Can The CGRS Rouse The ‘Giant Of Africa’?


Can The CGRS Rouse The ‘Giant Of Africa’? Ethical BoardroomBy Soji Apampa – Co-founder of The Convention on Business Integrity – Sponsor of the Corporate Governance Rating System



Nigeria took a very important step when it launched its Corporate Governance Rating System (CGRS). The Nigeria Stock Exchange working in partnership with The Convention on Business Integrity achieved this feat. But how will the CGRS make a difference to Nigeria’s economy, its companies or investors?

Nigeria is often touted to be a land of great investment opportunity in Africa. In response to suggestions made by General Buhari, flag-bearer of Nigeria’s opposition party All Progressives Congress (APC), that the economy has not been well managed, President Goodluck Jonathan retorted: “As is well known, available figures, statistics and ratings show that the Nigerian economy has consistently maintained an unprecedented growth rate of six to seven per cent under the Jonathan administration. They also show that the Nigerian economy is now the leading economy in Africa and the 26th largest in the world with a gross domestic product of over $500 billion per annum.”

Recently, the country rebased its economy to include items such as film production with its film industry fondly referred to as “Nollywood” to name just one addition. Overnight, the move has made Nigeria Africa’s largest economy ahead of the likes of South Africa and Egypt. Is this an act of hubris or is Nigeria really worth the appellation, ‘Giant of Africa’?

Any seasoned emerging market investor would tell you, investing in Nigeria is not for the fainthearted. This year, Nigeria slid down seven points on the Global Competiveness Ranking produced annually by the World Economic Forum (WEF) to rank 127th out of 144 countries surveyed. When components of the index are distilled, Nigeria ranks 140th in ethics and corruption as a whole out of 144, 142nd out of 144 in the diversion of public funds, 135th of 144 in irregular payments and bribes, and 138th of 144 in irregular payments in exports and imports. Even the judiciary was not spared as Nigeria ranks 122nd of 144 in irregular payments and bribes to obtain favourable judicial decisions. In the same vein, business executives rank corruption as the 2nd most problematic factor for doing business in Nigeria. This is congruent, as far as perceptions go, with Nigeria’s rank of 144th of 177 on the Corruption Perceptions Index of Transparency International.

Investment destination

As hard as Nigeria has tried – and it has had a country rebranding project under President Obasanjo and under President Goodluck Jonathan who even hired a US PR firm to smarten up the image of the presidency – it has found it difficult to shake off its negative perception as one of the more corrupt countries of the World. Yet despite this, Foreign Direct Investment (FDI) by Foreign Portfolio Investors (FPIs) especially, has continued to rise. It may come as a surprise that Nigeria was the second favourite investment destination in Africa in 2013 (falling from the even more exciting number one position it held for two years running prior to that), according to the United Nations Conference on Trade and Development, UNCTAD.

What then is responsible for this keen interest in investing in Nigeria? According to the World Economic Forum’s 2014-2015 Global Competitiveness Report on Nigeria, as President Goodluck Jonathan suggested in his remarks, Nigeria has fared better than most in Domestic & Foreign Market Size, GDP, Gross National Savings as a percentage of GDP, and General Government Debt as percentage of GDP resulting in a very enticing investment environment.

However, according to the same WEF report, Nigeria has done worse than others in the area of institutions and infrastructure. The poor institutional environment (translating into poor governance generally) and insufficient action to curb corruption are some of the reasons why Nigeria has ‘BB-/B’ long- and short-term sovereign credit ratings according to some of the ratings agencies. This rating puts Nigeria several notches below investment grade and thus attracting to it only hot, speculative investments rather than the longer term, friendlier investment that could have been used by the country to make its impressive GDP growth figures more inclusive. Some analysts suggest that for every $1 in investment that is made, Nigeria pays out $1.4 when the investor exits so FDI whilst building a good story for the country depletes the foreign reserves at the same time.

Improving Nigeria’s image

Nigeria is learning that there is no quick fix to improving its image; it has to fix the fundamentals to improve perceptions appreciably. As a building block towards real institutional reform benefits to Nigeria’s economy, the Nigerian Stock Exchange (NSE) has introduced the Corporate Governance Rating System (CGRS) in partnership with the Convention on Business Integrity.

The CGRS has real potential to raise the level of corporate governance and reduce corruption. CGRS can raise the national corporate governance ceiling in Nigeria by supplementing the existing national corporate governance frameworks of law, regulation and codes. It will act as an external incentive that goes beyond the sector-specific regulation and codes that currently govern corporate governance in Nigeria. Simply put, the CGRS connects the dots between good governance and good returns. Well-governed companies will be included in a tradable Corporate Governance Index and/or listed on a Premium Board. Enhanced corporate governance will also reduce the general level of corruption as it whittles away rent-seeking propensities of business in Nigeria. Ability of investors to discriminate between poorly and better run companies also improves the perceptions of risk around investing in that geography as well.

The CGRS assesses companies with respect to their corporate integrity, corporate compliance, and director fiduciary awareness. Self-assessments done by the companies are cross checked against stakeholder feedback through a survey and against the views of expert stakeholders in a focus group. The CGRS score of 100 per cent is comprised of a score for corporate compliance self-assessments (50 per cent), a Fiduciary Awareness Certification Test (FACT) for directors (10 per cent) and Corporate Integrity assessments based on feedback from stratified, randomly sampled stakeholders (20 per cent) and an Expert Multi-Stakeholder Group (EMSG – 20 per cent). CGRS sets the qualification bar quite high in both methodology and transparency and the threshold is reaching or exceeding 70 per cent overall.

Qualifying companies that also have a market capitalisation of $1bn or more and meet certain liquidity criteria will become part of the Premium board of the NSE. All those qualifying are placed on a tradable Corporate Governance Index. Experience from Brazil shows that such Premium Boards or Corporate Governance Index tend to considerably outperform the All Share Index.


