Nigeria’s abundant natural resources, the size of its economy and high growth rate should make it the main destination of foreign direct investment [FDI] but they haven’t. The nation’s two-year leadership as Africa’s largest recipient of foreign direct investment happened from one-off deals in the oil and gas sector rather than sustained, broad-based inflow into the economy.
South Africa has now taken the lead in the face of Nigeria’s low competitive ranking. Of the estimated $56 billion FDI flows to Africa last year, nearly one-fifth went to South Africa, more than doubling its inflow from $4.57 billion in 2012 to $10.3 billion in 2013.
Inflows to Nigeria declined by about 22% from $7.03 billion to $5.5 billion during the same period. This is a sustained decline from $8.92 billion inflow in 2011. Over the period, FDI inflow to Africa grew from $47.5 billion in 2011 to $50 billion in 2012 and further to $56 billion in 2013.
Nigeria’s loss of attractiveness in the global investment market warrants a better understanding of the competitive challenges facing the nation as they affect FDI opportunities. South Africa’s improved perception is despite its woes of recurrent labour unrest, unexpected falls in output and its rather disappointing economic growth that ranks well below the rest of the sub-Saharan African region.
Oil and gas are Nigeria’s most important sources of FDI inflow, which is a reflection of the large dependence of the economy on the sector. It is therefore not surprising that the drop in FDI inflow was equally due largely to asset sales by foreign oil companies such as Royal Dutch Shell and Chevron. If anything, the development represents yet another reminder or better a warning that economic stability cannot be attained with large dependence on a single sector or resource.
The extent of real progress we have been able to make in diversifying the economy is better measured by how far these other sectors can compete in the global investment market. Our lost position as Africa’s biggest FDI destination reveals a major weakness even in the leadership in which the loss of one sector cannot be remedied by growth in any other sector. It is a pointer to the need to seek a broad-based economic growth rather than depend on one or two sectors to attain the nation’s GDP growth target.
It is particularly important to note that investors usually rely on global indicators mainly business environment, corruption and competitiveness in considering FDI opportunities. Nigeria clearly has better rankings on these in reality than it has been portrayed internationally. However we believe that a better way to counter these negatives is to get down to do more work to improve our positions than engage in challenging weak international rankings.
Nigeria’s potentials for attracting FDI inflow are immense. In the first place, a shift has taken place in the direction of global FDI flows from developed to developing countries. While global FDI plunged by 18% last year due to the challenges of global recession, FDI inflows to developing economies reached a new high of $759 billion.
Africa, of which Nigeria now commands its largest economy, is one of the main drivers of FDI inflows to developing economies. What we need therefore is to position our economy with greater determination to achieve a sophisticated business environment, reduce corruption and raise competitiveness.
In a grim international environment, Nigeria’s GDP growth expectation of 7.2% should attract investor interests worldwide and spur general prosperity within. It is doing neither because the growth isn’t spread across the economy and concerns about the institutional environment remain – mainly corruption, inefficiencies, insecurity and poor infrastructures.
While government is not altogether lacking in efforts to improve its scores in institutional rankings, we need to show greater commitment to the point of convincing the global investment community that we are determined to move up in the value-added chain. The litmus test for all the efforts of government at improving the business environment, fighting corruption and refitting infrastructures, is how far and how soon they rekindle FDI inflow.
High economic growth isn’t leading to a general economic prosperity because it is not broad-based. Only small enclaves in the few growth driving sectors, particularly oil and gas, grow richer while the real per capita income of the majority of Nigerians remains unimaginably low. Just as the prosperity of these small enclaves does not mean the prosperity of the nation so also is oil-driven FDI inflow deceitful in terms of Nigeria’s real competitive standing.
Our declining FDI competitiveness warrants that we should get back to work on the fundamentals of competitiveness to which oil-driven investment inflow has been a distraction. We need to focus on opening up all the potential channels of FDI inflow with the objective of spreading investments across several sectors and industries rather than wear the false label of Africa’s leading FDI destination with just one or two oil companies.
