FRESH data from the National Bureau of Statistics showing just $698.7 million flowed in as foreign direct investment in 2021 – the lowest in 10 years – is derailing hopes of a quick recovery for an economy that desperately needs investment to reduce poverty, create jobs and improve dangerously low government revenues. Federal and state governments urgently need to take effective measures to improve the operating environment and make it attractive to 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 which had $5.81 billion. In 2010, FDI inflows into the country were $6.10 billion. Unfortunately, the decline in investor interest predates the arrival in mid-2015 of the current Presidential regime, Major General Muhammadu Buhari (Retired). His incompetence, however, made the situation worse. In 2013, FDI in Nigeria had fallen to 5.5 billion dollars while that of South Africa climbed to 10 dollars. 3 billions, Reuters reported.
Although Buhari has repeatedly pretended to fight insecurity, economic slowdown and corruption, NBS figures show that FDI has gradually declined. In 2019, it was $3.3 billion, falling to $2.4 billion in 2020, reported Statistical. Investors have fled as the regime fails to craft or implement a coherent economic recovery plan.
Yet, Nigeria badly needs FDI. The SNB reaffirms that “foreign investment, whether direct or financial, is an important source of capital inflows into an economy and has an influence on the state of a country’s exchange rate and balance of payments”. By bringing resources into an economy, in particular funds, technology, management know-how, skills and access to global production and market networks, adds UNCTAD, FDI is essential for the creation of jobs, poverty reduction and overall economic growth.
This is a major boost for emerging economies. According to the Borgen Project (a non-profit organization), FDI helped increase the trade of Asian Tigers (South Korea, Singapore, Hong Kong and Taiwan) from 16% in 1970 to 33% in 1990. China’s gradual opening up of its economy through special zones and regions has attracted FDI that has enabled it to become the world’s leading exporter today.
Nigeria really needs massive injections of FDI. The African Development Bank estimated in 2018 that it needed $3 trillion or $100 billion a year 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%, according to Trading Economics. The World Bank forecasts modest GDP growth of 2.5% this year.
The foreign exchange market is chaotic, starving forex businesses and degrading the naira. The operating environment is scrambled by an energy crisis where only about 4,000 megawatts of electricity are available to businesses and 211 million people. Diesel, lubricants and gasoline are in short supply as the major oil-producing country imports almost all of its refined petroleum products following the collapse of the four state-owned refineries.
Disastrously, the country has become insecure, with swathes of territory unsafe for farming, mining, manufacturing and travel by road, rail, water or air. Terrorists, gangsters, kidnappers, Fulani shepherd killers and Islamic insurgents have destabilized the country, hampered business activities and discouraged local and foreign investors. That saw foreign investors flee 24 states altogether, the BES said.
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 investment in the past three years.
This is hardly surprising as the affected states – Bayelsa, Ebonyi, Gombe, Jigawa, Kebbi, Kogi, Plateau, Taraba, Yobe and Zamfara – frequently witness kidnappings, terrorist attacks, sectarian wars, attacks by armed men and wanton destruction of property. According to Jihad Analytics, Nigeria, with 162 attacks, overtook Iraq as the country to witness the highest number of Islamic State attacks since January through its affiliate, the Islamic State in West Africa. the West, compared to 120 attacks from Iraq.
Investors are looking for security above all else. The US, UK, Canada, Ireland and other EU countries have issued travel advisories warning their nationals and businesses not to travel to Nigeria.
Federal and state governments must therefore work hard to make the country attractive to investors. Ranked 131st out of 190 countries in the World Bank’s Ease of Doing Business Report 2020, Nigeria ranked an embarrassing 21st among the 54 African countries surveyed, far behind Mauritius (13th), Rwanda (38th) and the Morocco (53rd). Investors still face challenges ranging from multiple taxes to harassment from locals and difficulty in accessing loans. These disadvantages must be reversed.
Both levels of government must take urgent and sustained action to radically improve electricity supply. Productive sectors cannot function without adequate, reliable and affordable electricity. In March 2022 alone, the national power grid collapsed twice in the space of 48 hours, then again in April, plunging the entire country into blackouts.
Until the states, like other unifying units elsewhere, become self-sufficient economic units with comprehensive economic plans, Nigeria will not prosper. States must adopt policies to attract domestic and foreign investment.
Efficient management of the exchange rate, interest rates and effective stimulation of SMEs and start-ups are some of the measures adopted by successful economies. Efficient special free zones, ports and a liberal regulatory framework are desirable.
China and Singapore have boosted their FDI and facilitated economic transformation by calibrating their reception of FDI through cheap labor and abundant supply of skilled labour. South Korea has established a motivated and educated population in addition to driving the country’s tech boom.
Corruption is a brake on investment and must be suppressed. There should be consistency in government policies as investors plan 10-20 years ahead and sudden changes in policies derail investments.
Nigeria should opt for privatization to facilitate a private sector-led economy. Beyond this, Nigerian authorities should enact judicial reforms to tackle breaches of contracts and harassment of investors by thugs or extortionists of various shades. The government must urgently crush the insecurity.
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