News Column

Technical Fees - Disagreement Weakens Shareholders' Protest

June 16, 2014

The protest against fees and royalties paid to technical partners of some of the multinational firms quoted on the Nigerian Stock Exchange by a section of the Nigerian shareholders may fizzle out soon given the disagreement in the camp of the shareholders over who should be blamed for the deductions from the companies, reports Festus Akanbi

It is not a surprise that in spite of the security challenges confronting Nigeria from different fronts, international businessmen and investors have continued to find the country a good place to do business.

Until recently, when developments in Europe and other frontier markets encouraged the dispersal of investors to emerging markets like Nigeria, the siting of international businesses in Nigeria had been measured.

However, as successive administrations stepped up investment drive, foreign investors have continued to see Nigeria as a fertile ground for making money although those coming in as portfolio investors are on the high side. All the same, the contributions of Nigerian companies with foreign ownership to the overall Gross Domestic Product cannot be over-emphasised.

The Spread Today, such companies are found in virtually all the sectors ranging from manufacturing, healthcare, oil and energy sector and construction and they rank as some of the most profitable companies quoted on the Nigerian Stock Exchange. The list of these multinationals companies, which are quoted on the Nigerian Stock Exchange include Julius Berger Nigeria Plc, Nestle Nigeria Plc, Nigerian Breweries Plc, Guinness Nigeria Plc, Mobil Oil Plc, Nigerian-German Chemicals, Lafarge WAPCO Plc, FrieslandCampina WAMCO Nigeria Plc, Unilever Nigeria Plc and Cadbury Nigeria Plc, among others.

The Provision In order to protect their investments, it is expected that these foreign investors would have their representatives on the foreign institutions on the board and management levels of their Nigerian companies. And to justify their investment in terms of franchise, technical, research and development inputs, certain fees are set aside from the revenue accruing to the affected organisations.

According to the provision of the Nigerian Investment Promotion Commission's Legal and Regulatory Framework for Setting up Business in Nigeria, there is room for a technical service agreement, which is a form of technical co-operation agreement in which a party will agree to offer technical services to a company for the payment of a fee. Details and terms of such agreements are normally worked out between the parties involved but the law says that such agreements should be registered with the National Office for Technology Acquisition and Promotion (NOTAP).

Shareholders Grumble However, some shareholders of quoted companies have condemned the high charges foreign parent companies and technical partners impose on Nigerian companies in the name of royalties and technical fees, saying local shareholders are being cheated. The shareholders complained that many foreign companies charge royal fees for their brands being produced and marketed in Nigeria. They also charge technical fees for professional services they provide to the management of the local subsidiaries.

The shareholders, who explained that their grouse was not about the fees being collected, argued that the modality for charging the fees was favourable only to foreign partners. The payment for royalties are always made from revenue, while the payment for management services agreements are paid from profit before tax. According to the President, Renaissance Shareholders Association of Nigeria, Olufemi Timothy, the practice is wrong.

"We tried to make them change the payment of technical fees on turnover but they have refused to change. We shall continue to demand this. It is wrong. Technical fees should be charged on profit after tax (PAT). We disapprove the system the way it is now," Timothy said. Also toeing this line is the National Chairman, Progressive Shareholders Association of Nigeria, Boniface Okezie, who insisted that it was better for the fees to be charged on profit after tax instead of turnover. Interestingly, not all the shareholders are kicking against the modalities being used in the calculation of fees and royalties to these technical partners.

Dissenting Voices As far as the National Coordinator, Independent Shareholders Association, Mr. Sunny Nwosu, is concerned, "The truth is that some of these shareholders try to reach out to some of the directors of these companies to extort money from them and when they fail, they start to raise allegations. As a member of audit committee of Julius Berger, I'm surprised about all these things. Let them quote the page in the annual report where they found this and correspond it with the previous years."

