Despite listing on the New Stock Exchangeand getting called a fraud by Citron Research and begging to be given one more chance to prove its mettle, Jumia is giving reasons why it listed on the New York Stock Exchange instead of the Nigerian or the more developed Johannesburg Stock Exchange. Here are some of the reasons given by Jumia for this.
Jumia CEO, Juliet Anammah
Despite listing on the New Stock Exchangeand getting called a fraud by Citron Research and begging to be given one more chance to prove its mettle, Jumia is giving reasons why it listed on the New York Stock Exchange instead of the Nigerian or the more developed Johannesburg Stock Exchange. Here are some of the reasons given by Jumia for this.
E-commerce Business in Nigeria and Africa Has No Long-term Investors
Jumia said the first reason why the e-commerce giant had to bypass the Nigerian and other African Stock Exchanges is because e-commerce in Africa has no long term investors. This is why, according to it, it had to explore the American market, where there is deeper understanding of how the market works. In fact, for Jumia Nigeria’s Chief Executive Officer (CEO), Juliet Anammah, Nigerian investors are impatient and can’t wait for long-term returns on their investment. American investors, on the other hand, are prepared to invest and wait for long term returns on investment (RoI).
Konga As A Case Study
Even Citron Research, which cited Jumia for fraud wrote this about Konga, Nigeria’s second leading ecommerce company which has been acquired by Zinox Group.
The divestment of Naspers(a South African company), ‘‘the smartest and largest tech investor in Africa’’ from Konga, another online eCommerce company in Nigeria was not due to a lack of funds or a short-term investment horizon,[after all,] Naspers has $12 billion of cash on the balance sheet and its original investment in Tencent ([in which it] still owns >30%) dates back to 2001… Rather, this decision was a reflection of Naspers’ bearish view on the Nigerian eCommerce market vs. a bullish view on South African eCommerce. Since its Konga exit, Naspers announced plans to invest over $300 million in South African tech businesses,’’ Citron noted.
Of all arguments, the least would be that Naspers divested from Konga not because of a short-term focus. Tencent, which Citron cited, is not notorious for ecommerce business, like Alibaba or Amazon. In fact, Konga was founded in 2012. Naspers acquired 50% equities in Konga in 2013, a year after Konga was formed, and finally divested in 2018, a space of five years. This does not disclose a longer term investment of say, 10 years.
E-commerce Platforms Are Not Reputed To Make Profit In The Short Term
Another reason given why e-commerce business have issues with investors is that it hardly makes profit in the short-term.
Anammah said e-commerce platforms are not reputed to make profit in the short term, stressing that investors in Alibaba had to wait for long term Return on Investment.
It took Amazon, the global leading online retailer as a public company to make profit. The company first reported a quarterly profit in the fourth quarter of 2001 and at $5 million, which may not be too attractive for investors. It did not come as a surprise that towards the end of 2017, Amazon reported a whopping $1.86 billion in net income. This does not seem to bother Amazon CEO Jeff Bezos whose cardinal business objective was to sustain more investment for the future growth of the company.
Much of Amazon’s profit was bolstered by the US tax cut, which added about $790 million to its profit in accounting terms. Take that away, it would have taken Amazon a longer time to make profit.
So When Will African E-commerce Companies Consider Listing In Their Countries?
Jumia Nigeria’s CEO Anamma said listing on the African Stock Exchange would take would not take a much longer time than expected. Jumia said this may happen soon, by 2022 when investors must have understood the dynamics of the industry.
Jumia Finally Comes Hard On Citron
Anammah said Jumia is seriously considering launching a legal battle against Citron Research which released a controversial report recently.
“We are looking at it (taking legal action). The board is looking at it. Some recent allegations were made about Jumia on the basis of selected, biased or unverified facts with what appears to be a clear objective of damaging Jumia. We held our earnings call on Monday May 13th and we published our first quarter results, which we are very pleased with, and provided information to demonstrate those recent allegations are wrong, ’’ Juliet Anammah said.
Jumia, on April 12 2019, became the first African tech stock to list on Wall Street and its shares soared as analysts branded it the ‘Amazon or Alibaba of Africa’. But the shares fell sharply after Citron Research’s publication which questioned some of Jumia’s sales figures and accused the firm of fraud. The shares have since rebounded.
Charles Rapulu Udoh
Charles Rapulu Udoh, a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.
“If it were a local Ponzi scheme with known offices, it would be very easy for the Commission to seal their offices and freeze their accounts.
SEC Boss, Daniel Ogbarmey Tetteh
Unlike MMM that had a website and the promoter known, the people promoting Loom are not yet known and this pyramid scheme operates through closed groups mainly on Facebook and WhatsApp.’’
The Loom Money Nigeria Warning And Why?
A statement by SEC’s Head of Media SEC said Loom Money Nigeria has taken over the social media.
Warning!
SEC warned that fraudsters are currently running an online investment scheme tagged “Loom Money Nigeria.’’
SEC Lists Out The Targets?
SEC said the scheme targets young people, luring them to participate in a pyramid model of the Ponzi, using such social media platforms like Facebook and WhatsApp. SEC said young Nigerians get lured to invest as low as N1,000 and N13,000 and to get as high as eight times the value of the investment within 48 hours.
SEC said the venture was a Ponzi scheme, where returns would be paid from other people’s invested funds, adding that it had no tangible business model.
“We are aware of the activities of an online investment scheme tagged ‘Loom Money Nigeria,’’ it said. “We therefore wish to notify the investing public that the operation of this investment scheme is not registered by the Commission.”
SEC, therefore, advised the public to avoid committing their hard earned money to the scheme, adding that anyone that subscribed to the illegal activity did so at his own risk.
