Good People,

Something happened last week. A CEO read my piece on Aliko Dangote’s presentation in the Elumelu Forum.

The evolutionary process also saw enormous strategic vision. This is part of the accumulation of capabilities and building moats which make it harder for competitors. By improving efficiency across all segments of its operations, even in a region where there are challenges with infrastructure, a competitor cannot easily find things to improve upon. With its scale, you cannot find any area to improve and have lower cost advantage. In other words, if Dangote Group can efficiently move items, you cannot come in and use that element to compete because the efficiency attributed to transportation in the conglomerate has been built into product costing. Dangote listed some areas he deepened capabilities to improve his business processes as follows:

He emailed me that he would like me to come and talk to his Executive Management to “download” Dangote business method and philosophy in all of them. I told him that I wish I understand Dangote a lot. He said do not worry – I have seen his video but I could not finish watching it. But somehow you made a masterpiece of the presentation. “You come and explain to us”. My firm runs an executive mgt/board level technology advisory service.

This afternoon, they made a contract: my firm will spend two days training the Executive Management on The Dangote System: Techniques for Building African Conglomerates. So, I am now an expert on Dangote business philosophy!  I will put all in a book next year to be available to tekedia.com subscribers.

And meanwhile, we offer frameworks, yes the Dangote System, to help companies win. I have made all my works on Dangote a system which can be applied across industrial sectors. That is another product for the African market. Go figure how ideas emerge!

Oando Plc had the moments under the sun. It was evolving as a critical energy company in Nigeria which one day could cushion the nation into another level. Oando was a promise to Nigeria, a firm that could make it possible for our nation to play at the upstream level in the energy sector. For years, Nigeria had waited to become energy-production independent by building companies that could play major roles in its energy sector.

Men worked in the Nigerian Railways for decades but Nigeria did not acquire any train making capabilities. Nigeria has been producing crude oil but the upstream remains out of hand to Nigeria. If the major oil companies depart today, Nigeria will cease to be an oil and gas sector player. We have not accumulated capabilities indigenously.

But somehow, there was a shining star, named Oando Plc, out of the horizon for Nigeria’s future. Unfortunately, it seems like an effervescence. Oando is losing it as Securities and Exchange Commission (SEC) has started audits into how the company has been operating. The firm has been suspended in both the Nigerian Stock Exchange and Johannesburg Stock Exchange.

Nigerian oil firm, Oando Plc, allegedly declared dividends from unrealised profits and released false financial statements to the public before it was suspended by the Nigerian Stock Exchange, NSE, a correspondence sent to the oil firm by the Securities and Exchange Commission, SEC, shows.

Oando, which was suspended by the NSE on October 19, has been enmeshed in a protracted crisis for a while.

The NSE suspension followed an October 18 directive by the SEC, mandating the Nigerian bourse to sanction the oil firm.

Similarly, the Johannesburg Stock Exchange, following an advice from the Nigerian bourse, also suspended the embattled firm on October 19

But in a letter sent by SEC to the Group Chief Executive Officer of the firm, Wale Tinubu, and obtained exclusively by PREMIUM TIMES, the commission said it found that the oil firm’s 2014 Rights Issue Circular ”contained misleading information.”

According to SEC, its preliminary findings were “weighty and required further investigation by an independent team of auditors”. Consequently, it has assembled a consortium of Akintola Williams Delloite, United Securities Limited, SPA Ajibade & Co, TJADAP Consulting and Associates, and Nasiru Muhammad and Co. to beam high-voltage searchlights on Oando Plc. My take is that Oando will come out largely paralyzed.

It is a shame to Wale Tinubu, a pragmatic young leader with enormous opportunities ahead of him to build a legacy in his nation. The fact that SEC Nigeria is even saying what it is saying publicly tells you that Wale might have been running a house of cards. Yet, it is just an accusation and Oando could be accused wrongly, but the problem is that Oando is not talking. Some of the deals, as reported by Premium Times, are excruciatingly unfortunate.

This is Nigeria’s Wells Fargo, at the moment. The U.S. bank cooked and manufactured millions of fake bank accounts in a real thriller only Hollywood could have made in modern America. That American bankers could create fictitious bank accounts tells me that all human species have the DNA of bad behavior; the only difference is the consequence that evil attracts. America is pushing Wells Fargo hard with the former CEO since gone and other important executives left or leaving, as Fortune notes.

