Proactive Compliance: Navigating Regulatory Transitions For Business Sustainability – Corporate Governance

Introduction

New leadership and the regulatory changes they
bring can have a profound impact on the landscape of business
operations ¹. Following the swearing in of
President Bola Ahmed Tinubu on May 29, 2023, businesses have found
themselves in a sprint to navigate new realities and find ways to
adapt to new rules, policies and laws which have continued to
emerge. This altered political landscape makes it necessary for
most businesses and particularly medium to large-scale businesses
to give consideration to matters of regulatory transitioning. The
phrase ‘there is a new sheriff in town’ colloquially and
somewhat effectively communicates the extensive changes moving
across government ministries, agencies, authorities, administrative
organs, and states.

Regulatory transitioning is the process of
changing regulatory policies, laws, or frameworks to adapt to
evolving economic, social, political, or environmental conditions,
which could occur at different levels. It also includes a change of
persons who occupy leadership positions in ministries, parastatals,
regulatory agencies, and government institutions to adapt to the
strategy and agenda of a new political administration.

With the present administration in Nigeria, the
first change came via President Bola Ahmed Tinubu’s
inauguration speech where he announced the removal of fuel
subsidies. This had an immediate and significant impact because,
while targeted at eliminating the arbitrage opportunities and
smuggling of petroleum products, it also had the effect of raising
operational costs for businesses which has led to higher inflation,
which according to the National Bureau of Statistics went up
immediately to 27.33 percent². Relatedly, this has prompted a
push for energy efficiency and alternative energy, reinvigorating
Nigeria’s path to net-zero emissions by 2060, offering both
business risks and growth opportunities.

It may be recalled that at the start of President
Muhammadu Buhari’s 2015 regime, its own transition reform
included the Treasury Single Account (“TSA”), which was
introduced to consolidate government funds and reduce financial
leaks. Following this, in 2016, the whistleblowing policy was
subsequently introduced to combat corruption and promote financial
integrity. Under the same regime, key reforms included the
enactment of the Federal Competition and Consumer Protection Act
2018 and the Nigerian Financial Intelligence Unit Act 2018, which
targeted financial crimes. The Buhari administration also
introduced the Finance Act in 2021 which introduced over 40
amendments to 13 existing legislations.

Finally, in the twilight of President Mohammed
Buhari’s administration, the enacted Business Facilitation
(Miscellaneous Provision) Act 2023 improved business ease, amending
various laws such as the Companies and Allied Matters Act 2020,
Nigerian Export Promotion Council Act 2004³, Customs and Excise Management Act
2004⁴, Financial Reporting Council Act
2011, and the Immigration Act 2015.

Regime changes offer opportunities but also entail
risks in navigating new regulations. Businesses should carefully
assess and proactively manage these dynamics.

Since the inauguration of President Bola Ahmed
Tinubu, several policies, administrative and legal changes that
affect businesses and the economy have been announced and
implemented by the administration and we review some below:

1. Changes within the
Central Bank of Nigeria (“CBN”): as part of the
broader regulatory transition, leadership changes within government
agencies and regulatory bodies have continued to occur. Following
the suspension of Mr. Godwin Emefiele as the CBN Governor, Mr.
Folashodun Adebisi Shonubi served in an interim capacity until the
substantive CBN Governor, Dr. Olayemi Cardoso was appointed in
September 2023 ⁵. The transition has seen the
introduction of Operational Changes in the Foreign Exchange Market
⁶ which resulted in the unification
of all exchange rate windows into the Investors and Exporters
(“I&E”) FX Window.

In addition, the new CBN administration has taken
a proactive stance on enhancing governance standards within the
banking sector and issued the “Corporate Governance Guidelines
for Commercial, Merchant, Non-Interest, and Payment Service Banks
in Nigeria”⁷. This imposes more rigorous
regulations on banks, particularly concerning insider-related loans
and corporate governance practices. Under the new guidelines,
directors and associates of banks are no longer authorized to write
off loans without obtaining explicit approval from the CBN. Also,
directors who preside over underperforming facilities for a
duration exceeding one year will face disqualification from their
board positions and will be prohibited from participating in any
other financial institutions under the supervision of the CBN.

As a further step, the CBN initially unveiled its
intentions to reintegrate Bureau de Change (“BDC”)
Operators into the foreign exchange market and this was outlined in
the CBN’s circular titled “Operational Mechanism for
Bureau De Change Operations in Nigeria.”⁸ This new approach included a
stipulation that BDC operators must now provide statutory periodic
reports through the Financial Institution Forex Rendition System.
Currency speculation and a huge back log of foreign currency
payment obligations has meant that demand still far outstrips
supply and therefore businesses are struggling to stay afloat and
hedge against the tide of a fast and constantly depreciating
Naira.

