Thorough evaluation of the cost and business climate are imperative in selecting projects we undertake, and in fashioning winning strategies that will put us in vantage positions.
As our appetites are whet and we are looking into sectors that are liquid, growing and lucrative, we must remain strategic in our approach, focused on our goals and aggressive to pursue and conquer what is our share of income from this economy.
The line of thinking that we take is important to determine our focus and strategy. In the current dispensation of increased local or Nigerian participation in key sectors, the new country ratings and overall lower country risk; there is every reason to be forward-looking.
A. OBJECTIVES
Are there interesting projects and do we have the means to lower costs?
We need to evaluate the project in question and determine if it can be priced very low. If the terms and conditions of the project cost can be altered as a result of changes in interest rates, more funds available in the sector, recently freed funds from other just-concluded projects etc. If this is the case, then we can buy off the project from the existing owner and refinance it at a lower cost and lock in a guaranteed profit margin.
How can we include a local content element to a project that is wholly foreign?
If the project is dominated by foreign elements only, we can look for parts that can be substituted with a local element, if at the same price of cheaper raw materials while all conditions remaining the same, then there is an argument that the opportunity be passed on to a local company, however you must be willing to put in place a performance bond to cover lack of performance and this will be at a cost till confidence is built.
What are other existing projects competing with the project in question or expertise?
This will help you judge how much funds may be available for the project. For example, if you are going into independent power plants and there are only two companies competing for funds for the project there will liquidity concerning such a project, however if there are twenty odd companies at the same time in the borrowing market for such a project, the competition will be fierce and the funds limited.
A list of similar projects that are on the market should be listed either in categories of cost, sectors, risk or even complexity.
B. ENVIRONMENT
What is the local versus international appetite for such projects?
It is interesting to find out what other countries embarking or already involved in such projects are up to. One could look at cases from other emerging economies or internationally to have a comparison and a benchmark to work with.
The advantages should be put at the forefront of the strategy and the challenges worked on and improved upon to make a better case for the project.
Where do they source for funds to back such projects? Are the funds from commercial banks, merchant banks, multilateral agencies or export credit agencies? What are the local constraints they face and the influences upon such projects knowing the local terrain?
Can cheaper technology or funds be employed to the same project?
Instead of using local funds that are pricey and scarce; are there export credit agencies that are willing to support such projects using the latest technologies of the donor countries? This is especially so in areas where there is a large amount to be spent on equipment and infrastructure development?
Is the project robust enough to accommodate a new agent?
Is the business open and robust enough to accommodate new entrants without the sitting tenants going to war and keeping the entry level barriers high? If that is the case one could be advised to get in on a support role till such sitting tenants feel comfortable with your presence and less threatened.
What is the project risk?
Is change in policy, government, weather or interest rate may cause the project to become unprofitable and unredeemable? If so, what instruments can be put in place to protect the funds and inflow for the project and how best can the risk be managed? Remember that high risk, high returns in most cases work.
Are there any socio-economic or political aspects that may influence the project?
All these are to be enumerated and evaluated and scenario planning should be engaged to determine what the way forward would be if such scenarios come up.
The overall strategy of determining what project to embark on should be carefully thought out taking into consideration the challenges and opportunities that emerge from our careful study of the sector and project terrain. We should not be risk averted but on the other hand, risk loving with means of anticipating potential challenges, measuring the challenges, determining when the risk has to be managed and how must be considered.