The quest for and deployment of foreign capital for national development have become universal phenomena in global economic relations. This is more so that the economies of most states in the world today stand on capitalism characterised by cross-border economic transactions. Partly motivated by the search for raw materials, Britain had colonised Nigeria; and before it granted her independence, it ensured that the country was well knotted into the world capitalism in an unequal economic architecture which has made the quest for foreign capital inevitable.
Today, it is a strong economic philosophy that, for the country to develop, the government must unequivocally attract foreign investment (FDI) into the country.The quest for FDI has gained so much crescendo at both the federal and state levels that, public officials use every available international platform to call on foreign investors to come and invest in the country.
While Nigeria has not been bereft of foreign investment, it has been observed that its investment climate has not enabled it to attract the much-needed foreign capital adequate to transform the economy. The pertinent questions then are: What are the challenges facing Nigeria’s investment climate? What are the prospects for Nigeria’s investment climate and FDI? The answers to these questions will form the focus of this article.
Nigeria had pursued different public policies which have had implications for FDI. Right from the colonial period, Nigeria had in place, “open door policy’’ which facilitated free flow of foreign investment into the country. The policies of nationalisation and indigenisation which succeeded economic liberalism however posed some threats to FDI before the country reversed again to embrace economic liberalism through aggressive policies of privatisation, commercialisation and public-private partnership (PPP). Acts such as the Investment Promotion Decree and the Foreign Exchange (Monitoring and Miscellaneous Provision) Decree of January16, 1995 were also promulgated.
If Nigeria has oscillated between the eras of economic liberalism and economic nationalism, what then is the rationale for the desperate quest for FDI?
First, FDI will afford Nigeria the opportunity to inject additional resources which are in short supply to the country. These include capital, technology and management resources.
Two, it will also facilitate job opportunities. This becomes important for a country still labouring under gargantuan unemployment rate. For instance, in the second quarter of 2016, unemployment stood at 13.3 per cent up from 12.1 per cent in the three months to March, attaining the highest since 2009. Third is the desire to achieve the goal of surplus in the country’s balance of payments.
Also, through FDI, government can earn more revenues; and in the context of globalisation, FDI is also capable of increasing capital efficiency. Indeed, Nigeria is naturally endowed as an investment haven.
Apart from its fertile land, the country’s estimated population of 180 million portends cheap labour and huge market. Viewed against the expected level of FDI inflow she aspires to attain, FDI inflow is still not sufficient. In fact, FDI inflow has been consistently characterised by rise and fall. For instance, according to Trading Economics, from 2007 to 2016, FDI averaged $1348.23 million reaching an all time high of $3084.90 million in the fourth quarter of 2012 and a record low of $501.83 million in the fourth quarter of 2015.
According to a release by the United Nations Conference on Trade and Development (UNCTAD), FDI into Nigeria fell 27 per cent from $4.7 billion in 2014 to an estimated $3.4 billion in 2015. UNCTAD attributed this to the fall in oil prices and projected further downturn due to the fragility in the global economy.
Aside the trends in the global economy, certain domestic developments or challenges have portrayed the negative face of Nigeria’s investment climate and have also unleashed the kind of vicissitudes that have been the narrative of FDI flow. First among these is the challenge of insecurity.
The country has been bedeviled by a lot of security challenges which include militancy in the Niger-Delta, the Boko Haram insurgency in the Northeast, inter-ethnic clashes and religious conflicts. In all these, terrorist tactics such as kidnapping and assassination, have been employed. A situation like this is of course very scaring to foreign investors.
Another challenge is the constraint imposed by the poor state of the country’s infrastructure namely roads, energy supply and water supply. The poor state of all these facilities and more, and the need for investors to privately provide most of them in the course of their operations, have heightened the cost of doing business in Nigeria. Third is the corruption monster. This challenge is so pervasive that foreign investors cannot but be discouraged from doing business in the country if they are not ready to play ball.
In the corruption perception index 2013 published by Transparency International (TI), Nigeria plunged further from 137th out of 177 countries surveyed in 2012, to 144th. Because of this, not a few foreign investors became skeptical of engaging in business deals with Nigerians.
The instability that has bedeviled the Nigerian capital market and the foreign exchange (forex) regimes have also become an albatross to FDI.
Also, in all other indices that can facilitate foreign investment, Nigeria has been poorly rated. These include the Ease of Doing Business and the Global Competiveness index. For instance, according to Trading Economics, between 2008 and 2016, Ease of Doing Business in Nigeria averaged 145.00 reaching all-time high of 170.00 in 2014 and all time low of 120.00 in 2008.Although it improved in 2016 to 169.00 from 170.00 in 2015, it still signposts a difficult and unfriendly business terrain for investment.
Nigeria has huge potential that should attract the attention of foreign investors. This however may not occur in the foreseeable future unless the country resolves to surgically operates the ugly face of its investment climate. If looked into closely, most of the sectors of the country’s economy, are yawning for investments.
Even with the prevailing risky investment climate, although with the caveat of enhanced ease of doing business, it has been projected by Britain that, bilateral ties between Nigeria and UK may hit £11.6 billion by 2030 through non-oil exports and FDI.
The future is not, therefore, absolutely bleak for the country in respect of attracting more FDI.
This is moreso that President Muhammadu Buhari has chosen three key areas as the focus of his administration. These are economy, corruption and security. As the tripod constitutes the fulcrum of his administration, he has apparently been addressing most of the challenges to the investment climate of the country.
For example, the fight against corruption is being vigorously pursued; the fight against terrorism and other forms of political violence has also been taken more seriously; while the zeal for infrastructural development by the administration is equally burning. If the administration can be committed to these changes and if this policy direction can be sustained by successive administrations, there is hope for attractive investment climate and FDI.
Dr. Adebisi wrote from the Federal College of Agriculture, Akure, Ondo State.
