Given recent developments on issues between Nigerian businesses and private equity investors, CHIMA AKWAJA writes that keeping to the contractual agreement may be the solution.
Globally, foreign direct investment (FDI) is an integral part of the international economic system and a major catalyst for development. Foreign direct investment complements domestic savings of countries. It involves the flow of capital and human resource from one country to another, which serve as an indicator of the economic strength of a country.
Foreign direct investment is an investment in enterprise and the extension of enterprise involves flows of capital, technology, and entrepreneurial skills and, in more recent cases, management practices to the host economy combined with local factors of production without creating debts to the government.
The Nigeria FDI experience, although located in the activities of businesses like the Lever Brothers pre and post-independence, took shape when General Ibrahim Badamosi Babangida took a bold but highly criticised step to implement the structural adjustment program (SAP) in 1986.
Even though debates still exist on how positively SAP has affected the Nigerian economy, a fact that may not be denied is that several sectors of the economy were liberalised and became attractive to foreign investors. As at 1994, an estimated $2 billion was raised in FDI inflow into Nigeria.
Unfortunately, today, Nigeria is challenged regarding how much FDI that the country has received in recent years. In 2019, a report by Fitch Solutions revealed that Ghana, South Africa and other smaller countries in Africa are preferable destinations for FDI, leaving Nigeria at the very low end of the ladder.
According to the report titled the ‘43 NEW Africa Country Risk Reports’, the countries that are above Nigeria have more stable environments for investment with lesser cases of insecurity, lesser cases of policy volatility and uncertain regulatory environment, uncompetitive import conditions, among other factors.
Despite these challenges facing Nigeria, the determination of Nigerian business owners to attract FDIs must be commended. The successes recorded by some of these enterprises are unparalleled.
However, and regrettably, the discordant tunes from a recent press conference by the Business Founders’ Coalition where some of the founders said they have fallen out on their agreements with their private equity investors is generating some ripples.
Chief executive officer, Synlab Nigeria, Richard Ajayi speaking on behalf of the Coalition, urged the government to peg the percentage of shareholding a foreign investor should have in a Nigerian entity, which is a good call.
Of major reference is the current leadership disagreement between the founder and CEO of HealthPlus Limited, Mrs Bukky George and her foreign partners, Alta Semper, a United Kingdom-based company. While Mrs George claimed that the investors have not fully complied with the terms of the agreement by providing the second tranche of the funds pledged, the investors who have the majority control shareholding at 53.8 per cent explained that they took action to terminate the appointment of the CEO to redeem the fortunes of the company after the CEO had refused further intervention by growth capital and both parties could not reach a resolution.
Although Mrs George claimed that the appointment of a chief transformation officer is illegal, owing to an existing court proceeding, the investors said that they have acted within the enabling laws guiding the contractual agreements between both parties.
In part, a statement signed by the investor’s directors said, “This difficult decision (to terminate the CEO’s appointment) was made in full compliance with Nigerian law and following a long and drawn-out process of engagement, through which the Board sought to address multiple issues with the way the company was being managed.
“Despite a series of significant breaches of the terms of Mrs George’s engagement as CEO, the Board explored a range of options that would enable her to continue to play an alternate leadership role. It, unfortunately, became clear that an amicable resolution was not going to be possible and that, as the multiple issues persisted, urgent action was required to avoid adverse impact on the entire business, including customers, employees, suppliers, and other key stakeholders,” the statement read in part.
Mrs George had in 2018 when the deal was sealed said that “Alta Semper is the right partner for our next stage of growth as they focus on the healthcare sector, and also invest patient and flexible capital which will allow us to grow strategically across Nigeria and further our mission to provide high quality and affordable healthcare products and services to a market that is large and growing.”
That the tune changed in only about two years into a five years’ agreement, to the extent it is now, is of great concern. This kind of uproar is not what Nigeria needs now, particularly, as the federal government continues to explore ways to diversify the economy from an oil-based one.
The infrastructural deficit in Nigeria is not in any way making it easier for businesses to operate at the maximum level. The supplement lies in the amount of capital which enterprises can raise to effectively manage their businesses for profitability.
In a recent interview granted to Nairametrics, business mogul, Leo Stan Ekeh who is the chairman of Zinox proffered what could be the path to success for Nigerian businesses seeking investments from private equity firms or venture capitalists either from Nigeria or abroad.
According to him, ‘‘Looking for foreign investors is like taking a bank loan locally. You must keep your promises. When you talk about the knowledge economy, it means you should be knowledgeable enough to understand what you are going into or pay quality corporate law firms to advise you, but you must listen to them. The money the bank lends to you belongs to depositors and investors and you must do everything to keep to the terms of the loan.
“Same with foreign investors. They are here to help you build and make money and in the process, you make more than you would have made. They help you alter your destiny. They are not charity organisations. Sincerely, they add huge value to help you institutionalise corporate governance and make more money than you would have made. I had warned severally in conferences that the failure rate of startups in Nigeria is unbecoming of a nation and an embarrassment. We should respect agreements signed in this 21st century. That is the only way this country can grow.”
Ekeh added that “We have world-class locally owned legal firms to guide us in these partnerships. I have had at least one major public quoted company as a foreign investor and the experience is rewarding. They remain my best friends till today and can vouch for me on major international transactions and they have done this severally even though I bought them out a few years ago. We need these people to scale. Nigeria doesn’t have real financial capacity to build globally rated companies. Trust me on that.”
Without any doubt, these are words of wisdom. FDI must grow in Nigeria to the advantage of the Nigerian economy, but first, the right things must be done. Nigerian companies should get the right legal advice while drafting their contracts and they must keep to the terms thereof.