Need FDI? Let’s do the needful!

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 a developing country such as Nigeria, FDI is often carried out through the multinational companies which are subsidiaries of the 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.

There was a time in the history of Nigeria when the country was able to attract more multi – national investment than any other country in black Africa, even more than India. For instance, the estimated stock of foreign investment in 1972 was approximately US$ 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.

Investors do not pursue insecurity. Rather, investors pursue capital where they are sure of return on investment. There is an economic burden to insecurity

Furthermore, Nigeria almost doubled its stock of foreign investments from 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 1972, 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, but the technological capability of the country was scarcely enhanced. Why? Neither the business climate nor suitable economic environment was unable to influence the spread of scientific inventions to the innovation stage. Also, its rate of adoption by other firms within the country was low. Since then, FDI inflows into Nigeria haven’t been steady.

BusinessDay Headline of July 6, 2023, shows that “First Negative FDI in 33 Yrs Piles Pressure on Tinubu.” The report also shows that FDI inflows into Nigeria turned negative last year for the first time in 33 years, according to the 2023 data released by the World Investment Report of the United Nations Conference on Trade and Development (UNCTAD).

The UNCTAD Report shows that Nigeria’s FDI came in at-$187 million in 2022 compared to $3.31 million in 2021. This is a major challenge inherited by the new Administration of President Tinubu. But some African countries are not doing badly in their FDI efforts. These African countries include: Egypt which had the largest FDI inflows at $11.5 billion; next was South Africa ($9.05 billion); Ethiopia ($3.67 billion); Senegal ($2.59 billion); and Morocco ($2.14 billion).

It’s worthy to mention that Nigeria wasn’t the only country to have negative FDI inflows during the period under review. Angola, Eritrea, Lesotho and Togo recorded negative FDI Inflows. But why is Nigeria’s story of concern?

The Nigerian story is very disturbing because the pain of doing business in the country of over 200 million people is unbearable. Inefficient power supply in the country affects the industrial sector negatively. The country is energy deficient to an extent that it is difficult for most firms to break even and for their products to compete with cheap imports from foreign countries.

This story is compounded by insecurity in the last eight to ten 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 adequately protected against threats. We have a situation in which bandits now rule the country by proxy. Terrorists have upper hand in some parts of the country than the military. With all these atrocities, do we expect investments to rise at the national and sub-national levels? Certainly not!

Investors do not pursue insecurity. Rather, investors pursue capital where they are sure of return on investment. There is an economic burden to insecurity. The level of insecurity in many states of the country is so high that it poses financial disadvantage thus, discouraging any investor to invest in an atmosphere of confusion. Some Nigerians don’t even want to invest in their country because of insecurity coupled with disregard for the rule of law.

Scarcity of foreign exchange and policy flip-flop are some of 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 depreciate in the future due to the devaluation of the Naira. The high cost of electricity, inefficient ports and rail systems are undoing Nigeria and its quest for FDIs.

Read also: Judiciary system reform to boost FDI inflow – Experts

Currently, Nigeria’s economy is restricted in its ability to grow and compete, 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 and State governments be willing to deploy policies that would be friendly to private investment? We acknowledge policy shift of the current administration in areas such as the removal of costly fuel subsidy and the collapse of the multiple foreign exchange system. But we need to remain focused on fiscal policy framework, insecurity and difficulty in capital repatriation.

Hopefully, the reforms being implemented by the Tinubu administration will attract investors back into the country. Above all, we must remember that investments would only thrive in an environment where there is peace and security. Most importantly, urgent reforms of the judiciary and security services will equally go a long way towards improving the FDI inflows into the country. Thank you.