It was a rare move but one that has the common good of all Nigerians as its ultimate objective. Soft speaking Minister of Finance, Budget and National Planning, Zainab Ahmed, gave the disclosure at recent public presentation of the breakdown of the approved N13.59 trillion 2021 budget. She stated that the budget has N7.99 trillion aggregate revenue projections and N5.60 trillion deficit component that would be funded with borrowings from local and foreign sources.
The COVID-19 that first began to spread around the world, including Nigeria, in the spring of 2020, has obviously caused health emergency risk that triggered an economic and financial crisis that is now rocking Nigeria’s economy. Nigeria’s financial syrup is drying up as both private and public sectors scramble for scarce cash to settle financial obligations. In April last year, the federal government made $3.4 billion drawdown in emergency funding from the International Monetary Fund (IMF). Finance minister last week said N118.37 billion was released for COVID-9 capital expenditure in 2020. Nigeria’s revenue to GDP ratio is very poor.
The country needs more revenue to stimulate the economy currently in recession. The government is in dire need of capital injection to build infrastructure and meet other obligations under the ongoing recession. Huge fiscal stimulus, government credit guarantees and special interventions by the Central Bank of Nigerian (CBN) have indeed prevented many losses from crystallising in the economy.
The nation’s capital market has been a source of credit. The stimulus helped revive confidence on the economy. Over N2 billion was borrowed from the CBN to finance the 2020 budget, according to the finance minister. With that understanding, the federal government recently passed the 2020 budget Finance Act that would now allow for the borrowing of funds from unclaimed dividends and dormant account balances unattended to for at least six years with deposit money banks.
The proceeds from the two sources would now serve as special credit to the federal government through the Unclaimed Funds Trust Fund contained in the Finance Act 2020, recently signed into law by President Muhammadu Buhari. No official figure has been given for the actual value of the funds that would be taken from the dormant accounts and unclaimed dividend, a situation that has sparked controversy across the spectrum. Failure of the authorities to clear the doubt in the entire process remains an albatross for the goal it seeks to achieve.
For instance, some salient questions begging for answer include: How many accounts are currently classified as dormant? Exactly how much will be borrowed from the dormant accounts? How much interest will be paid? Who determines the interest to be paid on the borrowed funds? Who takes the interest on the loan? What is the tenure of the loan?
It is a very controversial situation indeed. The move to borrow the funds in the dormant accounts has further exposed the fraud that has been ongoing in the banking sector. The banks that have been hosting the accounts for many years have never paid interest to the owners; not to talk of other people that are not able to operate the accounts as a result of death or ailments. Our checks revealed that they have never been paid any interest. Instead, the monies in the dormant accounts serve as a buffer and shock absorber in the areas of liquidity to the banks.
These same billions or even trillions of naira have been part of trading funds for the banks. When our correspondent contacted the chairman of the Association of Corporate Affairs Managers of Banks (ACAMB), Charles Aigbe, to speak on some of the concerns raised as it concerns the banks, he refused to respond to the questions sent to him. Nigerians are now left to speculate that government would determine the percentage of interest that would be payable on the loans, a development economic experts fear could cause dissolution or disaffection in the financial sector at large. How much will government pay back as interest?
The government is contemplating to borrow about N900 billion from the dormant accounts. If that amount is multiplied by four per cent, the government is likely to pay about N36 billion as interest on the loan. The current savings deposit at the bank is a maximum of five per cent. At five per cent, the federal government is expected to pay N45 billion as interest on the loans. That’s what government is expected to pay. The legal practice is for the owners of the accounts to get the interest. But the case is complicated to the point that most of the account owners are not even aware they have idle funds with the banks. Many of the accounts that would be affected are those that have been dormant for a period of six years and above. Associate professor in the department of private and commercial law, Babcock University, Ogun State, Dr. Tayo Bello, is among those who strongly believe that government would likely convert the proposed borrowed funds to perpetual bad debt. “Even if the government says it wants to pay interest, it will be on paper. At the end of the day, it might be a mere academic exercise because you don’t ask a sickler to donate blood. The government is the end result, the borrowers of the last order,” he stated, while speaking to NATIONAL ECONOMY at the weekend. What is the tenure of the loan?