Wells Fargo’s woes continue to get worse. The bank has fired four senior foreign-exchange staff from its investment bank, according to The Wall Street Journal. That’s particularly worrying because the investment bank had until recently been largely immune from the conduct-related scandals sweeping the much larger retail bank, and strengthens suspicions of systematic governance issues. Separately, the bank has been warned by supervisors that it may need to raise its $80 million payout to customers affected by abusive sales of auto insurance products

We will be watching how Nigeria takes action on Oando after the audit. Nigerians do complain that the Nigerian Stock Exchange is underperforming, with many pointing out that the corporate governance regime in our firms is weak. We have a real test to show how we want the NSE to function and why responsible people should be asked to put money in the exchange. SEC needs to help the bourse in order to boost confidence especially of the retail investors which have refused to return since the Great Recession decimated their investments. In a piece in the Harvard Business Review, I put forward on how African governments can improve the auditing of publicly traded companies.

A key step will be for regulators to change the relationships that exist among auditors, public companies, and the exchanges. Specialty insurance companies may need to be created to protect investors from audit-fueled risks, as companies should be required to buy special insurance policies (audited statement insurance, as I call it) to compensate investors if their audited financials are found to be deceptive. The premium charged by the insurer will track the risk profile of the auditor’s work. To reduce the insurance premiums, traded companies must cooperate and engage better with auditors. In situations where the present insurance companies cannot handle this type of risk, African governments and regulators should create opportunities for new insurance companies. These companies should be built for the digital age, requiring public companies to link critical business data like trading and transaction volumes to insurers in real time to help them assess risks. Companies that fail to share such data may be asked to put money in an investor protection fund. For those that prefer buying insurance, they have incentives to lower premiums, which can only be achieved if they allow auditors unfettered access in their firms.

In addition, African exchanges need to revamp the engagement process for how auditors are retained and compensated by traded companies. Public companies in Africa should not be allowed to hire their external auditors; the exchanges should do so for them. The auditors should be paid from a reserve fund carved out from the raised capital by the public companies. This will fix the biggest flaw in the auditing model, where auditors are financially dependent on the companies they audit. Auditors must be first quality to be added into the pool, and then exchanges must ensure there is constant internal competition for jobs. This rivalry will keep auditing costs low while improving quality, since a high-quality audit will be expected to translate to lower insurance premiums, and vice versa.

But no matter what, Wale Tinubu may have to take an exit. I do not think any responsible person will buy Oando shares with him still in charge, irrespective of the outcome of the audit.

I am not a fan of cryptocurrency but I do believe that it will form part of modern commerce, competing with paper money. It may have no intrinsic value but that does not matter. People pay for arts, spending millions of dollars for wood. The same can be said of gold which has marginal industrial use. Yes, gold does not have much intrinsic value. But people invest in it.

In this video, I explain on the certainty of cryptocurrency in our age. It will not go away. Yet, I cannot make a call which of the currencies will survive. There may be a bubble or not, but that is irrelevant. Even after a bubble, the party will continue, because crypto-currencies like Bitcoin will not disappear in our world. No technology has ever become as popular as cryptocurrency within a very short time and then fizzles.

Just like gold and art, if the people think Bitcoin is worth $6,000, that is what it is worth. Provided there are believers, Bitcoin will be here. It has crossed the inflection point to be irrelevant. But even with that, it is possible Bitcoin will fade and another cryptocurrency will take over. But one thing is certain: cryptocurrency will be here. If that is the case, delaying its baptism is waste of time by national governments.

Earlier today, I wrote on organically regenerative capabilities of most great web businesses like Google and Facebook. I have made a video to take the perspectives home.

As you look into how these companies operate, you can see clear utilities in action. You can even be bolder: monopolies in their respective technology categories. There is nothing that will change the trajectory in the near future. Even if government breaks them apart, the fact remains that another company will take over their positions. Web businesses have this inherent feature that makes them organically regenerative: if you break Facebook because of its influence, another company will just take over its position. That regenerative capability is that ability to get better with more user data. That is what they call network effect:

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So breaking Google will not fix the issues. One day, another company will grow to replace what Google does today. Web businesses get better with growth, unlike meatspace companies where more customers like in a bank hall will frustrate the users. This is a special feature I have captured in inversibility construct: 

That feature is why the more the users the better, and that means the best in technology will re-grow even when broken apart provided it has enough users to seed that moment. Over time, there will be convergence. WeChat is the Internet first operating system which practically does everything: WhatsApp, Facebook, Twitter, Instagram, all in one. It is a seed that will keep growing, and breaking it will have minimal impacts, unless you want another name, not WeChat, to do the same thing tomorrow in China.

