Oil, gas investment drives Nigeria’s FDI flows to $3.4bn in 2019

Africa’s biggest economy attracted $3.4 billion worth of Foreign Direct Investment (FDI) in 2019, buoyed by patient capital flows to the oil and gas sector, the country’s most critical sector.

This is after FDI flows plunged to 13-year low in the preceding year, making the country to be overthrown by its smaller neighbour, Ghana, as the most preferred destination in the West African sub-region.

According to a recent investment tread monitor report by United Nations Conference on Trade and Investment (UNCTAD), FDI flows to Nigeria rebounded by 71 percent from $2 billion attracted in 2018 to $3.4 billion last year, fuelled by resource seeking inflows in the oil and gas sector.

Flows to Nigeria’s oil and gas sector substantially contributed to 17 percent increase in capital flows to about $11 billion in West Africa. Inferences from this suggest Nigeria might have dethroned Ghana as the top recipient in the sub-region.

Damilola Adewale, an economic researcher, said, “FDI flows into Nigeria just like its peers in sub-Saharan Africa are concentrated in extractive sectors in the past two to three decades. But it is high time we change the narrative by reforming non-oil sectors to attract investors’ interest. With oil gulping 100 percent of FDI suggests that investors are not convinced about the growth prospects of other sectors.”

Worried about the skewness of capital flows to the oil and gas sector, analysts at UNCTAD note in the report that the development of $600 million steel plant in Kaduna State offers some evidence of investment diversification of a long-standing policy objective.

The report is based on FDI inflows for 150 economies for which data are available for at least part of 2019, as of January 17, 2020. Annual figures are estimated based on available partial-year data, in most cases up to the third quarter of 2019.

The proportion of inflows from these economies in total inflows to their respective region in 2018 is used to extrapolate 2019 regional and global data. Quarterly, FDI data are based on the directional principle. For a few countries data following the asset/liability principle was used for estimation. UNCTAD’s FDI data exclude special purpose entities (SPEs) and offshore financial centres.

In Africa, FDI flows amounted to an estimated $49 billion, an increase of 3 percent. From the report, the persistent global economic uncertainty and the slow pace of reforms seeking to address structural productivity bottlenecks in many economies continue to hamper investment in the continent.

Egypt remained the largest FDI recipient in Africa with a 5 percent increase in inflows to $8.5 billion. The country’s efforts to implement economic reforms have resulted in strengthened investor confidence. While FDI to the country was still driven by the oil and gas sector, major investments in the non-oil economy emerged, notably in telecommunications, real estate and tourism.

But despite the increase in Egypt, FDI to North Africa declined by 11 percent to $14 billion, due to a significant (45%) slowdown in flows to Morocco ($2 bn from $3.6bn in 2018).

In contrast, FDI to Southern Africa increased by 37 percent to $5.5 billion mainly due to the slowdown in net divestment from Angola. South Africa consolidated last year’s recovery with inflows remaining almost constant at a little more than $5 billion. In addition to intra-company transfers by existing investors, investment to the country was led by merger and acquisition (M&A) deals in business services and petroleum refining.

FDI flows to East Africa remained steady totalling $8.8 billion. Flows to Ethiopia, Africa’s fastest-growing economy, slowed down by a quarter to $2.5 billion. China was the largest investor in Ethiopia in 2019, accounting for 60 percent of newly approved FDI projects. Inflows to Uganda increased by almost 50 percent to $2 billion due to the continuation of the development of major oil fields and an international oil pipeline.

FDI to Central Africa rose by 6 percent to $9.3 billion, with the resource-oriented profile of investment persisting. While globally, FDI remained flat in 2019, at $1.39 trillion, a 1 percent decline from a revised $1.41 trillion in 2018.