‘Nigeria can prosper through FDI if local businesses are diligent’

A recent report on the attractiveness of Nigerian businesses shows that countries like Ghana and others with about half the size of Nigeria’s economy are getting a better share of foreign direct investments. The recent trend in the conflict between some Nigerian business owners and foreign private equity investors and venture capitalists further indicates a major crack in what is expected to be a profitable endeavour for both parties. In this interview with JIDEOFOR CHIJIOKE, Barrister Jide Ologun, the former Chairman of the Nigerian Institute of Public Relations, Lagos Chapter, and a Certified Corporate Consultant with the Corporate Affairs Commission, who worked in the Legal Unit of the Central Bank of Nigeria (CBN), called on Nigerian businesses to do more regarding due diligence around the contractual and legal framework that set up their partnerships to ensure a win-win situation.

In recent times, Nigerian business owners have struggled with raising funds for their businesses, what do you think has been responsible for this development?
We have to start by examining what the business environment looks like because creating funds for a business means that money must go into business. In public relations, we talk about the five pillars of business which are the growth, the survival, the profitability, the employee satisfaction, and the corporate social responsibility, otherwise known as the social investment. So, profitability may appear to drive all the other elements because, without profit, a business cannot grow; without profit how can you survive? Without profit, how can you satisfy your employees? Without profit how can you engage in social investment?

The operational characteristics of the Nigerian business environment are tedious; there is a case of high tariffs in the power sector and the recent increase in the pump price of petrol. In the power sector, despite what investors pay, the services are hardly available alongside the multiple level taxation that we have in the country. Recently, the value-added tax was increased from 5 per cent to 7.5 per cent and several border issues are making it difficult to do business in Nigeria.

Rather than bringing in their resources here, even organisations that were doing business in Nigeria, have had to relocate to other countries because of the better business environment. If we want to attract foreign direct investment, the environment must be right for it because it is not easy to get money, coupled with the fact that we do not have a single-digit interest and inflation rates. Several other issues are making it unattractive for investors to bring in their money here because at the end of the day, as they say in the business community, it is all about the bottom line.

Talking about FDI (Foreign Direct Investment), the flow into Nigeria plunged to US$1.29 billion in the second quarter of 2020 and that is raising some concerns. Do you see the situation improving anytime soon?
The situation can improve if government policy implementation improves the environment because you cannot take the environment away from business operations. For example, we mentioned proper business procedures, assuming all other things are equal. But, right in the same system, you have incidences of kidnapping, banditry and other levels of crime. There is a serious level of anxiety, but investors need peace to invest.

For instance, with the present business environment in Nigeria, if I am a foreign investor, why won’t I go and invest in Rwanda where I can be assured that I can make my estimations and projections in the next seven years at a lower level of risk? Unfortunately, daily in Nigeria, the headlines are traumatic and these are issues.

Based on the constitution of Nigeria, the government has a lot to do. For instance, Section 14, sub-section 2 of the 1999 constitution, as amended, says that the security and the welfare of the people shall be the primary purpose of the government. So, if the environment is secured, many people will come in here to invest. The investment will match with the local investment and then, we can generate prosperity to embark on the welfare of the citizens.
However, in a situation where many stakeholders are asking for breakup or restructuring, where our country is branded as the capital of poverty, where we have allegations of nepotism and injustice, it is not encouraging for investors to come and invest. If we deliberately begin to change the narrative of the fundamental environmental sanity that is required, then we can change the symptoms and the consequences that we have on the ground.

For example, Singapore is not crying foul; you can invest in Singapore. Investors go to invest in the United Arab Emirates, the United Kingdom and the United States of America. Interestingly, China, where the COVID-19 allegedly emanated from, still command a high level of investment into their environment. As the wise people say, as you lay your bed, you lie on it. So, we have a lot to do to make sure our environment is attractive to investors

Despite these challenges, some Nigerian business owners have been able to attract some investment from foreign private equity investors and venture capitalists. What is your assessment of the impact of these successes on the Nigerian business environment?
If you can fly through with the required environment that you can create, which is the beauty of the private sector, why not? If you can put that integrity on the table, ensure that the bottom line is not in the negative and attract investment, why not? If you can answer all these questions, you will have people that will partner with you and I wish this can be recorded in the public sector.

