By Nick Okoye
Nick Okoye weighs in on the raging debate over the current value of Anambra State investments made by former Governor Peter Obi.
Dr. Nicholas Okoye is a business strategy and investment adviser, serial entrepreneur and public speaker. He trained at Anambra State University of Technology and also attended Havard Business School.
Investment Strategy is usually designed according to the goals and objectives of the Institution or Individual that is making the investment. For instance, for an institution such as a State or National Government, the parameters for return on investment is NOT usually considered or calculated based solely on dividend or capital appreciation.
My limited education, training and experience tell me that States and National Governments often calculate their return on investment based on the following parameters:
- New Jobs Created for unemployed young people.
- Increased Economic Activity.
- Small Enterprises that are created and that are encouraged to participate in new Value Chain that the new investment has stimulated.
- Taxes earned on Value Added activity directly from the new investment industry as well as from feeder industries.
- Taxes earned on new Employment roles from Pay As You Earn (PAYE).
- New Industries that feed the investment such as construction of new industrial estates, installation and maintenance of plants and machinery, etc.
- Transportation of goods produced by the new Investment especially if it is a manufacturing concern.
- Training and extensive value that is created by the attraction of highly educated personnel to your location as a result of the new investment, especially if that investment is in a new industry.
- Dividends paid on your equity investment.
- Capital appreciation on your equity.
It seems from the list above that a leader who I respect a great deal was talking about only one form of return on investment as it regards the State’s return on Investment. And from my list above, that return on investment he is referring to is the last item on my list, placed at number 10.
For individual investors, this is very different. The return on capital or return in terms of dividends may be their number one or number two expectation. Of course, this depends on their risk tolerance and asset allocation formula.
No State or National Government official who is actively seeking private investors to invest in their location should be using only one parameter to determine the return on investment to the State or National Institution.
In my view, if an investment has lost considerable value due mostly to the sharp decline in the value of a currency, one should look at the other parameters of return before one makes a blanket statement on whether the State or National investment has produced value, particularly if one is a state authority or national institution.
Having said that, if we are to look more closely at only the value of equity investments in Nigeria during this given period under review, then I will have this to say….
In 2008, the Nigerian Stock Market total market capitalization was at N13.4 trillion, this was represented internationally at a value of $114.529 billion USD using an exchange rate of N117 to $1. Please recall that this $114 billion market capitalization did not include Airtel, MTN, BUA Foods, BUA Cement, SABMILLER etc.
Today in 2022, the total market capitalization of the Nigerian Exchange equities (formerly the Nigerian Stock Exchange) is represented at N27 to 28 trillion depending on which day you do the calculation. This total figure now includes BUA and its different companies, several DANGOTE companies, AIRTEL, MTN, SABMILLER (International Breweries) etc. However despite the very large companies that are now listed on the exchange, this N27 trillion is now worth less than $36 billion when making international representation of its total value in USD, using an exchange rate of N750 to $1. This clearly indicates to any student of investment strategy that the value of assets in Nigeria, from an international prospective, has eroded over the last 8 years.
I think something is very wrong somewhere, when a leader whom I
respect a great deal throws all this information away and tells the world that a major private investment made in his State, in which the State Government invested alongside, is not worth anything,
It is very likely that he may have access to information that I do not have, but what do I know?
How not to value a state investment