Finally, in a significant reversal of a long-term
policy which clearly demonstrates the impact a new government can
have on business, the CBN lifted the ban on accessing foreign
exchange from the official market for the importation of a list of
43 items. The CBN Circular had in 2015 barred items such as: rice,
cement, margarine, poultry, palm kernel, tomatoes, roofing sheets,
steel nails, furniture, fabrics and clothing, and foreign
securities amongst others from access to foreign exchange from
official sources at essentially lower official rates.

2. Removal of 5% Tax on
Telecommunication Services, Locally Made Products: under
the 2023 Fiscal Policy Measures (FPM), the administration of former
President Muhammadu Buhari approved 5% excise duty on post-paid and
prepaid telecommunication services. However, the Tinubu-led
administration has given an order suspending the 5% Excise Tax on
telecommunication services as well as the Excise Duties escalation
on locally manufactured products. The recently introduced green tax
by way of excise tax on single-use plastics has also been suspended
by an executive order.

3. Appointment of New
Service Chiefs: very early, there were appointments of
seven new service chiefs to replace those appointed by the last
administration. They included the National Security Adviser, Chief
of Defence Staff, Chief of Army Staff, Chief of Naval Staff, Chief
of Air Staff and a new Inspector General of Police. Given the
significant security challenges that had bedevilled the nation,
businesses expect improved security for lives, property and for
national assets that are used to generate revenue and provide the
infrastructure that supports growth and development.

4. Board Dissolution of
Specific Ministries, Departments and Agencies and appointment of
Ministers and new MDA Leadership: in July 2023, the new
administration dissolved the boards of all Federal Government
Parastatals, Agencies, Institutions and Government-owned companies
except that of the National Agency for Food and Drug Administration
and Control (NAFDAC) and the National Drug Law Enforcement Agency
(NDLEA). Consequently, the Chief Executive Officers of the
Parastatals, Agencies, Institutions, and Government-Owned Companies
were directed to refer matters requiring the attention of their
Boards to the President, through the Permanent Secretaries of their
respective supervisory Ministries and Offices until new boards are
constituted.

Further in August 2023, Federal Ministers were
appointed into President Tinubu’s cabinet with the most
anticipated being the Minister of Finance and Coordinating Minister
of the Economy, Mr Olawale Edun. His profile, skills and experience
appear to have been positively received by large sections of the
business and international investing community particularly when
paired with that of the new CBN governor, though it is widely noted
that the economic recovery task ahead of them will be difficult and
extremely complex.

Most recently, leaderships of several agencies
including the Chief Executive Officer of the Nigerian
Communications Commission (“NCC”), Officer of the
Postmaster General of Nigeria Postal Service (“NIPOST”),
Corporate Affairs Commission (“CAC”), Nigeria Investment
Promotion Council (“NIPC”), Standards Organisation of
Nigeria (“SON”), the Industrial Training Fund
(“ITF”) and several other agencies have been changed with
immediate effect. This, as we have pointed out earlier, will herald
changes, in some cases quite significant ones, in the agencies and
for the industries, sectors and businesses that they regulate and
or serve.

5. Establishment of the
Presidential Committee on Fiscal Policy and Tax Reform: in
a bid to create a sound fiscal policy environment and eliminate
barriers impeding business growth, President Tinubu created a
Presidential Committee on Fiscal Policy and Tax Reform and
appointed respected tax specialist and then Fiscal Policy Partner
and Africa Tax Leader at PWC, Mr Taiwo Oyedele, to chair the
Committee. Members of the Committee were selected from public and
private sectors, and the committee was recently inaugurated by the
President as an advisory body with the primary objective of
enhancing revenue collection efficiency, ensuring transparent
reporting, and promoting the effective utilization of tax and other
revenues to boost citizens’ tax morale, foster a healthy tax
culture, and drive voluntary compliance.⁹ The primary mandate of the
Committee is to address critical challenges across fiscal
governance, revenue generation and economic growth. In October
2023, the Committee presented its ‘Quick Wins
Recommendations’ to the President. The Recommendations
addressed the duplication of functions in the public service, use
of technology to expand the tax net, facilitating the use of mobile
phones for conditional cash transfers, removing impediments to
export promotion and bottlenecks regarding Exports Expansion Grants
(“EEG”), removing restrictions on repatriation and use of
export proceeds by exporters, discontinuing the forex verification
portal and requirement for Certificate of Capital Importation
(“CCI”) and removing export proceeds restriction, amongst
others.

