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How To Tap Nigeria’s Dead Capital

August 9, 2010

Most experts would agree that Nigeria has all the resources needed to be an industrialized nation or become one within the next 10 years. There is the vision 20/20, currently being planned to make Nigeria one of the 20 industrialized nations in the world. 

Most experts would agree that Nigeria has all the resources needed to be an industrialized nation or become one within the next 10 years. There is the vision 20/20, currently being planned to make Nigeria one of the 20 industrialized nations in the world. 

The first objective is to determine how to create and infuse the much needed capital to build the necessary infrastructure to achieve the vision 20/20 goal.  According to Hernando De Soto, author of the Mystery of capital, "capital is the force that raises the productivity of labor and creates the wealth of nations." Therefore, our concentration should be centered on how to create the capital necessary to achieve our objective of becoming one of the 20 industrialized nations in the world.

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 Various sums have been mentioned that needs to be invested per year for infrastructural developments, like   power, roads, water provision and security.  At the minimum, $90-$150billion USD per year is needed. 

Once we have this in place, the rate of GDP growth will double or quadruple. Nigerians by nature are very enterprising. We possess the enterprising instincts to put capital to work if only we can obtain access to the capital.  In fact, the Central bank Governor Mallam Sanusi, was quoted in Thisday  news paper  on 8/6/10 that, “Nigeria could achieve between 15 and 16 percent GDP growth rate year-on-year if the major sectors of the economy with the requisite potential for real growth are targeted with relevant policies that will drive growth”.

What is standing in our way of creating the capital we need? One major factor, systems. We need various systems of creating capital. We have a lot of wealth and assets in Nigeria. The question is how do we access all the wealth previously accumulated by the citizens and turn them into useful capital?

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More than 70% of Nigerians do not have bank accounts, yet they have billions of naira stored away under their pillows and mattresses. Majority of houses in Nigeria are owned free and clear, and have no mortgage, and thousands of Nigerian businesses have no loan obligations. Therefore, there are billions in dead capital waiting to be accessed. 

Yet there is no system in place to put such capital to use. Forget about foreign aid or foreign investments. Let us tap our domestic aid and investments first, by enlisting the help of our own citizens. Where are these resources and how are they held, and how can we unleash them?

 According to De Soto, "these resources are held in defective forms , houses built on land whose ownership rights are not adequately recorded, unincorporated businesses with unidentifiable  liabilities, industries located where financiers and investor's cannot see them. Because these possessions are not adequately documented, these assets cannot be readily turned into capital, cannot be traded outside of narrow local circles where people know and trust each other, cannot be used as collateral for a loan, and cannot be used as a share against an investment.” 

In advanced countries, majority of the citizens put their money in the banks, to be leveraged and made available as loans for economic activity. Banks trip over each other to loan money on homes that are free and clear.

Even when the house is encumbered, if you can show enough equity, the banks are ready to advance you money to fund any project you want.  You can use the money to go on vacation, to improve the house or start a business. For example, let’s take three million homes in Nigeria  identified as free and clear, and the average value is two  million naira, that is 6 trillion naira in capital that can be unleashed immediately, which can be leveraged up to 10 times, and  can be made  available to the people to invest in various enterprises.

 For example, The Nigerian government can create immediate employment for its citizens by creating a mortgage backed security that guarantees immediate loan to any home owner with a free and clear house to access between 150,000- 750,000 Naira for the purposes of improving their home.

 If one million Nigerian home owners applied for the loans, this simple process can create up to 250 billion Naira in economic activity instantly.

Since the loan is strictly for home improvement, the home owners have to hire painters, plumbers, bricklayers, carpenters, and other skilled Nigerians to do the work. This will lead to immediate employment for the tradesmen and women who in turn will spend the money earned to buy goods and services thus generating more economic activities. 

The first step in creating capital is to put in place the mechanism that allows asset owners to use their asset as collateral for obtaining credit. The total value of all housing units in the U.S. is about $20 trillion USD, out of which $14 trillion is backed by various mortgages. The construction industry for housing and commercial properties makes up about 10% of U.S. GDP or $1.4 trillion USD, providing employment to almost 8 million Americans.

The number one source of capital in the US for new business owners is their home. Nearly everyone whoever started a business at one time or the other tapped the equity in their home as start up funds, and when they run out of money they go back for more as long as there is equity in the home. 

The fact that the average Nigerian who owns a house or a business that is not documented makes it difficult for him to access the capital represented by that asset. The solution is for the government to create a structure to resolve these predicaments so that properties can be transferred easily or used for collateral to generate wealth. Since Nigeria does not have a well developed process of representing the nation’s assets for verification purposes, it is very difficult to access the capital under the asset.

By representing assets with titles, western nations are able to turn their assets into capital. This is the main reason why it seems to us that the developed countries like the U.S. have unlimited amount of money. Every asset in the US both private and government have been titled and recorded at the time of creation and quantified to the extent that the asset can be used as a collateral to raise funds, first in the primary market, and then the mortgage instrument created can also be sold and resold in the secondary market, bundled together to create more money in the form of bonds and other securities. 

Once we create a system for turning our abundant assets into capital, we will never again have to ask ourselves "where will the money come from?  We also need to create a system where property owners can legally enforce their property rights.  We don't need   to wait for foreign aid or complain about lack of foreign investment when we have trillions of Naira under our mattresses and trillions in real estate assets we can begin turning into capital immediately.

Toyin Dawodu is the Managing partner of Capital Investment Group, a California based Diversified Investment Company focused on Infrastructure development in Africa.    

Email:  [email protected]




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