Although the federal government has been silent on the tenure of the loans, it could be speculated that the loan would have a repayment period of one year, based on the insistence by the government that the loan would be used to finance the deficit side of the 2021 budget. It is therefore assumed that government is borrowing the money to finance the 2021 budget, and expectedly, utilise it till December 2021, with the expectation that it would be repaid between January and February 2022 provided that it is not rolled over to another year.
In the case that it is rolled over, government would have to pay interest on the loan at the prevailing savings interest rate that would be determined by the Central Bank of Nigeria (CBN). Who signed the offer letter for the loan? In this case, the authorities have not stated in clear terms who would be signing the offer letter with it. That would have determined the tenure and interest rate and other conditions that would be attached to the loan. There has been no official comment on that bugging issue by the authorities.
The Implications Like many industry players, Dr. Bello said that the process of making the payment of interest on the funds would expose the quantum of the dormant accounts. He opined that the banks are deliberately muted on the issue because it would affect the banks’ liquidity. “There are some banks with over N50 to N100 billion worth of dormant accounts. If such money is moved out of their vault, definitely there will be a problem,” he said in a recent interview with NATIONAL ECONOMY. “The point is, there will be liquidity squeeze and problem in the economy. If we take this money from banks you will see, everything may go down. This is the same government that has been calling on the banks to lend money to the private sector. “My prediction is that immediately that fund is taken out of the vaults of the various banks, there will be financial crisis. Stock market will go down, everything will go down. And don’t forget that we are in recession… problem will start,” he added. Unclaimed Dividends On the issue of unclaimed dividends, the government is basing its decision to convert the idle fund into special debt on Part XII of the Companies and Allied Matters Act (CAMA) in the signed Finance Act 2020. But is the government right on that? Is appropriation of unclaimed dividend the right way to go? In whose interest? Is this the way to revive waning investor confidence in our market? Will government’s creation of “Trust Fund” for unclaimed dividend not increase sources of leakages? Are there no other creative means by which the government can finance the economy? When last did the government float revenue bond? Must it wait for class action to rescind the plan to manage unclaimed dividend?
Some stockbrokers and shareholders who spoke with our correspondent on the issue explained that the move is wrong and faulty by every standard. According to the Companies and Allied Matters Act (CAMA), unclaimed dividend of over 12 years should be transferred to the issuer’s capital reserves for restricted utilisation such as capital expansion and issuance of bonus shares to the company’s shareholders. That is the global best practices. The rationale is that it also provides the possibility for shareholders/owners of the unclaimed dividends to also share from the shared dividends. Chartered stockbroker and chief executive officer, Sofunix Investment And Communications Limited, Sola Oni, said at a time like this, the authorities must continually explore ways by which more companies should seek listing on the market.
It has been proven that quoted companies generate substantial part of corporate tax in Nigeria, stating that “the plan by the government to manage unclaimed dividends is unpopular and be rescinded if we want our market to sustain its global competitiveness.” It was gathered that the Chartered Institute of Stockbrokers (CIS) is making consultations to let the federal government see reasons why management of unclaimed dividend by the government would do more harm than good. But is there anything that can be done when the head is already off? The deed has already been done – the 2020 finance Bill is also signed into law. There are those who strongly believe that the action is failure of the authorities to separate politics from economy. “They should avert sending wrong signals to the global community about our market. Unclaimed Dividend Act should be thrown out without further delay. Both the economics and politics of the game plan are faulty, avoidable and suspect,” Oni argued. But the government noted that notwithstanding subsections (1) and (2), dividends of a public limited liability company quoted on the Nigerian Stock Exchange (NSE) which had remained unclaimed for a period of six years or more from the date of declaring the dividend shall be immediately transferred to the Unclaimed Funds Trust Fund.
Independent Shareholders Association of Nigeria (ISAN) believes that “Government lacks the capacity to manage the funds and has demonstrated a lack of capacity to administer funds. Imagine a shareholder with an unclaimed dividend of about N1000 to write/go to Abuja from Lagos to make a claim of the unpaid dividend. The stress and bureaucratic bottleneck are too cumbersome and will not solve the unclaimed dividend problem.”
Commenting on the technological approach towards addressing the issue of unclaimed dividend, the president, Institute of Capital Market Registrar, Mr Seyi Owoturo, had recently explained that electronic dividend had led to about 80 per cent success. According to him, only 10 per cent of all outstanding unclaimed dividends is held by registrars while the remaining 90 per cent is transferred to the issuers.