The lengthy catalogue of critical changes
announced or proposed from Day 1 of this new administration may
foretell of more to come with their impact potentially felt farther
afield including formulating and unfolding the details of the
implementation of those changes already made.

Regulatory Transition Risks

We will consider Regulatory Transition within the
known classes of risks that may affect businesses as follows:

1. Economic Risks: The difficult
regulatory environment, high inflation, currency policy
inconsistencies, and limited foreign exchange availability are some
of the challenges that affect businesses, causing operational
constraints and affecting their ability to repatriate funds and to
access foreign exchange. These led to a decline in foreign direct
investment (“FDI”) over the last few years.

2. Legal and Regulatory Risks:
The legal and regulatory landscape has witnessed significant
transformations, including the enactment of 19 new laws prior to
the end of President Mohammed Buhari’s administration. Riding
on that momentum, President Bola Tinubu signed several noteworthy
legislations including the following:

• Nigeria Data Protection Act 2023: On June 12, 2023, President
  Tinubu assented to this landmark legislation, establishing the
  Nigeria Data Protection Commission (“NDPC”) as the sole
  regulator for personal data processing and protection. Companies
  must review the new law and powers of the NDPC, evaluate their data
  privacy compliance, and implement necessary measures for
  compliance.




• Constitutional Amendment on Judicial Retirement Age: The
  retirement age of judicial officers has been harmonized and
  increased from 65 to 70 years. This change can help expedite
  pending cases, retain experienced judges, and address court
  congestion challenges, enhancing the administration of justice
  which can in turn facilitate the quicker resolution of business and
  commercial disputes.




• Electricity Act 2023: Following the constitutional amendment,
  states now have authority over electricity generation,
  transmission, and distribution within their areas covered by the
  national grid system. The Act promotes power generation,
  transmission, and distribution at the national level, encourages
  renewable energy integration, and offers investment opportunities
  in the power sector, potentially addressing the demand for reliable
  power in Nigeria.

3. Investment Risks: In February
2023, Nigeria was placed on the Financial Action Task Force’s
(“FATF”) grey list due to non-compliance with anti-money
laundering and anti-terrorism financing standards. This listing
signals to investors and the global community that illicit
activities, such as money laundering and terrorist financing, pose
a risk in the country. Consequently, it hinders foreign direct
investment and impedes economic growth. To address this, the
current administration is taking steps to implement policies
aligned with FATF standards such as the further development of the
recently established Beneficial Ownership Registry, increased
reporting of suspicious transactions and other critical measures,
to remove Nigeria from the grey list and avoid blacklisting.

4. Security Risk: Over the years,
many of Nigeria’s security issues became considerably worse,
and this impacted on the safety of businesses and their employees,
and caused disruptions in business operations across the country.
Terrorist activities in the Northeast have made states in these
regions unsafe and therefore unattractive for businesses to operate
and thrive. Businesses must watch closely and adjust to the
policies and planned actions of the newly appointed service chiefs
and build new and wholesome relationships with security agencies in
their communities.

5. Political Risk: Political
risks encompass government actions that limit an investor’s
rights, diminish business value, or create an uncertain
environment¹⁰. Elections, their outcomes and
public perceptions regarding fairness and non-manipulation may
introduce political instability that impacts businesses. There are
several pending election petitions ongoing in Nigeria regarding the
February National Assembly and Gubernatorial elections, the
November gubernatorial elections most recently held in states like
Imo, Kogi and Bayelsa and with the July coup in Niger, all posing
regional political and security risks for businesses to consider.
The inflationary economy and the resulting public hardship,
increased poverty and repeated threats of nationwide strike action
by organised labour, all further underline the delicate political
balance to be maintained.

At this point, we reiterate that regulatory
transitioning has the potential to offer business growth
opportunities. During President Goodluck Jonathan’s tenure, the
Nigerian Oil and Gas Industry Content Development Act promoted
indigenous participation in the oil and gas sector, fostering
economic growth, job creation, and increased oil contract awards
and undertakings¹¹. The rise of the Nigerian
technology sector and the Fintech industry can also be traced back
to the mobile telecommunications revolution of the Obasanjo regime.
This momentum was further propelled by the banking policies of
successive administrations, which liberalized digital and
electronic transactions, commerce, and a myriad of value-added
convergence services and products.

