FDI into Nigeria in 2014 stood at $2.28 billion but five years later, inflows had slowed to $1.19 billion growing at a negative rate of 15 percent as multinationals moved out of the economy in droves, taking with them long-term capital.
FDI in half-year 2019 fell by 8 percent, according to the National Bureau of Statistics (NBS).
In contrast, portfolio investment dropped only 4 percent in the same period while money market inflows surged 52.57 percent.
All calculations (except for FDI in H1) are based on the Compounded Annual Growth Rate (CAGR) over 5 years to 2018 so that the effects of shocks are adjusted for.
Foreign Direct Investment, also referred to as patient money, involves foreigners committing resources to establish manufacturing businesses, and buying buildings and machines without expectations of a quick profit.
Unlike Foreign Portfolio investment based on assets like stocks and bonds, and can be liquidated easily, FDI has a longer duration in an economy hence is a real investment.
The trend shows the urgent need to address issues that have held the country back for the last couple of years, according to Yinka Ademuwagun, an analyst at Lagos-based United Capital.
“When you look at how sectors across the board have fared you would realize that the government has not been intentional about growth.”
Nigeria’s economy has grown by an average of 1 percent since 2014 caused by the sluggish pace of recovery from the 2016 recession.
BusinessDay findings reveal that Grief, an American Manufacturer, silently left Nigeria because the company could not get annealed cold-rolled steel. Lack of access to its key raw material was an after match of CBN’s 41-item blacklist in 2016.
Another industrial company, Federated Steel from China, maker of iron rods, exited Nigeria and sold its assets to MNIL Limited.
Procter & Gamble, a global brand, is part of the exodus while Lagos-based Kimberly Clark, which produces Huggies, is said to be exiting Nigeria.
Recently Arab owners of then Etisalat had to sell their ownership and exit after a currency devaluation made a dollar-debt too huge to repay.
Truworths International Ltd., a South African clothing retailer, was also reported to have shut down its Nigerian operations in 2006 citing the country’s poor infrastructure and excessive regulation, among others.
Manufacturers Association of Nigeria (MAN) says at least 50 manufacturers, mainly SMEs, have left the country post-recession.
Also, US-based Exxon-Mobile has shut its downstream operation in Nigeria while the oil and gas sector struggle waiting for reforms to revitalize the sector.
In the absence of the Petroleum Governance Bill (PIGB), removal of petroleum subsidies, revamp of local refineries and liberalization of the country’s exchange rate, the country may not be able to attract inflows into oil and other sectors, experts say.
Meanwhile, a mobile phone service provider is taking Nigeria’s federal tax agency to court to debate how it should treat a fine imposed by a regulator.
The business climate is not as friendly as investors would like; Nigeria dropped a notch lower to rank 146 out of 190 countries on the ease of doing business index.
The country ranked 12 on getting credit; 120 on starting a business; 92nd on enforcing contracts; 171 on getting electricity; 157 on paying taxes; 182 on trading across borders; 149 on resolving insolvency, and 184 on registering property.
While regulators send conflicting signals, Nigeria’s infrastructure gap would require a $100 billion investment annually for 6 years, according to the Director-General of the bureau of public enterprises.
Dilapidated road infrastructure has increased woes of manufacturers and a survey conducted by the Manufacturers Association of Nigeria (MAN), says expenses involved in alternative energy sources totaled up to N93.1 billion in 2018.
Manufacturers say the cost of energy accounts for a significant part of their production cost.
The country with a population of 200 million generates about 5,000 megawatts (MW), which is about 0.000025MW per capita while it distributes 2,500 to 3,000MW.
Despite obvious challenges, Nigeria has failed to fix its problems and instead has remained largely focused on foreign portfolio investment, which though necessary, cannot fund development.
“ If these issues are not checked by relevant government agencies, it could result in the collapse of more factories and businesses as some firms have already shut down their operations and relocated to neighboring countries.” Seleem Adegunwa, chairman, MAN, Ogun State said.
In 2018, Egypt South Africa, Congo, Morocco, and Ethiopia were the top African recipient of FDI while Nigeria was among the laggards, According to data from UNCTAD.
