By Halima Imam
Foreign direct investment (FDI) is a key component in global economic integration. More simply, it’s basically an investment by a company based in one country, into a company based in another country. FDIs create jobs and employment, they contribute revenue to the government, and they transfer knowledge from more developed countries to least or developing countries. It pushes such LDCs up the economic value chain, which brings about an increase in wages.
Reports have shown that after Ethiopia and Egypt, Nigeria comes in third as top countries in Africa for foreign direct investment. The country is one of the frontier market places in Africa with a promising future for trade and investment.
A World Investment Report, by the United Nations Conference on Trade and Development in 2020 shows that foreign direct investment coming into Nigeria was 3.3billion dollars in 2019. That shows a 45.5% decline when compared to 2018 which was 6.4billion dollars.
Nigeria, just like every other nation, craves for growth and development, thereby encouraging foreign private investment through the creation of incentive packages.
A look at the economic history of Nigeria has shown a continuous FDI inflow. Earlier FDI was concentrated on raw materials and the extractive industries. During the oil boom in Nigeria, around the 1980’s, Nigeria encouraged FDI, but that was in theory. In reality, a series of policies served as disincentives to FDI. The indigenisation decrees of 1972, for example, limits investment in certain ventures to Nigerians alone.
The crisis in the global oil market in 1981 plunged Nigeria into a recession, one that the 1986 stabilization measures couldn’t help. The deregulation measures of 1986 were supposed to encourage FDI, but it didn’t do much in that aspect.
In 1989, there was a new industrial policy, still aimed at wooing foreign investors. The oil boom period had seen an impressive GDP growth in the 1970’s, but the investment GDP was disappointingly low from 1987 to around 1993. From 1970-75, FDI had grown by around 5.4%, it however derailed by 0.1% between 1976 and 1981, a decline that was caused by the fall in oil prices.
Reports in 2011 by the business trade and investment guide, shows that foreign direct investment in Nigeria had grown over the years from 1.14billion dollars in 2011 and 2.1billion dollars in 2004, to 11billion dollars in 2009. This made Nigeria the 19th greatest recipient of foreign direct investment in the World. The Central Bank of Nigeria in 2001 said the total FDI in Nigeria between 1997 and 2001 per year averaged about 1184.0 million dollars. A report by the Zenith Economic Quarterly magazine in 2007 said Nigeria had an inflow of 2040 million dollars in FDI. In 2002 the FDI stood at 172million dollars.
In 2005, Foreign direct investment had increased to 3403million dollars, most of which came from France, the United Kingdom, the United States of America, China , Brazil, Italy and South Africa. The government have tried to always encourage foreign direct investment by inviting foreign investors to the manufacturing sector, tariff concession on imported goods, reduction of corporate tax, tax relief for research and development on joint venture businesses etcetera.
Most of the policies have been geared towards increasing the inflow of foreign investors especially at a time when the World is fast becoming a global village.
Foreign direct investment increased in March 2020 by 427.8million dollars, as compared to an increase of 495.4million dollars in the previous quota. A report suggests that as at December 2012, FDI stood at 3.1billion dollars.
Nigeria has been heavily dependent on oil, and has for some time considered diversifying the economy. Trade, industry and investment were recently merged by the Nigerian government w, leading to the reaction of the Federal ministry of industry, trade and investment; this is to see an effective coordination between the three key areas. With all the efforts of the government to see that foreign direct investments continuously flows into the country, statistics from the World Bank and the International Monetary Fund reveals that the rate of FDI in Nigeria is relatively low when compared to its potential.
Most countries with large economies in the World have obviously benefited from FDIs. The Nigerian economy has suffered setbacks in terms of foreign direct investments, and continues to suffer from very high level of poverty, overwhelming unemployment and a glaring inequality. This is as a result of continuous and increasing insecurity and corruption that has defied solution in this country. Some of the regulations in Nigeria appear too stringent and many others appear to just merely exist. Every foreign investor looking to do business in Nigeria has to fulfil certain demands.
Registration of the company with the Corporate Affairs Commission, expatriate quota and obtaining a business permit amongst others are some of the hurdles to be crossed. Foreign companies wishing to employ foreigners in Nigeria are required to obtain the expatriate quota for each employee. Some countries with high FDI rates in Nigeria mostly find it difficult to obtain these expatriate quota most of the time.
In a bid to increase the free flow of foreign direct investment, Nigeria became a party to several World Trade Treaties. Some of such treaties include the GATTS AND TRIMs.
