Address factors responsible for declining foreign investments

As much as Nigeria presents a huge opportunity for decent returns in virtually every sector, a number of risk factors have escalated in recent times. These factors include insecurity, foreign exchange risks and policy uncertainties.

They make the country’s risk-adjusted returns unattractive and unappealing. While this is unfortunate; it was not therefore surprising to see the continuous significant decline in the flow of Foreign Direct Investment (FDI) into the country.

To stem the tide, the government at all levels must quickly rise up to the occasion by addressing these inclement factors and thereby restoring investors’ confidence in our economy.

They should be deliberate in addressing the key challenges especially insecurity, poor infrastructure, poverty, and policy environment to attract the much needed foreign and domestic investments.

A recent 2021 report published by both the National Bureau of Statistics (NBS) and the Nigeria Investment Promotion Council (NIPC) indicates that the total value of capital importation into Nigeria declined to $875.6 million in the second quarter of 2021 from $1.9 billion in the first quarter of 2021.

According to the report, the figure represents a decrease of 54.06 percent compared to the first quarter, and 32.38 percent decrease compared to the second quarter of 2020. The NBS said the largest amount of capital importation was received through portfolio investment, which accounted for 62.97 percent ($551.37 million) of total capital importation followed by Other Investments, which accounted for 28.13 percent ($246.27millon) of total capital imported, and Foreign Direct Investment (FDI), which accounted for 8.90 percent ($77.97m) of total capital imported in Q2 2021. The report said by sector, capital importation in banking dominated in Q2 2021 reaching $296.51 million of the total capital importation in Q2 2021.

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Regrettably, it is not only foreign direct investments that are declining. Even for existing businesses across sectors, the country is experiencing low gross capital formation and decline in purchasing managers’ index both pointing towards low domestic investment.

As the Nigerian Economic Summit Group (NESG) recently stated, the root of Nigeria’s current economic problems is a lack of investment and an enabling environment for businesses to thrive.

Foreign investors pulled out N1.77 trillion from the nation’s stock market in the last two years, citing insecurity and economic uncertainties. Many blue-chip companies quoted on the stock exchange also experienced huge losses within the period.

Specifically, N435.31 billion in foreign portfolio investment outflow was recorded in 2017, while foreign investors withdrew N642.65 billion during the corresponding period in 2018.

As critical stakeholders in the enterprise called Nigeria, we are worried about the spillover effect and volatility caused by the non-attractiveness of the country to foreign investors. We can easily link the huge investment outflow from foreign investors to uncertainties that currently shroud the nation’s economic outlook.

This gives credence to the fact that while the large presence of foreign investors in the market signifies strong attraction to the country; their sudden reversal also portends great danger, given the bearish mode currently being witnessed in the stock market, manufacturing and other areas of investment.

Given her natural resource base and large market size, Nigeria qualifies to be a major recipient of FDI in Africa and indeed is one of the top three leading African countries that consistently received FDI in the past decade.

In fact, one of the pillars on which the New Partnership for Africa’s Development (NEPAD) was launched was to increase available capital to US$64 billion through a combination of reforms, resource mobilization and a conducive environment for investment. However, the level of FDI attracted by Nigeria in recent years is unimpressive

Prior to 2015, Nigeria was one of the few countries that have consistently benefited from the FDI inflow. Nigeria’s share of FDI inflow to Africa averaged around 10 percent, from 24.19 percent in 1990 to a low level of 5.88 percent in 2001 up to 11.65 percent in 2002. Nigeria was the continent’s second top FDI recipient after Angola in 2001 and 2002. FDI inflow into Nigeria for the period 1970 to 2002 rose from N128.6 million in 1970 to N434.1 million in 1985 and N115.952 billion in 2000. This was an increase in real terms from the decline of the 1980s.

Prior to the early 1970s, foreign investment played a major role in the Nigerian economy. Until 1972, for example, much of the non-agricultural sector was controlled by large foreign-owned trading companies that had a monopoly on the distribution of imported goods. Between 1963 and 1972 an average of 65 percent of total capital was in foreign hands.

Today, the story is not the same. In the last 5 years, we have witnessed the exit of many key foreign companies from Nigeria to neigbouring Ghana and South Africa.

Among the benefits of FDI are, contributing to the creation of decent and value-adding jobs; enhancing the skill base of host economies; facilitating the transfer of technology, knowledge and know-how; boosting the competitiveness of domestic firms and enabling their access to markets; and operating in a socially and environmentally responsible manner.

As a developing country, Nigeria should tailor its policies to overcome domestic imperfections that hinder the smooth integration of indigenous and foreign firms into worldwide supply-chain networks.

In this regard, we call for improvement in the quality of investment climate as this will make a huge difference if objectively mapped out and passionately implemented. The Federal government should ensure an acceleration of necessary reforms to make Nigeria a much better investment destination. We need policy reforms, regulatory reforms and institutional reforms.

Government should accelerate the ongoing foreign exchange reforms; we need to undertake trade policy reforms to liberalize trade in sectors of weak comparative advantage; we need regulatory reforms to make regulations more investment-friendly.

That is not all; we also need to create new opportunities in the public-private partnership (PPP) space, especially in infrastructure. We need to see more privatisations of public enterprises. All of these are crucial to the boosting of investors’ confidence in our economy.