Nigeria as an investment destination

Former president Olusegun Obasanjo said recently in Moscow, during the Renaissance investors’ conference, that once existing power and security problems in the Nigerian economy are addressed, Nigeria will become an irresistible destination for investments, both local and foreign. While Obasanjo agreed that other parameters are important, such as good and efficient transportation system, improvement in the ease of doing business, and provision of water throughout the country, power and security have become very critical to attracting investment to Nigeria.

We cannot agree more. Investors, both local and foreign, are immediately confronted with the implications of power and security problems for their investments, staff, and their families. This means that for such investors, even before the conclusion of plans to make any form of investment, these issues are already looming as large as to render any such investment unlikely, or at best, to necessitate heavy hedging of risks, which thus creates a platform for increasing costs of doing business. Everyone agrees that power and security are very important parameters for investment but in the last few years, the regular availability of the two has become highly strained in many parts of the country.

A new report by the World Bank- Investing across borders 2010, says that foreign direct investment (FDI) is critical for countries’ development, especially in times of economic crisis. FDI, according to the report, brings in new and committed capital, helps introduce new technologies and management, and helps create jobs. While the report has concentrated on FDI, there are not many differences between FDI and domestic investments, and the environment that is attractive to FDI is often attractive to domestic investment as well. Indeed, increasingly in many countries, research is showing that most FDI are made on the basis of recommendations from domestic investors or in partnership with them.

In Nigeria, power and security problems have become critical to even life itself. But interestingly, the relationship between power and security on the one hand, and investment on the other, is of two kinds. Much as the availability of power and improvement in security will attract investment, power and security sectors in the country, themselves require investments in the first place, before they can make the required impact. Thus, before power and security can help attract investments, the country must first make the required investments in these sectors.

So, how does the government come in here? Many may reason that more funding by government is what is needed here, but here at BusinessDay, we do not believe that the solution to the power and security problems is all about funding; certainly not government funding. A critical factor often overlooked is that both power and security suffer from over-centralization, more than they suffer from funding. Indeed, the funding crises in these sectors are a direct offshoot of the over-centralization of their funding, operations, policies, and management.

Perhaps President Olusegun Obasanjo recognized this when he argued, also in Moscow, that what should be done with the power situation is for the current government to complete the existing National Integrated Power Projects (NIPP) and then proceed to hand over the entire sector to the private sector. We cannot agree more. However, investors and the Nigerian public are still awaiting the roadmap for the completion of the privatization process which began in 2005.

The roadmap for improving the security situation will obviously be different from that of power, but the principle is the same. We believe that the structure of the Nigeria Police is not fit for the purpose of the security situation in the country. It is too centralized. We advocate a police structure which operations, management, and authority will be locally determined rather than imposed from Abuja. With improvements in power and security, Nigeria can, indeed, become an irresistible investment destination.