Nigerian government established Asset Management Corporation of Nigeria (AMCON) on July 19, 2010 to provide opportunity for banks to sell off non-performing loans, complement re-capitalization of insolvent Nigerian commercial banks, propel lending ideology in Banks, enable banks to free up valuable resources and enable banks to focus on their core activities.
AMCON went hard into debt collection business on behalf of commercial bank debtors and failed banks taken over by AMCON within the past couple of weeks. Why in the world would AMCON on behalf of federal government get involved in debt collection business between two limited liability businesses. Debt collection is the responsibility of the commercial banks who lends the money to businesses. It is the responsibility of each commercial bank to ensure that a borrower presents adequate collateral that will be taken over by the lender if the borrower defaults on their loan. The commercial banks are also supposed to keep title of the collateral properties until the loans are paid in full. For AMCON to assume commercial bank debts or assume the responsibility of collecting commercial bank’s debts are in effect encouraging banks not to conduct due diligence on potential borrowers.
To make matter worse for Nigerian businesses and potential investors, the Central bank of Nigeria issued a directive to commercial banks recently mandating them to surrender deposit of any business who is owing AMCON or any other lenders. This directive could bankrupt existing businesses and will discourage companies and potential investors from taking the risk of expanding existing businesses or engaging in new ventures. Business is a very risky venture, and no one can predict how new business will turn out. About 70 percent of new companies/businesses established in United States goes out of business within the first year. Seizing assets of businesses that are indebted will be catastrophic for Nigerian economy since very few people will want to take the risk of borrowing money to start a new business or expand existing businesses. The meaning of Limited Liability company (LTD) which most medium to large Nigerian businesses are incorporated as means that if limited liability business fails, the lender can only go after the assets of that business not the asset of other incorporated business owned by the same person. Limited liability companies or corporations are separate entities. For example, if Mr. X owns limited liability company A, B and C. If company A fails, commercial banks have no authority to confiscate company B and C deposits or assets unless company A is the parent company of company B and C. Executives of a limited liability corporation should be punished if they stripped assets of their corporation.
This Central bank governor and his aid does not seem to think clearly about the impact of the directives they are issuing to commercial banks and businesses. It was not long ago that the CBN governor asked cell phone giant,MTN to pay unreasonable amount of penalty for repatriating their profit to South Africa. The action of the CBN governor sent shock waves around the world and potential investors took notice. The lesson potential foreign investors learned from CBN action is that Nigerian government are erratic and do not have much respect for private property. The result is that no foreign investors will take the risk of investing their money in a country with erratic government officials that has little regard for private property and can issue directive whenever they want. Business need certainty. Seizing assets of unrelated businesses that was not presented as collateral will discourage domestic and foreign investors.
Japanese car manufacturer, Toyota just signed Memorandum of understanding with Ghanaian government to establish car assembly plants in Ghana. Why will Japan establish car assembly plant in Ghana with small population instead of Nigeria. It is because Ghanaian government have over the years established more favorable business environment and their government is more predictable than Nigerian government. This agreement between Toyota and Ghanaian government is a preview of what will happen when African Continental Free Trade Agreement (ACFTA) takes effect next year. You will see foreign companies establish factories and assembly plants in neighboring countries, manufacture goods in those countries and ship to Nigeria duty free. Toyota cars that will be assembled in Ghana is not aimed at Ghanaian consumers but Nigerian consumers. Nigerian government need to create conducive environment for businesses to thrive by deregulating onerous laws that stifle businesses or they will not see much domestic and foreign investment which the country desperately need to cut down their high unemployment rate and generated much needed internal revenue from business taxes.