A Comment from LinkedIn User

Interesting insight on the regenerative capabilities of the web based companies. I always enjoy your teachings. This brings to mind the Uber case in London. Yes Uber ignored the cues and left a lot for ‘very late’, but my 2 cents is that as long as the value proposition has been effectively delivered to satisfy that latent need for the sharing economy , if legislation stalls one player, customers will gravitate to similarly positioned alternative offerings, but may not rekindle their old desire for the city people’s black cabs. The desire to satisfy that need with the nascent approach will only regenerate itself as available market share for other sharing economy players. After all, uberisation is now a word.

Apple’s cash balance is about $261.5 billion. And the stock prices of Google (yes Alphabet), Microsoft and Facebook are trending higher and higher. Amazon and Apple are in their own leagues, hitting close to the highest numbers they have ever recorded. This is turning out to be a golden age of technology.  Technology is ruling nations and markets are totally being redesigned. Today, energy companies like Exxon Mobil are systematically making ways for technology firms as the most valued entities.

The fascinating thing is that this is a virtuoso circle: the more capital these companies have, the easier it will be for them to buy out new entrants and also fend off competition, in any form. Facebook owns a platform and the users generate the raw materials (the photos, comments, feeds, etc) which the company feeds upon. Google specializes in aggregating web contents and videos, making them available for users to peruse. The capacity to aggregate contents makes these companies to be asset-light with high scalable advantage running at marginal costs for new users approaching near-zero.

As you look into how these companies operate, you can see clear utilities in action. You can even be bolder: monopolies in their respective technology categories. There is nothing that will change the trajectory in the near future. Even if government breaks them apart, the fact remains that another company will take over their positions. Web businesses have this inherent feature that makes them organically regenerative: if you break Facebook because of its influence, another company will just take over its position. That regenerative capability is that ability to get better with more user data. That is what they call network effect:

The network effect is a phenomenon whereby a good or service becomes more valuable when more people use it. The internet is a good example. Initially, there were few users of the internet, and it was of relatively little value to anyone outside of the military and a few research scientists.

So breaking Google will not fix the issues. One day, another company will grow to replace what Google does today. Web businesses get better with growth, unlike meatspace companies where more customers like in a bank hall will frustrate the users. This is a special feature I have captured in inversibility construct: 

For the Inversibility Construct, you need to turn a typical frustration in the meatspace into strength in the digital space. That means, you need to INVERSE the experiences of people, so that what annoys them in the physical becomes strength in the digital space. I provide some examples:

The Nigerian Challenge

As you see what Google and other American companies are doing, it does seem that they are esoteric with practically no chance for any company in other parts of the world to challenge them. But when you go back to history, you will notice that there was nothing like Silicon Valley before Shockley invented the transistors and legends like Gordon Moore made the two words “Silicon Valley” something iconic. So, Silicon Valley became because men (and women) made it happen.

One of the key enablers of this new ‘city” was the on-boarding of investors who came to seek opportunities. Sandy Hill Road, Menlo Park (California) became a street into the future of the world where many investors made homes, investing in game changing companies. Those companies saw opportunities and came, and they also seeded new opportunities. It became a positive continuum which remains till today.

To create such enablers in Nigeria, I propose the following specifically for the VC sector:

• Government should offer new VC (venture capital) firms in Nigeria a ten year tax incentive on profits if they have asset base of at least $50 million and will deploy the capital in Nigerian startups within 10 years.
• Offer new VC firms in Nigeria the opportunity to repatriate 100% of profit within ten years. That will help the country to attract foreign investors to make Nigeria home.

If we have this type of incentive, we will see many VC funds making Nigeria home to explore opportunities in Nigeria and continental Africa. That influx of capital will have many multiples of benefits to our economy, our people and the Nigerian technology space. Today, we are having the capital problem, and government can make it easier for our startups to receive the funding they need. A new reform on VC will go a long way. Government does not need to spend any of its money. All it needs to do is to make it easier for investors to come to Nigeria and do business. We simply need to make the offers more attractive to these investors.