Venture Capitalism and Enterprise Revolution in Nigeria

The African Capital Alliance (ACA), a non-public equity fund manager in western Africa, announced the raising of $200 million from investors in July last year. The third installment of the Capital Alliance Private Equity (CAPE) fund can target vital sectors such as power, oil and gas, communications and financial services in Nigeria and across the sub-Saharan region. The ACA is confident of eventually raising a complete of $350 million for the fund from aid agencies, international banks and Nigerian institutional investors. The development reflects mounting confidence in Nigeria's resurgent economy, considering the country's fist such fund that started off in 1998 with a capital of simply $thirty five million.

Whereas there is no conclusive information on the scale of the Nigeria equity market, estimates for the full of Africa put it over $six billion in 2000; South Africa, the continent's largest economy, accounting for [*fr1] the share. High economic growth fuelled by an enthusiastic reforms programme has seen Nigeria's growth scale to virtually double the figure for developed markets in recent years. The country's GDP growth rate in 2006 stood at 5.vi%, significantly over the US (3.2%) or the UK (2.8%)1. Although the private equity market continues to be in its infancy here, increasing opportunities to take a position in high-growth businesses have succeeded to some extent in eroding the conventional insistence on public equity and debt. But, there continue to be significant risks attending investment in Nigeria due to unhealthy policies, a volatile security situation and massive infrastructure shortfalls. Much of this is true for the continent at giant and explains why it receives only a fraction of global foreign direct investment (FDI). Out of the estimated $250 billion in world FDI to developing countries in 2001, Africa received solely $eleven billion2.

For many international investors, venture capital and personal equity in Nigeria are risky propositions because of political instability, violence, social unrest and corruption. Progress in this direction has been impeded by many other reasons still:

* Poor company governance and lax regulatory mechanisms. 

* Red tape, legal restrictions and hostile investment policies. 

* High trading costs in the first marketplace for equities. 

* Market volatility and the ensuing high-risk perception. 

* High exit risk for investors as a result of of low liquidity. 

* Tough and usually confusing possession and property rights.

During the last decade, Nigeria has displayed a steady commitment to reforms. The Investment and Securities Decree was passed into law soon after the come back of civilian rule in 1999, gap up the economy to foreign investment. The government of former president Obasanjo additionally established the Investment and Securities Tribunal for quick resolution of disputes arising out of investment deals. Additional recently, the Securities and Exchange Commission slashed transaction rates for equities from 6.nine% to 4.a pair of%. International venture capital investors have shown increasing interest in Nigeria once the liberalisation of many important markets like telecommunications, transport, and oil marketing. The very fact that contemporary policies have persuaded at least some investors to overlook the high cost of doing business in Nigeria could be a significant achievement in itself.

Its massive population and market size bestow tremendous potential on the Nigeria economy - Africa's third largest and among the foremost rapidly growing. The country's ambitious Vision 2020 programme and also the UN Millennium Development Goals together represent considerable challenges in terms of economic revival. Past expertise favours strongly against massive businesses, that have had a dismal data and a high-failure rate beneath each non-public and public operation. Undeniably, the fate of Nigeria's future goals rests on fast proliferation of SMEs and their ability to drive an enterprise revolution that can sufficiently diversify the economy off from oil and reverse decades of stagnation. The target is to use SMEs to deliver sustainable development, employment creation and most importantly, poverty alleviation.

This is often where venture capitalism derives its significance in the context of Nigeria's long-term ambitions. Personal equity investment has been responsible for a number of the most notable economic success stories across the globe. Entrepreneurs beginning out with angel loans turned India around into the largest software exporter in the world. In South Korea, booming tiny high-tech businesses bypassed larger firms to steer the country's recovery from the Asian economic crisis. Equity funded enterprises have likewise recorded high growth figures in developing countries from Asia, across Europe and in South America. The worldwide expertise with venture capitalism devotes a range of vital concerns in terms of providing the right surroundings for speedy growth. The subsequent are a number of the foremost necessary challenges and concerns facing Nigerian policy makers in this regard:

* Establishing a venture capital technical assistance programme to boost SME performance in numerous economic sectors. 

* Institutionalising tax edges for equity investment to attract foreign investors. 

* Providing risk guarantees to create strategic venture capital industries that improve self reliance and curb import quotas. 

* Enhancing venture capital capacity to stimulate and promote the economic expansion. 

* Focusing equity investment on SMEs that optimise resource utilisation and assist native raw material development. 

* Promoting innovative business concepts, processes and techniques that boost both productivity and profitability. 

* Hastening industrialisation through equity infusion in high-growth areas like telecommunications and tourism.

Nigeria's reforms method prompted a distinctive voluntary initiative at the turn of the last century when the Nigerian Bankers' Committee launched the Tiny and Medium Enterprise Equity (SMEEIS) scheme. Billed as an try to market entrepreneurial enlargement, the scheme needed all domestically operating industrial banks to earmark 10% of pre-tax profits for equity investment in little and medium enterprises. Although additional than Naira eighteen billion had been put aside by 2003, utilisation of the funds remained abysmally poor at but twenty five%. The Nigerian Central Bank owed it to an absence of viable comes and general reluctance toward equity partnership. If poor managerial and business packaging skills are areas of concern, the prevailing mindset against venture capitalism in both existing and rising enterprises is even a lot of so.

To quote former Central Bank governor Joseph Sanusi (twenty nine May 1999-29 May 2004), accelerated economic development is not potential until Nigerian entrepreneurs learn to appreciate that "it is higher to have 10% of a successful and profitable business than to own 100% of a moribund business".

ArticleSource: ArticlesAlley.com