Loom Money in Nigeria is also known severally as Jack Loom, Catherine Loom, among others, depending on who created the accounts.
Action To Be Taken By Both Sides
SEC, however, assured that an inter-agency committee, Financial Services Regulation Coordinating Committee, was working on the issue, and that the commission was also collaborating with security agencies to track them down.
From SEC’s statement, it appears that until then, nothing yet is precisely going to loom out of Loom Money Nigeria. So, save your money until then.
Charles Rapulu Udoh
Charles Rapulu Udoh, a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.
There is now the fourth board on the Nigerian Stock Exchange meant for small businesses and startups. The board, known as the Growth Board will offer startups and small businesses the opportunity to raise equities for their businesses. All the startups and the SMEs need to do is to obtain approval from the Nigerian Securities and Exchange Commission and then list their shares for public subscription.
The New Framework For Startups, SMEs
The framework for the operation of the new listing platform at the Nigerian Stock Exchange (NSE), to be known as growth board, has been approved by Nigerian apex capital market regulator, Securities and Exchange Commission (SEC).
The framework creates two segments on the growth board for start-ups, micro and small companies and medium-sized companies.
Start-ups and small companies are denoted by market capitalisation of between N50million and N500million while medium-sized enterprises are companies with market capitalisation of between N500million and N4billion.
Start-ups and small companies are expected to be listed on the first segment, known as entry segment, while medium-sized companies will be listed on the second segment, known as standard segment.
The growth board will be the fourth board at the NSE. There are three existing listing boards at the Exchange, including premium board-for large-cap companies that meet additional requirements on dedicated corporate governance assessment, main board- the general board for all companies that meet the specific stringent listing rules and alternative securities market (ASeM), which provides listing for quotable companies that cannot meet or sustain listing requirements for the main board.
Requirements For Listing
For any company to be listed on the growth board, it must be a duly incorporated public limited liability company with at least two years of operations, audited financial statements in line with the International Financial Reporting Standards (IFRS) and must have grown its revenue by a minimum of 20 per cent cumulatively in its last two years of operations.
Also, all companies to be listed on the growth board must undertake that their promoters or directors shall retain a minimum of 50 per cent of their shares for a minimum period of 12 months from date of their listing, and that the directors or promoters shall not directly or indirectly sell or offer to sell such securities during that 12-month period.
The framework meanwhile provides alternative requirements for listing for each segment.
Under the entry segment, a new business may be considered for listing if it can provide evidence of investment in it by a core investor or a strong technical partner that has a minimum of two years’ operating track record, or a majority shareholder, who is either a High Net Worth Individual (HNI) or is a director of a listed company.
Under Nigerian rules, High Net-worth Individual is an individual with net worth of more than N100 million.
Besides, companies heading for the entry segment must have market capitalization of not less than N50 million, a minimum of 10 per cent of its shares available or to be available to minority retail investors and at least 25 shareholders.
Under the standard segment, a new business may be considered for listing if it can provide evidence of a core investor or a strong technical partner who has a minimum of four years operating track record, or a majority shareholder who is a HNI.
The company must also have a minimum market capitalization of N500million, at least 15 per cent of its shares must be held or will be held by minority retail shareholders and it must have a minimum of 51 shareholders.
The NSE stated that it aims to use the growth board for greater global visibility for eligible Nigerian entities and foreign companies in order to engender global capital flows.
The new board is designed to support SMEs’ growth as part of the strategic initiatives by the stock market to enhance its traditional roles as catalyst for economic growth and development.
SMEs and start-ups account for more than 90 per cent of businesses in Nigeria and provide about 85 per cent of employment, according to various national and international data.
Charles Rapulu Udoh
Charles Rapulu Udoh, a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.
From being the first successful African startup to list on the New York Stock Exchange, now to the first fraud to ever make its way to the floor of the American Stock Exchange from Africa.
It appears Jumia is in for a big trouble. Citron Research, the American research firm that publishes reports on firms that Citron Research founder, Andrew Edward Left thinks are overvalued or are engaged in fraud is saying, in a twelve-page document, that it has never seen such an obvious fraud as Jumia’s first Initial Public Offering, held from the 11th of April, 2019, in its 18 years of publishing.
‘‘ Jumia is the worst abuse of the IPO system since the Chinese RTO fraud boom almost a decade ago. Worse than being “the most expensive” US listed eCommerce company, Jumia reported financials show us a stagnant business that has burned through $1 billion and has moved the suckers game to the US Markets,’’ the report stated.
As the media in the US is naively anointing Jumia the “Amazon of Africa”, the media in its home country of Nigeria has a plethora of articles discussing the widespread fraud in this Nigerian company. Not even that elusive Nigerian prince can cover this one up.
What Went Wrong?
The deal is that Jumia lied. Not one. But so many times, said Citron. The research firm claimed it has finally laid its hands on Jumia’s most confidential documents before the IPO, and from all indications, Jumia’s equities seem to be the most worthless ever to be sold on the New York Stock Exchange.
‘‘When a company markets to investors ahead of its IPO and then a few months later omits material facts and makes material changes to its key financial metrics to make the business seem viable, this is SECURITIES FRAUD,’’ the report read.
Now These Are What The Firm Claimed To Have Found:
1. ‘‘In order to raise more money from investors, Jumia inflated its active consumers and active merchants figures’’
The inflation came by way of 20–30% increase in the number of Jumia’s active consumers and active merchants, Citron noted.
”The most disturbing disclosure that Jumia removed from its F-1 filing was that 41% of orders were returned, not delivered, or cancelled. This was previously disclosed in the Company’s October 2018 confidential investor presentation. This number is so alarming that it screams fraudulent activities,” the report noted.
