The National Bureau of Statistics (NBS) listing of Abuja, and Lagos as top foreign investment destination in the country has attracted varied feedbacks from stakeholders on why they made the top list.
The NBS report stated that out of the five states that recorded capital importation during the quarter, Abuja (FCT) remained the top destination with $3.45 billion, accounting for 54.11 per cent of the total capital imported.
Lagos State followed with $2.56 billion (45.44 per cent), and Ogun State with $7.95 million (0.14 per cent). Others were Oyo and Kaduna states with $7.81 Million and 4.06 Million respectively.
According to the International Monetary Fund (IMF), Foreign Direct Investment (FDI) inflows to states are determined by a mix of economic, institutional, and market-related factors. Key determinants include the host country’s market size and growth potential, the quality of its infrastructure and business climate, and its level of macroeconomic stability and political stability. Trade openness, factor costs (such as labour and wages), and effective government regulations also play a significant role.
In International Monetary Fund (IMF) Working Paper, by Ewe-Ghee Lim, titled: “Determinant of, and the Relation Between, Foreign Direct Investment and Growth” detailed that FDI determinants generally come in two forms: investor surveys and econometric or in-depth case studies.
“We reviewed two large investor surveys first. The first is a recent survey of CEOs, CFOs, and other top corporate executives of the Global 1000 companies. The survey cites large market size, political and macroeconomic stability, GDP growth, regulatory environment, and the ability to repatriate profits as the five most important factors affecting FDI,”he said.
He said that heavy manufacturers remain mostly interested in the large emerging markets, commitment to privatisation.
The IMF also discovered that the most important determinants of FDIs inflows were the size of the market, the cost of labour and FDI policies.
Also to be considered are the investors viewed restrictions on repatriation of earnings, local content and local ownership requirements as serious setback to FDI.
“In general, the technology-intensive sectors such as general machinery and electronics were the most sensitive to restrictive FDI policies. Interestingly, fiscal and tax incentives were viewed as having little or no effect on FDI decisions. Such incentives policies were viewed as perhaps indicative of a positive political attitude towards investment, but also unstable because they could just as easily be reversed,” the report said.
It was in that light that the Bauchi State Government says it will be leveraging the investment opportunities in Lagos ahead of its upcoming Bauchi State Economic & Investment Summit slated for October 8th to 9th in Bauchi State.
Bauchi State Governor, Bala Mohammed, explained that the purpose of the summit is to review the key components of the state’s economy and determine the private sector’s potential contribution to its expansion.
The governor, said: “Let me specially acknowledge the importance of Lagos to our plan. Lagos is crucial for Nigeria’s economic development, acting as the nation’s commercial hub and a major contributor to its Gross Domestic Product (GDP).”
“It houses the country’s largest port, a significant financial centre, and numerous industrial areas, making it a key driver of economic growth. The investment spirit of Lagos is characterised by resilience, adaptability and a strong emphasis on self-reliance and hard work. We welcome this spirit to Bauchi and look forward to working with you,” he said at investors summit held in Lagos.
The Lagos State Governor, Babajide Sanwo-Olu has also reiterated the state’s readiness to drive regional digital transformation and lead the continent in technological innovation.
Speaking at the opening of GITEX Nigeria held in Lagos, Sanwo-Olu also lauded the over $6 billion inflows in foreign tech investment to Lagos between 2019 and 2024, cementing the state’s position as the epicentre of Africa’s digital growth.
He explained that the state today hosts hyperscale data centres and extensive fibre connectivity, accounting for more than 70 per cent of Nigeria’s total tech inflows. Already Nigeria’s undisputed innovation hub, Lagos is also home to 23 of the country’s 28 fastest-growing companies.
Analysts at Afrinvest explained that capital importation captures financial and physical capital entering a country from offshore sources, based on banking sector and Customs records.
These inflows expand the capital stock available to drive economic growth and often serve as a litmus test of an economy’s health and international investment competitiveness.
They explained that on the surface, the rise in quarterly capital importation to a five-year high might suggest renewed foreign investor optimism in the domestic economy.
“In our view, this spike was driven by opportunistic investments in the money market, where Treasury Bills, Bonds, and OMO bills offered rates above 20 per cent in the period. However, such flows are highly sensitive to shifts in domestic monetary policy, global risk sentiment, and macroeconomic shocks, and flows momentum could wane when the CBN pivots to a more accommodative rate stance,” they said.
“Meanwhile, the share of FDI – a cheaper and more impactful capital on long-term economic growth – continues to diminish. This trend is reflective of low confidence in the long-term prospects of the economy amid the legacy issues of insecurity, weak institutions and enforcement of law, bureaucratic inefficiencies, and a high corruption perception”.
Continuing, they stated that weak traction into non-financial sectors such as Manufacturing, ICT, Construction, Oil & Gas, and Transporation, paints a less compelling picture of the overall surge in capital inflows in Q1. We note that while the uptick may support currency stability and short-term growth spurts, the underlying quality of these inflows mirrors previous episodes of hot-money dependence that heightened vulnerability to external shocks.
“Lastly, the concentration of investments in Lagos and Abuja (only 0.4% of the $5.6b inflows were directed elsewhere) spotlights the deep competitiveness gaps across sub-nationals. Hence, subnational governments need to strengthen their business environments and improve overall investment attractiveness,” they said.
