• Thursday, March 28, 2024
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Shift in global patterns leaves Nigeria empty-handed as peers hit jackpot


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Foreign Direct Investment (FDI) -starved Nigeria is still stuck in an old way of thinking two decades after peers have adjusted to new globalisation and struck gold in massive capital inflow into their economies, leading economist Ayo Teriba says.

The new globalisation is driven by cross-border movements of technology, not just more trade in goods. Technological progress has reduced gains in commodity exports and facilitated financial flows.

Nigeria in the early 1990s accounted for a higher portion of FDI inflow into the developing world, outstripping Egypt, South Africa, India and Saudi Arabia. Today, the country attracts $1bn less FDI than Ghana ($2.9bn), an economy equivalent to Lagos State.

“Everybody now gets more than we do,” said Teriba, CEO of Economic Associates, at the firm’s quarterly Nigerian Outlook conference in Lagos on Wednesday.

He explained that a shift in globalisation focused on commodity trade to financial flows changed the game but Nigeria remains unaware.

In the early 1990s, developing countries either relied on export revenue or foreign aid for foreign capital inflow.

But FDI overtook donor funding by 1994 and remained the largest type of inflow until 2016 when remittances became the largest source of inflow into the developing world, Teriba said.

The change in trend coupled with improvements in technology eventually led to a commodity bust in 2014 and adversely impacted oil-dependent Nigeria.

Downturns in oil price led to the 2016 recession and forced currency devaluation then.

Today, the country still relies on oil exports for up to 90 percent of its foreign currency earnings and income from the commodity accounts for more than 70 percent of the government’s revenue.

On Monday, the IMF cut Nigeria’s growth forecast informed by expected lower oil price due to the coronavirus.

“India woke up early to opportunities in the change in globalisation and adopted the Liberalisation, Privatisation and Globalisation model,” said Teriba.

As a result of its reform, India in 2018 raked in $80bn from diaspora remittance and $64bn in FDI alone. In context, Nigeria’s FDI was $1.9bn while diaspora flows were $25.08bn.

According to Teriba, there is room for Nigeria to improve capital inflow which would stabilise currency, deepen domestic liquidity and in turn boost economic growth.

“The likes of India and Saudi Arabia are offering investors what to buy…Nigeria holds 100 percent of infrastructure it cannot even manage properly,” said Teriba.

India targets $100bn inflow yearly, Saudi Arabia aims to rake in $200bn over several years and has opened up 16 sectors including oil and education to private capital amid record-high global liquidity.

Selling 1.5 percent of its state asset Aramco saw the oil company’s valuation hit $2.03 trillion after first trade, the benefit of which was that the world saw Saudi Arabia as a rich country.

Global investors are expected to jump in on Egypt’s initial public offering (IPO) in state-run firms by the end of next month.

Nigeria, on the other hand, sits on dead assets, lining up to borrow from countries like China and Japan to fund its budget.

This has worsened the notion that Nigeria is a poor country even though the country is asset-rich, said Teriba, explaining that borrowing should be gauged against assets, not income.

Teriba said appropriate deployment privatisation, liberalisation, commercialisation and securitisation strategies can unlock value in the country.

For instance, Nigeria can leverage Eurobond issuance to its diaspora to invest in the country, as well as repurpose real estate assets like prison facilities sitting on prime lands so that those assets are not underutilised.

Nigeria has dead capital or underutilised assets up to $900bn, according to PwC. For Teriba, the lack of a national asset registry is a drawback on progress.

Teriba’s remarks come amid global concerns that Nigeria, named world poverty capital, will face a heavy burden of increased borrowings from both home and abroad.

Both the Institute of International Finance (IIF) and World Bank have expressed concerns about the country’s debt status while the latter predicted increased poverty levels by 2030 if Nigeria doesn’t reform.
Nigeria currently spends more than half of government revenue on interest payment on debt.

Meanwhile, the World Bank on Wednesday approved $2.2bn for six development projects in Nigeria.
The country also plans a $3bn Eurobond that would plug the budget deficit and create infrastructure.

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