Sunday, April 13, 2014 45
THE GUARDIAN www.ngrguardiannews.com
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National Development Strategy Series
NICHOLAS OKOYE, Founder EMPOWER NIGERIA Initiative,
FROM THE DESK OF THE CEO PILLAR TWO :
ACCESS TO CAPITAL Paper 8 E have been talking about access to Capital for National Development and I listed this as number two in my nine drivers of National Development. In providing a NATION with access to finance I detailed how this access can be make available for the public sector, which uses the financing to build infrastructure and create a sustainable business environment for the private sector. In return the private sector must also have access to capital so it can build the businesses needed to create jobs and provide citizens with a sustainable high standard of living. In a smooth system like this, the citizens pay taxes to the Government so the Government uses the tax revenue to invest even more in infrastructure and an enabling environment which includes security, education and so on. And the circle continues as more and more people will be encouraged to set up more businesses which in turn will create more and more jobs and provide for the citizens an even higher standard of living and therefore inspire more citizens to do even more to benefit from the stable and enduring structure that has been laid before them by a responsible and caring Government. So it is in the interest of the Federal Government of Nigeria and Governments all over Africa that Entrepreneurs have access to funding to take risks, start new businesses, fail if they must and start again until they get it right. Jobs are created in the process, taxes are paid in the process and society is growing by and large. Funding for Private Ventures The first call for any entrepreneur is to first approach family and friends. Alhaji Aliko Dangote says that he got started by taking a 500,000 naira loan from his rich uncle Alhaji Dantata. Mark Zuggerburg got his start up investment from his friend who later became his business partner. The most important thing for any young person to understand is that your family and friends know you well. And they are the most likely candidates to know if you have the passion to succeed or not. Please note I said passion, and not knowledge, as passion is almost always the difference between success and failure for every private venture. When you have a burning desire to start a new business, put all the information down on paper, do your research study the industry, the market and the product or service and arrange all the information in an easy to understand format for the opportunity you need to go after. Then you will need to assemble your friends and family into a room and make a presentation to them as if they were the most skeptical bankers. They must trust that you know what you are talking about and in most cases the startup capital will come from them. Or from people who they have convinced to be a part of your business. How can the World trust you if the people that are close to you do not trust you? Get them to believe in what you are doing and the chances are that they will know someone or a group of people that have a strong interest in your idea or your new business venture. In the international community this early stage funding is normally taken care of by a group of investors called Angel Investors. In recent time the Angel investors are even more organized than their Private Equity and Venture Capital
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counterparts. Angels will take an idea from its inception, when you have no offices, no deals and no hope and provide the initial needs of the business. Such as offices, licenses if necessary, early staff, and early development of the product or service. Angel Investors would normally come up with $10,000 up to $250,000.00. Anybody who has watched Dragon’s Den will know that angel investors can be tough and in many cases they demand large amounts of equity from the entrepreneur in return for their early stage funding. However half bread is better than nothing so even if you have to give up some parts of your company it is important for you to get started. Ten percent of a global company is better than one hundred percent of a tiny village company with no prospects. Private Equity Private Equity is much more organized in Nigeria and indeed Africa. And many real estate developers have begun to realize that there is funding available for good projects sited anywhere in the country. The Telecommunications industry has also benefited to a great deal from the growth of the private equity industry. Sometimes these PE firms overdo it. They have teams and teams of Harvard and MIT MBAs that go over the figures and they come up with very negative projections which in most cases are based on their limited understanding of the location they are studying, I know this because I was one of them when I worked with Merrill Lynch in Boston.
I was at my desk at Merrill Lynch when the entire Wall Street financial community were inundated with the story of the Nigerian Telecommunications bid round being conducted by the Nigeria Communications Commission under the leadership of Ernest Ndukwe. Many of the World’s largest telecommunications companies are based in the United States so you can be sure it sparked their interest. They got us in the financial community of Wall Street interested as well. However the work was handed over to a group of financial analysts that were supposed to be the experts on Telecommunications and another group that were the supposed experts on Africa. They crunched their numbers and came up with the following conclusions. 1. Nigeria was too risky. A similar bid process for GSM licensing was carried out by General Abacha and 26 licenses were given out including licenses to his sons. The process was faulty, and was not transparent. And so they felt that is Nigeria and the new telecommunications GSM licensing round was going to be a bad bet. 2. The GDP per capita for Nigeria was far too low to generate any meaningful revenues from the citizens, according to the World Bank, (World Bank reports are read by all Investment financial Analysts especially as it related to African Countries). Other reports from other sources including the IMF, IFC and many other sources detailed that Nigeria was a poor country and that Revenues per user ( RPU) could not exceed $30 per annum. And so the analysts felt that Nigerians did not have the money to pay
for the services even if the investments were to pour in. 3. The overall GDP for Nigeria was very low and Nigeria’s heavy external debt (Nigeria was heavily indebted to the Paris Club at this time), did not make it a strong or viable investment destination. The long term outlook for Nigeria was negative and so investing the heavy investment required for the new Nigerian GSM industry was a misplaced step.
4. The Nigerian people had been managing the inefficient and incompetent NITEL which had given the entire Nation a total of 600,000 lines for the past twenty years. And so they did not believe that Nigerian people were ready or even wanted a national GSM system that will make communications for every citizen common place. Well……. They made their conclusions and their conclusions formed the basis of the final investment decisions made by ATT, VERIZON, SPRINT, T’MOBILE, ORANGE, VODACOM, etc. All of them decided that they were going to stay out of Nigeria. Thank God analyst opinions have disclaimers otherwise the analysts of Merrill Lynch, JP Morgan, Chase and so on would have been sued by these Telecommunications companies after they found out what happened. We now know they were wrong so very wrong. One thing the Analysts could not predict and one thing they did not know about in spite of all their Harvard, Stanford and MIT MBAs, was that Nigeria had a man called Ernest Ndukwe who could drive a process in the most transparent manner ever experienced in Africa at that time and ensure that only creditable investors would get the license. And those creditable investors just happened to be African borne investors, not the Europeans or the Americans but Africans ourselves. Companies such as MTN and ECONET at that time that were African in heart and soul and could take a risk on Nigeria in spite of the odds and they would stay the course to see it through and make it happen. The land scape has since changed since those early days, MTEL (owned by NITEL) joined the party and then left the party far too early. ECONET changed to Vee-Mobile, then to Zain, then now to Airtel,a dispute with the original ECONET investors is still ongoing. Globacom (now GLO) joined after a tough running with the regulators regarding an earlier bid under a name, CIL. And then Etisalat joined after an investment road show was held in Dubai which was led by Malam El Rufai then Minister of Federal Capital, and Mubadala Invested in a forth license. Recently SMILE Telecommunications another African borne investment group, which has a 4G LTE license Ernest Ndukwe was the driver of the GSM revolution that saw unprecedented growth in a sector that cre- has joined the party and the game goes on and ated over 500,000 direct jobs in the last ten years, and millions of indirect jobs. The Telecommunications on. So much for the predictions of the Harvard sector is now contributing 8.63 percent of GDP which is a whopping $44.3 billion, up from $2.3 billion MBAs that advised that Nigeria was a basket before the revolution began. case and should not be touched.