Nigeria faces unprecedented economic uncertainties and desperately needs to “bend the curve” on most economic indices. Even the optimistic people among us struggle with what to hold onto to defend our slide into economic quagmire. This results from several years of economic mismanagement and the devastating global impact of COVID-19.
We need urgent economic recovery, and Foreign Direct Investment (FDI) flows are fundamental to support such recovery. We must make a great effort to restore and increase capital inflows through FDI; attracting such capital must be a key strategy of this government.
FDI As Catalyst For Growth
Kofi Annan, the former UN Secretary-General, underscores the importance of FDI when he argues, “Foreign direct investment can be a catalyst for economic growth, job creation, and poverty reduction in developing countries.” This administration understands this, and Mr. President is leading the campaign to attract FDI. He is rolling out the red carpet for global investors to come to Nigeria to invest. However, the result of such an effort is yet to manifest , and some may argue that it is too early to appreciate the outcome. But I assume that although the economic propaganda and narrative, the body language of Mr President, and the economic decisions he has made so far are FDI friendly, the signals coming out of Nigeria are counterintuitive to this effort. And we know that in economic perception, signals matter, sometimes even more than reality.
Narendra Modi, Prime Minister of India, argues that “FDI is not just about money; it’s about creating an environment that fosters innovation, entrepreneurship, and economic prosperity.” The message from the Nigerian economic environment is antithetical to our FDI drive narrative and calls for capital inflow. We have yet to create an environment that fosters innovation, enterprise, and productivity. This is the anchor for FDI.
To be fair to the BAT government, it has taken some measures to boost foreign investment, including tax reforms at its formative stage , repealing laws that allowed retrospective taxation, overhauling the foreign exchange regime, clearing all FX deficits, and offering incentives.
Poor Signals As Deterrent
These signals, albeit substantial, are poor compared to the competing negative signals emanating from our political economy that global capitalists pay very close attention to. International capital investments are not products of whimsical and serendipitous decisions. They are based on analysing short- and long-term economic facts and realities. No amount of window dressing of the fundamentals would convince foreign investors to come to Nigeria unless core economic facts back our rhetoric. What strong signals are we emitting?
Our business environment has become so toxic in recent times that we are not retaining FDIs that came in the past. Global manufacturing conglomerates and oil multinational companies are quickly moving out of Nigeria and are not replaced by new ones (Not a peculiarly Nigerian problem, though: Kenya and Ghana – but particularly the former – are facing similar problems!). Nigeria is the second most indebted country to foreign airlines because of non-repatriation of earnings.
Our foreign exchange regime is still weak, and the value of the Naira is collapsing like a pack of cards. Imagine an investor brought in $1m at the rate of N500 per dollar (N500,000,000} at the beginning of this year and by the end of the year makes a 20% profit (N100,000,000}. If the exchange rate now is N1000 per dollar, the total value of his investment will shrink by 40% ($600k against the original $1m invested}. This volatility will scare most would-be investors, especially investors focusing on the short run. Even at that, the investor is likely to struggle to get FX to repatriate profit or sometimes even import raw materials .
Poverty and economic hardship have reduced the purchasing power of the people, and demand for non-essential products and services is dwindling. Our micro and macroeconomic environment is harsh and has thrown some erstwhile middle-class Nigerians across the poverty lines. There is no gainsaying; we are the world’s poverty capital, and we have accepted our fate, and nothing measurable has been done about it.
High inflation and high interest rates are combined to stifle business. We are and have remained a mono-product economy. Nigeria has historically been heavily dependent on oil exports. The lack of diversification in the economy makes it vulnerable to fluctuations in oil prices, affecting investor confidence.
Politically, we have made some democratic gains, but we are still struggling with the rule of law. A viable business environment thrives when the rules of business engagement are clear and sacrosanct. And when there is a breach, a transparent judicial process ensures justice. However, our judiciary has significantly lost the confidence of many of our citizens and foreign investors. Court processes take forever to resolve disputes.
Corruption is rampant and has eaten deep into the system. This has led to a high cost of governance and decay in the system. Government officials’ lifestyle is inconsistent with that of those who need support or investment. Nigeria is heavily indebted and has continued to borrow, most painfully, to cover recurrent expenditure and service debts.
Public and private sector organisations have to deal with the burden of bureaucracy and red tape. There is a sense of pervasive hopelessness and despondency among the youth, who comprise more than 70% of the population. The paradox is that the high youth population is now a curse rather than a blessing. We have a dearth of highly educated and skilled youths, yet many have “japaed” or are planning to do so. Never in our history have we had this unprecedented exodus of trained professionals in all spheres.
We have weak institutions, weak infrastructure, and massive insecurity. We have a complex regulatory environment with many bureaucratic hurdles, which has affected the ease of doing business. Starting and operating a company could be more efficient and more investor friendly. Multiple taxation and other unnecessary interference impede business confidence.
Besides, the state of infrastructure in Nigeria, including transportation, energy, and telecommunications, is disturbing and anti-investment. Infrastructural development is the backbone of business, and investors may hesitate to invest in a country where inadequate infrastructure can hamper business operations.
The level of insecurity is alarming. Some regions in Nigeria have experienced security challenges, including incidents related to terrorism, secessionist agitations, civil unrest, kidnapping, high-level criminality, and general low-level insecurity. These concerns impact the perceived safety of investments and lead investors to consider more stable environments.
Let’s Go Back To Basics
All these signals mentioned above are powerful and are dousing the poor signals this administration’s effort is putting out. So, we must go back to basics. Addressing these challenges and implementing reforms in governance, infrastructure, and the business environment can help improve Nigeria’s attractiveness to foreign investors.
The Nigerian government has recognised these issues and has been working on initiatives to promote economic reforms and improve the investment climate. The situation can evolve, and ongoing efforts to address these challenges may positively impact FDI. Let’s continue with the hardcore reforms that will improve our economic outlook in the medium to long term. The sacrifices we make now will reward our posterity.
Ngozi Okonjo-Iweala, Director General of WTO, argues that, “FDI is not just about capital inflow; it’s about knowledge transfer, technology sharing, and building sustainable partnerships.” We must explore options beyond capital flow and look at knowledge, technology, and skill flows.
In our globalised world, attracting foreign direct investment is essential for the competitiveness and development of any nation. Foreign direct investment is a vote of confidence in a country’s future economic potential. Therefore, prosperous countries can attract and retain foreign direct investment by providing a stable and business-friendly environment.
Arun Jaitley, former Indian Minister of Finance, posits that, “The flow of foreign direct investment is like a river – it seeks the path of least resistance, and nations must build bridges, not barriers.” We must create an environment with the least resistant barriers to allow a free flow of capital, talent, and technology.
Undoubtedly, we know that FDI is a powerful engine for job creation, technology transfer, and economic development and like rainwater, it nourishes the growth and development of the economy. We must send strong signals that we are open for business and create the right environment. Nigeria is a sleeping giant, and when the world sees that we have woken up for business, the FDI will flow freely without theatricals.