Risk Mitigation Strategies

Proactive Compliance: Navigating Regulatory Transitions for
Business Sustainability

The Nigerian
regulatory climate is complex with multiple agencies and laws
governing various sectors across different industries. Businesses
should always seek to understand the relevant regulatory frameworks
that affect their investment, operations, financing, governance,
taxation and labour practices, and their industry or sector, to
prepare and plan, manage or prepare resources to address changes.
Below are some of the strategies that can be adopted:

1. Adaptation: Political
transitions can be a source of uncertainty for businesses operating
in any nation. Adaptation is crucial. After analysing and assessing
industry-specific risks, businesses can commit to a set of actions
that accommodate the regulatory changes, seize opportunities and
respond to new threats.¹²

2. Build Wholesome Relationships with Key
Stakeholders and Authorities: It is important for
businesses to maintain open communication with regulators, engage
in consultations, attend industry events, and join associations to
foster transparent, collaborative relationships.

3. Periodic Review of Internal
Policies:Businesses should evaluate internal policies to
align with evolving regulations during transitions.

4.
Employee Awareness and Training: employees play a crucial
role in regulatory compliance. It is critical to invest in employee
awareness and training to ensure compliance with new rules to
foster a culture of regulatory adherence.

5. Political Risk Insurance
(“PRI”):political risk insurance is a risk
mitigation tool that protects investors, organizations and
businesses that face the possibility of loss of assets as a result
of political events. It covers many possibilities, including,
expropriation, political violence, and terrorism¹³. A political risk
insurance policy can secure physical assets, investments, and loans
of businesses. For example, where the tools of trade of an oil and
gas company are sabotaged as a result of an insurrection during a
political transition, political risk insurance coverage could
compensate and make good the losses suffered by the
company.

6. Develop a Crisis Management
Plan:a crisis management plan outlines how a business will
address potential crises and risks related to a regime change.
Businesses should create a crisis management strategy and
transition plan which should cover employee safety practices,
supply chain interruptions, legal challenges, regulatory
investigations, financial and operational contingency plans, and
communication plans¹⁴. This would enable them
to minimise damage and restore business operations as quickly as
possible.

7. Seek Professional
Advice:businesses can seek professional advice from legal,
financial, and other experts with experience operating in Nigeria.
This can help them stay informed about upcoming legal and
regulatory changes, obtain advice to manage various risks and
develop appropriate responsive measures.

CONCLUSION

Businesses must
adopt a proactive and adaptable approach to effectively navigate
regulatory changes, as this is pivotal in ensuring their sustained
compliance, competitiveness, and long-term viability. Particularly
for businesses operating in Nigeria, a deliberate effort should be
made to foresee the possibilities and hazards associated with the
ongoing regulatory transition. Seeking professional guidance is of
utmost importance, as it enables businesses to anticipate growth
prospects and innovative business development avenues. Furthermore,
such consultations offer valuable insights for reducing,
mitigating, or even eliminating potential risks.

Footnotes

1
Mark John & Nwaiwu Johnson, “Impact of Political
Environment on Business Performance of Multinational Companies in
Nigeria.” AFRREV, VOL. 9(3), S/NO 38, July, 2015 accessed
atHttps://Www.Ajol.Info/Index.Php/Afrrev/Article/View/119132
>.

2 Nigeria’s Inflation Rate Hits
27.33% In October – NBS | The Guardian Nigeria News –
Nigeria And World News — Nigeria — The Guardian Nigeria
News – Nigeria And World News

3 CAP. N108 Laws of
the Federation of Nigeria

4 CAP. C45 Laws of the
Federation of Nigeria

5 CBN
Press Release Cardoso Assumes Office.Pdf

6 Https://Www.Cbn.Gov.Ng/Out/2023/CCD/Operational%20Changes%20to%20FX%20Market.Pdf

7 Circular And Guidelines For
Corporate Governance.Pdf (Cbn.Gov.Ng)

8 Cbn.Gov.Ng/Out/2023/TED/TEDFEMPUBFBC01007.Pdf

9 President Tinubu Sets Up Committee
On Tax Reforms – The Statehouse, Abuja

10 Definition by World
Bank Group Multilateral Investment Guarantee Fund-Https://Www.Risk-Officer.Com/Political_Risk.Htm#:~:Text=Political%20risk%20is%20the%20risk,In%20which%20they%20have%20invested

11 Https://Www.Mondaq.Com/Nigeria/Oil-Gas–Electricity/1019096/Overview-Of-Nigerian-Local-Content-Law-In-Oil-And-Gas
Industry#:~:Text=The%20Local%20Content%20Act%20is,Different%20oil%20contracts%20and%20undertakings
.

12 Https://Www.Un-Ilibrary.Org/Content/Books/9789213615331c015/Read
.

13 Https://Www.Investopedia.Com/Terms/P/Political-Risk-Insurance.Asp
.

14 Https://Asana.Com/Resources/Crisis-Management-Plan

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.