For example, I cannot foreclose the fact that some investors may be interested in investing in our refineries but where will that investment go? That is a big question that must be answered. We also need to work on the level of corruption we have in the country. Therefore, if we find private business concerns that can put the required elements for business success on the table, why not? Some investors will still come in but then, we may be talking about the percentage of those who eventually are bold enough to come and invest. It has never been on a bed of roses, but then the possibilities are still there for those who can ensure that the required stakes are presented to investors.

On some partnerships going bitter, the Business Founders Coalition of Nigeria recently held a press conference and called on the Federal Government to intervene in matters relating to their private equity investors. A case in question is that of Health Plus Limited, what is your take on this?
When you come together, there must be a vision and in achieving that vision, there must be a mission, which states how we will get to our vision. These are issues that may spring up conflicts along the line and that is why some organisations have set structures in place to take care of conflict resolution. In Public Relations, we talk about crisis management. If you are proactive, you would have set up structures in advance and work diligently to prevent a crisis. But if you are reactive, it may be costlier for you. In coming together to do business, whether you are attracting equity participation or not, there’s need for a contract.

A valid contract is a written or express agreement between two parties to provide product or services and the conditions are there. Are you to bring in money? Are you to provide the services? Those parameters must be well spelt out. Several essential elements must be present before a contract is binding. We talk about the offer, talk about the acceptance, talk about the mutual accent (which states that we agree to do this together, I’m not been forced into it and that you are not under duress or undue influence) and there must be a consideration (i.e what is exchanging?), there must be capacity and there must be legality. And as I said earlier, the best form is to have a written contract and the content of the contract are known as terms and clauses or conditions.

Sometimes, you need to introduce a clause that would address what will happen when the partners start having disagreements. That would state how to terminate the contractual relationship- do we go to court? Do we go to arbitration? So, those terms must be spelt ahead not because you are planning to be enemies, but because you will need it along the line.

It must be noted that while coming together to draw up an agreement, what guarantee do you have that those involved will keep to it? What guarantee do you have that forces of nature will not disrupt what you have in place, even though it is advisable in law that you bring in the clause of force majeure? For example, nobody knew that the COVID-19 pandemic was coming around in 2020; it has come and significantly disrupted business processes across the world. It is common for a business to have a standard form of written terms, which can be quite lengthy sometimes, but you just need to be sure that you understand the terms and conditions and be prepared to run by those terms and conditions. Unfortunately, sometimes, people are so much in a hurry either to release their funds or to get funds from those who are releasing and jump into business without looking forward into what they may encounter on the way.

For instance, we have been having this back and forth on the contracts with the electricity distribution companies in Nigeria (DISCOs). For me, if you are going into business, you are not just going into the asset acquisition, you are also going to take responsibilities for the liability. Presently, Nigerians are suffering from estimated billings because of some contractual issues with the DISCOs. Therefore, there is a need to concretise your relationship and be prepared with enforceable terms. The wise man says ‘it is better to measure 10 times and cut once than to measure once and cut 10 times.’ Because many businesses have failed to take this wise counsel, sometimes, you find that matters are in court for years; many people’s fingers have been burnt in some of these transactions. Regrettably, the fact that you have a valid contract is not a guarantee that the stakeholders in the contract cannot breach the terms of the contract and that is a common issue now.

Several issues are plaguing these businesses and that is why integrity, sincerity, accountability and being ethical are very essential for survival. So, when you find things going rough, it is either ab initio, there was a plan to either defraud or other issues. Those are the issues that the court will have to sort out and there are several remedies for them if you can establish your case in court. However, the burden of proof is on the one alleging because this is a civil matter.

In the case of HealthPlus, the founder claimed she was pressed into agreeing to some terms in her contract with her investors at some point. What do you think might have gone wrong?
This is just an allegation and you have to establish and prove your case. Your case will either succeed or fall on the strength of the argument. Let us go back to business ethics. Business ethics talk about applying professional ethics, that will help to deal with moral and ethical problems that may arise in business. These ethics apply to all business conduct that you can think of. Some business ethics are paramount, such as honesty, integrity, promise-keeping and trustworthiness, loyalty, concern for others, respect for all, and being law-abiding. That is why I said the intention from the onset is critical to the success of the partnerships. Some partners are not ready to be ethical when they go into business. For instance, there was a brand that got translated into another brand and eventually taken over by AMCON in the aviation sector.