Although in March 2010, the Nigerian Local Content Act was signed into law. It is aimed at promoting industrialization of the Nation’s oil and gas industries, thereby improving the economic and social wellbeing of citizens engaged in the industries.
MTN telecommunications spent 285million dollars to acquire a GSM license in Nigeria. The present day Airtel and 9mobile followed in the same vein, which have led to a very impressive telecommunication growth in Nigeria today.
The 2016 recession in Nigeria caused the FDI inflow to contract from 2.3billion dollars in 2014 to 1billion dollars in 2016. Since then foreign direct investment have tumbled with events such as the MTN repatriation scandal, backlog of taxes slammed on multinational oil companies, continuous terrorist attacks, kidnapping, etcetera.
Foreign investors have reacted negatively by withdrawing and in most cases withholding investment, due to fear perceived risks and uncertainty that has rocked the Nigerian business environment. Whenever there is a plunge in the price of crude oil, foreign investors exit the country and Nigeria loses. We lose both forex in flow from a staggering crude oil price and also the investors.
At the global level, the rate of FDI flows was down 19% to 1.2trillion in 2019. Analysts have said that it was to be expected, from the trends in popularism , BREXIT and uncertainties it puts around trade between the European Union and Britain. The power tussle between the U.S and China also brings significant amount of uncertainties in the system. People are afraid to make large investments, because there is therefore no clear cut understanding as to what the rules are and what the systems of trade will be in the future. People will only then make continuing investments, but will certainly shy away from big decisions until the issues around big economies clear themselves out.
Investors in any country want to understand the rules they will be working with in the foreseeable future, so that their investments can be tailored to match those rules. Countries like Egypt has a very high rate of foreign direct investment today because, Egypt answered the question of many investors, especially from the West. They went through a crisis, they were able to see a change in government to a democratic system and so, that question has been answered for investors, they let their currency flow, took a devaluation on the Egyptian pound, hence a high inflow of FDI for Egypt.
According to the World Banks Doing Business 2020 index, Nigeria ranked 131 in the World. We moved 15 places up from our 2019 spot which was 146th, up 39 places since 2016, and we have also been tagged one of the most improved places for doing business in the World.
Although analysts believe that there are still counterproductive policies, that makes it hard to run a business in Nigeria. A new visa policy was announced in Nigeria, aimed at attracting FDI to complement local capacity. It was also for the aim of boosting tourism, without compromising National Security.
Some of the policies of the Nigerian Visa Policy (NVP 2020) include visa on arrival for African union nationals, increase in the classes of visa, creation of visa codes for all classes of visas and an introduction of e visas etcetera. The Nigerian government realised that countries like Ghana for example has a visa on arrival policy, opens up the country, making it easy for Africans in diaspora and Africans within the continent to easily go and do business in Ghana. And with a government that has so eloquently sold Ghana to the World, it is safe to say the inflow of FDI to Ghana is an enviable one. NVP will help enhance Nigeria and give the country an edge in many technological innovations.
Going through history, from the 1960s till date, there have been highs and lows in the inflow of FDI to Nigeria, with the security challenges in recent times and the fluctuating price in oil, diversification of the economy is one solution the government must hold on to if we are to dominate as the African market destination of the World. We should have industries that make our farm products into finished goods where the farms are located. Public private partnership must be encouraged; the government has to grant some sort of income tax exemption to people who are reinvesting in Nigeria.
The industrial permit act has to be reviewed. Nigeria has constantly suffered from epileptic and in most cases an absence in power supply, alternative sources of energy must be considered, such as green energy. Our true power lies in our raw materials and farming skills, if the agricultural sector can be industrialized, then we will go from import dependent to export oriented. Foreign investors will not have a choice but to rush to a country that combines agriculture and technology. We will solve the issue of hunger, we will peel off the garments of poverty, our teeming youths will have sustainable jobs, our children will look to the future.
We will own FDI in Africa and the World, through industrialization and transparency, just like China and the emerging economies of the Middle East, Nigeria will take her true place as the Giant of Africa. We have an enormous amount of raw materials in the right places and also in the wrong places (improper waste disposal). If Nigeria concentrates on using what we have, that which the World desperately needs, in creating jobs through an aggressive industrialization policy and use waste and bio char as alternative sources of energy, we will conquer the World Market, and the likes of Europe and America will roll over themselves to get our attention.
Halima Imam is Founder of the Climate Action Team