• Tuesday, July 16, 2024
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Insecurity: A disincentive to investments

Nigeria’s ineffective military strategy against insurgency needs to change (2)

The sources of technological knowledge are wide and varied. Foreign Direct Investment (FDI), trade in capital goods and licensing of know-how are some of the channels of technology transfer.

FDI is an instrument of technology transfer by a foreign firm of the majority stock in the home country’s enterprise. It remains an important technology transfer instrument and a significant avenue for cross-border cooperation at the firm level. In developing countries such as Nigeria, FDI is often carried out through multinational companies, which are subsidiaries of foreign companies in the host countries.

According to the National Bureau of Statistics, FDI is an investment whereby the investor has some control or a significant degree of influence on the management of a domestic enterprise. FDI in this article, however, is not about portfolio investors. Portfolio investors have no technology to transfer to Nigeria.

There is a cost to insecurity. The level of insecurity in many states of the country is so high that it poses a financial disadvantage that discourages any investor to invest in an atmosphere of chaos and confusion

There was a time in the history of Nigeria when the country was able to attract more multinational investment than any other country in black Africa, even more than India.

For instance, the estimated stock of foreign investment in 1972 was approximately $2.1 billion, which represented about 22 percent of all foreign investments in Africa for that year, according to Thomas J Biersteker in the book titled Distortion or Development? Contending Perspectives on the Multinational Corporation.

Furthermore, Nigeria almost doubled its stock of foreign investments between 1967 when it accounted for about 17 percent of all foreign investments in Africa and 1972 when it became the fifth most important foreign investment destination in the developing world after Brazil, Venezuela, Mexico and Argentina.

You may wish to recall that in the early 1970s, Nigeria was just coming out of the civil war followed by the 3Rs – Reconstruction, Rehabilitation, and Reintegration- Agenda of the Federal Government. The price of oil was increasing in the international market at the time, but the technological capability of the country was scarcely enhanced. Why? The business climate or suitable economic environment was unable to influence the spread of scientific inventions to the innovation stage and also, its rate of adoption by other firms within the country.

The business climate or the economic environment refers to all the factors impinging upon the operations of a business other than the availability of capital and the ability of the businessman himself. They include problems of securing proper equipment in reasonable time and in good working order, problems of human resources, of infrastructure, raw materials and adequate market.

These factors constitute special challenges today generally in developing countries, especially those in sub-Saharan Africa making success particularly in the manufacturing sector more difficult to achieve. If one examines top 30 economies in the ease of doing business ranking in 2020 for instance, it would be observed that these are countries where governments quite well maintain prominent presence in the economy through sound policies to regulate different dimensions of the the private sector.

These are countries where governments have managed to create the rules that facilitate interactions among industry, society and institutions in the market place without hindering the success of the private sector. If policies of government stifle growth of the private sector, no FDI would be interested in such a business environment.

The Nigerian story is very disturbing. This story is compounded by insecurity in the last eight to 10 years. Within this period, human security has been violated, most citizens especially in the northern states and a few of the southern states have not been protected against threats.

We have a situation in which bandits now rule the country by proxy. Terrorists have an upper hand over our military. With all these atrocities, do we expect investments to rise at the state level? Certainly not! Investors do not pursue insecurity. Rather, investors pursue capital where they are sure of return on investment.

There is a cost to insecurity. The level of insecurity in many states of the country is so high that it poses a financial disadvantage that discourages any investor to invest in an atmosphere of chaos and confusion.

Recently, the Federal Government is being criticized strongly by eminent Nigerians because 24 states lost foreign investments in the year 2021. The Manufacturers Association of Nigeria expressed their displeasure at the Federal Government’s inability to address the rising insecurity in the nation.

The National Bureau of Statistics (NBS) recently released a data that showed that Nigeria generated a total of $698.7 million from FDI in 2021. Analysis of figures released by the NBS shows that FDI have been fluctuating from 2012 to 2022. But the FDI generated in 2021 was the lowest the country recorded in 10 years. The latest capital importation report from the NBS reflected that FDI fell by $332 million to $698.7 million in 2021 from $1.028 billion in 2020.

Ten states out of the 24 that failed to attract FDI in 2021, have not attracted foreign investments in the last three years. Since the outbreak of the COVID – 19 Pandemic, many firms have been impacted negatively. Some firms have closed while others are barely existing. The next challenge most firms face is that of insecurity. Scarcity of foreign exchange and policy flip-flop are some the challenges that make investments in Nigeria very risky.

Foreign investors do not want to invest in a business climate where the value of their returns would have depreciated in the future due to the devaluation of the Naira. The high cost of electricity, inefficient ports and rail systems are seriously undermining economic growth in Nigeria and its quest for FDIs. We need to remind those in authority that excessive taxation dampens business incentives and adversely affect smooth functioning of an economy.

Now that economic growth has grounded, how and where do we move from here? What does a country with double digit inflation rate, high fiscal deficit and low growth do to increase the FDI inflows as well as bring the economy under control? Will the Federal Government be willing to implement an interest rate cut or deploy a subsidy framework to the manufacturing sector to ease its burden in order to reflect a positive growth in the industry? Your guess is as good as mine but investments would only thrive in an environment where there is peace and security. Thank you.