The danger of borrowing unclaimed dividends
The decision by Nigerian shareholders to sue the Federal Government over the latter’s plan to borrow from unclaimed dividends from public companies is one of the contentions that government will have to face, if it goes ahead with the plan. But there will be many more such constraints, which altogether, will have unwholesome effects on the economy. It will be prudent for government to seek other less controversial ways of sourcing for funds for its projects.
By the shareholders’ suit, filed recently at the Federal High Court, Abeokuta, the Finance Act 2020 has unexpectedly become a very contentious document because of its provision that empowers the Federal Government of Nigeria (FGN) to borrow the unclaimed dividends in public quoted limited liability companies and dormant credit balances in accounts with deposit money banks (DMBs). The Act provided that: “Any unclaimed dividend of a public limited liability company on the Nigerian Stock Exchange and any unutilised amount in a dormant bank account maintained in or by a deposit money bank which remained unclaimed or unutilised for a period of not less than six years from the date of declaring the dividend or domiciling the fund in a bank account shall be transferred immediately” to the “Unclaimed Funds Trust Fund (UFTF)”.
Government wants to borrow from the accumulated amount resulting from the transfers. These are funds that belong to private corporate bodies quoted on the Nigerian Stock Exchange (NSE) and individuals. Interestingly, funds owned by the government that fall within the confines of the types the government wants to borrow are “specially” exempted from being transferred to the Trust Fund.
Aggrieved by the Federal Government’s plan to borrow over N158 billion outstanding unclaimed dividend, the shareholders in their suit seek to restrain the government from going ahead with the plan, stressing that allowing the plan would frustrate efforts by shareholders to recover any outstanding unclaimed dividend given the tedious processes involved in making that claim as contained in the 2020 Finance Act. The Attorney General of the Federation and Minister of Justice, Minister of Finance, Budget and National Planning and Accountant General of the Federation are named respondents in the suit.
To facilitate FG’s borrowing from the UFTF, the Finance Act 2020 created Governing Council and a Supervising Authority for the Fund. The Governing Council which is made up of nine members, excluding the Secretary, is to be Chaired and co-chaired by the Minister of Finance and a person from the private sector of the economy, who shall be recommended by the Minister of Finance and duly confirmed by the Senate. The other members of the Council are the Governor, Central Bank of Nigeria (CBN), Director General, Securities and Exchange Commission, a representative of the Registrar of companies, two representatives of Shareholders Association and a representative of Bankers Committee. The Director General, Debt Management Office (DMO) will serve as the Council’s Secretary.
In other words, out of the nine-member-council (excluding the Secretary), six or 66.7% are pro-government while only three or 33.3% are supposedly pro-private. Even then, their appointment may be influenced by the government. Besides, the Trust Fund will, according to the Act, be supervised by the DMO whose Director General is also the Secretary to the Fund’s Governing Council.
This arrangement casts doubts on the real intentions of government and opens the owners of the transferred funds to high level of risks as the government will essentially be lending to itself other peoples’ money. Instructively, Nigerian governments have little reputation of being good managers of financial resources. Notably, the Act makes handover of funds compulsory and failure by any company or DBM to immediately transfer the fund an offence, punishable with heavy fine.
The Act referred to the envisaged government’s borrowing from the UFTF as “special debts”, and provides that the borrowed funds by the FG shall be available for claim/withdrawal by the shareholders and bank account holders at any time. This provision certainly gives no consideration to poor official integrity as well as government’s cumbersome bureaucracy.
No doubt, government’s plan is fraught with undue interference on private assets, non-consultation with and non-securing of the consent of the private sector, rising debt profile which will be injurious to the economy, the likely negative impacts of corruption on parts of the funds, the obvious negative socio-economic implications, the uncertainty of government’s real motive and of course, the exclusion or exemption of government’s qualified funds in the catchment bracket.
Against this backdrop, it is not surprising that the plan has been vehemently opposed by not just the Shareholders Association, but others such as the Association of Securities Dealing Houses of Nigeria and Socio-Economic Rights and Accountability Project.
Negative consequences that may follow government’s implementation of its plan are numerous. First, the targeted funds are part of the credit balances in the banks. According to reports, the government anticipates a reported borrowing of not less than N850 billion from the funds, meaning that such humongous amount will, by fiat, be withdrawn from the banks. This will definitely threaten the liquidity position of some of the banks and put them at grave risk, possibly prompting a round of distress and liquidation of banks in the country, with serious adverse effects for the larger economy.
If this happens, loss of jobs and income by the employees will necessarily follow, along with increased poverty, out of school children and criminality. These are avoidable, if only the government will be forthright and respect the rights of private stakeholders in the economy.
Also, the scheme will likely impact negatively on savings and investment in the country, posing additional challenge for capital formation needed to drive the economy upward. Besides, implementing the plan will set a bad precedence and reduce government’s moral right to redress criminality.
Finally, the Federal Government should be worried about huge local and foreign debts, which are being serviced already at huge costs and are inimical to public good, with telling effects on the country’s future and economy. Government may as well approach well-established credit-creating and delivering organisations that abound locally and internationally to seek for funds to cover its financial gaps, if any. Such organisations will, of necessity, subject the government to routine credit provision qualification tests or appraisals and make funds available to it, if found credit worthy. But before considering further borrowings, the government should seriously subject its operations to scrutiny with a view to cutting the bloated cost of governance.