The decline in the number of states that are attracting foreign investments is on course to push up the country’s unemployment rate and reduce the internally revenue generation (IGR) capacity of the subnational governments.
BusinessDay reported last month that only four states attracted foreign investments in the fourth quarter of last year, the lowest number in almost three years, according to the National Bureau of Statistics (NBS).
The states, namely Lagos, Abuja, Ekiti and Rivers, got $1.09 billion in Q4, down from the six in the previous quarter that attracted $654.6 million. The number rose to nine in Q1 before dropping to five in Q2.
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“States without investment will see their IGR continue to dwindle. They will begin to lose a lot when it comes to employment because when investors invest in a state, that is when they will think of employing your locals which will also affect them in that area,” Femi Egbesola, national president of the Association of Small Business Owners of Nigeria (ASBON), said.
He said many of the states in Nigeria are not secure and that investors won’t want to go to an unsecure environment.
“The states that attract investment are high on the ease of doing business ratings. States that are not attracting investment should look at the ways they can improve in the ease of doing business to attract investors,” he said.
The latest Nigeria Labour Force Survey shows that the unemployment rate rose to 5.0 percent from 4.2 percent in Q2. It stood at 4.1 percent in Q1, down from 5.3 percent in Q4 of 2022. The unemployment rate has increased in two straight quarters since the NBS adopted a new methodology for the country’s labour force.
In 2022, 36 states and the FCT generated a total sum of N1.93 trillion, a 1.57 percent rise from N1.89 trillion in the previous year.
Temitope Omosuyi, an investment strategy manager at Afrinvest Limited, said it is not surprising that nearly 100 percent of the capital inflows went to only four states due to their strategic importance to the country.
“On a broader scale, investors are watching to see how the sweeping reforms and policy changes will make the environment conducive to their resources before taking a new position in Nigeria,” he said.
“The crux of the deciding factor is evident foreign exchange rate stability and improvements in the security of lives and properties across the country,” Omotayo added.
President Bola Tinubu, who took the helm of Africa’s most populous nation last May, stoked foreign investors’ interest with some of his actions including the removal of petrol subsidy and the start of foreign exchange reforms.
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A few weeks after taking office, he hosted several major companies including Airtel, ExxonMobil, Shell Petroleum Development Company and Bank of America as part of efforts to drive up investments in the country.
But his reforms have worsened inflation, currently in double-digits and at a record high. The rising inflationary pressures have weakened the purchasing power of consumers, even as businesses grapple with higher operating costs.
According to the NBS, Nigeria’s headline inflation rate rose for the 13th consecutive time in January to 29.90 percent from 28.92 percent in the previous month.
Food inflation, which constitutes 50 percent of the inflation rate, rose to 35.41 percent from 33.93 percent.
Okafor Tochukwu, a lecturer at Global Banking School, Stratford, London, said the rising inflation, foreign exchange crisis and insecurity have reduced foreign investments in states. “Even in Abuja, some investments have been reduced because of insecurity.”
Israel Odubola, a Lagos-based research analyst, said states that do not attract investments will have limitations in the creation of job opportunities.
“Investment is a catalyst for job creation. Once investment inflows are not there, new job opportunities cannot be created. The private sector, if rightly supported, is an enabler for the creation of jobs,” he said.
“It is not a good thing that Nigeria has fewer states attracting foreign investments. It shows the economic viability of those states is declining and also suggests weaker confidence in the overall economy,” he added.
According to Egbesola of ASBON, many of the states are still transiting from one government to another and during that period, most governments and governors pay little or no time to other sectors, particularly in attracting investors.
“The president has been going round the world wooing investors to Nigeria. Naturally more investors are wooed to the southwest region because Lagos attracted a lot of investment as it is a bit structured. The government is moving some of its headquarters, ministries and agencies to Lagos,” he said.
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He added that the states that attracted investments have free trade zones that are working and investors are majorly particular about states or regions with free trade zones because of the obvious benefits attached to it.
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