”Instead, Jumia disclosed that “orders accounting for 14.4% of our Gross Merchandise Volume were either failed deliveries or returned by our consumers” in 2018. Assuming 41% of orders were returned, not delivered, or cancelled in 2018, this implies that almost 30% of orders were cancelled in 2018. Since Jumia primarily sells consumer electronics, which should not have this high of a cancellation rate, it wreaks of fraud.”
2. ‘‘Just before IPO, a Jumia MD was questioned by Nigerian Police over Allegations of Fraudulent Diversion of Funds’’
It doesn’t look like Citron is out for a joke. The firm claimed Jumia’s fraud starts from the top to the bottom.Jumia Co-CEO, Jeremy Hodara, the firm claimed, has engaged in extremely questionable related party transactions that the SEC should immediately question. It went on to provide a sequence to these questionable transactions.
In February 2016, four of Jumia’s subsidiaries were sold to Jumia’s CEO, Hodara for 1 euro each.
Despite only generating revenue of 238 thousand euro and net losses of over 3 million euro in 2017, Jumia reacquired these businesses in 2018 from Hodara for an undisclosed price.
During the same year, Jumia acquired Jumia Facilities, a payroll and support services operation based in Dubai, from Hodara for an undisclosed price.
”…many top directors of Jumia were engaging in serious acts of fraud including diverting money that was supposed to be used for projects into their own bank accounts and using director owned private companies to accept Jumia orders while receiving advance payments but never fulfilling the orders. In some cases, these fraudsters were relatives of senior management and “the directors would sweep the case under the carpet in order to avoid public scrutiny”.
Jumia’s Stocks Came Tumbling Down On The New York Stock Exchange
Now, it appears Citron Research now has laughed the last and the best laugh. Jumia’s investors are pulling out!
Jumia’s share price has dived sharply since Citron’s report.
In the seven hours of trading on Thursday, Jumia’s shares lost 18% of its value.
The Bottom Line
From all indications, it appeared Citron Research was out to disparage one country — Nigeria — and possibly block further companies there from getting approval to list on the New York Stock Exchange in the future. The firm even went as far as mentioning that Jumia learned the hard way that Nigeria, Jumia’s largest and most important market, is not an easy place to do eCommerce for plenty of reasons including logistics, poverty, and a culture of corruption. It went ahead to cite the recent divestment of Naspers(a South African company), which it described as ‘‘the smartest and largest tech investor in Africa’’ from Konga, another online eCommerce company in Nigeria.
‘‘This was not due to a lack of funds or a short-term investment horizon,[after all,] Naspers has $12 billion of cash on the balance sheet and its original investment in Tencent ([in which it] still owns >30%) dates back to 2001… Rather, this decision was a reflection of Naspers’ bearish view on the Nigerian eCommerce market vs. a bullish view on South African eCommerce. Since its Konga exit, Naspers announced plans to invest over $300 million in South African tech businesses,’’ Citron noted.
No matter how you see it, the report appeared to have gone after Nigeria rather than focus more intensely on Jumia. After all, although Nigeria is Jumia’s biggest market, its S1 filing (which Citron claims to have studied) indicates that Jumia Group is not a Nigerian company as it is led by French founders, incorporated in Germany and headquartered in Dubai.
Citron Research is sending a message to American and international investors that Jumia is not only a fraudulent company which ‘‘not even that elusive Nigerian prince’’ can deny, but also that they are throwing their money into the wrong country where it is ‘‘not easy…to do eCommerce…because of …a culture of corruption.’’ (NB: ‘Nigerian Prince’ is a reference to the notorious Nigerian internet fraudsters, popularly known as Yahoo! boys)
Whether Jumia comes out of this unscathed, only time would tell.
Charles Rapulu Udoh
Charles Rapulu Udoh, a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.
Previously, mergers, acquisitions and other forms of business combination in Nigeria have always been the exclusive reserve of the Securities and Exchange Commission. In a statement jointly signed by both commissions, the new positions are that:
The Federal Competition and Consumer Protection Act now has the exclusive right to authorize, with or without conditions, prohibit or approve mergers of which notice is received, in compliance with its mandates under the Federal Competition and Consumer Protection Act (FCCPA).
Forms of business combinations contemplated under the Act include the purchase or lease of stocks or interests of another company or business entity; business combination between two companies or entities ; any form of joint venture between two or more business entities.
The FCCPC (old Consumer Protection Council in Nigeria, before it was disbanded by the new law) is to review all mergers and other business combinations or arrangements to ensure that such combinations do not distort or impede the markets or create a monopoly.
Now that the Federal Competition and Consumer Protection Act has come into effect, approval for mergers or other forms of business combination will only be filed with the Securities and Exchange where the mergers and acquisitions involve a public company or where the transactions involve a change of shareholding of capital market operators, even if the transaction is between a private company on the one hand and a public company on the other.
Thus, where the notice of approval of merger is from a public company, Nigerian Securities and Exchange Commission, now, only comes in to determine whether all shareholders are fairly, equitably and similarly treated and given sufficient information regarding the merger. This in fulfillment of its mandate under the Nigerian Securities and Investment Commission.
Backlog of Pending Mergers and Acquisitions Notices in Nigeria
The statement however states that all notifications pending before SEC at the time of enactment of the FCCPA will be subject to the interim process above and FCCPC will convey the decisions accordingly. Consequently, SEC and FCCPC will jointly review such notifications and FCCPC will convey decisions with respect to the notifications.
Subsequent notices would be filed with the FCCPC.
