The emergence of the All Progressives Congress (APC), led by Muhammadu Buhari as the president of Nigeria, has been perceived to bring to light the fear of further decline in Foreign Direct Investments (FDIs) following a move of the Federal Government on International Oil Companies (IOCs).
Recently, Nigeria ordered IOCs to pay nearly $20 billion in taxes owed to states, which is likely to be followed through as the current administration leads the economy for the next four years.
Analysts have termed this move as another template for killing FDIs in and into the economy.
This is perceived to be a similar MTN scenario that caused serious panic for investors after the Federal Government’s ordered the telecoms firm to pay $2 billion tax demand; two weeks after the Central Bank of Nigeria (CBN) directed the telecoms firm to refund $8 billion over alleged illegal repatriation of shareholders’ dividend.
While it is expedient for the Federal Government to aim at increasing its tax revenues through increased participation of foreign and local investors in the oil and gas industry, “eliminating fiscal uncertainties and generally improving the ease of doing business in Nigeria is key,” expert at Anderson Tax said.
“It is essential that the government does not place undue reliance on the imposition of multiple taxes and levies on companies engaged in oil and gas activities, as the principal way of boosting its internally generated revenues,” Tolulope Adebowale of Anderson Tax said in its publication.
In the last four years, Nigeria has recorded low FDI year after year, compared with the performance in previous years. In 2015, Nigeria earned $3.1 billion from |$4.7 billion in 2014. In 2016, FDI rose to $4.4 billion, but fell to $3.5 billion in the following year. Last year however recorded the lowest so far which, amounted to $2.2 billion, the lowest in the past 13 years.
According to a CBN report in 2018, FDI accounted for less than 30 percent of the total foreign inflow while FPI accounted for over 70 percent.
“The economy was and is not really viable to encourage foreign investors to invest for a long term,” says Paul Aluko, a Research Analyst at MBC Securities Limited, Lagos.
While outlook for Foreign Portfolio Investment into the economy, especially in the equities market, looks positive with the bullish run experienced in the nation’s bourse for the greater part of this year, FDI a key determinant of economic direction still remains a major concern.
“While we expect the equity market to moderate and continue bullish run in the short to medium term, the future of FDI is bleak,” an analyst told BusinessDay.
With enough clarity in the political space, a slowdown in US Fed rate hikes and improved emerging market sentiment, “we see a return of foreign investors into the stock market,” according to a report by Cardinal Stone, a Nigerian investment bank.
Analysts reiterate that the federal government should create a less-uncertain environment where FDI’s are not scared of sudden negative fiscal policies against them.
