NOTAP & the changing face of MNE’s business: Is the management services agreement (MSA) at risk?
The multinational enterprise (MNE) is an organization that owns or controls production of goods or services in one or more countries other than their home country. It is usually a large corporation which produces or sells goods or services in various countries:
- Importing and exporting goods and services
- Making significant investments in a foreign country
- Buying and selling licenses in foreign markets
- Engaging in contract manufacturing—permitting a local manufacturer in a foreign country to produce their products
Opening manufacturing facilities or assembly operations in foreign countries
When the MNEs transfer services or technology or sell licences to a Nigerian subsidiary or unrelated local recipient or beneficiary in Nigeria, such transfers naturally trigger the oversight of the National Office for Technology Acquisition and Promotion (NOTAP). The NOTAP Act Cap N62 Laws of the Federation 2007 as well as the Revised Guidelines made thereunder, provide the regulatory framework for the regulation of transfer of technology and/or expertise between offshore service providers and Nigerian companies.
The NOTAP Act designates NOTAP as the regulatory agency charged with oversight of Agreements involving transfer of technology/provision of expertise which are not locally available. The NOTAP is under the supervision of the Ministry of Science & Technology. It is no doubt one of the most technical and professional agencies in Nigeria. Based on available information, it registered a total of 1,237 technology agreements over the period of 1999 to 2009 covering agriculture, solid mineral and chemical, engineering and service industries.
Since 2008 NOTAP has been emphasising “its role in ensuring that the Nigerian party to service agreements acquire the best contractual terms and conditions for the transfer of foreign technology (or specialist expertise)” and has re-tasked itself to:
(a) ensure the employment, exposure and training of the appropriate and right caliber Nigerian staff from the design stage of the project where applicable;
(b) emphasise the employment of Nigerians with relevant scientific and technological background to understudy the foreign experts with a view to taking over from them within the shortest possible time. It should therefore be mandatory to have a Management Succession Programme as well as a Comprehensive Training Programme in such agreement in order to ensure full indigenization of management and technology positions. In this regards, it is mandatory that no foreign experts be recruited for any project in the country for which qualified Nigerians are available
(c) ensure that payments for technical, management and consultancy services are viewed in relation to the economic benefits to the recipient company and the nation.
This resolve influenced the change in NOTAP’s approach to technical services in 2008 and in 2014/2015, its approach to management services agreements (MSAs). MSAs cover the provisions of the following services: insurance, marketing, human resources, administration, accounting, sales promotion and other related services. Whilst NOTAP holds a valid view that Nigeria has competent professionals in these areas and as such it is incumbent on it to establish extra-ordinary justification before it can approve MSAs, this viewpoint fails to recognise or attribute proper weight to the changing dynamics of conducting cross-border business operations as well as appreciate how critical it is for an MNE to be able to monitor finance function, human resources function, marketing function etc across multiple jurisdictions including Nigeria from a central point or that this is at a cost .
For instance, the trend or pattern of organizational structure amongst MNEs globally is centralization of strategic services across the group. In promoting centralization, it is now the vogue for MNEs to establish centers of excellence or regionalize certain operations which do not need to be replicated across several jurisdictions to enhance cost optimisation, economies of scale, operational flexibility and competitiveness relative to other players in their particular industries.
This strategy has the following merits.
- In order to mitigate the risk of mismanagement and ultimately corporate failure, MNEs are able to control the quality of services obtained by affiliates. This ensures that investors are comfortable about the quality of management. The effect of a divestment due to a lack of trust in the management of the Company may lead to the repatriation of capital, loss of tax revenues and termination of employment – all of which are counter-productive.
- Costs are reduced at a group level as MNEs are able to leverage on economies of scale.
- Capabilities not easily obtainable locally can be sourced from one central point – at group level, and rolled out to other jurisdictions who have similar need.
Despite the challenge around Nigeria’s capacity to earn significant scarce foreign exchange by reason of the sustained slump in crude oil prices, Nigeria has the largest economy in Africa with a positive projected growth rate. Investors believe that Nigeria will offer the best overall prospect for investment returns over the next few years.
However, NOTAP, as one of the agencies whose regulatory oversight impact the structure of multinational business operations in Nigeria, needs to demonstrate clear appreciation of the changing dynamics of multinational business and their implications for Nigeria’s competitiveness for scarce foreign direct investment.
Whilst the current regulatory revival, awakening or fervour is understandable, it must be realised that this is making existing and prospective investors nervous. It may therefore be a very dangerous stance if Nigeria fails to appreciate MNE’s right to recover charges attributable to provision of management services by reason of having to assign individuals to monitor administration, human resource, finance, marketing, sales promotion and other related services from the center. The MNE remains at the center of the push and flow of FDI into any country and thus, reserves the inherent ability to divert same wherever it wills!
1 It is also sometimes described as multinational corporation (MNC).
3 Revised Guidelines On Acquisition of Foreign Technology, Section 2, Section 8(c) pp. 8 and 12
4 World Bank, NBS, IMF, BMI
5 Into-Africa Institutional Investor Intentions to 2016 by Economist Intelligence Unit