Despite the scourge of the dreaded Islamic insurgents, Boko Haram, and general spate of violence, investors have not ceased coming into the country. According to sources, Foreign direct investment (FDI) inflow has remained at between $10 and $12 billion yearly over the last few years. What are the factors responsible for this development? Could it be good returns on investment (RoI)? Has the business environment become more friendly? Could it have been a more liberalised business operating environment?
OKWY IROEGBU-CHIKEZE provides the anwers.
In the last two months, Nigeria has signed bilateral trade agreements with many countries, including China, Japan, Austria, Brazil and Mauritius. These deals coming are when the security challenges in the country have assumed a disturbing dimension with the Boko Haram insurgents mindlessly killing people ‘like wanton flies.’
Again, it is curious because they are coming at a time indigenous manufacturers and investors are groaning under institutional yokes of corruption, incompetent leadership and poor infrastructure to name a few.
To underscore the level of insecurity in the country, defence got the fattest slice of this year’s budget. Over a whopping N1 trillion was allocated to the sector.
Yet, the senseless orgy of killings, maiming, kidnap-for-ransom in the Southeast and other criminalities continue to flourish. In the Federal Capital Territory (FCT), between April and September this year, over 150 robbers were reportedly nabbed.
In Nasarawa and Plateau states, the story is grim. While a a suspected cult group, Ombatse, has been unleashing terror on innocent people in the former, the latter has taken the battle of ethnic cleansing too far.
Reasons for FDI despite challenges
According to stakeholders, there are various reasons for the continued inflow of Foreign Direct Investment (FDI) against all these odds.
These, they said, include Federal Government’s strategy, availability of cheap labour and high return on investment, among others.
The government has employed strategies to shore up the capacity of law enforcement agencies for prompt response to security emergencies. This include the implementation of key recommendation in the 2006 Presidential Committee Report on the Reform of Administration of Justice, with regard to the police and prisons. This was targeted at improving the welfare and operational capacities of these law enforcement agencies.
Again, the government recently, moved to ease the registration of businesses by drastically cutting its cost by half. Minister of Industry, Trade and Investment, Mr Segun Aganga said the rationale behind the reduction in the cost of business registration is in line with the ministry’s investment climate reform programme aimed at strategically repositioning the country as the preferred destination for both local and foreign investments.
Sector analyst says the action of the government would further trigger the influx of investors into the country.
FDIs
Recently Nissan and Stallion Group announced plans to jointly build an assembly plant in Nigeria. The investment, many believe, is necessitated by the government’s approval of a new Automobile Industrial Policy.
Islamic Bank has also indicated its interest to invest $2 billion in the economy while a report released by Derek Scissors of the United States-based Heritage Foundation stated that Chinese investments stood at $15.6 billion spanning many sectors, such as manufacturing, telecommunications, and energy.
A Japanese firm, Suntory, bought into GlaxoSmithkline with a pricely sum of £1.35 billion, taking over the company’s flag-ship brands, Ribena and Lucozade Boost.
In addition to these, a leading South African company, Famous Brands, has also acquired 49 per cent stake in UAC Foods while Nestle Plc and Cadbury have indicated interest in investing N100 billion each in upgrading their production facilities in the country.
Stakeholders’ views
The Director-General, Kaduna Chamber of Commerce, Mallam Usman Garba Saulawa, said the coming of foreign investors despite the insecurity should not be a surprise. He said: “Though we have security concerns, it is not limited to Nigeria; therefore, it would likely not deter investors.
“There are similar issues in Pakistan, India, Indonesia, Brazil and Egypt, but the difference is that those economies are getting a lot of patronage and support from their government and there is sufficient infrastructure. If you look at Indonesia, the government, at a point, made a policy that all civil servants must wear their baltic. This policy helped to boost the production and manufacturing of baltic by the private sector.”
An analyst Mr. Uche Ukwendu said the nation would have witnessed more FDIs if not for the porous security and the cheapness with which human lives are treated. He recalled that the recent slaughter of over 40 students in a Yobe College of Agriculture by the Boko Haram sect and the number of reported beheadings and slicing of throats in some parts of the North is enough to deter foreign investors. He called for a change of strategies by the security agents to stem the ugly tide.
He said: “Nigeria’s development plan is simple in theory, yet rather difficult in practice given its poor track record. There are numerous obstacles that collectively deter foreign investment. The nation must address each of these impediments to growth through extensive political and economic reforms. First, there must be a dramatic and comprehensive restructuring of Nigeria’s economy. Currently, petroleum accounts for 95 per cent of Nigeria’s exports. Such a heavy reliance on one mineral makes the nation highly vulnerable to volatile economic fluctuations.”
To achieve greater macroeconomic stability and diminish its vulnerability to commodity prices, he said the nation must reduce its dependence on oil and natural gas. It would be best for Nigeria to develop and promote its non-energy exports, which include manufacturing, knowledge-based services, and agriculture, he added.
Uchendu also said the nation’s FDI inflows have been almost exclusively in the natural resources sector, specifically in the oil and natural gas industry which is a suspect. He observed that such concentration of FDIs in one sector limits technology transfer and inhibits job creation. Should Nigeria attract FDIs in other sectors, including manufacturing, tourism, consumer products, and construction, these new FDI projects could generate greater employment and create more balanced economic growth and it is only when this is done that the discerning mind will know that the so called FDI is done in good conscience.
