Since the beginning of 2015, the Nigerian economy has witnessed several twists and turns. It has suffered from the persistent slump in oil prices in the global market, the quest to combat the depreciation of the Naira, effects of the Chinese stock market crash, unfavorable policies, insurgencies and domestic political crises. All of these strains have made the business climate tough for investors, many of whom started pulling out their investments to more economically viable countries.
It is hard not to postulate that Foreign Direct Investment (FDI) in Nigeria has suffered a serious setback. According to Trading Economics, FDI decreased from 1.03 billion USD in the fourth quarter of 2014 to 723.49 million USD in the first quarter of 2015.
Apart from the macroeconomic and monetary outlook, coupled with general insecurity and slump in oil price, a greater reason for investor pull out, has been the decadence of infrastructural facilities. For instance, poor state of power generation forced quite a sizable number of companies like Dunlop, Michelin and many other multinationals to relocate their investments to Ghana and South Africa, where they believe the power sector is more reliable.
Recently, JP Morgan announced that it was going to delist Nigeria from its Government Bond Index-Emerging Markets (GBI-EM), because the Central Bank of Nigeria failed to restore liquidity to the foreign exchange market. This caused the Nigerian Stock Exchange (NSE) All-Share Index to fall by 2.98%-a total of N311 billion- in about 24 hours. Many business analysts and investors anticipate greater damages this removal will do to the Nigerian economy.
In a current report of the equities segment of the NSE, foreign portfolio investors, who dominate the market, withdrew about N410. 49 billion between January and August this year.
Ironically, as unfavorable as the business climate of Nigeria is, the inflow of FDI has not necessarily stopped, even if it has slowed. A trade delegation of sixteen United States companies recently visited Nigeria. The visit was aimed at strengthening commercial relations with Africa’s largest economy and “high countless business opportunities” as the US Acting Consul General, Dehab Ghebreab, put it.
Similarly, an International Sea Trade and Investment (ISTI) convention is scheduled to hold in Lagos, Nigeria between 5th and 6th of October, this year. This convention is targeted at boosting Nigeria’s export trade and maritime sector to make it attractive to global buyers and foreign investors. All of these are indicators that Nigeria holds potentials for business opportunities and investments.
It should also be noted that the Central Bank of Nigeria (CBN) posits that Nigeria’s bond market remains resilient and reliable despite JP Morgan’s removal from its bond index. This response was premised on the fact that the FGN Bond Index was operating independently and successfully since 2003 before JP Morgan’s inclusion in 2012.
The dynamic nature of international business and FDI makes it imperative that no conclusion should be reached since Nigeria- the country in question, remains functional.
Source: Emmanuel Odunmorayo, Ventures Africa