To each entity involved in an ecosystem lies the responsibility to the market, the economy and the Nigerian financial system to connect its reason for being with the overall good.
What started as a simple inquiry into the performance of export related entities on the bourse and the incidence of non-submission of results turned into a five-month investigation and information gathering, the conclusion of which led us into the realities of entrepreneurship , impact of government policies and the role of financial services institutions in Nigeria.
What immediately stood out as we embarked on this exercise was the undeniable trail of “institutional failures” that laid the foundation for the shut-down of an otherwise viable entity and the wrongful tagging of an otherwise quality management that can hold its own within the “Trade Finance” community as inept.
The questions, concerns and inquisition were many. So what went wrong? Who was culpable? How could a company that raised so much money, had an ultra-modern firm launched by the President, State Governor and Bank executives get to a stage of stagnation? What happens to investors now?
The more we searched for answers, the more we saw how a series of policy changes, administrative inertia and indifference frustrated a well-intentioned entrepreneurial endeavour, a situation not helped by the regulatory framework that allowed the transfer of a performing loan to AMCON where new financial rules ensured it had no access to working capital legitimately.
Yet, for a country with a compelling need to develop and grow an export-based economy as a matter of survival, the rules of the game today (often changed mid-way) ensures that more losers emerge than winners; ceteris paribus.
This Multi-Trex case therefore offers much more than a story about the collapse of a company – it is the ultimate poster sign of all that was wrong with our financial markets, regulatory environment (lack of nexus between fiscal and monetary policies driving economic goals) and harnessing of resources to build a non-oil economy for Nigeria.
More importantly, it is a missed opportunity for AMCON, which is not sustainable, and it is hoped that by highlighting the issue we as a market/nation can start the process of a resolution. It is never too late to show creativity, initiative and equity in problem solving.
That Multi-Trex Integrated Foods Plc (“Multi-Trex” or “the company”), the flagship of the Nigerian cocoa-processing sub-sector is today closed for business is unimaginable, with about 200 persons rendered unemployed and the modern processing plant and equipments exposed to vandalisation and disuse.
AMCON has moved in and sealed the company, obtaining a court order from the Federal High Court in Abeokuta whilst an earlier case instituted by the same Law Firm working for AMCON against the same company is still pending in a Federal High Court in Lagos. Facts show that the Lagos case is adjourned till October 8, 2015 while the Abeokuta one is adjourned till October 21, 2015; in a judicial system that considers the Federal High Court System as operating a single jurisdiction.
The market may not have been informed of these developments and of the potential implications for investors; though the NSE has consistently listed Multi-Trex in its X-compliance reports for non-submission of financial results – an early warning signal.
The firm’s downturn was precipitated by the decision of Skye Bank Plc to place the Multi-Trex expansion-driven long-term loan with AMCON at a time it was performing which in consonance, the bank justified was motivated by the “…need to free-up liquidity for the bank, especially on the long dated exposure”. See letter below.
Thus, Multi-Trex Plc, a company that started out in 1999 as a raw cocoa beans cross-border trader and later listed on the Nigerian Stock Exchange (NSE) became a debtor to AMCON in 2011 and had its fate sealed given the lack of access to finance for a working capital driven business by a combination of factors most especially from the CBN and Nigerian Customs. How did the company get to this state? We enumerate below.
A Peculiar Business Model
The domestic cocoa-processing sector is characterized by seasonality of material input, high capital intensity – Investment and working capital and low sales margin. Typically, the cost of setting up a Cocoa Processing Factory can be as much as forty times or even more than the cost of setting up a cassava plant. Normally, the working capital required by a cocoa factory can be up to thirty-five times the amount required for cassava business of similar capacity.
The state of the domestic cocoa sector in Nigeria neither compares with those obtainable in other domestic manufacturing sub-sectors nor is it consistent with cocoa processing environment in other nations around the world.
With the encouraging and promising government policies of the early 2000’s, Multi-Trex decided to forward integrate to cocoa processing from being a pure trader. The evidence of this move was apparent to the market which was bearing fruit in other sectors of the economy then embracing either forward or backward integration.
As stated above, the Cocoa grinding business, the world over, is typified by its capital-intensive and low-margin-high-volume nature. This key peculiarity of the business model also dictates that the business’ o