Is Nigeria’s foreign investment flow decreasing?

Ibrahim Apekhade Yusuf and Charles Okonji

The nation’s quest for foreign direct investment (FDI) has suffered a set back in the last two quarters, no thanks to a combination of factors both complex and superficial, thus creating slim prospects of raising revenue from the much hyped FDI. Ibrahim Apekhade Yusuf and Charles Okonji examine the issues

It is anybody’s guess why receipts from foreign direct investment (FDI) flow have become a subject of debate. While multilateral agencies like the United Nations Conference on Trade and Development (UNCTAD), the World Bank and a few others hold the view and very strongly too that FDI flow is at an all-time low, the received wisdom amongst government agencies is that this is not exactly so.

The devil is in the details

According to a United Nations report, foreign direct investment in Nigeria, Africa’s top oil producer, plunged by 43 per cent to $2bn when compared to other parts of the continent.

While investors literally made an about turn from coming to Nigeria as a result of dispute between the government and South African telecom giant MTN over repatriated profits. Banks HSBC and UBS both closed representative offices there in 2018, Ghana, a neighbouring country, enjoyed inflows of $3bn, as West Africa’s leading destination for foreign investment. Italy’s Eni Group was behind Ghana’s largest Greenfield investment project.

Foreign investment in sub-Saharan Africa rose by 13 per cent last year to $32bn, bucking a global downward trend and reversing two years of decline, according to the UN report.

It said the development of new mining and oil projects, a new US development-finance institution and the ratification of an agreement to create a continent-wide free-trade area could further boost foreign direct investment in 2019.

Africa stands in sharp contrast to developed economies, which saw FDI inflows plunge by 27 per cent to their lowest level since 2004, the United Nations Conference on Trade and Development wrote in its ‘World Investment Report.’

FDI outlook in parts of Africa

Some African countries fared better than others, however. The Southern Africa region performed the best, taking in FDI of nearly $4.2bn, up from $925m in 2017. Foreign investment in South Africa more than doubled to $5.3bn.

Though much of the South African jump came from intracompany loans, new investments included a $750m Beijing Automotive Group plant and a $186m wind farm being built by the Irish company Mainstream Renewable Energy.

Ethiopia remained East Africa’s top recipient of FDI at $3.3bn, despite an 18 per cent drop compared with the year before.

Kenya, Uganda and Tanzania all saw increases in FDI inflows. Foreign investment in Uganda jumped 67 per cent to a record $1.3bn, boosted by the oil and gas development of a consortium that includes France’s Total, CNOOC of China and London-listed Tullow Oil.

The creation of the US International Development Finance Corporation could help support FDI inflows this year. A replacement for the Overseas Private Investment Corporation, it will be have a budget of $60bn and a mandate to make equity investments.

“The ratification of the African Continental Free Trade Area Agreement could also have a positive effect on FDI, especially in the manufacturing and services sectors,” the report said.

UNCTAD’s 2019 World Investment Report estimated $1.9 billion total FDI inflows to Nigeria in 2018, lower than the $2.2 billion estimated by the World Bank. Though the Central Bank of Nigeria disputes figures by the global agencies, insisting on FDI of $7.78 billion in 2018, UNCTAD reported steady decline from $4.49 billion in 2016 to $3.5 billion in 2017; Greenfield investments (funded investments from ground up) declined from 51 projects in 2016 to 36 in 2017, but rose to 55 in 2018.

Poor ranking on Ease of Doing Business

Nigeria’s ranking of 146th on the World Bank’s 2019 Ease of Doing Business report, a drop from 145th in the 2018 report. In the 2019 edition of its annual study, Where to Invest in Africa, RMB, the Johannesburg-based investment advisory firm, ranked Nigeria No.8 in Africa, where Egypt, South Africa and Morocco that took the first three spots respectively were cited for their economic diversity and improved environment. Ethiopia, Kenya and Rwanda at fourth, fifth and sixth places are also credited with robust growth, strong macroeconomic policies and investment in infrastructure. As he spoke in Japan, Toyota, the world’s top automotive manufacturer, announced plans to establish its West African production hub in Ghana, even when Nigeria is the largest importer of Toyota vehicles in the sub-region, a telling reflection of our poor prospects.

When they find themselves in a rut, leaders think outside the box: RMB experts insist: “Structural change is essentially the only hope for sustainable growth.”

Also essential are large doses of FDI, as the country’s stock of domestic capital is inadequate to kick-start industrialisation and fill the gaping infrastructure and unemployment gap.

A 2016 research by the Cogent Social Sciences journal recommends adoption of the Japan and Asian Tigers growth model with local modification, implementing similar reforms that cut across economic, legal, political, socio-cultural spheres to transit from developing to developed economies.