He warned that the government should not go to sleep because of the FDIs as it may just be cosmetic, adding that the implementation of institutionalised economic reform programmes, such as the National Economic Empowerment and Development Strategy (NEEDS) that has the capacity to move the nation forward.
NEEDS, he explained, seeks to liberalise the economy, promote private enterprise through increased privatisation and lowering corporate taxes. It also has the capacity to reduce corruption, diversify exports, improve education, develop sound infrastructure, and, ultimately, reduce poverty and increase standards of living.
The decision to invest in a country has been heavily influenced by the prevailing low wage rate. The rapid growth in FDIs in Nigeria has been attributed primarily to the availability of low cost labour.
However, when the cost of labour is relatively insignificant (when wage rates vary little from country to country), the skills of the labour force are expected to have an impact on decisions about FDI. Productivity levels in sub-Saharan Africa are lower than in low-income Asian countries and attempt to redress the skill shortage by importing foreign workers is not the solution to a country’s economic woes.
Head, Southwest Zone, Nigerian Investment Promotion Commission (NIPC), Mr Isaac Idowu, said the nation’s economic blueprint is encapsulated in the Vision 20: 2020. He said though the nation has over $130 billion foreign direct investments, the economy can be said to be under performing at a sub-optimal level because of certain factors.
Idowu said: “Our strength lies in our predictable investment climate and stable investment while our challenges are in the noticeable widening income gap and wealth distribution, dependence on oil revenue, over-dependence on imports, and huge infrastructure deficit. Others are the endemic corruption, high cost of doing business and insufficient funds for small and medium scale industries.” He assured the Austrian investors on government’s preparedness to allow them own 100 per cent of their enterprise if the line of business is not on the negative list such as military hardware and narcotics.
On investment opportunities, the NIPC boss added that there was opportunity in the electricity sector with $10 billion projected yearly investment in agriculture and solid minerals.
An entrepreneur and member of Lagos Chamber of Commerce and Industry (LCCI), Mrs. Olufemi Ilori, expressed her surprise at the influx of trade visits from foreign countries despite the country’s insecurity. She argued that though the world is a global village, the government needs to exercise caution on how wide she opens her borders to ‘portfolio’ investors who may be more interested in buying and selling rather than engaging in enduring investments that will grow the economy.
Former chairman, Nigeria Economic Summit Group, Mazi Sam Ohabunwa said industrial capacity utilisation has increased from under 43 per cent in the last two years to about 45 per cent. He believed that the apparent challenges in the country has not impacted negatively on FDI, adding that there is increased interest in the nation by investors, which must be sustained.
An economist, Mr Gabriel Idahosa, said the nation has been hampered by some challenges and that it has only fared well in the telecoms sector.
He believes that security is an issue as far as foreign direct investment is concerned. Former NBA chairman Business Unit, Mr George Utomi, said the country is not where it should be. He regretted that it has not been able to manage its challenges as good as possible. He said the nation was at par with some countries now known as Asian Tigers some decades ago, but obvious challenges have not allowed it to move beyond forward.
Director-General, LCCI, Mr Muda Yusuf, said there are positives and negatives in the nation’s economic growth. He said the apparent FDI has not influenced the nation’s poor rating in competitive business rating.
He tasked the government on the provision of infrastructure, adding that it should implement strong economic policies, and build human capital, and that security and sustainable economic policies could move the nation forward.
Yusuf said security is a serious issue that must be addressed for the nation to move forward.
Aganga, during a recent trade investment mission to the United States, said investing in Nigeria could open the African market to the investor, noting that it is a large market with one-billion population. He added that Nigeria had minerals and raw materials to attract diverse type of investments.
He said: “Nigeria is a large good market with the right demography. And you have access to another one billion people, which is the African market. So, the market is there. When you talk about the raw materials, as a country that is in a top 10 producer of oil and gas, our reserve in terms of gas is about 10 to 11, a country that has at least 44 proven minerals in commercial quantity. Nigeria is also a country that has about 84 million hectares of land where only 40 per cent of that is utilised today and despite that. It is the largest producer of six or seven commodities in the world and second largest producer of another five commodities in the world despite the fact that only 40 per cent of the land is utilised today.”
On the influx of foreigners to Nigeria under the pretext of investing in the country, Aganga said the Federal Government has discussed the matter with the Chinese government and Chinese investors have promised to develop indigenous skills, instead of bringing all their workforce to Nigeria. He added that the Nigeria Immigration Service would have to apply local laws to control the upsurge of foreigners to the country.
“We have our local laws and we have our immigration laws in terms of who can come to the country, determined by the sort of skills we are looking for. It is a case of enforcing and applying our local laws. So, any investor, whether he is Chinese, American, European, has to comply with those local laws and if those laws are properly enforced, there would be nothing to worry about. Also, when you look at those big companies operating in Nigeria today, the mentality has shifted from borrowing to investment. Money follows money; nobody is going to invest out of charity because there is money to be made in the country, far much more return on investment.
“Another thing that has changed is that Nigerian government has made it clear to the Chinese government that it is serious about creating jobs locally. We made it absolutely clear to them that the number of Chinese people coming to the country should never exceed 20 per cent. So it is for us to negotiate and have our discussions with them to make sure that we enforce our local laws,” Aganga added.
The minister assured that the government would not rest on its oars in providing security, requisite infrastructure and the enabling environment for business to thrive.
