The news that Foreign Direct Investment (FDI) inflow into Nigeria fell by 33 percent in 2022 to stand at a measly $468.91 million, the lowest in nine years, is depressing. But it is not surprising as the President, Major General Muhammadu Buhari (retd.), has mismanaged the economy. As his tenure winds down, he needs to rein in waste and intensify policies to improve the ease of doing business.
The National Bureau of Statistics report showed that despite having a mostly youthful population and abundant natural resources, Nigeria finds it increasingly hard to attract investments. No doubt, the administration of the in-coming President, Bola Tinubu, has its work cut out to lift the economy of the self-acclaimed giant of Africa from its near-comatose state.
FDI inflows into Nigeria have been declining over the years, falling further from roughly $1 billion in 2020 to $699 million in 2021, according to the United States Department of State. UNCTAD had reported that Ghana overtook Nigeria in 2018 as West Africa’s largest FDI recipient with $3.3 billion inflows, while Nigeria’s $2.2 billion wasa 36 percent decline over the previous year.
There are without doubt, adverse external factors impacting the domestic economy and FDI. These include fluctuating oil prices since mid-2014, global economic contraction, the Russia-Ukraine war, and the post-COVID-19 shock. Nevertheless, Buhari and his predecessors have badly piloted the economy, made wrong choices, and failed woefully to tame corruption.
Currently, an acute shortage starves manufacturers of foreign exchange to pay for raw materials and machinery imports, thereby hampering production. The business operating environment remains harsh and discourages investment. The current confusion and paralysis engendered by the Central Bank of Nigeria’s quirky naira redesign programme typifies the regime’s disorderly conduct of fiscal and monetary policies.
The naira has depreciated by over 233 percent against the US dollar in the official market and by 400 percent at the parallel market since Buhari assumed power mid-2015.Foreign investors cite the current blocking of foreign airlines from repatriating over $802 million to their home countries as one of the many ways Nigeria discourages investors.
FDI is very important to lift an emerging economy. As domestic productive activities are not deep enough to generate adequate investments to stimulate industrialisation, capital importation is a major trigger. But attracting it sustainably requires intelligent policies.
The liberalisation of the sector enables telecommunications to become the second highest magnet for FDI after oil and gas since 2001. It brought new skills, and earned hundreds of thousands of Nigerians employment either directly or indirectly. The Nigerian Communications Commission said the industry recorded over $70 billion investment in the 21 years to 2022 and created over 500,000 jobs. From a meagre level, it contributed 12.61 percent to GDP by the fourth quarter of 2021.
Obviously, liberalisation and privatisation of other critical sectors like railways, seaports and airports, steel, and the oil and gas downstream would, along with other business-friendly reforms, have opened the floodgates to FDI. Instead, the government holds on to unproductive enterprises that drain resources. And worse; this locks out private investment, domestic and foreign.
Buhari can still reignite the long-running privatisation of key infrastructure that his regime unwisely paused to magnetise the much-needed FDI. Assets sales will also yield money for infrastructure, education and health.
Solving the energy crises is crucial. While Egypt and South Africa have rapidly increased electricity generating capacity to over 58,000 megawatts and 55,000MW respectively, Nigeria struggles to wheel just over 4,000MW of its installed capacity of 12,522MW to Africa’s biggest economy and largest population of over 200 million persons. Providing alternative energy adds over 40 percent to production costs, thereby making Nigerian made goods uncompetitive, stifling new investments, job-creation, and exports.
Fuel shortages are frequent; the country imports 100 percent of its petrol needs because its four state-owned refineries are comatose, awaiting respite from the 650,000 barrels per day Dangote Refinery, which completion has suffered interminable delays. Yet, Nigeria is a leading crude oil producer.
Prices of diesel, aviation fuel, household kerosene and lubricants have spiked by over 800 percent, hitting factories, businesses, and households hard.
Even in the oil and gas sector, foreign investors are divesting due to policy inconsistency, weak regulation, and lack of counterpart domestic investment, among others. The government should urgently drive private investment in refineries and fully liberalise the downstream sector.
Industrialisation suffers. A sizeable number of foreign manufacturers have bolted, with some relocating to neighbouring West African countries due to the energy crises, exchange rate volatility and multiple taxes.
Add to all these, the laziness of the unimaginative, profligate state governors, whose primary interests are power for its own sake and self-aggrandisement. Lacking intelligent economic policies, they concentrate on spending plans and consumption. The states should aspire vigorously for self-reliance and fashion economic plans setting out production, investment, job-creation, export, and revenue targets.
There should be regional cooperation where states would collaborate to build power, rail, highways, and water supply infrastructure. They should adopt investment-friendly policies and invest heavily in rural infrastructure.
Insecurity is a major disincentive to foreign investment. There are violent, extortionist transport union enforcers in Lagos and the South-West, kidnapping in most states, terrorism by“unknown gunmen” in the South-East, sabotage of crude oil facilities in the South-South, terrorist insurgency and banditry in the North, and herdsmen attacks in the North-Central, and the southern states. These have discouraged tourism and investment.
Global Data lists Morocco, Egypt, South Africa, Tunisia, and Zimbabwe as Africa’s top five tourist destinations. This is another sector the national and sub-national governments should develop. Egypt, Morocco and South Africa drew $8.9 billion, $3.81 billion, and $2.11 billion respectively in tourism receipts in 2021, said Statista. Brazil received a 10-year high $90.6 billion in total FDI in 2022, up 93 per cent from the preceding year on the back of the growth in nearshoring in mining, energy, and technology sectors, and a strong currency.
Buhari and the state governors should understand that FDI is crucial and does not come by chance; they should consistently implement policies to make Nigeria attractive to foreign investors and save the economy.
