In the outgone week, President Muhammadu Buhari signed into law the amended Companies and Allied Matters Act (CAMA), effectively replacing the existing Companies and Allied Matters Act, 1990. This represents the most significant business legislation in thirty years with the introduction of new developments, geared towards promoting ease of doing business. We view this as a positive for business sentiments as we take a closer look at some of the key amendments and implications for the broader business environment and economy.
Some of the notable amendments provided include:
Provision of single-member/shareholder companies – the new CAMA now makes it possible to establish a private company with only one (1) member or shareholder. This is in contrast with the requirement of the 1990 Act, which requires two or more persons to form and incorporate a company. We view this as a positive for MSMES in particular, especially as the more common source of capital is personal savings.
Replacement of Authorized Share Capital with Minimum Share Capital – The concept of “authorized share capital” has now been replaced in the new Act with the concept of “minimum share capital”. With this development, promoters of businesses do not need to pay for shares not needed in the immediate term.
Provision for electronic filing, electronic share transfer and e-meetings for private companies – The new CAMA makes provision for electronic filing, electronic share transfer and e-meetings for private companies. This should be positive for corporates, particularly taking a forward looking view as this promotes the incorporation of technological advancements, more robust record collection and storage and ultimately a progressive step towards reducing red tape. Ease of doing business.
Provision for virtual Annual General Meetings – The new CAMA allows for remote/virtual general meetings, subject to the Articles of Association of the company. Given the backdrop of the widespread of COVID-19, we believe this is a timely and constructive move in the right direction. This should facilitate participation of such meetings despite geographical disparities and be more inclusive of stakeholders’ interests. Also, this should come as a much welcome cost saving development for companies, particularly MSMEs.
Other key amendments include: (i) SMEs exempted from appointing auditors, (ii) Appointment of Company Secretary now optional, (iii) Creation of Limited Liability Partnerships (LLPs) and Limited Partnerships (LPs), (iv) Reduction of filing fees for registration of charges, (v) Restriction of multiple directorship in public companies, amongst others.
We believe these developments should be positive towards and in line with the FG’s strategy to improve ease of doing business in the country. Notably, the country has made some strides, according to the World Bank’s Ease of Doing Business Index, rising up to 130th of 190 countries surveyed in 2020 from a position of 169th of 190 countries in 2017. While we laud the improvements made so far, we highlight that the country trails its ERGP target of 100th position of 190 countries and lags behind Sub-Saharan peers such as Mauritius (13th), Rwanda (38th), Kenya (56th) and South Africa (84th), to mention a few. In the subject area of Starting a Business, the country ranks as 105th. Needless to say, cohesive and progressive policy measures need to be implemented in order to significantly improve local business sentiments and incentives for foreign direct investment into the country.
Also, we see the review of the amendments as a positive step towards encouraging participation in the formal sector of the country. According to the IMF, the size of the informal sector is estimated to account for approximately 65% of economic activities in the country. Notwithstanding the enormity of the informal sector’s contribution to the country, the FG has historically found it difficult to tend to the informal sector given the lack of structure in place. We believe further inclusion to the formal space should be bode positively for the drive towards increased adoption of technology, increased job creation and skills development, financial inclusion, and cohesive and transparent fiscal policy formulation. This is especially imperative given the group’s susceptibility to the economic shocks, more recently COVID-19, and impending recession. Further inclusion should also stimulate the local economy and be positive for tax revenues in the medium to long term. With tax to GDP ratio currently hovering around 6-7%, compared to Sub-Saharan Africa (19%).
Lastly, taking a cue from the National Bureau of Statistics survey on MSMEs, the most pressing area of assistance is in areas such as power and water supply, as well as tax rate reduction. We opine that more policy initiatives be created and put in place, in line with the objective to improve ease of doing business, particularly in poorly performing areas such as Registering Property (183rd), Getting Electricity (169th) and Paying Taxes (159th), amongst others included in the Ease of Doing Business Index.