Saturday 18 June 2016

Mobilising Capital Market Financing for Nigeria’s Economic Growth By Elizabeth Uwaifo

SEC
Mobilising Capital Market Financing for Nigeria’s Economic Growth, is a subject that fills me with excitement and hope for the future of Nigeria. The capital markets present our leaders with the opportunity to write their names in Nigeria’s history books.
What we want – The capital markets could provide an alternative source of funding for Nigerian corporate enterprises and also for Nigeria’s infrastructure development. We see around us examples of countries that have made a decision to develop their capital markets and transformed their economies as a result. After the 1997-1998 Asian crisis many Asian governments took action to reform their economic policies and deepen their capital markets. The resulting development in their economies has been astronomical.

We have made remarkable progress in recent years to build the capital markets in Nigeria. However, we still have a lot of catching up to do. The market capitalisation  as a share of the Gross Domestic Product (GDP) in 2013 was about 27% of GDP compared to 247% for Malaysia, 207% for South Africa and 112%for Brazil. Imagine where Nigeria will be if billions of US dollars were to be invested in building our power companies, a rail network connecting all regions of Nigeria, telecommunications, hospitals, schools and more. Nigeria would be a great place to live and do business.
The question is whether we can create an environment that attracts that kind of money. My instinct as a Nigerian is to say – if others can do it, surely so can we! How do we make Nigeria attractive to private investors? To determine how to proceed we must first ascertain who we are competing against.
Our competition – A quick look at what other countries are doing reveals that we are not alone in wishing to attract international institutional investors.
All over the world – countries are clamouring for the same investors and building their capital markets to create an environment that will be attractive to such investors. Kenya, Saudi Arabia and Rwanda. Even the countries in Europe that are way beyond our dreams in terms of economic development are planning to expand their capital markets by the establishment of a Capital Union that consolidates their respective attributes.
To compete effectively against such strong competition we need a strategy that leverages the attraction of Nigeria as an investment destination and addresses the concerns investors may have about Nigeria.
Attractiveness of Nigeria to investors – The headline reason that investors find Nigeria attractive is our population dynamics. It is projected that Nigeria’s population will reach 413 million by 2050, overtaking America as the world’s third most-populous country. This creates an awesome picture of Nigeria of the future. Two remarkable issues stand out in this picture:
  • the first thing is that Nigeria is growing and will become a colossal market – a giant of a market where businesses will find a ready outlet for their goods and services and, as a result, the potential to flourish; a market that creates jobs for Nigerians and a market where wealth is generated for investors and Nigerians alike;
  • the second remarkable issue is the realisation that as our population grows so will our workforce; if we have workers contributing to pensions, – our pension funds could become titans among pension funds and be sought after worldwide.
This picture is a glimpse of the Nigeria we could have in the future. But before we get lost in the dream let’s have a reality check and consider what will keep investors away.
Concerns of investors – The 3 headline concerns are:
  • first, the perception, justified or not, that Nigeria is corrupt and has poor corporate governance, transparency and accountability standards. Investors losing their capital. As a result they either stay away or charge us a premium for investing here. The perception of corruption is hurting Nigeria financially;
  • second, investors are concerned about the lack of respect for the rule of law. It is important to them that they invest in an environment where there is trust and confidence that their business agreements will be honoured; and
  • thirdly, there is concern is about security. Stories about kidnapping, blowing up oil pipelines, armed robbery and terrorism give investors reason to fear for their personal safety.
Overview of investor perspective – In reflecting on the investor perspective described, I see a reason to be excited and a reason to be scared.
What if we get our strategy right and attract the capital that will develop our economy? We will get a country that is prosperous, with a young and dynamic workforce that is engaged in building the economy and nationals that are respected and dignified. When I think of the type of life my fellow Nigerians could live could live – my heart beats faster with excitement.
But what if we do not get it right and the investors stay away from Nigeria? The picture I see is scary. Over 400 million people living in chaos, everyday life a struggle, hundreds of millions of young people – ill-educated and unemployed, the few that are well to do living in fear of angry and volatile youths and poverty is the reality for a vast section of the population. This will be nightmare scenario.
The second option must be avoided at all costs. It is critical that we do what is necessary to address the concerns of investors and encourage them to invest in Nigeria. If others can fix their societies surely, we can as well.
How do we proceed? To compete effectively we must adopt a two-pronged strategy – (i) we must address the fundamental issues that are keeping our target investors away and will keep them away however great Nigeria’s potential as an investment prospect may be. The key issue here being integrity, and (ii) in anticipation that we succeed in fixing the fundamental issues we must as well build a framework of incentives and processes that will incentivise and support the execution of capital markets transactions. Tax and regulatory incentives are typical.
Progress made so far – A lot has been done towards creating a better environment for capital markets transactions. Various industry industry bodies such as SEC and NSE have adopted robust corporate governance codes that ought to become more widespread. The implementation of the 10 year Capital Markets Master Plan must be prioritised.
Further step to take. As we make progress, it is important that we go on a public relations offensive and announce to the international community that a new Nigeria is evolving.
Final thoughts – The capital market investments we seek is within our reach. Integrity transparency and accountability is the key that opens the door. There are investors and experts willing to join us in the building process as part of a strategic alliance and we should use their support as a business arrangement.
We all have been responsible for the current state of Nigeria – either as a result of our action or inaction. We must now take responsibility for creating the new Nigeria.

I have no doubt we can do this. Whatever the mind of man can conceive and believe, it can achieve – Napoleon Hill.
By
Elizabeth Uwaifo
Solicitor, England; Managing Partner, Radix Legal and Consulting, Director, Agribusiness Knowledge and Innovation Leadership Initiative and co-Chair 100 Women in Hedgefunds Legal Peer Advisory Group.
Previously a partner, Sidley Austin LLP, Vice President at Union Bank of Switzerland and Director at UBS Ltd

No comments: