For about three decades Nigeria was among the top three recipients of foreign direct investment (FDI) in Africa, thanks to oil endowment. But the story changed in 2018 when foreign direct investment inflows dipped to a record low of $2.2 billion, and the country lost its status as a choice market for patient money.
Africa’s share in world FDI inflows is less than 1 percent, and the continent’s infinitesimal FDI share is largely associated with government’s full or majority ownership of public enterprises.
Throughout the 1990s, Nigeria’s foreign inflows doubled that of Saudi Arabia, Asia’s fifth-largest nation by land area. The table turned as foreign inflows to Saudi Arabia outpaced Nigeria’s for 13 straight years to 2018.
Saudi Arabia received $183 million FDI inflows in 2000. The figure surged to $12.2 billion in 2012 but dropped slightly to $7.4 billion in 2016, compared with Nigeria’s $1.3 billion in 2000, $7.1 billion in 2012 and $4.4 billion in 2016.
A few years back, Saudi Arabia disclosed plans to raise $200 billion in the next several years by partly privatising various sectors of its economy including oil and gas, education, aviation, health, and telecommunication, according to Saudi-based Arab News.
Saudi Arabia continues to realise massive foreign inflows through its privatisation reform, and this gave impetus to foreign investors to commit their resources in those enterprises.
The Asian country converted corporate assets to financial assets by selling majority-owned or wholly-owned state enterprises to attract foreign investors, and this holds a big lesson for Nigeria in its FDI pursuit.
Saudi Arabian government initially planned to sell 5 percent of its stake in Aramco, its state oil company, through an initial public offer to be listed on the Saudi Stock Exchange. However, the move was later cancelled by the oil giant in August 2018.
Nevertheless, Saudi Aramco made a record net income of $111 billion in 2018, and paid $58.2 billion in dividends to the Saudi Arabian government. This contrasts with Nigerian National Petroleum Corporation (NNPC) that incurred a loss of N548 billion in three years, with the country’s refineries dormant, a case of gross inefficiency.
“Privatising state enterprises is an innovative strategy to catch foreign investors. It will help improve efficiency, provide financial relief, boost diversified ownership and increase the availability of funds for private sector,” said Olayinka Olohunlana, a Lagos-based economic analyst.
As part of its privatisation plan in the aviation sector, Saudi Arabian Airline has begun selling its medical services to private investors in Jeddah, the country’s port city. Also in the grain industry, plans are underway to sell the milling segment of Saudi Grain Organisation.
Similarly, India’s current liberalisation reforms across sectors have positioned the world’s second-most populous country for FDI.
India lifted restrictions on some private individual activities in the aviation, communication, defence, health, and retail sectors. This has helped FDI inflow appreciate consistently. FDI inflows to India surged 59 percent to $44.5 billion in 2018, from $28.2 billion in 2013.
This is the right time for African nations, particularly Nigeria with a growth figure below population growth, to leverage the benefits associated with privatisation to attract foreign investors and boost the economy.
Israel Odubola
