Okonjo-Iweala says Nigeria Needs Diaspora Funds
By Yinka Kolawole
 16th OCT 2006

FORMER Finance and Foreign Affairs Minister, Dr. Ngozi Okonjo-Iweala, has said that Nigeria needs to attract remittances from Nigerians in diaspora to stimulate the nation’s economy on the path of sustainable growth.

The World Bank estimated that total remittance flows to developing countries in 2005 amounted to about $167 billion. Africa alone received about $7.7 billion in 2004 with Nigeria accounting for nearly half.

Okonjo-Iweala, who is currently the Managing Director/Chief executive of NOI Global Consulting, stated this in Lagos, Tuesday, while speaking on “Energizing Economic Transformation through Venture Capital” at a workshop on Venture Capital and private equity financing organised by A.S. Consulting and Gemstone Capital.

She challenged fund managers in the country to device means of tapping into “Nigeria’s money abroad”, either from money owned by Nigerians in diaspora which may be remitted for investments at home or money saved abroad by Nigerians otherwise called capital flight.  She noted that though not backed by statistics, there is evidence of high levels of capital flight from the Nigerian economy partly due to lack of appropriate financing vehicles for domestic investors.

The former Minister spoke at length on the need to stimulate economic transformation in Nigeria through venture capital, noting that Africa’s long-term development must be driven by economic growth from within, and this, she stated, requires private capital.
To facilitate this, she said, there must be macroeconomic stability, improved access to finance for private sector, improved investment climate and regulatory issues, among others.

“There are two types of reforms needed in Nigeria: at the macro level reforms and also reforms at the micro level. We spent the past three years successfully implementing macro-level reforms to provide a platform for private sector to invest. Our attention should now turn to microeconomic interventions needed to complement macro reforms, and which can support private sector growth and create jobs in the economy,” she stated.

She said the major problem facing entrepreneurs in Africa is that they often need to raise their own capital due to a lack of well developed domestic financial institutions.
 “Investments are often financed either from private savings or by rolling over short-term debt. Commercial banks tend to be risk averse, and so avoid long-term financing to young entrepreneurs. The limited financing is often provided for established business customers with strong collateral guarantees. Non-bank financial institutions have also not developed alternate sources of credit or equipment financing.
“Equity markets have emerged, but again address a limited segment of the market which can support a public listing. Note that in case of Nigeria, the recent banking consolidation has deepened the financial system somewhat, but the overall picture for young entrepreneurs looking for financing has not changed significantly.”

She said that venture capital and private equity financing have made significant contributions in many large economies, and are also beginning to make an impact in Africa. For instance, as at end-2005, total private equity funds under management in South Africa was estimated at about $6.5 billion, more the whole of the rest of Africa which was estimated at about $2 billion.

She further noted that the size of South African private equity industry is comparable to that in many European, Latin America and Asian countries. The size of total funds under management, she added, is equivalent to 1.9 percent of GDP compared with 1.4 percent in Asia, 0.8 percent in Latin America and 3.9 percent in North America. Globally, she noted, South Africa ranked 16th for private equity investment activity, and 19th for fund raising activity in 2005.She noted that experiences from other countries illustrate how private equity funds can make a difference in supporting SMEs, adding that Nigeria should borrow a leaf from other countries and make full use of such funds in Nigeria to energize the economy. She urged fund raisers in Nigeria to explore three crucial areas in this regard, namely: support from development finance institutions (DFIs), Pension funds and Remittances and Diaspora funds.

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