The decline in Foreign Direct Investment – The Sun Nigeria

Despite the recent World Bank’s rating of Nigeria’s economy as one of the “most improved economies in the world,” especially in the Ease of Doing Business (EoDB) index, Nigeria is reportedly losing Foreign Direct Investment (FDI) inflows. In comparison with investor-friendly peers in Africa, Nigeria is at the bottom rung of foreign investment inflows. According to the latest National Bureau of Statistics (NBS) Capital Importation Report, investment inflows into the country declined from $5.82billion in the second quarter of this year to $5.36billion in the third quarter. 

The report also revealed that the third quarter inflow of $5.36billion represented a decrease of 7.78 per cent when compared to the second quarter figure of $5.82billion. Besides, the new NBS report said the largest amount of capital importation was received through portfolio investment. This accounted for $2.99billion, representing 55.88 per cent of total capital importation.

Other investments accounted for $2.16billion or 40.39 per cent of total capital, while FDI accounted for $200.08 million or 3.73 per cent of total capital imported in the third quarter of this year. The report is not cheering for Nigeria. It is sad that despite available investment opportunities, foreign investors are tactically holding back investments in the economy. This also means that with an estimated population of about 200 million people, Nigerian citizens get $1 of FDI per head. According to experts, this amounts to a paltry $1.2 for a period of three months. This is even worse than the World Bank’s international poverty line of $1.90 per day.

The NBS capital importation data report underscores the fact that the economy is still vulnerable despite overcoming recession two years ago. In spite of government’s diversification effort, the economy is yet to receive the required boost that can withstand internal and external shocks that pushed it into recession. Nigeria needs at least $14billion in FDI annually, but it got seven per cent of that requirement last year. The decline in FDI shows the failure of the present administration to convince foreign investors that Nigeria is the preferred destination in Africa.

In comparison, African countries, like Egypt, South Africa and Ghana, have attracted much more FDI than Nigeria within the period covered by the NBS report. For instance, South Africa averaged $1.3billion in FDI every quarter this year, according to World Bank data.

This translates to $23.6 per South African, while Egypt, with a population of about 96million people, has averaged $3.5billion or $36 per every Egyptian. Ghana, with a population of 26million attracted over $107billion in FDI. Plainly, Nigeria is underperforming and no economy can grow at slightly more than two per cent annually and provide employment for its people without sustainable high inflows of FDI. In the third quarter of 2019, the NBS reported GDP growth of 2.28 per cent. This is lower than the country’s annual population growth of 2.7 per cent. What this means is that growing GDP at that rate will require investment of between 26 and 28 per cent of GDP. But Nigeria, as at today, does not have enough domestic savings for this, hence the frequent external borrowing by the government.  In 2018, decline in FDI inflow into Nigeria reached the lowest in eight years. That was far from what the economy needed to ramp up growth.

Unfortunately, FDI inflows into Nigeria have been hampered by harsh economic environment, political uncertainties, insecurity, power supply challenges and multiple taxation among other factors. Despite moving 15 places from 146 to 131 in the recent World Bank’s ranking, much more should be done in the Ease of Doing Business index. Improving the Ease of Doing Business is the best way to attract FDI. We say this because investors need assurance about the fate of their investments. No investor wants to put his money where the business environment is unpredictable. Unarguably, Nigeria still has high fiscal deficits, often driven by weak revenue generation, rigid domestic financing conditions and high external borrowing with uncertain impact on the productive sectors of the economy.   Monetary and fiscal policy distortions and other headwinds remain disincentives to foreign investors.

In all, the government should address these challenges if it hopes to attract more FDI. With a large population, Nigeria has cheap labour for foreign investors. Regrettably, the failure of the government to address these challenges has resulted in investment outflows to other investor-friendly destinations. It has also affected the drive to generate more revenues through taxes. However, we believe that strengthening private sector performance, bridging the gaps in infrastructure as well as reforms in the power sector will engender more FDI inflows.

(0 votes) 0/5
Article Tags:
Article Categories:
Articles · Latest News · Trending Topics

Leave a Comment