Nigeria must improve its business environment and remove barriers to trade to attract local and foreign direct investments, according to Citi, a multinational investment bank.
The New York-based lender said the opportunity in Africa’s largest economy lies on how successfully the country can open its economy to both internal and external investors.
“If we can accelerate the effort that is already being channeled to removing the constraints in the country, investors would identify the opportunities and put their money to work,” Akin Dawodu, sub-Saharan Africa (SSA) head, Citi, told BusinessDay in a telephone meeting on Friday.
He said irrespective of the price of oil in the global market, the country should focus on attracting international capital and grow the economy to raise the purchasing power of the populace.
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Fixed-income investors seeking to put funds in Nigeria’s Federal Government short-term debt instruments recorded N558.61 billion unsuccessful bids in June 2020, an indication of the high liquidity in the country’s financial system seeking attractive investment destinations.
According to data by the World Bank, Nigeria’s estimated 41.5 million Micro, Small and Medium Enterprises (MSMEs) were in 2018 in need of growth capital of about $158.13 billion. The Washington-based financial institution also highlighted the huge role MSMEs play in facilitating economic development due to their flexibility and affinity to innovation.
“Even more so in emerging economies with a high contribution from the informal sector,” Dawodu said.
On why there is a mismatch between the idle liquidity in Nigeria and the growth funding needed by MSMEs, Dawodu said the fact that there is idle liquidity lying somewhere because it could not be deployed to government instruments like T-bills and FGN bonds doesn’t mean it can be easily recycled into the real sector of the economy.
“The reasons people are looking for the government instruments and not businesses is because they don’t think the risks in those sectors have been sufficiently mitigated for them to put their money,” he said.
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He explained that there can be an overhang in the demand for T-bills and bond but “as long as the risk and constraints in the operating environment remain, the cycle could go on for a long time and capital still wouldn’t be recycled to the real sector”.
While acknowledging that Nigeria and the sub-Saharan African region have made progress in ease of doing business, Dawodu said Africa’s most populous nation needs to do more to expand its market for its industries to thrive. According to him, purchasing power also has to be up and the enabling environment is needed to achieve such a goal.
From its 146th position in the previous ranking, Nigeria moved up 15 places to rank 131 out of 190 nations in World Bank’s 2020 ease of doing business ranking. While the improvement may have been milestones, analysts say the country needs to do more as efforts are not yet translating into increased foreign direct investment.
With a $3.4 billion Foreign Direct Investment (FDI) in 2019, patient capital flow into Nigeria plunged to 13-year low from the preceding year and Ghana displaced Nigeria as the most preferred destination in the West African sub-region.
The underlying economic challenges of the oil-dependent nation are projected to put the country at risk of 5 percent contraction in 2020 amid low crude price and impact of COVID-19.
“Whether crude price is $40 or $60 per barrel, I think the economy will not truly start to take a turn if we do not find a way to attract the investment needed to support the effort of the government to develop the country,” Dawodu said.
