Following the slow economic recovery from recession, Nigeria’s Foreign Direct Investment (FDI) picked up in 2018, but this is short-lived as attention continues to shift to more attractive debt market.
Investors have been scrambling for Nigeria bonds as equities market continue to see massive sell-offs. Treasury bills have also been attractive, with yield hovering between 10 and 18 percent in the last four years.
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, which can be liquidated easily, FDI has a longer duration in an economy, hence it is real investment.
Data show that the economy is replete with industrial companies and micro, small and medium enterprises by almost 95 percent. But the industrial companies, which represent real investments, have been down since 2014/15.
In 2013, a total of N2 trillion investments were made by manufacturers, according to the Manufacturers Association of Nigeria (MAN). This number dropped to N523 billion in 2018, due to a string of poor policies and low confidence.
The manufacturing sector plunged into a negative territory in the four quarter of 2017, recording -2.85 percent growth. The economy grew sluggishly at 1.94 percent in the second quarter of 2019, from 2.1 percent in the first quarter, according to the National Bureau of Statistics.
The Manufacturers CEOs Confidence Index (MCCI) survey carried out among CEOs in the manufacturing sector for the first quarter of 2019, conducted by MAN, showed that issues around foreign exchange, bank lending rate, government capital implementation, multiple taxes, overregulation of regulatory agencies, sources of raw materials were some of the challenges dragging the growth of the sector, constraining its performance on the global market scale.
These challenges, which have remained constant over the years, have sent many industrial companies out of the country and likewise scared prospective foreign investments away, pushing them to other African countries.
In 2016 alone, 54 manufacturing concerns shut down owing to foreign exchange challenges, as they could not access dollars to import inputs, according to Frank Jacobs, then president of MAN.
The resultant effect of this is that the country still runs a risk of worsening growth in its fragile economy. The country is trading long-term capital for hot money and investors are leaving the economy amid a never-ending spell of regulatory gaps and infrastructure.
Data from the National Bureau of Statistics (NBS) show that in 2014, FDI into Nigeria stood at $2.28 billion but five years later, inflows slowed to $1.19 billion and it fell by 8 percent in half-year of 2019 , declining at the rate of 15 percent.
In contrast, portfolio investment dropped only 4 percent in the same period while money market inflows surged 52.57 percent.
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 realise that the government has not been intentional about growth,” Ademuwagun said.
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.
Procter & Gamble, a global brand, is part of the exodus while Lagos-based Kimberly Clark, which produces Huggies, is said to be exiting Nigeria.
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.
While regulators send conflicting signals, Nigeria’s infrastructure gap would require $100 billion investment annually for six 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 totalled 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 neighbouring countries.” Seleem Adegunwa, chairman, MAN, Ogun State said.
Gbemi Faminu & Segun Adams
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