The case of Nigerian Airways is one that can be considered. Nigerian Airways was established in 1958 and became a national carrier sometime in the 1960s after we gained independence. Eventually, due to mismanagement and different form of business malpractices, it went under and a particular airline that was alleged to have taken it over somehow; that company also ran into the murky water. At a point, we read that they have had to travel without spare tyres, owing a lot of people among other allegations. The question is, do we have that sincerity in our business environment?
If you are talking about being pressed, you have to go to court and establish that. Like I said earlier, your terms must be very clear and you must ensure that they are not ambiguous. Unfortunately, some people make promises sometimes thinking that the promise will not prompt a demand for accountability somewhere along the line. Those are the issues we find in our environment and perhaps because we are permissive about it. I do not think that in China malpractices will be so allowed in Australia or Germany or Sweden or Singapore. I believe those countries have fine-tuned their environment to ensure that investors do not get their fingers burnt. When the environment is not conducive, it may affect the image and perception people have about your country. Investors may be quick to say that the country is too corrupt to invest in, stating that the country is difficult.

We are in a globalised business community. If you Google countries with the worst business environment, you will be amazed at what you will discover. These are some of the issues that may impede foreign investment. So, the business practices within the country may not be disbursed from the governance structure, the governance values and the total societal values of that community.

However, I said all these without prejudice to establishing your case in court because the court will be guided by the terms and conditions that you have endorsed under the valid contract that established the business and partnership. Those are professional issues that I do not want to delve into because if the matter is in court, you should not be prejudicial. Therefore, the explanations I am giving now are just a general explanation. It never hurts to be prepared and be proactive. Thus, when you are going into business, make it a point to look ahead and ask yourself what are the likely challenges and you prepare yourself ahead of time.

So, what will be your advice to Nigerian business owners when they are agreeing with any private equity investor, either local or foreign?
You should secure your interest and be proactive. Remember the concept of business ethics, which are the customs, moral principles and community expectations. Like I earlier said, when going into business, you need to measure where you are going and benchmark it with the five pillars. You must be able to envisage possible problems that may happen in the course of the partnership. A wise man once said that in business, you do not get what you deserve but you get what you negotiate. So, you have to be at the table to negotiate success. Although in the business environment, they say it should be a win-win but, several times, the winner takes it all. Therefore, you must engage professionals to advise you ahead of time, learn the terms and conditions and put a structure in place just like when you talk about insurance. You insure your car comprehensively not because you have dreamt that you will have an accident but in case an accident happens you can call on the insurance company to come and fix the car without having high blood pressure, thinking about how to get the money to fix the car. So, before you venture into business consider the end from the beginning. You are advised to look at the milestones in the journey.

A journey of a thousand miles starts with a single step, but that single step must take a thousand miles into cognisance because that is the secret of great brands across the world. Such successful businesses look ahead to make sure that they can cross the bridges when they get there. Therefore, business partnerships are an ongoing issue that requires strategic engagement. The strategy simply means long term plan for success and these are all-encompassing. As professionals, we do advise businesses and make necessary recommendations to prevent them from the pitfalls that may abruptly terminate the business concerns. Business owners must have their eyes wide open and of course, be strategic.

In summary, Nigerian businesses can thrive with private equity investment, however, they must read in between the lines and ensure they have a tight and concrete agreement?
Fantastic, and do not also forget that you need professionals while you are doing this. Look at the case of Shylock in the Merchant of Venice; he subscribed to a pound of flesh if his debtor defaults, but the defendant’s lawyer made him realise that he could get his pound of flesh but without a drop of blood because that was not in the terms and conditions of the written and endorsed agreement. That was the end of the matter. These are professional technicalities that businesses must seek advice on and articulate to ensure mutual partnerships. You just have to be sure that you are securing the future of your business and not mortgaging it.