He said his association had taken the battle to the doorsteps of these foreign companies in Nigeria and has since discovered that they were not the sole determinant of the fees paid to them. He said, "These shareholders cannot fight as much as Independent Shareholders Association has been fighting on issues. It is not just about granting interviews to media houses. There are more to it. We have fought; we have challenged the National Office for Technology Acquisition and Promotion (NOTAB). It is not the companies that determine what they pay to their technical partners. They brought out papers to back their claims.

"It is not these companies that approve fees for themselves. NOTAB is an agency of the Federal Government. These companies submit their requests and NOTAB will take time to look into these requests and approve whatever they feel they are entitled to for them. Some of the shareholders who are complaining cannot put a fight like Independent Shareholders Association of Nigeria and myself.

"I have personally confronted the Director general of NOTAB that why was he approving that kind of fees for technical partners and he gave reasons that there were some yardsticks they look into in approving fees," he said.

Drawing a parallel between such fees and charges leveled on banks by the Asset Management Corporation of Nigeria, Nwosu said, "Whatever they have approved for them cannot be as much as what AMCON is collecting from banks after taking their troubled assets cheaply and they still take 0.5 per cent of the balanced sheet size from banks. What are they doing with it? They will still sell your property and make money from it.

"These are areas shareholders should start fighting to ensure justice is done. Two weeks ago, a company paid a dividend of nearly N4 billion and they paid N15 billion to AMCON. Even if they had paid half of that to AMCON they will still have N8 billion and they will increase the dividend to shareholders by 100 per cent, they will still have a reserve of N4 billion. Technical fee is sometimes one per cent net of profit which is still better for me as a shareholder than the 0.5 per cent of the balanced sheet size."

Another shareholder that came in defence of foreign partners is Alhaji Gbadebo Olatokunbo, the pioneer publicity secretary of Nigerian Shareholders Solidarity Association. Olatokunbo believed the regulatory authorities have to come in to put the record straight. He recalled that most of these companies were brought in by foreigners in line with the nation's campaign for inflow of foreign investment, adding that whatever fees being paid by the affected companies as technical fees were part of the agreement signed when the respective investors came to Nigeria with their capital and technical know how. He said even if we continue to talk till tomorrow, unless there is a new agreement, nothing will happen.

"With my experience as a former director in one of the affected companies, I can say that if we put in too much pressure on these companies, they will move their interests to another country and the affected company in the country will face crisis since it is the foreigners that have the brand.

New Conditions "I believe what the Nigerian authorities should do is to ensure that any company that has come to establish itself in Nigeria for over 15 years must undertake their research and development in Nigeria. Once they start doing that, they will be able to develop other brands which will be localised since they must have known what the people like. By doing this, they will be able to utilise the fees hitherto being paid to foreign companies on other things.

There is need for my fellow shareholders to know that if the law says that a foreign company that has been established for some number of years should domicile their research and development here, it will address this problem," Olatokunbo said.

Power of the Majority However, Okezie still insisted that the Nigerian shareholders have been at the receiving end because foreign partners in most of these companies are in the majority and it is easy for them to sway votes during companies' annual general meetings. According to him, the only people who can rescue the Nigerian shareholders are the regulators.

"It would have been better to charge the fees on PAT and not on turnover but since they are the ones who control majority shares and provide technical services there is little minority shareholders can do. "When it comes to voting, the majority shareholders carry the day because of the number of their shares. I believe the regulators should be the ones to do something to stop this exploitation. They have not done well in this regard at all," Okezie said. While shareholders may wait for regulators to act, the National Coordinator of Proactive Shareholders Association of Nigeria, Mr. Oderinde Taiwo, said his association will send a petition to the regulators.

"We are going to push this. My association will send a petition to the regulators on this issue. We have complained in the past but nothing has been done. It is only in Nigeria that technical partners charge their fees on turnover," Taiwo said. THISDAY checks on one of the listed firms showed that the foreign partners charged 2.5 per cent on turnover, N1.288 billion for royalties and another 1.5 per cent on profit before tax. Also N156.3million was charged for management services agreement for the 2013 financial year.

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Source: AllAfrica

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