The centrality of investment in the life of every business is well known. Firms grow their output on the strength of their investments. Similarly, the production level of any economy is dependent on that country’s rate and scale of capital formation. The more the rates of acquisition and result-oriented use of fixed assets, the more the output that is produced by the country; by extension will also be the more significant number of the employed workforce, improved quality of consumption and the overall living standard. The private sector usually drives and takes the lead in this process. However, the success that the private sector achieves will invariably depend on how friendly the environment is for production purposes. Such friendliness is sometimes partially defined in terms of complementary provision of as well as the operating standards of some publicly owned goods such as roads, railways, the police, prisons, hospitals and so on. For instance, an average investor is more likely to expand capital accumulation if he realises that there is efficient transport infrastructure as well as efficient power supply to support the firm’s logistics demand and production operations. In effect, therefore, investment begets additional investment. Regressing, in this argument presents how the inadequate provision of publicly needed infrastructure has significantly hampered the reciprocal quantum and speed of growth in private investment. Perhaps, that is why the size of our national output, which is approximately US$400 billion, is less than Walmart’s current sales revenue of roughly US$515 billion. Our national income is equally smaller than any two combinations of the revenues of Toyota, Apple, Voxwagen and Amazon. It also partially explains the root causes of unemployment, poverty, and the attendant social vices that we currently experience.
However, a country need not possess all the monies required to make needed investments. The government need not even make any of such as the private sector is always in a better position to deliver on this. But there is a natural vehicle available for the mobilisation of new investments. Investment banks and by extension, the capital market, have the responsibility of mobilising funds and channelling them appropriately into the desired investment uses. In effect, therefore, where things work well, the investment banks naturally lead in the origination of new ideas and projects that have considerable revenue, profitability and employment impacts. Beyond the origination of these transactions, they also ensure that the long-term funds required to see them to fruition are raised and properly applied. The onus on our leaders, therefore, is to identify the challenges hampering our investment banking sector from effectively playing this role and address them. Unfortunately, our governments appear to be more interested in enhancing the capacity and stability of the commercial banking sub-sector and displays less interest in ensuring that domestic investment banks successfully play the roles that they are set up to achieve. If properly incentivised and positioned, at least there would have been no fewer than ten investment banks ranking in stature with any of our 24 local commercial banks. And because the focus is on long-term investments, it will have been less likely to see the government sweating and borrowing profusely to put in place good railways, airports, hospitals and electricity. These are jobs that investment banks will be pleased to handle.
But the fundamental rule of investment reclines on the principle of deferred satisfaction. The idea is to put a hold on today’s consumption to effectively release the resources required to meet today and tomorrow’s investment. What this principle therefore demands is that there should be minimal, if any, wastage at all or else, the prospects of investments will remain elusive. The perennial curse of public sector consumption profligacy is noteworthy. It can as well be extended to mean corruption and misappropriation of resources. Nigeria’s economic management style is reprehensibly wasteful. Budget padding remains a significant part of our fiscal life. The extra ‘pads’ are mostly to fuel the profligacy of those in authority who have access to these funds. So, even the wastage is carefully planned within a national budget. The madness is everywhere. For instance, virtually every senior or appointed official of government wants to have an entourage of police officers protecting him and his family. In similar vein, rather than encourage the private sector with needed incentives to build world-class medical diagnostic and treatment centres that will be equally operated by world-renowned experts, we fly out of the country to treat ailments such as headaches. Medical tourism is estimated to cost Nigerians approximately US$1 billion annually.
On the other hand, tuition fees in foreign schools cost Nigeria between US$1 trillion and US$1.5 trillion. What of abandoned projects? Many of such projects that are, ab initio, designed to fail by using them as vehicles for fraudulently pulling funds out of governments coffers. Consider also the enormity of wastage in the duplication of services rendered by ministries and parastatals by other departments and agencies of government simply because of poor coordination. Consider again the unwarranted scale of spending in projects that it would have merely cost about one-fifth of the amounts to execute. Wastage is in our DNA. But the unfortunate aspect is that it also enslaves us further to other economies. Imagine for instance, the US$16 billion meant to address our national electric power problems but which was wasted by the Obasanjo administration. The wastage of such vast resources has continued to delay investments that ordinarily would have provided the country with an efficient power supply.
When are we to start witnessing substantial investments in heavy industries that provide the bulwark for the emergence of other industries? Some examples include massive private investments in steel rolling mills, shipbuilding, and manufacturing of trains and aircraft as well as all the advanced raw materials production business. Whereas all legitimate investments are essential and contribute to employment generation and income, some are known to provide the force for massive employment, income and drive further expansion of the economy. For instance, investment in the manufacturing of trains – aside the substantial export income from potential train exports – will no doubt help in completely solving the logistics problems faced by many investors in the country as well as provide the basis for additional investment inflows. However, the mental time factor underlying each category of investments differs. More advanced economies have bigger appetites for investments with much longer time dimensions. The consequences are evident in the progress that they make consistently over the years. These kinds of investments enable the authentic actualisation of sustainable development. Investments in speculative trading with much shorter time frame, albeit good do not offer as much. It is within the context of the latter that we have operated as a country. And even as at that, we rarely play effectively hard in that segment. It is also understandably right that achieving this at scale is challenging given the highly uncertain macroeconomic environment of business. Generally, it jaundices our capacity to envision across a 100-year horizon.
In addition to the above, many challenges hinder new investments in Nigeria. The first is the poorly developed transport infrastructure which has put undue pressure on the costs of doing business as logistics and distribution challenges become increasingly cumbersome. The roads are bad and unsafe. There is a superficial level of railway operations as the infrastructure is inadequate and feeble. In addition to that of poverty of logistics infrastructure is the power problem. Lack of electricity is one of Nigeria’s major undoing. There are no debates over the facts that in the absence of power, minimal production is achievable at scale. Electric power is the life behind automation and production scale efficiency. In many respects, economic development correlates strongly with the countries power generation capacity. Thirdly, no good investor will want to invest his resources in a country with poor records of the protection of private property rights.
Nigeria’s justice system is inefficient, ineffective and in no small extent untrustworthy. Compliance with the rule of law is at deficient levels, and some people particularly the politicians still believe that they are above the law. And in many respects, they genuinely are. It is not unusual to be betrayed by the police that receives peanuts in one’s case as bribe. There is little wonder why we have a consistent pattern of ranking in the corruption index. Fourthly, even though the government has made tremendous efforts in addressing this issue, the burden of tax on firms is quite high. In some states, some companies pay as high as eighteen different taxes. Finally, the menace of insecurity, hostage-taking, kidnapping, armed robbery and general violence are high. Militancy and religious extremism have made some areas wholly ungovernable and inaccessible. Boko Haram for instant has made it unattractive to contemplate doing business in the Borno State axis. The Fulani herdsmen also have in recent times added more fuel to fire and it is creating mayhem of multiple dimensions.
On a final note, the debate has always been whether the government has roles to play in investments. Unarguably there is abundant evidence that government involvement has produced continuously less than desired outcomes. The many cases of abandoned properties and projects speak volumes. But it also presents new hope for the financing of necessary infrastructure. In the last count, abandoned public sector projects in Nigeria are estimated to be worth N17 trillion. 50% of this value, if adequately harnessed will no doubt help in the financing of logistics and electricity infrastructure in Nigeria. Therefore, like the private firm that may adopt a strategy of asset stripping to finance optimal levels of production, Nigeria can as well bend backwards and sell some of its abandoned projects as assets and use same funds for re-kickstarting the economy.
Frontpage September 24, 2018