• Tuesday, June 18, 2024
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Nigeria needs more FDI to retain position in Africa

Policy Intervention Series 4: Recent Export-Unfriendly Policies: Implications for Nigeria‘s Economy

Nigeria tops the list of 10 African countries with the highest GDP in 2021. Egypt occupied the second position, followed by South Africa. Nigeria led with a GDP size of $514.05 billion, while Egypt and South Africa got $394.28 billion and $329.53 billion respectively. Nigeria has retained the position of number-one largest economy in Africa for over a decade, according to Business Insider Africa.

Nigeria needs more Greenfield foreign direct investment (FDI) to retain its position as the biggest economy in Africa. In two decades ending in December 2020, Nigeria received about $86 billion FDI to close the domestic saving-investment gap while Egypt received about $107 billion, according to the World Development Indicator.

FDI is an investment made in a company operating in an economy different from that of the investor to acquire a lasting interest, according to the International Monetary Fund (IMF). Greenfield investment is a type of FDI in which a parent company creates a subsidiary in a different country to expand its operations. Greenfield investments are the most welcomed foreign investment for host countries, especially when the main goal is to decrease high unemployment.

One of the macroeconomic problems of developing countries is that they do not have enough national savings to finance their investments. National savings have been low in Nigeria due to low income and high dependency ratio caused by the high unemployment rate. As a result of low national savings, huge inflows of FDI are needed in Nigeria to close the saving-investment gap.

In Nigeria, huge greenfield FDI inflows are needed, especially in the non-oil sector to create employment for the growing unemployed population, increase productivity and sustain the GDP growth rate. No doubt, greenfield FDI inflows have the potential of boosting the growth rate in Nigeria.

Read also: Nigeria must raise revenue to GDP ratio by 15% in three years – IMF

Nigeria must formulate and implement appropriate macroeconomic policies to attract more FDI, especially greenfield FDI. Sustainable economic policies are vital in attracting the right foreign investors. Investors invest in economies with the highest potential of profit maximisation and the lowest business risk.

Nigeria has a population of over 200 million people and economic integration with other African countries; these make Nigeria an attractive location for FDI inflows. Nigeria’s government must fight against poverty to make the country more attractive for greenfield FDI inflows.

Attracting FDI has prerequisites. Nigeria must develop infrastructural facilities such as good roads, electricity, sewage system, good schools, reliable hospitals, and communication systems to attract FDI inflows. Human capital development is equally important, for it prepares a workforce with the required skills, knowledge, and competencies to drive the operations of attracted FDI. Human capital development speeds up the transfer of know-how from foreign investors to the host country to contribute to economic growth.

Human capital development is achieved through appropriate government intervention funds. Therefore, the Nigerian education sector needs more funding and restructuring to prepare a workforce with the required skills, knowledge, and competencies to man the operations of foreign investments.

Improved governance and institutional capacity create a sustainable investment environment, attract quality investment, and promote economic growth. The Nigerian Investment Promotion Commission needs to improve on its operations to encourage, promote and coordinate investments in Nigeria.

Nigeria’s government must strive to retain FDI to reduce unemployment and improve the GDP growth rate. Nigeria must address insecurity in the Northeast and other parts of the country for the interest of the country and foreign investors. No doubt, insecurity that has lasted over a decade in Nigeria is a repelling factor of FDI inflows.

Nigeria must formulate and implement investment-friendly economic policies to attract foreign investors. Investors are attracted to locations with high probability of investment returns and low risk. Huge greenfield FDI inflows have a high potential of creating employment, improving productivity and GDP growth rate in Nigeria.

For Nigeria to remain at the topmost top on the list of African countries in terms of GDP size, employment of labour, and citizens’ happiness, it needs more greenfield FDI. Greenfield FDI has the potential of boosting the employment of the citizens, production, income, and wellbeing.