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In a world awash with capital, Nigeria can’t lay hands on it

Nigeria is in the shadows as countries attract funds in a world awash with liquidity. The 59th general assembly and annual meetings of the World Federation of Exchanges (WFE) opened in Singapore, Wednesday, with a key message being of a world awash with capital.

But back home, Nigeria struggles with an acute shortage of the capital the country urgently needs to grow a stuttering economy and create jobs for a burgeoning population.

Speaker after speaker, including Jacqueline Loh, deputy managing director of the Singaporean Monetary Authority, and Juan Blackwell of the Ontario Teachers’ Pension Plan Board that has over $180bn in management, highlighted the abundance of private capital globally.

“The liquidity is there but you might not be able to transfer it to where it is needed,” said one of the speakers in a manner that will resonate in Nigeria where the shortage of capital means the country is focused on defending the naira instead of lowering cost of capital to grow the millions of small business.

The government, despite consistently failing to deliver the infrastructure required to lubricate Africa’s biggest economy, has also been somewhat hostile to private capital.

According to the speakers, the goal of every nation is to ensure it can get enough of the capital it needs by focusing on shaping the market profiles, mitigating market risks, enthroning sensible regulatory regimes and helping to engender resilience of the economy.

Nigeria seems to be lost on all of these metrics.

Leading economist Ayo Teriba says Nigeria’s numerous economic challenges boil down to mainly one issue – illiquidity or the shortage of development capital – and that it is for this reason the government is pursuing wrong-headed economic policies which will never be enough to get the country out of its crisis of tepid economic growth.

The example of Vietnam was showcased at the WFE meeting to show how by becoming a successful supply chain disruptor – that is position itself as a place to manufacture for the world – the country has effectively engaged with the global capital market and is now a major recipient of foreign direct investment (FDI).

Vietnam attracted $15 billion worth of FDI in 2018, according to data from the United Nations Conference on Trade and Development (UNCTAD). The amount is up five-fold from the $3 billion average investment Vietnam got in the early 2000s.

Another proof that a global liquidity glut has eluded Nigeria is reflected in the stock exchange’s low levels of capital.
For example, Singapore’s stock exchange which is hosting this year’s meetings has over 700 listed firms with a total market capitalisation of about $900bn and it is 200 percent of the country’s GDP compared with Nigeria’s market capitalisation which is a mere 9 percent of GDP.

Singapore’s largest company by market capitalisation is Jardine Matheson Holdings valued at $65bn. The company is only 7 percent of the Singaporean Stock Exchange, highlighting the robust and diversified state of the local exchange. In Nigeria, the most capitalised company, MTN Nigeria, accounts for 20.4 percent of the total market capitalisation of the stock exchange, a signal of the NSE’s lack of depth.

To attract more capital, the government needs to demonstrate urgency in luring private capital and clear the several bottlenecks inhibiting investment, according to Muda Yusuf, director-general of private sector advocacy group, the Lagos Chamber of Commerce and Industry (LCCI).

“It should then follow the reforms by creating worthy opportunities for investment,” Yusuf said.
Yusuf’s thoughts were re-echoed by Teriba who said the government needs to “open new spaces for foreign investors to unlock Greenfield FDI”.

As surprising as it sounds, there are limited opportunities for foreign direct investors looking to park their cash in Nigeria.

That’s because Abuja has maintained its 100 percent ownership of key infrastructure, including rail transport, pipelines, power transmission, stadiums, public universities and tertiary hospitals across the country, effectively limiting options for private investment in the country.

Even the oil and gas sector, which has typically attracted the larger chunk of new FDIs to the country, has come unstuck, as a set of fiscal reforms (contained in the Petroleum Industry Bill meant to unlock new investments) has stalled for decades.

The lack of investment-friendly reforms has been telling. FDI flows fell to $2.2 billion in 2018, the lowest in 13 years, according to UNCTAD.

The poor performance of the stock market, which is down some 14 percent since the start of the year, is also an indicator of the little confidence investors have in Nigeria.

“Nigeria’s loss on the FDI front has been a gain for other countries,” said Kyari Bukar, a former chairman of the Nigerian Economic Summit Group, a private-sector think-tank.

“Countries that recognise the benefits of financial globalisation have implemented reforms to attract capital by creating an enabling environment for business and privatising government assets,” Bukar said.

Nigeria’s struggles with attracting the capital required was highlighted earlier this week when US oil giant, Exxon Mobil awarded a $33bn LNG contract in Mozambique at a time investment into the Nigeria’s oil industry is drying up.

Sources familiar with the matter say Mozambique’s business-friendly fiscal policies and regulatory environment means it is better positioned to attract capital ahead of Nigeria.

The regulatory uncertainties in Nigeria make it difficult for investors to put money in the country.

It’s so bad that the country seems rigged against the bulk of investors who are not politically connected, according to Atedo Peterside, the founder of Stanbic IBTC Plc, who added that it could further worsen investment inflows to the country if not checked.

The renowned banker, Peterside, said this while delivering a keynote speech on the occasion of the dinner to celebrate the ongoing 25th Nigerian Economic Summit in Abuja.

He said in Nigeria of 2019, only the well-connected could expect security of life and property; prompt dispensation of Justice; sanctity of contracts; no harassment from multiple rogue regulators; access to land via the Land Use Act; freedom from multiple illegal State and Local Government levies; provision of good roads and pipe-borne water to their door-step; access to subsidised financing; and public sector employment opportunities.

If Nigeria is to tap into the global liquidity glut, resolving these issues must take the front burner.

“Investors will not come until we correct the structural dysfunction that frightened other investors them away in the first place,” the banker said. “Our Investment/GDP ratio is likely to remain low until we make it possible for all other investors – Nigerian and foreign – to come back and partake in the task of baking a bigger cake on the basis of a level playing field,” Peterside said.


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