead to a price surge.

The General Secretary of the Ghana Food and Beverages Association of Ghana (FABAG), Samuel Aggrey, has raised alarm over Ghana’s increasingly dire economic situation. Speaking to JoyNews, Aggrey highlighted the exodus of multinational companies due to the prevalent unfavourable taxation policies and economic conditions. “If you look at the taxation policy that we have in this country, it is actually not helping some of these businesses who have come in and invested so much,” he said. He stressed the importance of re-evaluating existing policies to make Ghana a more attractive destination for multinational corporations.

Ghana’s quest to solve its historic economic crisis may have done more harm than good to local and multinational private firms. A request for debt restructuring disrupted investor confidence, resulting in limited access to international capital markets and the subsequent restructuring of local bonds held by businesses and commercial banks. Although inflation has stabilised from a peak of more than 54% in December 2022 to 25% in April 2024, other strong adverse winds like the accelerated depreciation of the cedi against major trading companies have put enormous pressure on the cost functions of business in the country. In less than two years, about eight firms, including Nivea, Dark and Lovely, Game and BIC, have all left the Ghanaian business space, citing depreciating profit margins and high production costs as key factors. Recently, delivery giant Glovo indicated it would leave the space this year, citing similar reasons. There are also rumours that the French bank, Societe General, will soon exit. The stringent taxation environment, increasing electricity costs, and junk local currency make it very difficult for businesses to thrive. Multinational organisations that have to convert their end-of-year profit into dollars have witnessed a persistent drop in their profit in dollars. For instance, cedi lost about 10% of its value against the dollar in the first three months of this year, which negatively impacted shareholders’ dividends. Beyond this, businesses operating in the Ghanaian space find themselves embroiled in a challenging fiscal battle, competing with the government for the limited funds available in the T-bill space. The government’s move to raise interest rates on T-bills above 30% made it more appealing for commercial banks to lend to the government rather than private entities. Recent data from the Bank of Ghana revealed that commercial banks continued favouring short-term investments and overextending credit due to heightened lending risks amid worsening macroeconomic conditions and the impact of the Domestic Debt Exchange Programme (DDEP). This crowding-out effect was evident as private sector credit shrank by 7.5% in October 2023, a sharp contrast to the 57.3% growth in October 2022. In real terms, credit to the private sector plummeted by 31.6% relative to a meagre increase of 3.0% over the same period. Despite promotional offers, banks persisted in offering loans to private entities at rates as high as 28%, with standard rates rarely dipping below 31%.