‘Political risk remains challenge to alternative investments’
Photographer: George Osodi/Bloomberg
Business model needs enabling environs to thrive
Political risk has always been an important issue, particularly in Africa and inhibits investments decision, as every factor in consideration will be unclear at such times, the Executive Director at RMBN, Dalu Ajena, has observed.
In an exclusive chat with The Guardian, on the sidelines of the just concluded, Africa Stock Exchanges Association, where he featured at a panel session, he said that Alternative Investment (AI), as a long term model, would always adopt a “wait and see” approach, like others, when not clear.
Speaking on the prospects of investments in Nigeria amid the rising political tension, he said that the issue in context is not necessarily about capital flight, but about the change of government or fallouts of the political season and its implications on longer-term fundamentals.
“Now it behooves investors to pause and see how the environment comes out of the political season to make a longer term commitment. When there is haze, it is always difficult to make decision. I think most investors are going to pause, to see whoever emerges and what the person is going to stand for.
Meanwhile, the investment expert has decried the assessed lack of depth for non-equity investments in Nigeria and the rest of Africa, saying government’s concern for growth of small business should motivate it to create the enabling environment for the players.
Ajena explained that non-equity market offers alternative investments that not related to the traditional fixed income investments, but includes venture capital, private equity, infrastructure, real eastate investments and commodities.
Besides, he called on governments to create enabling environment in appropriate sectors that will allow the players in alternative investments to thrive.
He said that this will involve attracting multilateral institutions to channel resources into the sectors as grants, as well as resources that will enable debt at less cost and eventually, the venture capitalists, to complement.
“In Africa, the non-equity segment is at infancy, compared to global market, where it has grown to become a significant part of the global capital market. It is nascent in the continent because of the size of investment needed, knowledge base, access to the fund managers who deliver expertise in key investments are low,” he said.
According to him, while these alternative investment are seen as costly, a look at the value they create outweighs the cost, as it offers, not only the immediate capital, under huge risks, but also skills and expertise- governance and understanding of industry, technological processes and supply, which help companies to scale up much faster than the other way.
He pointed out that there are regulatory issues that stops traditional sources from investing in AI, citing the pension funds, where significant portion cannot be invested, as the administrators are restricted to between five per cent and 10 per cent, depending on their categorisation, under the latest rule.
“This is a very small amount compared to regulatory guides in other jurisdictions,” he said, adding that there is lack of understanding, capital and depth because if there is full knowledge of these investment vehicles, more players will better align their capital requirements to take advantage of the market.
“There is infrastructure challenge, though not just Nigeria, but across Africa. These range from poor ports facility, roads, waterways to power. If you are a company that provides these for yourself, then that limits profitability,” he added.