Some very interesting pieces in FT’s lengthy “Nigeria at 50” insert from Thursday, including one on Kaizen Venture Partners, a private equity firm founded by two brothers, Ngozi and Chijioke Dozie, and with a bent towards distressed assets.
Most African countries, they say, lack the sort of well-organised bankruptcy procedures seen in the US, for example. When companies fall behind on loan repayments, therefore, there is little scope for restructuring their debt – often meaning that they are forced to stop trading, leaving their assets unused and their creditors with an uphill struggle to recover the money owed. Behind a non-performing loan, the brothers say, there is often a potentially successful business that simply requires a fresh cash injection, or better management. Kaizen aims to buy into these companies at knock-down prices, by acquiring non-performing loans from banks at a discount and then writing down part of the debt in exchange for equity.
Further accelerating the process, however, may be the recently established Asset Management Corporation of Nigeria (Amcon), which will “help Kaizen by removing ‘the first mover disadvantage’ . . . helping to establish a benchmark rate for discounts on the sale of non-performing loans.”
“Most investors in Africa are looking at commodities – not many are focusing on underperforming assets, but the opportunities are compelling.”
Another piece that caught my eye related to the increasing migration of “talented young Nigerian financial professionals [who are] returning to their homeland in growing numbers, in anticipation of a sustained period of economic growth. The migration has gathered pace since sluggish recovery in the US and Europe has reinforced the attraction of developing countries, highlighting Lagos’s role as a regional hub. “A few years ago, people were demanding a big premium to leave Maida Vale for a job in a third-world slum,” one young professional says. “That premium is no longer needed.”
At least three glaring problems for Africa’s most populous nation, however, remain. Lack of electricity (capacity is estimated at 40 watts/per capita compared with 466 in China and 1,468 in Germany) drags activity to the tune of $130bn a year, which in turn causes a 20 percent cost increase in banks for instance, which then drives up rates. A “dilapidated distribution network” has hitherto put a kink in privitization plans, though “potential investors from Canada, Turkey, Saudi Arabia, India, China and Europe, as well as homegrown groups, are eyeing what could be one of Africa’s biggest privatisations, which is due to be completed by May.” Per the article:
“Private investors would revitalise distribution companies and power stations or build new ones, so the reasoning goes, replacing a system more geared to dispensing contracts to political cronies than firing the economy.”
Additionally, continued underinvestment in oil–in each of the past three years, FDI, which is dominated by the oil sector, has been less than half of 2006’s total of $14bn–may be alleviated by the imminent passage of a Petroleum Industry Bill which, at first blush, seems to have been largely influenced by foreign oil groups.
Finally, the daily three hours of gridlock that is getting into and out of Lagos is a harrowing affair: “urban planners observe that [the capital] still relies on a few main roads and almost entirely lacks proper public transport. Moreover, many roads are in a poor state, they say, with potholes that either slow or swallow vehicles.” Considering that the U.N. forecasts that Lagos’s population will rise at an annual average of 2.7 per cent until 2025, “double the rate of other emerging market hubs such as Cairo and Beijing,” one can only wonder at the level of GDP lost. Nigeria’s TFR (total fertility rate) is roughly 4.9, and its population pyriad is charted at right.