Monday, December 18, 2006

Nigeria’s Own Enrons

It is time for the Economic and Financial Crimes Commission (EFCC) to cast its net on the Nigerian corporate world. The recent restatements and financial impropriety in Cadbury Nigeria Plc. is only but a tip of the iceberg of what entails in many publicly quoted Nigerian companies. In the late 1990s, the Nigerian economy witnessed a spate of failed banks and financial institutions as a result of gross mismanagement and frank acts of fraud by key management staff, including a sitting and past president of the Nigerian Institute of Bankers (NIB), the highest standard setting body of banking in Nigeria.

Many of those indicted were arrested by the Federal Investigation and Intelligence Bureau (FIIB) and were held at the Alagbon Close headquarters of the agency. But as is characteristic of Nigerian law enforcement, many of the indicted soon found themselves off the hook for a combination of reasons including muddled up investigation, bribery, intimidation, influence peddling and sheer incompetence of the prosecution teams. By May 1999, when the Obasanjo administration came into power there was hardly any indicted manager of the failed banks under investigation despite the fact that several tens of thousands of Nigerians had lost huge fortunes in the failed banks.

The manufacturing industry had its own spate of mismanagement too, which led to many of the multinational firms and foreign partners divesting their interests in Nigeria. The roster of the multinationals that divested their interests includes – Pfizer, Aventis, GlaxoWellcome and SmithKline Beecham (now merged as GlaxoSmithKline), Hoescht, P&G etc. Some companies did not divest their interests; instead they fired erring key officers. Lever Brothers for instance fired the late Rufus Giwa, then president of the Manufacturers Association of Nigeria (MAN) for fraudulent restatements and fiduciary impropriety. It was nauseating to see a man so indicted lead MAN for several more years while at the same time sitting on the board of the notoriously mismanaged Petroleum Trust Fund (PTF) of the Abacha years.

Another case is that of one time acclaimed whiz-kid and CEO of the United Bank of Africa, Bello Giwa-Osagie, who is reputed to have gotten a golden handshake of about $100 million for his quiet withdrawal from the Bank after charges of fiduciary impropriety were leveled against him. Giwa-Osagie was succeeded by another pretender to the whiz-kid epithet, Tony Elumelu, who also sits on the board of the mega-company, Transcorp. Many have forgotten Mr. Elumelu’s role in the Umana E. Umana pyramid finance scheme of the early 1990s when thousands of Nigerians lost their life savings to the scam. Elumelu was the branch manager of All States Bank in Port Harcourt where the scammer, Umana banked his loot.

Elumelu from this unscathed and went on to found the now defunct Standard Trust Bank, which was the undisputed king of round-tripping, a fraudulent scheme where the bank formed thousands of fictitious corporations and used them to request for foreign exchange allocation from the Central Bank of Nigeria (CBN) and then turn round to sell these allocations in the black market for a premium. All Elumelu and his cohort got for this illegal activity was a slap on the wrist and a few months' suspension from participating in the foreign exchange bids, rather than the arrest, revocation of banking license and jail terms that they deserve, considering the grievous harm round-tripping did to the value of the Naira and the Nigerian economy. Now Tony Elumelu is rewarded with a sit on the Transcorp board and, in a perverse way, regarded as some sort of corporate hero.

Without repercussion for their actions corporate executives will continue to perpetrate acts of fraud with impunity. The EFCC should take a look at the Nigerian Securities and Exchange Commission, the CBN and other agencies that are supposed to police these publicly quoted companies and bring any erring agent or corporate manager to book to show they are not only after financial criminals in government and international scam artists but corporate criminals and all other types of financial criminals alike.


Unknown said...

Thanks for this post. I was a merchant banker in the early 90's and left the industry sickened by what i saw. A lack of the real understanding of financial mathematics, excessive greed, corruption within the regulatory bodies and a general lack mof mores amongst most stakeholders.
The CBN banking inspectors routinely behave like lords when they come to inspect banks and there are rumours of school fees and foreign trips in return for clean bills of health. No wonder it has not been easy for the so called success stories to find foreign suitors. Those who dance around them pull out after doing due dilligence. The stock exchange is no better. Under the old call over system you had people like the call over clerk behaving like tin gods and expecting favours in return for allocating your house shares .

Not only that but something more damaging is that Shareholders are actually p[utting money in the pocketsa of greedy management. Take the following scenario. bank announces it needs to raise Capital to compete and embrace new technology which will run to billions. These assets are then bought by the bank from a front company. Within a few years smae bank goes to the capital market for more funds .
This is dim ishing shareholder value and slowly killing our companies.
The battle against corruption must be transfered to the banking Industry.

Veracity said...

I know what you mean. I have an MBA from one of the top-tier B.Schools in the US and have had conversations with these so called Nigerian whizkid bankers and stockbrokers. All they do is front and fein expertise.

These guys are the most ignorant and avaricious bankers I have ever come across. They have absolutley no idea what basic financial economics is. Concepts like CAPM, Fama-French Multifactor model, WACC, term structure, even M1, M2, M3 and their consequences etc. are completely lost on them.

With such mediocrity in the top cadre of the Nigerian banking industry and the Nigerian stock exchange, I doubt that the Nigerian economy would ever make a headway without a complete overhaul.