Nigeria’s unfriendly business environment is making the country worse-off in attracting foreign direct investments (FDI) as investors look to other African markets.
Foreign Direct investment into the country declined 36 percent from $3.5 billion to $2.2 billion in 2018, according to a report from United Nations Conference on Trade and Development (UNCTAD), making it the lowest foreign inflows that Africa’s largest economy has recorded in last 13 years when the Geneva-based permanent intergovernmental body started tracking FDI data across the globe.
According to the report, Nigeria lagged behind major African countries such as Egypt, South Africa and Angola in direct investment inflows despite a seven percent increase in FDI across the continent.
FDI into Egypt in 2018 stood at $7.9 billion; South Africa, $7.1 billion; Ghana, $3.3 billion while Angola’s was $ 5.5 billion.
“The monumental growth of 446 percent in FDI recorded in South Africa and the single-digit growth of 7 percent recorded by Egypt is a reflection of investors’ confidence in their economies given that their economies are well industrialised coupled with their favourable operating environment”, said Gbolahan Ologunro, an equity research analyst at Lagos-based CSL Stockbrokers.
Similarly, Nigeria’s West Africa’s neighbour, Ghana, overtook the oil-rich African nation as the largest recipient of FDI in the region despite Nigeria boasting a GDP that is about eight times the Black Stars’.
“The paucity of FDI into Africa’s largest economy despite its huge endowment of natural resources, dynamic and youthful population continue to reflect the dearth of critical infrastructural facilities that will make the business environment conducive for businesses to thrive as well as the absence of key reforms in vital sectors of the economy,” Ologunro said.
“Furthermore, the weak performance recorded in Nigeria and Angola, the two largest producers of oil in Africa, suggests that both countries are yet to put in place the much-needed infrastructure that will reduce the bottlenecks in the operating environment, implement policy measures and key reforms that will liberalise entry conditions into their industries, particularly in oil and gas, power, transport and manufacturing networks and also implement reforms that will attract and facilitate foreign direct investment,” he added.
For Johnson Chukwu, CEO, Cowry Asset Management Limited, the direction and the uncertain risks of the elections seem to have worsened the concerns and confidence of investors and created concerns about the possible outcome of the election.
“The economy has been growing at a very sluggish rate since we came out of recession. And the growth of an economy is what drives FDI. Investors are looking for an economy where they will optimise their return and the lowest possible risk,” Chukwu said.
A lot of incidents happened in Nigeria’s business landscape in 2018, from a clash between its apex financial regulator, CBN, and largest non-oil direct investor, MTN, that controls about 39.7 per cent market share and service about 66 million subscribers in Nigeria’s telecommunication sector, to the closure of local offices of two global lenders.
The CBN in August 2018 fined four banks a total of ₦5.86 billion for breaching Nigeria’s extant laws and forex rules when they allegedly facilitated illegal repatriation of funds to South Africa on behalf of MTN.
The CBN then asked MTN Nigeria to immediately repatriate a total of $8.134 billion, being part of funds that were illegally taken out of Nigeria by the telco between 2007 and 2015. The telco was also slammed $2bn in tax arrears on imported equipment and payments to suppliers from the office of the attorney-general of the federation.
MTN and the banks involved denied any form of wrongdoing.
The fiasco sent a negative signal to investors who raised eye brows on the way and manner the apex bank handled the situation. Analysts say this may have pushed FDI to N379.84 billion($1.2 billion) in the first half of the year from 532.63 billion naira ($1.7 billion) a year earlier.
Global lender UBS closed its Nigerian office after it expressed dissatisfaction over the way and manner the apex bank brought its hammer on the telecom giant.
In the same manner, HSBC shut down its operations in Nigeria over several backlashes from the government after it predicted that Nigeria’s president Buhari’s victory in the 2019 elections would stall the economy.
“We have noticed that a number of foreign investments are going into the oil and gas sector,” said Ayodele Akinwunmi, head of research, FSDH Merchant Bank. “However, in the last few years, especially from the upstream, a number of them are saying they are confused about the unclear policies in that area which they need to have to enable them invest,” he said.
“Some of the bills on the oil and gas sector such as the Petroleum Industry Governance Bill are yet to be passed and this is constraining FDI,” Akinwunmi further said.
In July, 2016, President Muhammadu Buhari established the Presidential Enabling Business Environment Council (PEBEC) to remove delays and unnecessary restrictions that come with doing business in Nigeria to make the country a place where one can start and grow a business.
After moving 25 places up the ladder, Nigeria dropped a spot to 146th among 190 countries in the World Bank’s 2019 Doing Business Index (DBI). This is despite the country making an improvement in the ease of doing business score from 51.52 to 52.89.
MICHEAL ANI & BUMI BALIEY
