FRESH data from the National Bureau of Statistics showing that only $698.7 million came in as Foreign Direct Investment in 2021 – the lowest in 10 years – derails hopes of a quick recovery for an economy desperately in need of investment to reduce poverty, create jobs and enhance dangerously low public revenues. Urgently, the federal and state governments must take effective measures to improve the operating environment and make it attractive for domestic and foreign investors.
Nigeria’s deterioration is striking. In 2011, it was the largest FDI destination in Africa, according to UNCTAD, with $8.92 billion. With that, it overtook South Africa that had $5.81 billion. In 2010, FDI inflow into the country was $6.10 billion. Sadly, the decline in investor interest pre-dated the mid-2015 arrival of the incumbent regime of the President, Major General Muhammadu Buhari (retd.). His incompetence has however worsened the situation. By 2013, FDI to Nigeria had declined to $5.5 billion while South Africa’s climbed to $10. 3 billion, Reuters reported.
Although Buhari has repeatedly paid lip service to tackling insecurity, economic downturn and corruption, NBS figures show that FDI has been falling progressively. In 2019, it was $3.3 billion, dipping to $2.4 billion in 2020, reported Statista. Investors have been fleeing as the regime fails to map out or implement a coherent economic recovery plan.
Yet, Nigeria badly needs FDI. The NBS restates, “Foreign investments, either direct or financial, constitute an important source of capital inflow into an economy and have an influence on the state of a country’s exchange rate and balance of payment.” By bringing resources into an economy, especially funds, technology, management know-how, skills, and access to global production and market networks, adds UNCTAD, FDI is crucial to job creation, poverty-reduction and overall economic growth.
It is a major kick-starter for emerging economies. According to the Borgen Project (a non-profit), FDI helped push the Asian Tigers’ (South Korea, Singapore, Hong Kong and Taiwan) trade to rise from 16 per cent in 1970 to 33 per cent by 1990. China’s gradual opening up of its economy through special zones and regions attracted FDI that enabled it become the world’s No.1 exporter today.
Nigeria really requires massive infusions of FDI. The African Development Bank estimated in 2018 that it needs $3 trillion or $100 billion annually over the next three decades to close its infrastructure gap. Unemployment is 33.3 percent and rising. In the youth segment, it is closer to 55 percent, says Trading Economics. The World Bank forecasts a modest 2.5 percent GDP growth this year.
The foreign exchange market is chaotic, depriving businesses of forex and degrading the naira. The operating environment is muddied by an energy crisis where only about 4,000 megawatts of electricity is available for businesses and 211 million people. Diesel, lubricants and petrol are scarce as the major oil producing country imports almost all its refined petroleum products following the collapse of the four state-owned refineries.
Disastrously, the country has become insecure, with entire swathes of territory unsafe for agriculture, mining, manufacturing and travel by road, rail, water or air. Terrorists, gangsters, kidnappers, killer Fulani herdsmen and Islamic insurgents have destabilised the country, hindered business activities and discouraged local and foreign investors. This saw foreign investors shunning 24 states entirely, said the NBS.
These are Adamawa, Bauchi, Bayelsa, Benue, Borno, Cross River, Ebonyi, Edo, Enugu, Gombe, Imo, Jigawa, Kaduna, Katsina, Kebbi, Kogi, Nasarawa, Niger, Ondo, Plateau, Sokoto, Taraba, Yobe and Zamfara. Ten have not attracted any foreign investments in the last three years.
This is hardly surprising as the affected states – Bayelsa, Ebonyi, Gombe, Jigawa, Kebbi, Kogi, Plateau, Taraba, Yobe and Zamfara – frequently witness abductions, terrorist raids, cult wars, gunmen attacks and wanton destruction of property. According to Jihad Analytics, Nigeria, with 162 attacks, has overtaken Iraq as the country witnessing the highest number of attacks from the Islamic State since January through its affiliate, Islamic State of West Africa, compared to Iraq’s 120 attacks.
Investors seek safety above all else. The United States, United Kingdom, Canada, Ireland and other EU countries have issued travel advisories warning their nationals and businesses against travelling to Nigeria.
The federal and state governments have therefore to work hard to make the country attractive for investors. Ranked 131 out of 190 countries on the World Bank’s Ease of Doing Business Report 2020, Nigeria embarrassingly placed 21 among the 54 African countries surveyed, coming far behind Mauritius (13), Rwanda (38), and Morocco (53). Investors are still confronted by challenges ranging from multiple taxes to harassment by locals and difficulty in accessing loans. These minuses have to be reversed.
Both tiers of government must take emergency and lasting measures to radically improve electricity supply. The productive sectors cannot operate without adequate reliable, affordable electricity. In March 2022 alone, the electricity national grid collapsed twice within a space of 48 hours, and again in April, plunging the entire country into blackouts.
Until the states, like other federating units elsewhere, become self-sufficient economic units with all-encompassing economic plans, Nigeria will not prosper. States must enact policies to attract domestic and foreign investment.
Effective management of the exchange rate, interest rates and effective stimulation of SMEs and start-ups are some measures adopted by successful economies. Efficient special free trade zones, ports and a liberal regulatory framework are desirable.
China and Singapore boosted their FDIs and facilitated economic transformation by calibrating their FDI reception through cheap labour and ample supply of skilled labour. South Korea established a motivated and educated populace in addition to spurring their country’s technological boom.
Corruption is a disincentive to investment and has to be crushed. There should be consistency in government policies because investors plan 10-20 years ahead and sudden changes in policies derail investments.
Nigeria should opt for privatisation to facilitate a private sector-led economy. Beyond this, Nigerian authorities should adopt judicial reforms to tackle breaches of contracts and harassments of investors by hoodlums or extortionists in different shades. Urgently, the government must crush insecurity.
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