The Role of Valuation in the Nigerian Business Environment

ESV Kamalu Osinachi Chijioke.

All over the World, asset valuation plays a vital role in determining the economic or market value of both tangible and intangible assets. The role of valuation in the overall business landscape cannot be overemphasized. Irrespective of the sector, valuation plays a pivotal role in shaping the direction of businesses, and helps in making informed decisions and policies in the running of businesses concerns, both in private and public sectors.

Asset valuation can be variously defined. In a very simple definition, asset valuation can be defined as the process of determining the current market value of an individual, asset or a business entity.  Simply put, asset valuation is the process of placing economic value on an asset or a business organization. The major aim of valuation is to determine the current market value of the asset or business being evaluated, and by extension to make informed economic decisions. For all these assets, there are different methods, metrics, and techniques of arriving at their current market values. There is no one method that is best fitted for every situation.  Though quantitative in nature, a well-written valuation report has some components of subjective inputs and assumptions.

In the Nigerian business context, the role of valuation cannot be quantified, professionals (estate surveyors and valuers), in this market segment of the real estate space, have been playing catalytic roles in helping to shape business directions through informed business valuation reports. Without determining   the right price for an asset, especially when it is offered to be leased or sold, informed decisions cannot be made and this is where valuation plays a key economic role in the business environment. Here, the valuation report is beneficial to both the buyer and the seller.

Asset valuation helps in determining the current cum open market value of an asset or a company. All decisions in the tax processes of a company and even the government are guided by a good valuation report.  In partnership business entities, partnership deeds are written and agreed upon with the help of a valuation report. Thereby helping businesses to know the value that accrues to each partner from time-to-time as the business progresses. Even in court divorce proceedings, asset valuation reports are needed to arrive at equity judgment.

Government agencies at all levels rely heavily on valuation reports in arriving at informed decisions.  For instance, the Nigerian Exchange Group (NEG), formerly known as the Nigerian Stock Exchange (NSE). To determine the market capitalization of a company that is listed in the Stock Exchange Market. To arrive at this simple valuation, the share price of a quoted or listed company is multiplied by the total share outstanding.  Anti-graft agencies like the Economic and Financial Crimes Commission (EFCC) also rely on valuation reports in determining the value of moveable and immoveable assets in their operational activities – asset seizure, forfeiture, proceedings, selling of assets amongst others.

There are a number of factors that affect valuation reports and that is why the government, organizations, and individuals should not rely on old valuation reports in making economic judgments especially for transaction purposes.  Macroeconomic factors like inflation, fluctuating exchange rate, interest rate, and fiscal policies.

For a valuation report to meet international standards, a professional estate surveying and valuation firm – experts in the field of asset valuation must be consulted and accordingly hired to deliver on the job.  In the Nigerian context, a firm of estate surveyors and valuers that is properly licensed by the Nigerian Institution of Estate Surveyors and Valuers (NIESV), and the Estate Surveyors and Valuers Registration Board of Nigeria (ESVARBON) are the only set of professionals with the legal backing to carry out valuation of all kinds.

Valuation will continue to play a vital role in the overall business in the overall growth and business development, and the onus is on the professionals to keep advocating on why only qualified professional firms should be hired to execute valuation jobs, both in the private and public sectors of the Nigerian economy.

ESV Kamalu Osinachi Chijioke is the Principal Partner at Osy Kamalu & Associates, a leading Nigerian firm of Estate Surveyors and Valuers.