In the view of analysts, Nigeria can leap by going for the low-hanging fruits: liberalise and open up the railways, ports, airports, steel, mining, agriculture and downstream oil and gas sectors. As the licensing of two GSM operators in 2001 facilitated massive FDI, skills acquisition and telecoms services penetration, liberal policies opening up these sectors will do even better.

According to available information, the total investments today in Nigeria’s telecoms sector is $70 billion, while the telecoms sector provides over 174 million telephone lines, compared to the less than 500,000 active lines in 2001, and added 11.39 per cent to GDP in Q1 2019.

Buhari, experts stressed, should empanel and empower an economic team, partner closely the organised private sector and adopt a hands-on approach. Nigeria’s situation requires that he engage with OPS operators and work with states that are willing to join the Federal Government in promoting private capital and FDI in agriculture, mining, manufacturing, power and infrastructure.

Besides, they noted that retrogressive and primitive attitudes that hamper development and scare investors like promoting the anachronistic nomadic pastoralism, state monopoly of petroleum refining and seeking vainly to single-handedly fund railways, ports, airports or running steel plants, should give way to full, transparent privatisation. There should be a deliberate policy to attract the most reputable multinationals to invest in key sectors.

CBN’s FDI outlook

According to the apex bank, FDI increased by 909.5 USD mn in Jun 2019, compared with an increase of 1.2 USD bn in the previous quarter.

In the latest reports of Nigeria, Current Account recorded a deficit of 2.9 USD bn in Jun 2019. Nigeria’s Direct Investment Abroad expanded by 381.3 USD mn in Jun 2019 while its Foreign Portfolio Investment increased by 4.5 USD bn in Jun 2019. The country’s Nominal GDP was reported at 114.0 USD bn in Jun 2019.

MAN’s position on FDI

In the view of Reginald Odiah, Chairman, Policy Committee of MAN, the consistent drop in the country’s FDI is not surprising because the government is not interested in the revitalistaion and development of the existing infrastructure. “Any kind of investment, whether it is foreign or Local Direct Investment, one thing is important to note; people invest where they see opportunities to make profit. No one can invest in an area where he cannot get profit, no one is ready to lose money on any form of investment, therefore people invest in areas they are sure of maximising profit.”

Pressed further, he said, “What has been consistent with the system over time is that the environment is not yet conducive enough for investment of any kind when you are doing your business in an honest and viable manner. The truth is that the government is not bordered about fixing the infrastructure, the government is not put modalities to make sure that investors are adequately protected and this will not drive investment. That is why most investors are massively pulling out their investment. They are not sure of policy direction and enforcement.”

Odiah, who was also the former Chairman of Electrical Group of MAN, said, “Usually, a government earns money through taxation, and when that money comes, it is not used to fix the much needed infrastructure. Another issue is that of the state tax, which ought to have been paid to states for development of infrastructure, they are being paid to the centre.

“Another problem is a situation where government earns money through an easy source (oil revenue), share it to the states for its administration and this discourages investors, because there is the need to make profit both for the investors, the states and the federal government.”

In search of FDI

The slow pace of FDI notwithstanding, the Federal Government is not relenting in its efforts to close the gap by exploring every available opportunities.

Vice President Yemi Osinbajo had last Monday honoured an invitation of the Prime Minister of Norway, Erna Solberg, to attend the Nordic-African Business Summit in Oslo.

According to a statement by Mr Laolu Akande, Osinbajo’s spokesman, the VP would attend the summit in pursuit of the Federal Government’s Economic Recovery and Growth Plan (ERGP), especially regarding mobilisation of foreign investment.

Akande said that the summit was being organised to give particular prominence to trade and investment ties between Africa and the Nordic countries– Denmark, Finland, Iceland, Norway and Sweden.

He also said that the summit would attract the largest Nordic companies doing business or interested in doing business in Nigeria.

The spokesman said that Osinbajo would specifically, among other critical issues, speak on the strides made by the President Muhammadu Buhari’s administration in improving the economy and human capital development.

He said that the roundtable was expected to lead to increased trade and investment into Nigeria by building confidence about business prospects in the country and its role as an economic gateway into Africa.

“In extending its invitation to the Vice President, the Norwegian government noted that Nigeria’s participation in the summit would contribute considerably to its success, as the country that plays crucial regional leadership role and has the largest economy in Africa,” he said.

The aide said that Osinbajo, who had earlier attended the extraordinary Federal Executive Council meeting at the Presidential Villa, would depart Abuja for Oslo on Monday and expected back on Thursday.

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