Nigeria can regain position in Africa –AMPI
In this report, PAUL OGBUOKIRI writes that massive divestment from Nigeria by portfolio investors, oil price and foreign exchange instability; the coming general elections, insecurity, poor infrastructure and a generally uninspiring economy together made ensured Ghana over took Nigeria in 2018 as the number one foreign investment destination in West Africa
Ghana overtakes Nigeria in FDI
Coming on the heels of the warning last week by the Monetary Policy Committee of the Central Bank of Nigeria that Nigeria’s debt profile is fast approaching the pre-2015 Paris Club level, news broke last week that Nigeria was overtaken in 2018 by Ghana as the number one investment destination in West Africa.
While a recent data released by the Debt Management Office, indicate that Nigeria’s external debt alone stood at $21.6 billion as at September 30; Ghana, the small English-speaking West African country of about 15 per cent of Nigerian population, also less endowed economically, attracted more Foreign Direct Investment (FDI) in the review year more than Nigeria.
According to a new report by the United Nations Conference on Trade and Development (UNCTAD), Ghana received $3.3 FDI in 2018, while Nigeria got $2.2 billion the review period, making Ghana West Africa’s top investment destination in the sub-region in 2018.
The report titled ‘UNCTAD Global Investment Trends Monitor’, which was released last Monday, said Nigeria recorded a 36 per cent decline in FDI in 2018.
According to the report: “Africa registered a 6 per cent increase in FDI inflows in 2018 ($40billion, up from a revised $38 billion in 2017), but the growth was concentrated in few economies and the aim for the shift from the natural resources dominated FDI profile of the continent towards a more balanced sectoral distribution was only partially visible, in that the relatively diversified economies, such as Egypt and South Africa, saw more stable and increasing FDI inflows,” the report read.
“Egypt with an increase of 7 per cent from $7.4 billion to $7.9 billion was the biggest recipient of FDI in Africa in 2018 with investments in real estate, food processing, oil and gas exploration and renewable energy.
“In contrast, flows to the two largest oil producers of the continent, Nigeria (-36 per cent to $2.2 billion) and Angola were low, with a decline and a net divestment respectively.”
Nigeria, once top investment destination in Africa
In 2011, Nigeria became the number one investment destination in Africa; with FDI inflow of $8.9 billion in 2011, representing about 16 per cent of Africa’s total estimate of $55billion.
This came as Nigeria and the United States of America renewed their commitments towards strengthening relationships in economics, trade and investment, with special focus on non-oil exports.
Then Minister of Trade and Investment, Olusegun Aganga, disclosed this at the Seventh US-Nigeria Trade and Investment Agreement Council Meeting in Abuja, he said: “In terms of Foreign Direct Investments, Nigeria is now the number one investment destination in Africa; recording FDI inflow of $8.9 billion in 2011, about 16 per cent of Africa’s total, estimated at $55 billion.”
Nigeria’s economy started showing signs of weakness in 2013 when the price of oil started going down in the international market, but the effects of divestments in the election year 2015, the uninspiring and non-confidence building of the new government months after it assumed office; gradually eroded the past gains the economy had made over the years.
Also, as the economy remains weak without infrastructure, unreliable power supply; with the Oil & Gas sector recording almost zero investment because of the refusal by President Mohammadu Buhari’s government to sign into law the Petroleum Industry Governance Bill (PIGB), the little gain made in the capital market in 2017 was lost in 2018 as the country prepares for another delicate elections
Massive divestment by portfolio investors
Meanwhile, foreign investors sold off Nigerian stocks valued at N642.65 billion ($2.1 billion) last year, stock exchange data showed, 48 per cent more than in 2017 as worries over weak growth amidst lower oil prices depressed sentiment.
Risk aversion triggered by interest rate rises in the United States reversed capital flows to frontier markets including Nigeria, coupled with mounting political risk in the run-up to elections next month, accelerated losses for the stock market.
The exchange put the value of transactions by foreign investors at N1.219 trillion last year, compared with N1.208 trillion at the end of 2017.
