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:

[…]

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.

Many years ago, a journalist asked a governor why he was recycling politicians who had served in previous  administrations. The governor simply told him: “we only use those who are active”. I am not here to debate if that is an efficient method to use when building teams. Yet there is a small lesson there: we all like to join moving trains. In forming governments, the moving trains can be simply those that show up irrespective of their capabilities.  Also, in companies, once they become active and start winning, a continuum is established and they just keep going.  It is called positioning.

We have read that Amazon received 238 proposals for its second headquarters. Cities competed for the opportunity for Amazon to choose them for its headquarters.

Amazon.com Inc.’s second headquarters, dubbed HQ2, has lured 238 proposals extending across 54 states, provinces, districts and territories in North America, the company said Monday. Only seven U.S. states refrained from bidding: Arkansas, Hawaii, Wyoming, North Dakota, South Dakota, Montana and Vermont, according to a map Amazon published on its website.

Cities are battling for Amazon’s investment of $5 billion in construction and 50,000 high-paying jobs spread over the next two decades: New York City’s Mayor Bill de Blasio ordered landmarks around the city lit up in “Amazon orange” before the bids were due last week. Canadian Prime Minister Justin Trudeau penned a personal letter to Amazon Chief Executive Officer Jeff Bezos advocating for HQ2. Newark, New Jersey, has offered $7 billion in potential tax credits.

Notice that Newark, New Jersey, is offering $7 billion in tax credits. But that may not be enough. Amazon had made it clear that it would make the selection based on the city that can provide all the basic things (good roads, access to airport, electricity, etc) with massive “tax breaks and grants”. The grant part is interesting because that means that the city will have to give Amazon money. So, you waive tax and you also have to provide grant to Amazon.

Let me connect this to the Nigerian case: Few weeks ago, many people went ballistic when the Nigerian government noted through a minister that it was offering tax incentives to enable Dangote Group fix some roads. Some felt it was immoral to do that in a country of more than 180 million people. (I do not know the terms to ascertain how balanced the tax concessions are. Also Dangote Group has refuted some parts of the statements made by the minister.) Unfortunately, that is how capitalism works. I have called this type of incentives Conglomerate Tax: for their successes, conglomerates tax the economies where they operate as the economies indeed subsidize their businesses.

It is called Conglomerate Tax. It is a game played in all parts of the world. Conglomerates use their powers and scales to bully governments to do things the very way they want things. If governments refuse, they do not invest and nothing changes. Because they know the governments are financially incapable or strategically deficient, they hit them at the pain points: I cannot solve this problem if you do not accept my terms.

You may not like it, but there is nothing you can do about it. It is legal. From GE to Carlos Slim Grupo Carso, citizens subsidize most things conglomerates do as most times they do not have to pay tax. They get great deals you wish you can. And you can if you follow the game plan (I will explain later).

The news is that the Dangote Group will not pay tax in the next ten years for it to help Nigerian government fix roads.

Amazon does not seem to be a natural company to receive any support when you consider that it has ravaged communities through its ecommerce operation that has devastated shopping malls across America. The cities that plan to give it billions in tax credits and grants are the same cities complaining that Amazon has reduced their tax receipts by out-competing retailers who collapse taking with them local taxes. To add salt to injury, Amazon does not even collect local taxes for most cities. So, using historical impact data, Amazon should be punished by cities for what it has done on them, though indirectly.

Unfortunately, conglomerates are so critical because they open up markets and economies. What they do is so vital to communities that you can forget their past “sins”. Yes, Amazon wants to invest $5 billion but cities are offering packages in billions of dollars of tax credits. I expect the winning bid to offer around $5 billion in tax credits and at least $250 million in grants.

Now, why will a city do this? If Amazon is bringing $5 billion, it will drive the local economy. It is a virtuous circle that the $5 billion can stimulate more than $100 billion of value in the city. The cities are competing because Amazon over the years has accumulated capabilities, operating at the upstream level of the economy. The cities want more economic growth and Amazon can help them to unlock it. The fact is this: any company that attains that level of capability can get the same deal because governments are looking for entities that can fix their major pain point which is job creation. If you want to invest $5 billion in any Nigerian state, you will not just get land, you will receive tax benefits.

Conglomerate Tax is not corruption. You cannot even say that it is making the market not to operate freely and fairly. For example, Amazon competitors can say that the industry leader is getting an unfair advantage. You can say all you want, but government does not care, since if you have the same level of resources and want a deal, they will package something for you. Government does not create jobs, it only provides enabling environments.

Capitalism can be interesting because not everything seems fair. But as the Amazon case teaches us, it is better people focus on the motivating energy of capitalism. They will build firms and unlock value, instead of wasting time complaining on what the government is giving to conglomerates like Dangote Group. Every Nigerian government will keep offering benefits because if they do not, another African government will invite Dangote Group to come, offering the same benefits. Our problem is just that only one company is at the level of the Dangote Group when you talk of conglomerates. (We have other companies but most are not at Dangote Group level as diversified industrialized conglomerates.) In America, Amazon is making its own competition a show, but it could have gotten these same benefits secretly, just as GE and Honeywell do yearly.