Nigeria is a natural destination for investments. I have been travelling abroad but for the first time in the last few years, I went abroad in the height of winter and I found out that Nigeria is blessed. We have a youthful population; we have a ready market with potentially large industrial abilities. The question is why does it appear that investment is dwindling?
Here are some statistics to provide some context:
Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) In 2017 and 2021 in Dollars.
FPI FDI
2017 7.2b 981m
2021 3.3b 698m
The Ratio Of Nigeria’s Market Capitalization To GDP
2020
NIGERIA 13.09%
SOUTH AFRICA 311%
WORLD AVERAGE 98.6%
So, that shows you how much potential the Nigeria economy has. You can imagine that if we moved that ratio to 1:1 (i.e 100%), you can imagine what will happen.
WHAT ARE THE CONSTRAINS?
- Foreign Exchange Volatility
- Multiple exchange rate
- Instability in terms of economic policies, policy summersault etc.
These uncertainties have a way of discouraging investors.
I had a conversation earlier in the week, with someone who is a leader in capital market. And the gentleman said, “Look Nigeria doesn’t have the capacity to take on investment.” And I said “No, I don’t agree.” Up until the crypto went down, Nigeria was one of the largest markets of crypto. If it could attract that money to support the development of those that need the in-capital, to provide the enabling environment, I think we will see interesting things happen. So, the question is, where is the money? And they said, oh, it’s big and speculative. And I said, fine, if we are able to attract 10% or 20% of that money that’s going to crypto into funding real things (crypto is just speculations; it’s not real) right, we couldn’t do that.
So what do we need to do? We need to encourage those who ordinarily would take the risk of the crypto and put that money into more sustainable investment.
FACTORS RESPONSIBLE FOR LOW INVESTMENTS
- Macroeconomic uncertainties
- Policy
- Socio-economic instability
- Complex regulatory environment
RECENT INITIATIVE BY FG TO BOOST INVESTMENT
Nigeria Investment Promotion Commission Act which seeks to encourage and promote foreign investment, to identify specific projects and invite potential investors.
Pioneer Status which is another incentive of the FG to encourage investment in new areas where the investors then allowd tax auditing for about three years.
Federal Competition And consumer Protection Commission Act which seeks to eliminate anticompetitive and restrictive practices that may distort competition or constitute an abuse of dominant position of market power.
Export Clearing Certificate which is supposed to encourage export of goods and services. And when an exporter receives that he is allowed to use that and pay down their tax; 5% of whatever value they bring, they are allowed to use that as tax credit to settle their tax.
AREAS TO FOCUS ON IN ATTRACTING INVESTMENT
REGULATION: Nigeria Exchange has done quite a bit working with Nigeria security regulator to ease that process. Imagine the guy who wants to invest in crypto, he sits at home, gets on his computer and does his investment and he stands up, goes to do something else; the transaction is done, cycle complete.
Alright, look at the other side, I want to invest in Nigerian equities, I first have to go to a broker, and the broker would ask of my mother’s birth certificate, my father’s birth certificate, the age of the king of my village… so we go through that process and at this time the crypto guy has already forgotten his crypto investment. When it’s time to realize that investment also, there could be certain bottlenecks. The question is, what are we doing through regulation and through infrastructure to speed up the process.
You know, we need patient capital for long term investments, not speculative capital not gambling. But patient capital depends on some level of trust; I need to be able to see that in five or ten years time, the government or the authorities won’t come and change the rule of the game while the game is still on.
Now, talk about ease of entry and ease of exit. I joined my company in August. So I wanted to open a brokerage account, which I opened successfully, of course, I had to go through the process. And I said I want to open an asset management account. So they said I need to bring all the documents I had provided. So I said, I’m an employee, I just opened a brokerage account. So they said, oh the regulator requires it. And guess what I didn’t complete the process not because I didn’t want. That’s negative effect of regulation. Now, in some countries in Europe, you can open a stock trading account with your national ID card, once you deliver your ID card to the company, they pull out your details and then, they open an account for you and you can start trading. What that could do for us is a removal of the bottleneck in terms of how people can access the market. Fundamental to that also, is the trust in how government policies are formulated.
LEVERAGING AfCFTA: I had conversation with one of my colleagues in research, and he said, look if we leverage AfCFTA agreement, it will help us become more competitive. So I said, how? Because AfCFTA itself, if you don’t get it right it could become counterproductive and it is dependent on how the other parties play on the agreement. And as he said, and I agree with him that it could be an opportunity, if we focus on AfCTFA it will begin to provide us with incentives to become more competitive and as we become more competitive, we will be able to attract more capital.
DOUBLE TAXATION: Nigeria current has double taxation agreement with some specific countries. Now, if I bring in money into a country and I’m going to pay taxes in two places, it could be a discouragement for me. So considering looking at deepening arrangement for having double taxation agreement with more countries could be an area that will help us stimulate interest in our country in terms of investment.
MACROECONOMIC STABILITY (BOTH FISCAL AND MONETARY AUTHORITIES): CBN increased Monetary Policy Rate (MPR) by 100 base points to I think 17.5%. Now, the same CBN issued Treasury bills at a very ridiculous rate. So the question is MPR at 17.5% and Treasury bills at 4%, what’s the rationale? How does that stimulate confidence in our country? The first thing that comes to the mind of an investor is, what game is CBN playing? I mean, those rates are not reflective of the cost of money. And they are totally disconnected from level of operation. What exactly is the gain? These things don’t make sense.
PROMOTION OF DEVELOPMENT FINANCE: We need more development finance organizations especially, to target small and medium-scale enterprises, this can be centers for pulling funds to giving to MSMEs.
LAND REFORMS: Federal and state governments have real estate that is more or less wasting. Where I live, I got a notification from lands registry, Lagos that someone is disputing ownership of the land; I have lived there for seven years and the place was developed by a developer. I did a research when was about acquiring this property, though I was interested in another property but upon my lawyer’s advice a got this one that had perfect title. Now, seven years after, I have someone disputing the ownership and threatening to eject us from my estate. Those things are discouraging. Now, this is the reason if I want to convert my real estate to use for an investment, it’s a problem. So, you can unlock serious value if you have land reforms. So there are assets whose value is not being milked as it ought to because the process of doing so is ridiculous.
JUDICIAL REFORMS: In my former company, a senior advocate took us to court on a matter in 2009. This is 2023 and the matter is still in court. If was an investor and I’m in dispute, what becomes of my investment considering the time value of money?
BY SEYI OWOTORO