The statement read in part:
In order to ensure continuing and seamless commercial transactions and market operations, SEC and FCCPC have come to a mutual understanding with respect to these transactions within the transition period, which pursuant to this notice commences immediately, and shall remain in force until otherwise discontinued by further Advisory or Guidance. During this transition period, starting today, May 3rd, 2019:
Where and How To File New Notices
According to the statement, notifications of mergers or acquisitions or any form of business combinations would now will be filed at;
Charles Rapulu Udoh a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.
The day is a regular one, and the sun is burning hard. People are staggering back to city bus terminals in a desperate hope of finding their way home after a long day at work. The place is, of course, Lagos Nigeria, and the usual jarring animosity and aggressiveness still hang on the faces of these people. They are not ready to wait; dragging, pulling and pushing are the next lines of action. With a population of over 17 million and the searing thought of queuing up to face traffic, the earlier they board the buses, the better.
In fact, according to a report by the National Association of City Transportation Officials, a coalition of the Department of Transportation in the U.S, up to a third of the time of cash-based transit buses was spent in “dwell time” delays just because customers have to pay for their fares in cash before movement can begin.
Interswitch, a digital payment solution in Nigeria has studied and understood this story perfectly, and is now on the move to revolutionize the Nigerian transport system for good.
Here Is The Deal:
Interswitch Group has worked out a technology that lessens the time Nigerians spend on long queues waiting for buses.
The company has launched three products — the BeCard, the BeVal, and the BeReader — exclusively for the Nigerian market, which are expected to save Nigerian public transport users the stress of the Nigerian public transport system and increase their life expectancy by a percent.
While the BeCard is your regularly shaped card — like any bank card or the Oyster card in London, the BeVal is the device which is installed on the buses where the passenger can tap on — just like on the London buses. The BeReader is the mother system that makes the BeCard and the BeVal work.
But Interswitch is way smarter here: the company has taken the erratic power and internet availability in Nigeria into consideration. That is why none of the three products would be needing any of the above. The BeReader would be solar-powered and will not require network connection all the time to function.
Innovation and The First Timer Strategies
“Interswitch believes that the transport system in Nigeria, Africa’s largest consumer market, is ready for innovation,’’ said Akeem Lawal, divisional CEO for payment processing at Interswitch. ‘‘This partnership is a key and timely milestone in our industry vertical markets’ focus. It is highly compatible with our vision for Interswitch Transport Solutions (Smartmove) which is essentially to progressively facilitate a multi-modal and multi-operator transportation system underpinned by best-in-class technology.”
Interswitch understands the game perfectly: nobody really cares much about the transport system in Nigeria, apart from the government and a few local players who have got used to the straight-minded approach of deploying as many buses as possible to run through some designated routes. Passengers simply have to queue up and purchase tickets if they are interested in traveling through those routes. Now, Interswitch sees a gap here. A recent Visa’s Cashless Cities study shows that digital payment on buses takes 2.6 seconds (on average) across a cross-section of global cities varying by digital maturity. Using cash takes 4.2 seconds, according to the report, and it would be much higher if it does not involve something similar to Bangkok’s system of hiring conductors to collect cash fares when passengers board — which is pretty much what is practiced in most parts of Africa.
The strategy is also in the numbers: Figures released by Nigeria’s National Bureau of Statistics in 2018 revealed that there are 11,653,871 million vehicles in Nigeria. 6,768,756, representing about 58.08 per cent are commercial vehicles while 4,739,939 (40.67 per cent) are private vehicles. Nigeria’s population has recently been projected by the United Nations to have reached a staggering 200 million. The implication of this is that 6.7 million commercial vehicles cannot serve a population of 200 million or more. Out of the 6.7 million commercial cars in Nigeria, only about 200,000 commercial vehicles are on the roads in Lagos alone, with a population of more than 17 million people. Even playing the devil’s advocate with the 5 million total number of cars in Lagos, whether private or commercial ( with the national average pegged at 11 vehicles per kilometer and the daily average of 227 vehicles per every kilometer of road in Lagos), there is still not a sufficient number of commercial vehicles to match the heaving population of commuters.
Interswitch Group knows this and is not afraid to seal the deal of over USD 73,129,560. Charging a service fee of NGN50 (approx. $0.14) per usage assumedly on 12 million daily transport users in Lagos alone over 300 days (65 days off, for irregularity in the frequency of commute) would be a whopping NGN180 billion annual revenue (approx. $500 million), almost seven times the value of the deal sealed by Interswitch.
According to Akeem Lawal, Divisional Chief Executive Officer, Interswitch:
“We have taken all of those technology pieces, and we have put it on the infrastructure Interswitch has built over the last 17 years. We combine the payment technology with those unique technologies that we have done in partnership with a UK company, and we create a solution that will work on Danfo buses, blue buses, in ferries and in trains. It will be all across the country. We will start our proof of concept with some of our selected partners in Lagos and Abuja, and we will extend to the rest of the country when we are done.”
Being the sole operator and the first timer here means Interswitch is going to have a field day counting its blessings.
Interswitch Is Also Relying On The Policy Strategies of the Nigerian Government To Give The Project A Pivot
Nigeria, through its Central Bank, has placed so much emphasis on a cashless economy in recent times. Interswitch is relying on this strategy to pivot this project.
It is A Win-Win Deal For Both The Government and Industry Operators
Lessons and Experience From Across Africa
According to the Visa’s Cashless Cities study, cashless transportation, as envisaged by Interwitch, could bring more, more money for cities and governments. The study shows that transit agencies — including government-owned transit companies and privately owned transport companies — spend an average 14.5 cent of every physical dollar collected. A whopping 10.3 cents from that amount is saved when the digital transport payment system as envisaged by Interswitch is used. This is because only 4.2 cents is spent for every digital dollar, taking into account such constraints as fare invasion, police corruption and pilfering among others.
Rwanda Is A Good Case In Point
When Rwanda had not awarded a cashless transit payment system design contract to AC Group, an indigenous tech startup or deplored the Smart Kigali Initiative, made up of three major bus firms — which partnered to transition to the cashless Tap & Go bus fare system designed by the AC Group — Rwanda was losing up to 40 percent in revenue due to the hurdles presented by paying for fares with cash. Since the launch of the cashless system, buyable cards led to a revenue increase of more than 30 percent and a speedup in daily commutes in Kigali. There are currently more than a million users of Tap & Go in Rwanda, and 100,000 in Cameron, where the AC Group has expanded to.
Kenya
The matatu transport system in Kenya meant that transport operators in Kenya would suddenly jack up prices as they liked. In a bid to eliminate this corruption and inefficiency, the Kenyan government adopted the contactless transport system (although it was operated by private individuals) by launching a program in 2013 which mandated all matatus in Nairobi to go cashless. 70 percent of the Nairobi’s 4 million residents subscribed to the deal and got themselves contactless cards.
Bottom Line:
While many others are waiting (and calculating the risk perhaps) or simply comfortable with the status quo, Interswitch is leading the revolution and is going to take jobs away from so many people. It is also going to cut a large, gaping hole in the ways things have always been done in the Nigerian transport sector. The next beneficiaries would be those who are fast enough to understand this deal and how they can be part of its value chain.
Charles Rapulu Udoh
Charles Rapulu Udoh a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.
Following last minute decisions by Sierra Leone and the Saharawi Republic to ratify the African Continental Free Trade Agreement (AfCFTA), the AfCFTA Agreement has met the minimum threshold of ratifications required under Article 23 of the AfCFTA Agreement for it to enter into force.
The AfCFTA Agreement which will enter into force on 30th May, 2019, will cover a market of 1.2 billion people and a combined gross domestic product of $2.5 trillion — making Africa the world’s largest free trade area since the formation of the World Trade Organization seven decades ago.
All that is now left is for the African Union and African Ministers of Trade to finalize work on supporting instruments to facilitate the launch of the operational phase of the AfCFTA during an Extra-Ordinary heads of state and government summit billed for 7th July 2019.
Here are The Key Points You Should Know About the AfCFTA Agreement:
The CFTA is a free trade agreement among African countries, who are signatories to the Agreement. The CFTA is consistent with the World Trade Organisation rules relating to Free Trade Agreements. A free-trade agreement is an agreement among a group of two or more countries whereby the duties and other restrictive regulations of commerce are eliminated on substantially all the trade between the countries in products originating from the countries.
The Key Targets Of The Agreement
The Agreement wants to create a single market for goods and services in Africa and to permit more people to move around any country in Africa with minimum visa requirements.
It also seeks to create a market that is less free from custom duty and tariffs.
It seeks to make movement of money and capital across African countries freer.
The Agreement also hopes that, if it ever becomes successful, there would be established a Continental Customs Union that would be make issues of customs duty and levy less demanding in Africa.
The Agreement seeks better ways of bringing more industries to Africa as well as opening up its agricultural and food sectors.
What The Agreement Intends To Disrupt for African Businesses
Free Up Trade
The Agreement, when it comes it force in July, 2019, would finally put an end to tariffs charged on goods imported from African countries that have signed the Agreement. Therefore, countries that have signed the Agreement are required to set out the products or goods that they are willing to forfeit tariffs on. They are also expected to list out the import duties to be charged on products or goods that they are not ready to fully forfeit tariffs or import duties on.
The Agreement, in other words, would allow the signatory countries to offer preferential treatment to goods imported from other African countries that are also signatories to the Agreement.However, the Agreement has listed some steps to be followed in making sure that this preferential treatment fully benefits any signatory country. In any case, this preferential treatment would not be applied where the goods or products in question are meant to remedy any defect in trade.
The Agreement Makes It Impossible for Signatory Countries to Give Limit to the Number of Goods or Products That Would be Subjected to Free Tariffs
That is, you cannot say only 30% of imported goods from signatory countries would benefit from free tariffs, while the rest of 70% would not be subject to tariff. Hence, the Agreement enjoins State Parties not to impose quota restrictions on imported goods, except where relevant World Trade Organisation agreements as well as the provisions of the AfCTA can be invoked. However, signatory countries can impose export duties on goods that are exported out of their countries provided that they notify the AfCFTA Secretariat.
Rules of Origin
Under the Rules of Origin, businesses know the benefits that they may obtain under any preferential trade agreements. The intention of the Agreement is to make it possible for businesses in signatory countries to know how much they can benefit from the Agreement. The aim is to ensure that companies that are not within the signatory countries do not ship their products or goods to countries that are signatories to the Agreement in order to benefit from the Agreement.
Thus, for the goods or products of these companies to benefit from the Agreement, they must be completely produced in any of the signatory countries or sufficiently processed in any of the signatory countries. So, if you you merely wash, paint, peel vegetables etc, you may not benefit from the Agreement. The only exceptions to this rule are that, if the goods or products involve your personal effects or belongings which are below a certain amount; or the goods are imported only for display at Fairs or Exhibitions and under the control of the Customs Authority; or the goods are shipped through another signatory country’s territory — that is, the goods are still in transit not having arrived their final destinations.
A Major Emphasis of The AfCFTA Is On National Treatment
Under this, all signatory countries to the AfCFTA must treat products imported from other signatory countries in the same way as they treat products produced domestically. What this means is that none of the signatory countries should discriminate against imported products in the domestic market simply because they are imported. In simple terms, if the goods are imported from Ghana into Kenya (the two countries being part of the Agreement), the imported goods in Kenya would be seen as Kenyan goods, nothing less.
