Nigeria is underperforming and unlocking dead capital is critical to stop this. This paper hopes to discuss the essence of dead capital and the potential of its effective utilisation.
Lack of access to finance is a major contributor to persistent poverty. Research has long shown a positive relationship between financial development and poverty reduction. Individuals and businesses benefit from a range of financial services such as saving, loans and insurance products that allow them to mitigate financial risks and access capital for value-creating endeavors. In 2001, Hernando de Soto coined the term 'dead capital' to describe assets that cannot be converted to economic capital.
Capital is any resource that can be used to increase productivity and generate wealth in the economy. He posits that the differentiating factor between developed and developing countries is the ability of convert physical assets to capital that creates value. According to De Soto, capital is the most essential component of societal advancement and deserves the utmost priority when developing solutions for developing countries.
Presently, a large proportion of Nigeria's population operate in the informal sector by living in informal dwellings and/or working in the informal sector. For many, the cost accrued in the formal sector outweigh the benefits. However, this creates a large stock of dormant assets. Capital is scarce in societies with large stock of dormant assets. Ideally, a standard description of assets lowers the costs of economic transactions, as it provides security for parties involved by making transactions legitimate and legally binding.
However, a lack of description makes transaction costs too high to be economically beneficial for both parties. The poor are therefore unable to leverage their assets and possessions for economic gain.
There are many forms of dead capital but in this paper, we focus on real estate. This report estimates the amount of dead capital in residential and agricultural real estate across Nigeria. We also recommend ways in which the estimated capital can be unlocked and leveraged to create value and grow wealth in the economy.
PwC estimates that Nigeria holds at least $300 billion or as much as $900 billion worth of dead capital in residential real estate and agricultural land alone. The high value real estate market segment holds between $230 billion and $750 billion of value, while the middle market carries between $60 billion and $170 billion in value.
Several underlying assumptions were made to support this estimate.
The article Bringing Dead Capital to life - What Nigeria should do first appeared in PwC Insights in June 2019. Authors are Dr. Andrew Nevin Andrew S. Nevin, Partner & Chief Economist firstname.lastname@example.org, Oluseyi Agbedana, Senior Manager email@example.com, Omomia Omosomi, Senior Associate firstname.lastname@example.org; with contributions from Oluwadamisola Oloko and Olamide Obaleke.
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