Chief Executive Officer of the Nigerian Stock Exchange, Oscar Onyema had said that market sentiment in the first half of 2019 would be driven by oil prices and election risk. But government spending to boost recovery following a 2016 recession could lift stocks by the second half.
The main index, which was flat on Tuesday, has fallen 2 per cent so far this year. It shed 17.81 per cent in 2018 after a strong rally the previous year.
Foreign investors increased the pace of stock market outflows from May, selling out of the relatively liquid banking, consumer and oil sectors as the capital flight worsened, putting pressure on the local naira currency.
Regulations affecting 11 areas of the life of a business are covered: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and labour market regulation.
Nigeria vs Ghana
Kpakpakpa’s Africa Market Potential Index- AMPI did comparison to understand the market potential of doing business in Ghana vs. Nigeria. The market potential across the seven pillars for both countries are:
Market size & Appeal; Macroeconomic Resilience; Political landscape & Governance, Social & Human Development; Investment in Technology, Infrastructure & Logistics; Economic Diversification and Business Ease
The market potential for business in Nigeria slightly edges out Ghana’s market potential.
This is mainly due to Nigeria’s larger market size.
What it does not have in market size, Ghana makes up for in long-term indicators. Better governance, higher social development, and business ease are segments in which Ghana significantly outperforms Nigeria.
Market Size, Appeal & Resilience
The pillar that gave Nigeria the edge is it’s market size & appeal. At 8.5 per cent growth in 2018, Ghana’s economy is among the fastest growing economies in the world.
Regardless, the sheer size of the market is significantly smaller than Nigeria’s economy.
Ghana and Nigeria have similar macroeconomic landscapes. Although Ghana has a lower unemployment rate than Nigeria does, the country has more exposure to external debt that increases its vulnerability to global market dynamics.
Political Landscape & Governance
Good governance takes factors such as national security, safety, rule of law, political participation, and human rights. The Mo Ibrahim Index of African Governance (IIAG) was used to determine the score and rank for this pillar.
Ghana performs significantly better than Nigeria in terms of good governance.
Social & human development
An economy is only as productive as its people, so the level of social and human development is indicative of progress and future productivity. This pillar looks at the general welfare of the society – access to education, basic amenities, and healthcare.
To get the score, we used a normalized score derived from the IIAG score for Human development and cross-referenced that with the Human Development Index (HDI) by the United Nations Development Programme. Ghana also outperforms Nigeria in this indicator.
Investment in Technology, Infrastructure & Logistics
The measure of growth in any economy is how its constituents allocate its resources more efficiently. Adopting new technology is a way of boosting productivity. The level of investment, development, and adoption of new technology is indicative of the productivity level of an economy.
Also, the infrastructure that enables businesses to produce goods and the ease of moving these goods around through efficient logistics channels is a major determinant of success for businesses in any economy.
A weighted average of the IIAG’s Infrastructure score and World Bank’s Logistics Performance Index gives the score for this pillar.
Although Ghana and Nigeria have a similar economic complexity index (which is an indicator of the complexity of products developed in the country), Ghana gets the slight edge over Nigeria when graded over the entire infrastructural development in each country – particularly in regards to electricity access.
Resources & Economic Diversification
Economic diversification is generally taken as the process in which a growing range of economic outputs is produced.
Although Ghana’s economy is slightly more diverse than Nigeria’s, both countries are not so different from each other in terms of their lack of economic diversity.
Ease of doing business
The business ease pillar is a measure of how easy it is to partake in business activities in each country. Using a weighted average of the World Bank’s ease of doing business score and IIAG’s business environment score as a determinant of this pillar, Ghana is easier to do business in than Nigeria.
Conclusion
Using the Kpakpakpa AMPI tool as a starting point for analysis, the market potential for business in Nigeria is higher than that in Ghana.
Nigeria has better potential because of short-term advantages such as its current market size and appeal. Ghana fares better in long-term pillars such as business ease, social development, and most especially in good governance.
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