FG losing opportunity to save economy on private capital potency

Federal Government’s dithering on complementing fiscal policies and lack of strategy to attract private capital has resulted in low investor market confidence from both domestic and foreign investors, BusinessDay investigations show.

The consequence of the action is low foreign exchange inflows, foreign direct investment (FDI), new domestic investment, capital markets, employment and economic growth.

Private capital is money provided through private individuals or a group of individuals, particularly from investors who make investments that are not regulated by the government or the rules of a public exchange. It usually happens as a one-on-one transaction between the business and the investor.

A country can seek private capital at any time in its life cycle, from seed funding at startup to venture capital as it grow.

According to Olawale Olusi of Investment Research at Lagos-based Afrinvest West Africa, “One can’t overemphasise the fact that the major challenge with attracting foreign capital remains the crisis in the currency market.

“However, the future may not be as bleak if the recent debate surrounding assets sales as well as alternative sources of income is critically considered. In our view, the FGN can choose between disposing some of the national assets in exchange for the much-needed foreign capital to prop-up the external reserves or borrow the equivalent.

“The third alternative will probably be to do both by borrowing big for immediate revamping of the system while paying up the debt with proceeds from the assets sales. In any case, we think the onus is on the government to choose.”

Friday Ameh, energy analyst, says government should be blamed for delay in taking some decisive decisions on the economy that would have impacted positively on the lives of the citizens.

“Federal government said it was going to raise funds through Eurobonds to stimulate the economy. We were told that advisers were going to be shortlisted since September. Also, last week government sent the proposal for the $30 billion loan to the Senate without the necessary documents. What does this speak of a country in desperate need of FDI,” Ameh asks.

“The budget relies exclusively on borrowing for fiscal stimulus in the absence of private capital strategy,” Opeyemi Agbaje, chief executive, RTC Advisory Services Limited, says in his recent outlook for 2017.

According to Agbaje, “Inconsistencies between monetary policy (which pursued monetary tightening through Treasury Single Account (TSA), and raising Cash Reserve Requirement (CRR) and Monetary Policy Rate (MPR) for banks versus the executive’s intended fiscal stimulus through budgeted borrowing persists.

“The big gap in policy is absence of a strategy to leverage and optimise private capital. The budget relies exclusively on borrowing for fiscal stimulus in the absence of private capital strategy.”

Nigeria’s economy has witnessed weak corporate earnings and surprising losses, particularly in the last third quarter, resulting in year-to-date market loss of 4.97 percent, average daily turnover (ADTO) falling by 32.5 percent to N1.60 billion in October as against N2.37 billion in September.

“The consequence of policy factors above has resulted in low investor and market confidence from both domestic and foreign investors and impacted FX inflows, FDI, new domestic investment, capital markets, employment and economic growth,” Agbaje says.

Bismarck Rewane, CEO, Financial Derivatives Company Limited, in the current LBS meeting note released at the weekend, observes that, “Illiquid market and weak currency value are driving volatility in the market.”

Consequently, Rewane says the economy is faced with “temporary aberrational spikes being driven by bids for forwards and futures contract, short-term government securities, which are more attractive, but debt servicing has become a cause for concern, mixed signals on the direction of government securities and lower debt service against attracting international investors.”

The prominence of the parallel foreign exchange market, which is fast becoming the ‘new normal’ with exchange rate hovering between N460.70, against the official rate of N310/$, analysts say will see more companies folding up and more citizens impoverished, with the expected bourgeoning of unemployment rate.