Nigeria is losing a crucial battle for Foreign Direct Investment (FDI), compared to investor-friendly peers.
Public data agency, the National Bureau of Statistics (NBS), reported, Monday, that capital importation through FDI into Nigeria declined 62.29 percent to $200.8 million (N61.4 billion) in the third quarter of 2019, the lowest in four quarters stretching back to 2018.
On average, Africa’s most populous nation has attracted FDI inflows of $222 million each quarter in 2019, an alarmingly low amount for a country estimated by global consulting firm, McKinsey, to need $31 billion in investment each year for 10 years to bridge vast gaps in infrastructure.
What this means is that despite obvious opportunities, FDI is not rushing into Nigeria as the government continues to maintain a stranglehold on sectors that can attract foreign investment at the detriment of the economy and the people.
The $222 million average FDI, which is less than 1 percent of GDP, is so small that if shared equally among Nigerians, 190 million of them, each person will get only $1.2 per quarter.
That’s like making do with $1.2 for a period of 90 days, which is far worse than the World Bank’s international poverty line of $1.90 per day.
For a frontier market with the population of Nigeria, attracting such low investment should be a big worry for government as it has dire implications for social welfare and economic growth.
In comparison, South Africa has averaged $1.3 billion in FDI every quarter this year, according to World Bank data. That translates to $23.6 per South African, while Egypt has averaged $3.5 billion, leaving $36 per Egyptian.
“Nigeria is clearly underperforming; we shouldn’t even be measuring ourselves against any other country but South Africa and should hold our own against countries like Vietnam and Indonesia as an FDI destination,” an economist at a multinational firm in Nigeria said anonymously as he isn’t authorised to comment on government policy.
“But we are not attracting sufficient capital largely because of bad government policies and our reluctance to implement market-friendly reforms,” the person said.
Comparing Nigeria to countries like Indonesia, Vietnam or even Argentina shows how far the government still needs to go to achieve its commitment of the country becoming a top FDI destination.
Since the beginning of 2019 alone, Indonesia has attracted double the capital ($14 billion) Nigeria has attracted every year since 2014 at $7.6 billion. Year to date, Nigeria has only got $666 million.
“Weak FDI inflows suggest the economy’s low growth cycle will continue because there is no other assured path to robust growth without attracting investment,” said Wale Okunrinboye, head of investment research at pension funds manager, Sigma Pensions Ltd. “We are at a critical stage where the government’s lack of urgency in implementing the reforms that will open the economy to investment is under the spotlight,” Okunrinboye added.
Slow reforms in the power sector, absence of full deregulation in the petroleum sector value-chain, multiplicity of exchange rates, among other factors are key downside risks that constrain investments and long-term growth, according to global consulting firm, PricewaterhouseCoopers (PwC).
Nigeria’s treatment of some of its largest foreign direct investors, from the oil companies who are being accused of owing billions of dollars in back taxes to phone giant MTN which has been at the receiving end of a number of hefty fines, is surely not the best way to sell the country to potential investors.
The government’s many failings with attracting foreign direct investment has meant Nigerians have grown poorer as economic growth is lower than population growth.
In the third quarter of 2019, the NBS reported GDP growth of 2.28 percent, which is lower than the country’s annual population growth rate of 2.7 percent.
Even if Nigeria grew at 3.5 percent per year, it would take about 100 years to double GDP per capita or the wealth of Nigerians, which is why growth in the range of 6-10 percent is what is required for reducing poverty and unemployment.
However, growing GDP at that rate would require investment of about 26-28 percent of GDP, according to Andrew S. Nevin, chief economist at PwC.
Nevin suggests that Nigeria needs total investment in the range of about N35 trillion to N40 trillion a year.
“We currently do not have enough domestic savings for this, as we only have about half the investment required, which means we need foreign investment as PwC has discussed extensively over the past few years,” Nevin said.
Meanwhile, the FDI trend witnessed so far in 2019 hints at a possibility of Nigeria seeing FDI decline to $848 million by the end of the year, the lowest level in five years, based on BusinessDay estimation from NBS data.
LOLADE AKINMURELE, DAVID IBIDAPO & GBEMI FAMINU
