The decline in Foreign Direct Investment – TheNigerialawyer

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.