Using Trade Remedies To Create A Balance
What trade remedies do is that they enable the signatory countries to prevent much of the effect of over-importation of foreign goods which may damage the country’s local market. Hence, trade remedies are invoked to address serious disruptions to domestic industries arising from predatory pricing by companies in partner countries, or illegal subsidies in those countries, or generalized surges in imports. Where any of these fears happen, the Agreement mandates the appropriate authority to investigate the claims by signatory countries in order to find out the level of injury to domestic producers.
Accordingly, the Agreement sets out the circumstances in which such measures can be taken and the processes that govern their application. The Agreement still relies on the provisions of the World Trade Organisation’s agreements governing trade remedies. This is a sort of a big relief to import-competing companies, who may feel a measure of relief is available to them regarding ‘unfair competition’. However, much still depends on how the agreements are interpreted and applied, and the efficiencies thereof.
What The Agreement Intends To Do In The Long Run
Non-discrimination:
The Agreement also looks (in conjunction with other AU agreements and protocols) at allowing free entry to signatory countries’ citizens. However, the right to move freely or stay is permitted for a maximum of 90 days from the date of entry, although individual signatory countries may grant a further period.
Again, there are no provisions on intention to abolish visa requirements. Instead, signatory countries are enjoined to issue valid travel documents to their nationals to facilitate free movement. In addition, signatory countries are to adopt a travel document called an ‘African Passport’ .
Work Permit: Signatory parties are also required to issue residence permits, work permits or other appropriate permits and passes as required by the host state. Again, nationals of a signatory country shall have the right to seek and accept employment without discrimination in any other signatory country. Such nationals may be accompanied by their spouse and dependants.
Right of Residence and Right of Establishment: By this, nationals of a signatory country shall have the right of residence and the right of establishment in accordance with the laws and policies of the host country. The right of establishment shall include the right to set up a business, trade, profession, vocation or an economic activity as a self-employed person.
Mutual Recognition of Qualifications:
Again, in the long run, and if the Abuja Protocol is fully complied with, signatory countries shall, individually or through bilateral, multilateral or regional arrangements, mutually recognize academic, professional and technical qualifications of their nationals’, and ‘establish a continental qualifications framework’.
Trade between African countries remain low, at around 10 per cent of total trade of Africa in 2010. Such trade is limited by a relatively high applied tariff protection rate, at about 8.7 per cent, with heterogeneous tariff structures that range much higher in many cases. UNCTAD’s recent data shows intra-African trade share rising from about 9 per cent in 2000–2005 to 14 per cent in 2010 and reaching 18 per cent in 2015. This data is significant and gives hope that with the changes to be introduced the CFTA, the volume of trade would further increase.
The CFTA would add US$ 17.6 billion (2.8 per cent) to Africa’s overall trade with the world (compared to a 2022 baseline scenario without it), stimulating Africa’s exports by US$ 25.3 billion (or 4 per cent), according to the UNCTAD. The sectors that would benefit the most would be agriculture and food, with a projected growth of 9.4 per cent over the 2022 baseline scenario. Industrial exports would see a boost of US$ 21.1 billion, a very respectable 4.7 per cent higher than the 2022 baseline.
Again, trade between African countries is expected to rise by US$ 34.6 billion (52.3 per cent above the 2022 baseline), if agriculture/food, industrial goods and services are included, with the highest impact being in industrial goods (at US$ 27.9 billion, or 52.3 per cent above the baseline), when this CFTA comes in force.
Intra-African trade in agricultural and food products would increase by US$ 5.7 billion (53.3 per cent over the baseline), with services rising by US$ 1 billion (31.9 per cent over the baseline). Overall, intra-African trade would rise from 10.2 per cent of total trade in 2010 to 15.5 per cent by 2022. Although a positive overall outlook, it still short of the stated goal of doubling the trade within 10 years.
Market diversification, both for exports and imports, is very limited, due to a relatively small number of export items (mostly primary products). However, for those economies on the continent that have a more diversified production base, the “local” (African) market for manufactured products is more important in their overall trade.
If improvement in commerce is realized within the CFTA, a further US$ 85 billion would be added to intra-African trade. This would represent a significant 128.4 per cent increase over the 2022 baseline. That would certainly achieve a more-than-doubling of intra-African trade in 10 years, rising to 21.9 per cent of Africa’s global trade by 2022.
Given the current level of intra-African trade share at about 18 per cent of total African goods exports, the expected doubling of intraAfrican trade could raise it even up to or beyond 30 per cent.
The significance of the findings is that tariff liberalization in goods will lead to only partial expansion in intra-African trade. Realizing a larger impact on boosting intra-African trade requires tariff liberalization of goods trade to be accompanied by the removal of non-tariff barriers, reform of services sector and improvement of trade facilitation measures. With a holistic reform of market access and entry conditions among African countries through the CFTA, the continent can expect to see the share of intra-African trade in total trade of Africa to rise significantly, doubling within 10 years.
Customs clearance procedures and SPS and TBT requirements more than triple the number of days goods stay at customs (both as exports and imports), compared to the OECD average of 10.6 days. The CFTA may finally help to resolve this.
Why Some Countries Have Refused to Sign The Agreement.
Some of the fears of the Agreement are that:
A CFTA implementation would negatively impact customs revenue resources of most countries since there may be reduction in tarriffs on goods from signatory African countries. However, according to the UNCTDA, this would augment real income for Africa by US$ 296.7 million (or 0.2 per cent) as a result of stimulated exports. Once this happens, the real wages for African workers would rise too over the 2022 baseline, with unskilled agricultural workers seeing the largest rise since the focus is largely on Agriculture.
