Investment banking and Nigeria’s prosperity

By Martin Ike-Muonso

In 2018, Nigeria ranked 129th out of 149 countries in the legartum prosperity index. It also ranked the 25th for Sub-Saharan African countries. The marginal improvement from 132nd position achieved in the preceding year is oxymoronic as in the same year we bagged the status of the poverty capital of the world. It was surprising to see some question the ranking even with our combinations of high levels of unemployment, low per capita GDP, high illiteracy levels and low-quality education as well as poor access to good healthcare. Ignominiously, these attributes which also separate the prosperous from the poor have combinedly defined us over the decades. Are we not yet discontented with this status of average socio-economic misery? And why is our discontent failing to produce the right levels of entrepreneurial innovation that should bail us out at scale?

The prosperity of the individual, country or even organization lies in the quantum of entrepreneurial opportunity discovery, exploitation and innovation that they control. These, in turn, determine the volume of possible new investment opportunities as well as new job creation potentials. Ideally, the perfection of such opportunities require long-term financial commitments and can, therefore, make the difference between those who can discover opportunities and those who eventually exploit it for maximum success. There lies the role of investment banking. It is the power behind the successful conversion of identified opportunities.

A widespread notion is that opportunities lurk in the dark is scarcely true in Nigeria. What with the huge markets, massive population, natural resources, right climatic conditions and so on and we still rank low in opportunity exploitation for prosperity. In spiteful contrast, many foreigners have in the past visited this country with a suitcase and returned very wealthy after a few numbers of years. The difference is that they are better able to see the opportunities; better able to carefully plan the opportunity exploitation process and have the discipline to stick to their plan. They also possess – right or wrong –  better believability to access necessary financing for the exploitation process. Are entrepreneurs and investment bankers in Nigeria all dead? Does it mean that they do not see these opportunities that will help enhance large-scale prosperity?

Investment banking thrives on the back of opportunity discovery by providing the necessary long-term financing to make it yield profits. Opportunities are entrepreneurially meaningless if they do not generate financial benefits that make them sustainable, scalable and impactful at large scale through employment and output creation. That is also what differentiates the investment banker from a sheer financier because he – the former – works alone or in consonance with opportunity excavators (men of ideas) to produce value-creating assets that put food on the table of many. They are opportunity innovators with a focus on long-term scalable positive development impacts. The question is whether we still have such men in Nigeria. Of what importance are the heavily taunted opportunities of a large population, market, natural resources, pleasant climate, arable land etc. when they are not being transformed to deliver increasing prosperity for many? In what appears like a sneer, amidst the flourishing poverty, foreigners come in here and process what we have and use them to create economic successes for themselves and their countrymen.

One of the biggest challenges that Nigeria faces is to correct the extremely short-term mindset that characterizes our activities. Corruption and sleazy-rent opportunities over-time have sparked a mental shift from one where we hitherto had to follow due process to the end of any worthwhile exercise to a situation where we are in a hurry to appropriate the gains possible regardless of whether the operation will yield the expected impacts or not. The ultimate losers are the government and its people. The shameful slogan of ‘sharing’ dominates the encyclopedia of those in the public sector and their private sector accomplices. The sharing of resources have regrettably replaced the creation of new resources because the former is propped by a short-term rent-seeking mindset while the latter demand new ideas, initiatives, time and discipline.

But this mindset is widespread and has its roots and tentacles in every aspect of Nigerian lives. Of course, many investment bankers fall prey to these short-term traps and therefore end with results that leave much to be desired.  Short-term mindset rarely supports sustainable large scale projects with widespread positive impacts. The horizon for most great investment activities is usually long-term. Of course, know-how, technology and finance can shorten this cycle, but it does not eliminate the universal long-term nature of investment making. This typically defines the time horizon within which a development focused investment banker should operate. Short-term mindset, therefore, is a killer of investment banking capabilities. A good investment banker focused on development sees farther into the future and can define the far-future today. It is that present-value mindset as opposed to a short-term mentality that fosters the conviction to invest money.

A second roadblock to investment banking leadership of the prosperity transformation of Nigeria is the rent-driven political motivation. Many of our politicians and policy designers are to a considerable extent influenced by selfish as against altruistic motives. These selfish motivations unlock the adverse short-terministic effects we already discussed. With so much money spent on winning elections and in securing political appointments by many, the recovery of such sums take priority attention.

Another drawback to the capacity and willingness of Nigeria’s investment banking to facilitate economic prosperity at scale is the level of educational quality, the curriculum used in our schools and poor handshake between our schools and industry. We cannot overemphasize this educational dilemma. When we do not build the curriculum used for learning in our schools on solving the ever-evolving challenges of the industry and society, we end up with professionals whose ways of thinking are not adequately integrated into the real world. The curriculums of most of our schools have nothing to do with real life challenges of today’s Nigeria. So, where will the ideas and opportunity innovations come?

Again several government policies do not support the exploitation of investable opportunities and therefore limits the capacity of investment bankers to deal. One good example is the exploitation of natural resources and the generation of electricity. Enugu State with large coal deposits can generate loads of coal energy for immediate use by estates, markets, hospitals etc. without necessarily going through the national electricity grid. But our laws forbid that. On the contrary, the State government appear not to have rights over the extraction of coal gas. So until there is clearance from the federal government, we must have to wait. Even if there is clearance from the centre, the energy converted from the coal gas must be transferred to the national grid before distribution. But suppose that Enugu State or at best the host communities to the coal gas have 100% control of its coal and the gas. Assume too that they can directly sell energy from coal gas. You can figure out the rest.

Another critical consideration is insecurity and its elevated perceptions. Since investment bankers typically source for funds from varieties of sources with differences in risk tolerance levels, the insecurity conditions affect their capacity to deal. No investor will approve of the deployment of his/her investable funds in areas that are considered unsafe. Unfortunately, Nigeria has a handful of insecurity challenges. But the question is, does it mean that investment bankers cannot structure vehicles that can complement the efforts of the government to arrest the insecurity level of the country rapidly?

On a final note, we need not entirely blame the government for the poor prosperity ranking of Nigeria. Investment bankers have even higher blame.

But there should be greater synergy between the government and investment bankers such that while the former determines its long-term capital accumulation targets, the latter deploys whatever capacity available to ensure that its achievement. Of course, there should also be a coordinate system of incentives from policymakers to ensure that these investment gladiators achieve them. This will also elevate authentic private sector and market leadership of the economy which facilitates better entrepreneurial innovations and continued prosperity. But how ready is the government? What with its constant domestic debt incursions at high yields and crowding-out implications for real sector growth. Who wants to invest long-term and in a highly uncertain environment when returns on short-term government securities are outstanding? It is high time that the government involves investment bankers in its economic and national planning teams as well as allow them to take the lead.

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Professor Ike-Muonso is the Country Director of Baywood Foundation as well as the Chief Transformation Officer of GTI Capital Group