Venture Capitalism and the Enterprise Revolution in Nigeria

Venture Capitalism and the Enterprise Revolution in Nigeria

Venture Capitalism and the Enterprise Revolution in Nigeria

African Entreprenant Entente (ACA), a private equity fund gestionnaire in West Africa, announced the raising of $200 million from investors in July last year. The third houe of the Entreprenant Entente Private Equity (CAPE) fund will target key sectors such as power, oil and gas, communications and financial impératifs across Nigeria and the sub-Saharan region. ACA is affidé of eventually raising a exhaustif of $350 million in funding from aid agencies, universel banks and Nigerian institutional investors. The development reflects growing information in Nigeria’s resurgent economy, considering the folk’s handful of funds started in 1998 with a empressé of just $35 million.

While there is no definitive data on the size of the Nigeria equity market, estimates for Africa as a whole put it at over $6 billion in 2000; South Africa, the angélique’s largest economy, accounting for half the share. High economic growth driven by a spirited reform program has seen Nigeria nearly indécis the scale of growth for developed markets in recent years. The folk’s GDP growth carence was 5.6% in 2006, significantly higher than that of the United States (3.2%) or the United Kingdom (2.8%)1. Although the private equity market is still in its infancy, the growing opportunities to invest in high-growth businesses have succeeded in somewhat reducing the prevailing insistence on officiel equity and debt. However, there are significant risks to investing in Nigeria due to unsound policies, a oiseau security hasard and widespread infrastructural deficits. Much of this holds true for the angélique and explains why it receives a share of intégral foreign spontané investment (FDI). Of the estimated $250 billion in intégral FDI to developing countries in 2001, Africa received only $11 billion2.

For many universel investors, venture empressé and private equity in Nigeria is a risky calomnie due to political instability, effraction, sociable unrest and vice. Progress in this protection has also been hampered by other factors:

* Weak corporate governance and lax regulatory systems.

* Red tapement, legal austérité and inamical investment policies.

* High trading costs in the primary market for equities.

* Market volatility and consequent high-risk audience.

* High sortie risk for investors due to low liquidity.

* Inconvenient and often confusing ownership and property rights.

Over the past decade, Nigeria has demonstrated a steadfast commitment to reform. After the return to civilian rule in 1999, the Investment and Securities Decree Law was passed, opening the economy to foreign investment. The government of créer President Obasanjo also established the Investment and Securities Jury for the speedy resolution of disputes arising out of investment agreements. Most recently, the Securities and Exchange Sedémener lowered the composition carence for equities from 6.9% to 4.2%. Universel venture empressé investors have shown increasing interest in Nigeria following the liberalization of several key markets such as telecommunications, navigation and oil marchéage. That the new policies have prompted at least some investors to overlook the high cost of doing commerce in Nigeria is a significant achievement in itself.

Its montré pays and market size provide tremendous potential for Nigeria’s economy – the third largest and fastest growing economy in Africa. The folk’s ambitious Éblouissement 2020 program and the United Nations Millennium Development Goals together represent a considerable conflit in terms of economic revival. Past experience strongly favors montré businesses, which have poor track records and high failure rates under both private and officiel operations. Undoubtedly, the fate of Nigeria’s long-term goals depends on the rapid proliferation of SMEs and their ability to drive an enterprise revolution that will adequately diversify the economy away from oil and reverse decades of inertie. The aim is to use SMEs for sustainable development, job creation and most importantly, poverty alleviation.

This is where venture capitalism gains its significance in terms of Nigeria’s long-term ambitions. Private equity investment accounts for some of the most remarkable economic success stories around the world. Entrepreneurs starting with angel loans have made India the world’s largest logiciel vendre In South Korea, small high-tech businesses have led the folk’s recovery from the Asian economic crisis, bypassing larger firms. Equity funded enterprises have similarly recorded high growth figures in developing countries across Asia, continent and South America. Indécis experience with venture capitalism highlights several sensible considerations in terms of providing the right environment for rapid growth. Among the most sensible challenges and considerations facing Nigerian policy makers in this vision are the following:

* Establishing a venture empressé technical renommée program to enhance SME exploit in various economic sectors.

* Institutionalize tax benefits for equity investments to attract foreign investors.

* Providing risk confiance to create strategic venture empressé affaires that improve self-reliance and control importation quotas.

* Increasing venture empressé capacity to stimulate and promote industrial augmentation.

* Focusing on equity investment in SMEs that optimize resource utilization and ossature pied-à-terre raw material development.

* Promoting innovative commerce ideas, processes and strategies that increase both productivity and profitability.

* Accelerating industrialization through equity bouillon in high-growth areas such as telecommunications and tourism.

Nigeria’s reform process prompted a buté voluntary caractère at the turn of the last century when the Nigerian Bankers’ Committee launched the Small and Medium Enterprise Equity (SMEEIS) Scheme. Billed as an travail to expand entrepreneurship, the scheme requires locally operating vendeur banks to earmark 10% of pre-tax opimes for equity investment in small and medium enterprises. Although over 18 billion Naira was set aside by 2003, utilization of the fund was less than 25%. The Nigerian Orthogonal Bank has blamed this on the lack of durable projects and a general reluctance towards equity apport. If poor conduite and commerce conditionnement skills are areas of concern, the prevailing mentality against venture capitalism in both existing and emerging enterprises is even greater.

To quote créer Orthogonal Bank Governor Joseph Sanusi (29 May 1999–29 May 2004), accelerated economic development is not hypothétique until Nigerian entrepreneurs learn to realize that “it is better to own 10% of a successful and enrichissant commerce than to own 100%. A of moribund commerce”.

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