Nigeria lacks discipline to court capital, investors say

by Editor

July 7, 2017 | 5:39 pm
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In the final part of Businessday’s investors series on Looking in from the outside, Publisher Frank Aigbogun reports on how investors perceive Nigeria and what it has do if must join other nations in the competitive quest to attract capital.  It is the conclusion of the feedback from a week-long market development programme conducted in London by leaders of FMDQ OTC exchange.

To conclude our five-part investors series, we have chosen to leave to the end, the matter of how investors perceive Nigerian government officials, especially ministers and the matter of how Nigeria’s lack of the discipline needed to court private capital has become such a significant barrier on the way to progress in Africa’s largest economy.

Before we left for London, I joined others in boasting about how Nigeria’s Eurobond success should be taken as measure of investor appetite for Nigeria. Today, I know better. In truth the easier bit is to sell any dollar denominated bond. And the reason is simple. This is a sovereign asset class, it is held abroad and in foreign currency, a holder of this bond can exit when ever you want, and the chance of a default is almost zero, and this possibly explains why fund managers still hold Venezuelan government bonds today.

Now the rubber really hits the road when you ask an investor to come to Nigeria with his dollars, exchange it to Naira, then invest the proceeds in equities or bond or treasury bills. The investor will not have the protection he or she can get with a sovereign instrument. He or she is faced with local exchange controls and interest rate permutations and more importantly, may not be able to exit as and when desired. Virtually all the fund managers we met with in London said they went for a piece of Nigeria’s Eurobond but so far, they have not moved funds into Nigeria.

At one of the leading fund managers’ I was asked bluntly, “Why is it that you cannot have a simple meeting with your government people? Anywhere else we go, the door is flung open, whether in Egypt, Kenya, South Africa, or Ghana or Abidjan. They welcome us with due attention.”

Although the investors acknowledge that Nigeria now seems to be moving in the right direction and because there is on going an impressive macro economic rebalancing on the back of tightening of liquidity by the Central Bank of Nigeria (CBN), however the fund managers believe Nigeria suffers from poor communication, hostile regulatory regimes, and from officials too big or simply ignorant of that which they must do.

Not surprisingly, Nigeria is paying a hefty price by offering investors’ unusually high tax-adjusted yields, which in some cases, can be as high as 18%.

“Your high yields are meant to be a compensation for your bad policies”, one analyst at a leading house said. “But who is taking them? Why not just do the right thing and then investors will accept even lower yields,” he said.

We met one investor whose first trade involving Nigeria took place in 1988 and he has remained in Nigeria ever since but he is bitter that sometimes, he comes to Abuja on appointment but is unable to meet with the right government official in the course of his visit.

“Yes we miss the suya and pepper soup in Lagos and Abuja, but we are not missing your government officials,” said one investor who has refused to come to Nigeria in the last two years.

He said it was not out of place for the Central Bank governor along with the Minister of Finance and her Trade and Investment counterpart who can then be joined by the leaders of the stock exchange and FMDQ OTC exchange to engage with major investors twice annually, one of the two engagements happening around the spring World Bank/IMF meetings in Washington.

If Nigeria did this along with other measures, the nation’s risk premium will improve and its access to needed capital will broaden.

“Don’t keep investors guessing”, he added.

Other investors believe that to be a destination for capital, “Nigeria must imbibe global standards in risk management in our pension, financial markets, banking and insurance industries and must also focus on improving infrastructure. These will attract huge FDI and FPI. Capital market rules must be investor friendly.”
Local businessmen are treated with disdain by government the investors said. How do you explain a situation in which regulators see as their primary role the duty of harassing companies and extorting money from them? Nigeria needs smart regulation, one that puts above all else, the requirement to facilitate expansion in private enterprise by creating a level playing field for companies in its sector.

It appears Nigeria is spoilt by a ready access to oil revenues it does not have to work for and so the ministers have not had to carry the burden of going round the world to court capital as many other nations do routinely. I have been watching Nigeria at a high level for more than two decades and I have seen many ministers.
In this time, I find that Nigerian ministers and other heads of MDAs are simply too busy to do the job they must do. Often they are abroad.
I have been to see Nigerian ministers on appointment many times and once you get in, you are told he or she has been called to the villa.  Go into their waiting rooms and you find a population enough to fill up villages and you begin to wonder, when does the minister find time to do his or her job? I have heard leading global CEOs who visit Nigeria speak of how they are unable to meet with ministers. Not good enough in a world in which nations are competing against one another to attract capital. Nigeria needs to be more strategic. I have been asked for instance if Nigeria has a strategy to attract some of the near $100bn cash which South African companies are sitting on and refusing to re-invest in the country because of the disgraceful political games being played by the ANC government? Does Nigeria have a China strategy? What kind of Chinese capital does Nigeria desire and into what sectors of the economy?

by Editor

July 7, 2017 | 5:39 pm
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