Nigeria’s appointment of former World Bank MD, Ngozi Okonjo-Iweala as Coordinating Minister for the Economy and Minister of Finance is welcome news. Okonjo-Iweala takes over from Olusegun Aganga, who has been reassigned to lead the Trade and Investment Ministry.
However, questions remain – can the duo deliver for Nigeria by establishing sound fiscal policies and attracting much needed foreign direct investments for infrastructure and economic development?
Nigeria’s power sector is anemic, roads are in a decrepit state, and the stock market is capitalized at just under $50B – a mere 13% to GDP. Such factors have combined to inhibit the country’s development and industrialization efforts.
There is no doubt that both these finance individuals have excelled in their métier and delivered real results for Nigeria in recent past. Okonjo-Iweala negotiated the cancellation Nigeria’s $18B Paris Club debt when she served as Finance Minister between 2003 and 2006.
Aganga, a former Goldman Sachs MD, established the Nigeria sovereign wealth fund and floated an oversubscribed Eurobond during his tenure as Finance Minister.
Such long awaited partnership of well-qualified individuals is a breath of fresh air for Nigeria and welcome news for the global investment community.
But now more than ever, there is a need to build investor confidence in the fundamentals of the Nigerian economy, improve Nigeria’s trade balance with other countries and attract foreign direct investment – especially given the benefit of tailwinds from the ongoing scramble for returns in Africa.
As Okonjo-Iweala and Aganga take Nigeria on international road shows and meet with global investors and governments, what should be the duo’s plan to win? What message must they clearly and unequivocally articulate to investors?
These 3Rs are crucial principles as they engage investors; and any rational market entry analysis or investment thesis will seek to answer the three fundamental questions of – Returns, Repatriation and Retreat.
Returns – can investors achieve returns on their investments in Nigeria? Many articles have been written about this and there is no question that Nigeria and Africa are emerging frontiers for investors (read more on this in my post on: “Now is the Time to Stop Dithering on Africa”).
With economic growth estimated by Morgan Stanley to overtake South Africa’s by 2025, a fast growing middle class, and an improved political system, Mrs. Okonjo-Iweala and Mr. Aganga should have no problems driving this point home.
Now, while it is true that the absence of reliable infrastructure remains a major operational impediment to businesses, that is not necessarily an impediment to achieving profitable business returns in Nigeria, as the resources required for mitigating such challenges can be built into the overall costs of doing business.
The Nigerian market has consistently demonstrated a willingness to pay for reliable goods and services. For example: the phenomenal success of the telecommunications industry, despite the high and regrettable costs associated with powering a myriad of cell towers using generating sets attests to this.
Repatriation – the ability of investors to effectively realize and repatriate their profits cannot be overemphasized in the duo’s pitch. While investors may choose to reinvest their returns in the Nigerian economy, investors also have the right to cash out and repatriate their profits for various purposes including redeployment to higher yielding investments or paying out dividends to foreign partners and shareholders.
Demonstrating that Nigeria will not get in the way of such free market practices through ill-advised policies will go a long way in convincing investors to let their returns sit tight and earn additional incentives that the Okonjo-Iweala / Aganga team has hopefully designed as part of their value proposition on Nigeria. Complacency has no place in allaying such fears about today’s Nigeria, considering that the recently released Russell Index Country Report lists funds repatriation restrictions as an operational concern for Nigeria’s investors.
Retreat – Any good business plan begins with an exit strategy. What options exist for investors to exit their position? Can a private equity firm that purchases an asset realistically float an IPO on the Nigerian Stock Exchange and gain expected returns? Will there be other available strategic acquirers in the marketplace for exiting businesses? Okonjo-Iweala and Aganga must address the economic ecosystem that they envision, one where global trade flows have been unleashed through sensible policies, thereby attracting the expected capital inflow and foreign exchange required to fund, structure and execute large transactions.
While it is true that Mrs Okonjo-Iweala and Mr. Aganga may not have the answers to roads, security and electricity in Nigeria, they most certainly have the confidence of the world’s purse string holders. Their success in this mission critical effort can deliver the required nation-building resources for Nigeria to advance from a state of economic mediocrity to a nation of global economic relevance.
Otto Abasi Williams. Email: firstname.lastname@example.org