11 December 2017
A few weeks ago, a very good friend and elder statesman from Nigeria called me requesting my involvement in an investment project initiated by some Foreign group. Reluctantly I agreed to give audience to the guys due to respect I had for the elder statesman.
A week prior to now, these foreign investors just returned from Nigeria. For the past eight or nine months they have been visiting several governors in Nigeria signing MoU on several infrastructure projects. According to them they have MoU with a total of nine state governments on providing investment finance for different projects. These governors actually pay them mobilization fees and house them in five star hotels all their stays.
After listening to them, I called my Nigerian contact and told him not to waste his time, such deals never closes.
Why am I writing these? I am troubled that too many state governors, rather than engage the right types of financiers who have a history of infrastructure financing prefer to deal with street facilitators who flout financial instruments that maybe used for commodity trade transactions but cannot be used for long term infrastructure investments.
Unless our Governors decide to get it right, they will only end up hyping the local people’s expectations of investments and it will never come to fruition. One reason why most governors get confused when engaging these foreign investors is because, there are certain types of transactions which were possible up until the collapse of the markets in 2010 that are no more possible now. Investment finances that were easily drawn down then, no institutions will do those deals now, but most of our Governors are still signing MoUs for those type of deals unknown to them that they can never close them.
So far, only Lagos State and to an extent Kaduna have been able to get through the right path in financial investments.
Let me walk you through one investment model most of our Governors easily fall prey to, unknown to them that they can never close those deals.
There are these group of guys from USA, Canada and Europe, they come to Nigeria with this HSBC investment portfolios. They tell our governors that they have lines of credits as much as 10 billion dollars. They will even show you a check from HSBC London or New York, and will tell our governors that they can call to verify the checks.
Some governors will even go on media to announce that they already have the investors’ money for their projects, unknown to them it is story for the gods. I met a certain governor at a Lounge in Amsterdam who was so confident he was going to close a deal, two years later, nothing has happened it is one story to another. Maybe the National Investment Promotion Council should organize sessions to educate our state governments on how Capital Investments work.
Let me tell you what actually happens in most cases. In the investment world, we have what we call “Financial Instruments”. These instruments can be leased for short term or long-term purposes. Most of these instruments are better used for Commodity trades and the funds are verifiable, but these instruments cannot be used for long term infrastructure projects.
You will be surprised at how cheap it is to lease an instrument, so too many investor wanabees, lease these instruments as a means of making money from African governments. Once an investor tells you if you don’t sign this deal, it will not be available again, he is dealing with leased instruments. Before I explain how to know real investors, let me tell you strategies to look out for. Now when an investor tells you to bring 20% and they will bring 80%, they sometimes call it PPP, be careful.
You consider them real when they are willing to bring in their 80 percent first before your 20%. But the other way around, just forget it. What they do most times is, they will use about 10 percent of your contribution and start the project on the pretense that the financier wants to see the work in progress before committing funds. The 10 percent goes into their pockets and the project is abandoned after some years.
Some will come to you saying they need sovereign guarantees. Don’t fall for that. If you issue any sovereign guarantee, instead of them to bring in Capital funding, they go out to shop with your sovereign guarantees and attempt to monetize it. Both assets and sovereign guarantees can be monetized.
Now, an investor who needs your sovereign guarantee to go out and monetize it, what makes him an investor? Why can’t the state governments themselves set up a Special Purpose vehicles (SPVs) and do the same thing? Let me stop so far. Next time I will write on how to source and know the right kind of investors that can actually fund projects in Africa.
Princewill Odidi
Writes from Atlanta
