Wednesday, 28 October 2015

MULTINATIONALS, FRANCHISE FEES AND OTHER ‘IRRITANTS’

Alhaji  Dr. Aliko Dangote, President, Dangote Group
A few days ago, the Nigeria headquartered Dangote Group, opened a massive cement plant in Tanzania. Entailing an investment of USD600 million, the three million metric-tonne per annum capacity cement plant is reputed to be the largest in all of East and Central Africa.

Registered in Tanzania as Dangote Industries, the plant will primarily serve the domestic market. It will also be able to serve local export markets by sea. A fall-out of the Tanzania’s impressive economic performance in recent years is the strong demand in the real estate sector that has in turn reflected in growing cement consumption.

It is that need, among others, that Dangote Industries will help to meet in Tanzania. In so doing, Dangote will be providing a livelihood for tens of thousands of Tanzanians both directly as employees and indirectly as trade distributors, resellers and sundry other partners. It will also provide considerable taxation and other revenue to government. In gradually entrenching a reputation as an authentic multinational corporation, Dangote can be said to be following a trail that was blazed by a handful of ambitious Nigerian companies, notably banks over the last 20 years.

The multinational corporation, to a large extent, epitomizes the nexus between risk, profit and opportunity in a capitalist world. Having reasoned that a certain country somewhere might portend an opportunity, it does the requisite diligence and where it determines that the odds are reasonably in its favour, proceeds to commit resources – capital, manpower, time – towards investing in such a country. It invests in the country in the expectation of reward; namely, profit.

Ironically, it would seem that once these multinational corporations have confronted the risks that one must face in investing in Nigeria and thereafter made the requisite investment, the country appears to seek every means by which to deprive them as much as possible, of the profits that are the legitimate reward for investment.

One widespread approach is spurious and multiple taxations, where different levels of government – federal, state and local – seek the payment of the same taxes from a single multinational corporation. One example is Right of Way, which is supposed to be under the purview of the federal government but which state governments and even the occasional local government have been known to demand payment for. In a most notorious situation, the Federal Inland Waterways Authority has demanded Right of Way payment to the tune of hundreds of millions of Naira from telecom companies for laying fibre optic cables on bridges on federal highways.

The recent case of Stanbic IBTC Bank is yet another manifestation of short-term thinking on the part of government functionaries charged with making and implementing policy. Owing to the banking consolidation tsunami that began some years ago, what used to be IBTC-Chartered Bank and Regent Bank, had merged and come to be known as IBTC Chartered Bank.

Thereafter, a bigger multinational bank, South Africa-headquartered Standard Bank, came calling, offering the then local bank the advantage of an opportunity to play in the big league, with access to a bigger chunk of international capital. Then it backed this up with capital injection. News reports at the time indicated that Standard Bank might have injected more than USD500 million into the country in the process of acquiring majority shareholding in the firm, which now came to be known as Stanbic IBTC Bank.

Accordingly, the erstwhile local bank assumes a new identity and gradually consolidates its presence locally. In addition, using its expanded international connections, by courtesy of its new multinational status, it taps into sundry big dollar deals in different sectors of the economy. It also begins to play big in the retail banking space among others.

Then the moment of reckoning comes. It needs to pay “franchise fees” to its parent company for the use of the collective resources, both tangible and intangible, of the entire multinational organisation. Lo and behold, government functionaries in Nigeria say it cannot do that. What right has it to pay foreigners for a service, banking, that Nigerians can provide, our enraged government functionaries ask.

The turn of events again brings to the fore, the question of whether key functionaries in government including those who bear responsibility to draw up and implement key economic policies are in tune with the overall big picture and purpose of government. Franchise fees are standard practice among multinationals. There is no doubt that Dangote Industries in Tanzania will have to remit franchise fees or management fees to the Dangote Group back home in Nigeria, in due course. Franchise fees, however, should be too inconsequential in the scale of affairs to be the bone of contention.

We will be ashamed on Tanzania’s behalf if in a few years’ time, we read news reports of altercations between Tanzania’s government functionaries and Dangote Industries, Tanzania, on account of unwillingness by Tanzania to allow the local subsidiary pay its parent the requisite franchise fees. This would sign-post short-term thinking and a poor understanding by Tanzania’s government operatives of the dynamics of economic growth and development, for what is of greater value is the economic multiplier which Dangote Industries is stimulating in Tanzania, not the franchise fees it will pay to its parent, Dangote Group, in the future.

Government functionaries, therefore, need to better understand and appreciate the profit imperative especially as it pertains to widespread economic growth and development. Doing this should mean that a lot of the artificial road blocks that are put in the way of multinational corporations operating in Nigeria will be dismantled. (guardian)