BusinessDay

Unfortunate turn of #ENDSARS protest to dampen FDI inflow possibilities

…amid poor investment climate, infrastructure deficit

The unfortunate turn of events last week following the #ENDSARS protest which kicked off as a peaceful demonstration shortly after Nigeria’s independence celebration will not only weigh slightly on economic recovery but also shut the doors against Foreign Direct Investments (FDI) in Nigeria, analysts say.

Historically, Nigeria has struggled to attract FDI due to a number of factors, of which policy inconsistencies played a major role. FDI, a term that describes when a foreign entity invests in or acquires a business asset in Nigeria, has often been put forward as the panacea to Nigeria’s economic underdevelopment.

“The recent happenings in the economy will further put a dent to the perception of foreign investors in regards to the safety of their investments. We didn’t really see a bold step from the security agencies in curtailing the impact of the crisis,” Gbolahan Ologunro, senior research analyst at Cordros Capital Limited.

Since 2014, foreign direct investors gradually reduced their exposure to the Nigerian economy according to data from the National Bureau of Statistics (NBS). In the last 6 years, the value of FDI slumped by approximately 59 percent to $934.34 million from $2.277 billion in 2014. This represents a compounded annual decline by 16 percent in a six-year period. In 2014, FDI inflows into Nigeria averaged $569.26 million quarterly, but now, Nigeria can barely account for $260 million in FDI quarterly.

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In a number of factors, the prolonged state of insecurity in the country played a significant role in demotivating foreign investors to consider Nigeria as an investment destination despite its status as a frontier market with growth potentials and market accessibility. Coupled with the recent destruction of buildings, properties and looting of malls and other market places by hoodlums who took advantage of a leaderless but peaceful protest and unprofessional responses of security personnel, analysts fear that it only creates an uglier image of Nigeria in the eyes of foreign investors.

For a country whose economy is broadly unstable given its exposure to swings in crude oil prices, and also experiencing cases of insecurity, Nigeria will struggle in attracting FDI going forward. Since the recovery of the Nigerian economy from the 2016 recession in 2017, FDI has accounted for a meagre 6 percent on the average of total capital imported (TCI) into the country. In 2014, FDI to TCI was 11 percent, 2015 (15%) and 2016 (20%).

“An economy like Nigeria with economic and social potential ought to attract more long-term foreign investment. To do so, however, we need to address the underlying structural bottlenecks that make Nigeria such a difficult country to do business. Insecurity such as what we witnessed last week is one of such bottlenecks,” Harrison Olayinka, an economic analyst told Businessday.

Poor investment climate characterised by overly stringent or impromptu government policies, bureaucratic bottlenecks for securing permits, and a weak legal framework; Nigeria’s infrastructure deficit especially the absence of stable power and miserable Human Development Index characterised by high poverty, unemployment, and low disposable incomes, are other factors many foreign investors fear shunning Nigeria’s large population.

“It is not difficult to see why Nigeria is losing the FDI battle among peers. Many potential investors have opted for other markets like Morocco, Kenya, and South Africa,” Olayinka said.

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