Dumping of Goods
Threat To Local Economies.
Charles Rapulu Udoh
Charles Rapulu Udoh a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.
Potential investors in Nigeria should not go to sleep yet as Nigeria’s Central Bank of Nigeria has scheduled to sell by auction N109.7bn Treasury Bills on the Primary Market Auction on Thursday, May 2, 2019.
The Deal
In simplest terms, the deal can be summarised as follows:
The CBN is prepared to auction N109.7bn worth of Treasury bills on the Primary Auction Market, usually on the Nigerian Stock Exchange.
The Treasury bills of N109.7bn are spread into different maturity periods.
The first N28.0bn has a maturity period of 91-day; N43.5bn has a maturity period of 182-day, while N38.2bn has a maturity period of 364 days.
Investors Are Preferring Longer Term Treasury Bills
When the Central Bank of Nigeria resumed its customary Open Market Operation auctions on Tuesday last week, a total of N200bn spread into 93-day, 184-day and 359- day tenors were offered.
Investors dived for the longer term treasury bills of 359-day, oversubscribing it in the ratio of 2.8x, meaning that investors are showing continued preference for long-term instruments. However, the short- and medium-term instruments were under-subscribed with a bid to cover ratio of 0.2x and 0.03x, respectively.
The Treasury bills secondary market has been overwhelmed by investors for the fourth consecutive week now as more money keep flying into the treasury bills market.
Average yields on all treasury bills is now 13.1 per cent as of April 24, 2019.
Subscribing to treasury bills in Nigeria has been made easier by such mutual funds companies as Afrinvest or Cordros Capital
Charles Rapulu Udoh
Charles Rapulu Udoh a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.
You can’t consider the heavy job of having to fulfill numerous tax and levy obligations within the first year of being in business, at the same time struggling to raise more capital or manage the fast depleting funds within your disposal. Nigerian government has a lot of tax incentives, one of which is the incentive of Pioneer Status to help you reduce the burden of the first few years of being in business. The incentive of Pioneer Status is a tax strategy used by government across the world to encourage investments in industries that were either non-existent at all, or the country did not have sufficient presence for its economic development.
The Nigerian federal government has expanded the range of industries that would benefit from the Pioneer Status tax incentive under the Nigerian Industrial Revolution Plan, NIRP, and the Economic Recovery and Growth Plan, ERGP, by promoting the 27 industries and products in the approved status document.
The pioneer status applies to companies or startups in their first year of business or operations. Consequently, companies or businesses older than a year would not benefit from the pioneer status incentive. Again, businesses that have existed for several years in a particular sector may not enjoy the pioneer status, except such companies or startups branch into a new line of business covered under the list of 27 or more new industries and products.
Clearly, established companies such as Payporte, Konga or Jumia who are already leaders in the e-commerce business sector as well as those in the music industry would not enjoy tax exemption by the government under the new regime.
The Industries Covered By The Regime Include:
Agriculture:
Startups or new businesses under Nigerian agricultural sector, who are within the first one year of their business can get tax break for a period of three years or more. The areas covered under the agricultural sector include:
Processing and preservation of meat and poultry
Production of meat/poultry products
Processing of cocoa
Marine and Freshwater fishing and aquaculture.
Growing of all crops.
Manufacturing:
This is where Nigeria hopes to diversify its oil-dependent economy to. Areas covered under the manufacturing sector include:
Manufacture of starches and starch products
Manufacture of animal feeds
Tanning and dressing of leather
Manufacture of leather footwear, luggage and handbags
Manufacture of household and personal hygiene paper products, like tissue papers etc.
Manufacture of paints, vanishes and printing ink.
Manufacture of plastic products (builders’ plastic ware) and moulds
Manufacture of batteries and accumulators
Manufacture of steam generators
Manufacture of railway locomotives, wagons and rolling stock
Manufacture of metal-forming machinery and machine tools
Manufacture of machinery for metallurgy
Manufacture of machinery for food and beverage processing
Manufacture of machinery for textile, apparel and leather production;
Manufacture of machinery for paper paperboard production.
Manufacture of plastics and rubber machinery
Information Technology And Communication:
E-commerce services
Software development and publishing
Publishing of Books.
Telecommunication apart from GSM telecommunication
Entertainment:
Motion picture, video and television programme production, distribution, exhibition and photography;
Music production, publishing and distribution, such as Record Labels etc.
Environment:
Waste treatment, disposal and material recovery, such as recycling.
Real estate investment vehicles under the Investments and Securities Act, such as Real Estate Investment Trusts,REICs etc.
Construction and operation of non-residential buildings (Shopping malls, hotels;Office buildings; building for industrial production;warehouses; low and middle-income housing estates of single and multi-family buildings,etc)
Business :
Business Process Outsourcing
Securities:
Mortgage backed securities under the Investments and Securities Act
Mining:
Mining and processing of coal
Construction:
Construction and operation of water projects
Construction and operation of roads, railways and airports
Electric power generation,transmission and distribution, among other.
Construction of utilities generally.
Steps To Take To Obtain Pioneer Status Certification:
Make sure you apply within the first one year of doing business and that you fall within the categories described above.
Get your documents ready. Documents in this case include financial statements, certificate of incorporation and other incorporation forms, project documents such as Land Documents, Building drawings, Construction agreements, trademark certificate, title documents and invoices of assets of the company, Tax Identification Number, Tax Clearance Certificate, Bill of quantities and any other document pertaining to your projects.
