BusinessDay
NigeriaDecides2023

The many disincentives to investments in Nigeria

In emerging nations, Foreign Direct Investment (FDI) is often carried out through the multinational firms that are subsidiaries of the foreign firms in the host nations.

FDI is an investment whereby the investor has some control or a significant degree of influence on the management of a domestic enterprise, according to the National Bureau of Statistics.

To a large extent, FDI is an instrument of technology transfer by a foreign firm of the majority stock in the home country’s enterprise, remaining an important technology transfer instrument and a significant avenue for cross-border cooperation at the firm level.

There was a time in the history of Nigeria when it 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.

In the last decade, human and investment safety have been desecrated, as most Nigerians particularly in the north and some few in the south have to be protected against threats

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 emerging economies after Brazil, Venezuela, Mexico and Argentina.

In the early 1970s, when Nigeria was emerging from the civil war, the price of oil was increased in the international market at the time, but the technological capability of the country was scarcely enhanced. This was because the business 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 economic environment refers to all the factors in contact with the operations of a business other than the availability of capital and the ability of the businessman himself. These factors 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 nations, especially those in sub-Saharan Africa, thus making success particularly in the manufacturing sector more difficult to achieve.

The top 30 economies in the ease of doing business ranking in 2020, for instance, were countries where governments quite well maintain prominent presence in the economy through sound policies to regulate different dimensions of the the private sector.

If policies of government stifle growth of the private sector, no FDI would be interested in such a business environment.

Today, it is instructive to appreciate that the Nigerian story is very pathetic as insecurity in particular and policy flip-flops in general in the last decade have been major disincentives to investments into the Nigerian economy. In the last decade, human and investment safety have been desecrated, as most Nigerians, particularly in the north and some few in the south have to be protected against threats.

Situations abound in recent times where terrorists rule the nation by their agents, having the upper hand than the nation’s military. With all these inclement features, 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 a return on investment.

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

Recently, the Federal Government was being criticised 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 FDIs have been fluctuating from 2012 to 2022. But the FDI generated in 2021 was the least 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.

Read also: Unemployment and investment nexus in Nigeria

In the last decade, human and investment safety have been desecrated, as most Nigerians particularly in the north and some few in the south have to be protected against threats

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 also 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 inconsistencies are some the challenges that make Nigeria a very risky place to invest in.

Predictably, 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. Meanwhile, 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 also 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 on all these issues. This much is clear, however, investments would only thrive in an environment where there is peace and security. Therefore, it is time for governments at the various levels to rise to the occasion. They should put policies in place that will ensure that Nigeria once again becomes a favourite investment destination.

Get real time updates directly on you device, subscribe now.