Report: $900bn ‘Dead Capital’ Abound   in Nigeria

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By Obinna Chima
A report has estimated that Nigeria holds at least $300 billion or as much as $900 billion worth of dead capital in residential real estate and agricultural land.
It estimated that 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.
PwC, one of the leading global professional services firms stated this in a report titled, “Bringing Dead Capital to life: What Nigeria should be doing,” obtained at the weekend.
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.
De Soto posited that the differentiating factor between developed and developing countries was 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.
On its part, PwC in the report, pointed out that there many forms of dead capital, but stated that its  report was focusdd on real estate.
“At least $300 billion or as much as $800 billion worth of dead capital in residential real estate and agricultural land alone across Nigeria,” it stated.
“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.
“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,” it added.
Nigeria is the largest economy in Africa with a GDP of $US 530 billion, a long term average growth rate of 3.5 per cent and was expected to grow 2.3 per cent in 2019.
Oil revenue contribute more than two-thirds of the nation’s revenue and constitutes nine per cent of the GDP. The informal economy accounts for 65 per cent  of GDP which is amongst the highest in the world.
It noted that land tenure system in Nigeria was still largely in the communal and informal sectors. Sporadic efforts by the government on formalisation of property rights through certificate of occupancy in cities like Lagos were yet to meet the intended goal, the report pointed out.
” Land ownership has been quite a stressful process as a result of this complex land tenure system. The current legal status overseeing the formalization of land ownership is the Land Use Act, which was created to support fair access to land by establishing a certificate of occupancy system with fees and taxes.
“The Act has failed to establish a uniform land tenure system that govern ownership in the country. More so, most citizens, especially in the rural areas where land is not scarce, do not comply with legal provisions of the Act and have no certificates on their land. Issues around proper land registration and omo’nile also makes it difficult to ascertain proper land ownership. About 97% of land in Lagos is unregistered. This makes it difficult for banks to validate claims to land or for land occupants to use their land to create wealth.
“The Land Use Act vests all land in urban areas, except Federal Government land, ownership to the state Governor who then has the right to grant statutory right of occupancy to individuals and organisations. Land in other areas of the state belong to the Local Government who can then issue a customary right of occupancy. It is illegal to mortgage, sublease or engage a transfer of possessions on land with a customary or statutory right of occupancy without permission of the Governor.
“This restricted ownership and unregistered land creates dead capital as people cannot easily leverage their assets to create wealth. The country needs to invest in establishing proper and seamless land administration and implement policies that will improve land accessibility,” it stated.
In order to circumvent this projected crisis, Nigeria was advised to channel more investment into critical areas that directly impact economic growth. According to the report, heavy investment in infrastructure coupled with structural reforms would loosen domestic and foreign capital, allowing more businesses to thrive. In the long run, investing in human capital will yield economic prosperity by overriding high unemployment in a large population.