• Friday, March 29, 2024
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Investors eye reforms to pump foreign capital into Nigerian businesses

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Venture capitalists are demanding economic reforms and some form of business restructuring to pump big equity and debt capital into Nigerian businesses, particularly start-ups and small/medium enterprises.
They want to see clarity in the foreign exchange market, land reforms, better business environment, improved security, policy consistency and intellectual property rights reforms.

“We want certainty, stability and legal infrastructure to protect our investments,” Faizal Bhana, director of a venture capitalist Jersey Finance at Middle East and Africa, says.

He asks Nigerian entrepreneurs to leverage international platforms in order to attract the kind of international expertise and capital their businesses need.

On the part of Nigerian businesses, they want more SMEs to become internationally structured, with good corporate governance and evidence of the required skills-set.

They argue that Nigerian banks are far too risk-averse, sitting on massive portfolios of government bonds than lend to businesses, making it difficult for them to have confidence in investing in Nigerian entrepreneurs.

“Nigeria increasingly looks problematic vs. smaller vibrant African countries. There is no good feeling in South Africa now and Nigeria should take advantage of the situation by changing these things,” Robert Hersov, founder and chairman of South Africa-based Invest Africa, says at a virtual meeting entitled ‘Access to International Capital’ organised by the Lagos Chamber of Commerce and Industry (LCCI) on Tuesday.

“Debt and equity are available, and there is a significant increase in interest in Africa for international strategic long-term view of the continent. But local entrepreneurs must leverage partnership to scale up their business,” he advises.

Nigeria undertook reforms in the doing business environment in 2016/17, resulting in a 15-step up in the 2020 World Bank Doing Business (146 to 131). The country also finalised its tax reforms in 2019, cutting taxes for high-growth and small businesses.

However, multiple taxes still exist in many states and local governments across the country, notably Lagos, Nigeria’s economic capital. A lot of sectors such as oil and gas, non-oil export, ICT and imports require policy reforms and consistencies to work efficiently. The fintech players, for example, say licensing from the central bank is becoming more problematic as they disrupt traditional financial institutions.

“We will like to see more regulatory clarity, especially in the fintech space,” Lexi Novitske, managing partner, Acuity Ventures, says, adding that she is ready to fund more fintech, data and identity firms and infrastructure-based companies in Nigeria.

Nigerian start-ups attracted $122 million in funds in 2019—one quarter of the funds that came to Africa, according to a 2019 African Tech Start-ups Funding Report.

Its Q1 2020 report claimed that investors pumped $55.37 million into Nigerian start-ups in the first quarter of 2020. Most of the funds came from foreign venture capitalists and angel investors.

Despite the funds, analysts say Nigerian MSMEs are cash-strapped as financial institutions are reluctant to lend to them due to risk factors. PwC Nigeria estimates that yearly financial gap for Nigerian MSMEs is N617.3 billion.

In a new report entitled ‘PwC’s MSME Report 2020,’ the consulting firm surveyed over 1,600 MSMEs, out of which 22 percent noted that obtaining finance was their biggest challenge.

However, investors say every good business will naturally attract capital.

“If you have a good transaction, you will have capital,” Raj Kulasingam, senior counsel, Dentons UK and Middle East, notes.

“The early to seed stage is difficult because of no institutional investors at that stage. Capital is available, but investors are looking at hard currency projects, which are why currency problem in Nigeria is an issue,” he further states.

Toki Mabogunje, president, LCCI, says the size of credit to private sector (as percentage of GDP) is largely insufficient to meet the demand for finance by private sector, thereby creating a huge funding gap and liquidity challenge needed to meet working capital requirements and finance new projects.

Citing the Central Bank of Nigeria, she says total gross credit to the private sector stood at N18.90 trillion at end-June 2020, representing about 13 percent of the GDP.