Investment in infrastructure, improvements in business environment to drive Nigeria’s FDI, says EY

Going forward, investment in infrastructure and improvements in the overall business environment will boost foreign direct investment (FDI) into Nigeria, even as natural resources and a growing consumer market are strong pull factors for FDI, according to Ernst & Young (EY).

Investments into Nigeria have been rapidly diversifying since 2007, according to a special report on ‘Africa by numbers: focus on Nigeria’ issued for the World Economic Forum on Africa 2014 by EY.

Although the oil sector still attracts the most capital, there has been significant growth of FDI in telecommunications, consumer
products, construction and business services.

Henry Egbiki, West Africa regional leader, EY, noted that despite the challenges in infrastructure, corruption, security, among others, and while many other emerging markets are suffering from the consequences of global monetary tightening, the Nigerian economy has remained remarkably robust.

According to him, given the continued growth rates and the recent GDP rebasing, an improving business environment, a portfolio of active infrastructure projects with a value close to $100 billion, and a population of about 170 million people, Nigeria’s billing as a powerhouse in a dynamic, high growth region is certainly justified.

“As a result, we anticipate that Nigeria will continue to be a key hub for investment into Africa, and is likely to emerge as one of the most attractive developing market investment destinations in the world in coming years”, he said at a press briefing in Lagos.

However, in terms of ease of doing business, Nigeria ranks low, which requires that the country needs to step up on that. To Egbiki, the private sector needs to work closely with the government to ensure a conducive environment for businesses in the country.

Nigeria up to July 2013 ranks 2nd in Africa by number of active infrastructure projects and 2nd also by capital allocation. A breakdown of Nigeria’s infrastructure project shows that logistics sector contributed 66 percent; power generation and transmission, 23 percent; construction sector, 7 percent and social and welfare, 4 percent. By capital value, logistics sector contributed 51 percent; construction sector, 25 percent; power generation and transmission, 22 percent and social and welfare, 2 percent.

Nigeria’s FDI outlook shows that natural resources in the year 2000, 2013 up to 2018 are very attractive; infrastructure in year 2000 was very unattractive while in 2013 it was unattractive and remains average in 2018. This, according to EY, remains a challenge, but improvements have been made over previous decade and there is substantial number of currently active infrastructure projects.

Nigeria has seen strong compound growth in FDI projects of close to 20 percent since 2007. Although the average value of projects has declined, this reflects the growing diversification of investment (and the Nigerian economy). The country received 6 percent of Africa’s total FDI for new projects and 11 percent of capital invested since 2007.