Once presentation of your project has been made to the Commission, and NIPC is satisfied, you would then be requested to make payment of the application and due diligence fees. Make payment to the Commission.
At this stage, you would now make application to the Commission, attaching both the soft and hard copies of the relevant supporting documents. NIPC will review your application and conduct intense legal and compliance checks on your project, after which it fixes a date for a verification visit to your facility.
At this stage, once the NIPC declares your application successful, you will then be requested to make payment of the service charge. NIPC, thereafter, issues you with an Approval In Principle (AIP) once payment has been made, which you may collect in person, or have sent to you by courier. A copy of the AIP is forwarded by the Commission to the tax office and the Industrial Inspectorate Division.
The next stage is to complete an application form for Production Day Certificate (PDC) and submit same to the Industrial Inspectorate Division (IID) under the Federal Ministry of Trade and Investment alongside the soft and the hard copies of the necessary documents. IID will review the application and schedule an inspection visit to the site of the project for the purpose of determining the production day of the project.
Satisfied, the IID will send you a mail to that effect,as well as a copy of the Production Day Certificate, at the same time notifying the NIPC.
Once notified, the NIPC will issue you a Pioneer Status Incentive Certificate and send copies of the PSI Certificate to both the tax office (FIRS) and the IID
The whole process takes a minimum period of 25 weeks (approximately 6 months) to be completed.
You may however get yourself a tax consultant or a lawyer who does the work for you while you run your business.
Charles Rapulu Udoh
Charles Rapulu Udoh a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.
Between June 2016 and July 2017, Nigerian Corporate Affairs Commission (CAC) registered about 91,609 business names. While basic legal advice may be sought on the best form of business to register in Nigeria –whether as a company, business names, incorporated trustees or otherwise– here are quick practical guides on how you can register your business name in Nigeria without seeking for any assistance.
On the CAC Portal (you may click here), sign up by creating an account. There are two types of account: ordinary accounts, which is accessible to everybody or accounts for accredited agents (accredited agents are professionals who are accredited to register business names and other categories of business on behalf of the Commission). Open an ordinary account or account for an accredited agent as the case may be.
Now here is the danger: type in your name correctly, in the order you would want it to appear officially if you are an ordinary account holder. Make sure you are not entering the wrong name or another person’s name, who is not the owner of the business name. Doing so would mean that the name would automatically appear as the owner of the business on the registration forms.
STEP 2:
Once You Are Logged On To The Portal, Choose and Reserve a Name.
This stage begins with reserving your business name and one other alternative name. Alternative names are necessary in case your preferred name is returned unavailable by the CAC. Once the CAC conducts a search in its database to ensure that the name is not already in use or that there is no similar name already in use and returns the name as approved, the approved name would be available for a 60-day period, at the end of which it expires and returns to the CAC database. Nothing prevents the name from being reserved by another person and registered by him unless you reserve the name again after paying a search fee to the Commission. Once the name has been reserved, you must begin the registration of your business name within the sixty days reservation period. The name search usually takes up to one hour or more.
NB: All payments to the Commission are made online; however any tax obligation is to be assessed at the tax office.
Step 2
Fill In the Business Name Registration Forms Correctly
Still on the same online portal, click on ‘New Registration’, which could be accessed from the ‘Company Registration’ Button. Then enter the ‘Availability Code’, which is usually an 11 digit number found by clicking and opening the ‘Approval Note’ opposite the new business name you have reserved. Once a fresh page shows up, begin immediately the process of filling in the online forms. Make sure that all the bits of information you provide are clear enough and are accurate. To avoid queries on your registration, do not enter fictitious or unbelievable details or address. The information required to be completed includes:
Approved Name of the Business
General Nature of the Business
Address of the Business
Name, Address, Occupation and other details of the Proprietor(s) of the Business
Signature of the Proprietors
Step 3
Once the Forms Having Been Correctly Filled, Proceed To Payment By Clicking on The Payment Button
Payment: The payment of all the fees may be made online or completed at a bank branch. Where the payment is made at a bank branch, make sure you generate a Remita Code with which you would confirm payment of the fees once you get home and log back to your CAC account.
Step 4
Submit Your Correctly Filled Forms Online
Once the payment has been approved, the filled documents would now be available for download. Once downloaded, handle with care and avoid any stain on the documents. Affix your passport photographs on the relevant places and append your clear signatures on the signature brackets. Notarise the documents before a Notary Public or a Commissioner for Oaths. Once you are sure that all the needful has been done, scan the documents and upload them here. On the new platform, enter the Availability Code of the business name and the branch office of the CAC where you would want to pick the Certified Trues Copies of the documents up from. Scroll down, choose from a range of documents you would want to upload and upload all the documents. Once you’re done, click on submit. Once the process is marked ‘documents submitted successfully’, then you’re done with whole the registration process. Within 5 working days, CAC either approves or returns queries on the application you submitted. Where queries are returned, treat them accordingly. Where approved, the CAC would notify you that the application has been approved. At this point, your Business Name Certificate is now ready for collection.
Step 5:
Collection of Certificate and Certified True Copies of Other Registration Documents.
Once approved, pick up all the documents you scanned and your ID card and proceed to the branch office of the CAC where you registered to pick the documents up from. No payment is made to collect the documents at the CAC office.
The registration process may last longer than 5 working days depending on the workload of the CAC at the time and the number of queries that were returned on your application for registration.
DISCLAIMER:
This advice does not displace the sound legal advice you may get from your legal counsel. Your legal counsel may offer you good advice on what type of business best suits your dreams and aspiration and which may prevent any legal issues, arising from the composition of your business or otherwise, in the future.
Good luck on your new journey!
Charles Rapulu Udoh
Charles Rapulu Udoh a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.