“Belonging in a CG rated category is an incentive for companies committed to good corporate governance to be differentiated from the negative reputation that Nigeria currently has”


The special listing segments of the Brazilian stock exchange; BM&F BOVESPA demonstrates the potential of the CGRS. In 2001, BM&F BOVESPA launched special corporate governance listing segments for companies that voluntarily commit themselves to higher standards of corporate governance over and above that required by Brazilian law and the Brazilian Securities and Exchange commission. The performance of shares of companies on the premium listings, L1, L2 and Novo-Mercado show that the stock prices of better–governed companies performed consistently better than the IBOVESPA, the main indicator of the Brazilian stock market’s average performance. Also, these listing requirements have been able to improve the national corporate governance as the listing requirements go beyond Brazil’s legal and regulatory framework. Brazil is currently ranked 4th globally in terms of FDI inflows. Given the difference a corporate governance index can make, the turn of this decade has seen several bourses around the world launch corporate governance (CG) indices or the broader environmental, social and governance (ESG) indices.

Belonging in a CG rated category is an incentive for companies committed to good corporate governance to be differentiated from the negative reputation that Nigeria currently has. Companies with good corporate governance will enjoy enhanced visibility to investors and will be attractive to ethically aligned investments. Consequently, a successful CGRS rating reduces the cost and difficulty in raising capital both domestically and internationally as it addresses the investor’s age-long agency concern about the trustworthiness of the managers of their investment. Additionally, businesses stand to gain other commercial advantages from being CGRS-rated including preferred status from ethically concerned customers and business partners, increased staff morale, ability to attract ethical staff and improved media coverage. This improvement in reputational capital will aid in obtaining and retaining the social license to operate.

All listed companies on the Nigeria Stock Exchange are subject to this mandatory Corporate Governance Rating. Investors therefore stand a chance to benefit from the CGRS, as they may be able to earn superior risk-adjusted returns by investing in firms with strong corporate governance and/or avoiding firms with poor governance.

Technical Benefits of the CGRS

First, the CGRS is a diagnostic tool. It provides an objective evaluation of the state of corporate governance of companies in Nigeria thus providing information to companies, regulators and investors. For companies, this information highlights areas for improvement while regulators can use it to diagnose weaknesses in the existing corporate governance framework and their implementation. It can also be used as a tool to measure the performance of a board of directors especially the fiduciary awareness component, which tracks the percentage of directors that are certified as understanding the source, rationale and elements of their fiduciary duties. For companies who are nascent in their corporate governance journey, it provides a clear benchmark that they may aspire towards and measure their improvements against. In a matter of speaking, CGRS provides a lingua franca for examining corporate governance practice in Nigeria. 

As an objective measure, the ratings may also be a useful tool in research or policy. Specific measures from the published self-assessments, for example a company’s performance on internal audit & control may be used as a determining variable in any business performance research. An indirect benefit of participation in the ratings process is that the level of director engagement is increased as the second component, the Fiduciary Awareness Certification Test requires that directors demonstrate their grasp of their fiduciary duties and responsibilities after taking a training course designed for this purpose. Preliminary analysis of the feedback from directors who have completed the FACT show that majority recommend it for directors of all companies rather than only for directors of listed companies for whom it is a requirement.

The CGRS Process

Can The CGRS Rouse The ‘Giant Of Africa’? Ethical Boardroom

The ratings process consists of three cumulative and sequential steps, a score of 35 per cent or greater is needed on corporate compliance before a company would move on to the fiduciary awareness stage. A company must score at least 40 per cent cumulatively in both stages before the corporate integrity is assessed through stakeholder feedback obtained from questionnaires administered to samples of a company’s staff, vendors, regulators and investors/analysts. In this last stage, an Expert Multi- Stakeholder Group is also convened to give a qualitative rating from scratch. A cumulative score of 70 per cent or more from the three stages results in a CGRS rating.

Can The CGRS Rouse The ‘Giant Of Africa’? Ethical BoardroomTo ensure a high level of assurance in the ratings, an extensive multi-stakeholder structure including steering, selections, ratings and intervention committees govern the CGRS process. Each committee is made of representatives from a diverse source of stakeholders drawn from CBI, NSE, academia, international agencies, civil society and media – more details can be found on

Giant of Africa

The jury is still out as to whether Nigeria, South Africa, Mauritius, Ghana, Egypt or any other country for that matter deserves the appellation, ‘Giant of Africa’. However, establishment of the CGRS is a “Giant” step and no doubt one that is unprecedented in the history of Corporate Governance Indexes around the world. 

If Nigeria stays true to the rationale behind such a system and sustains it over the next decade, we can predict that the private sector in Nigeria as represented by those listed on the Nigeria Stock Exchange, will develop a different persona and possibly shake-off the negative persona that Nigeria has. For example, take Africa’s richest man Aliko Dangote (according to Forbes Magazine) and the cement empire he has built. Less than 70 per cent of Dangote Cement is listed on the Nigeria Stock Exchange and the company already accounts for some 30 per cent of the market. In the group there are many more companies, so imagine how deep the market needs to be to cater for such a group?

Many of the large oil and telecommunications companies are not yet listed on the market. Some companies have taken to listing in Johannesburg, London and Toronto in order to raise the kind of capital that the Nigerian economy could happily utilise if well managed. Imagine what real fortunes await the discerning investor if the CGRS by the NSE and The Convention on Business Integrity delivers on its promise – ‘Better for Business’.


About the Author:

Soji Apampa is the co-founder of The Convention on Business Integrity, which sponsors the Corporate Governance Rating System in partnership with the Nigerian Stock Exchange. Email:  twitter: @sojapa