A large population of over 200 million people and an economy with projected GDP of 445.00 USD Billion in 2022, should make Nigeria an attractive investment destination in Africa.
However, in the last decade, there has been a significant decrease in Foreign Direct Investment (FDI) in Nigeria as documented by Statista. There was a significant decrease from $8.84 billion in 2011 to a meagre of $2.39 billion in 2020. The reasons are not far-fetched; investors consider a variety of factors such as an enabling environment, availability of infrastructure, security and a lot more before investing in any country.
Nigeria’s scorecard in these factors has however not been very impressive, especially in the past decade. This decline is driven by several issues. Among the contributory issues are government policies which have not been very friendly to businesses, and the security architecture, which has witnessed a downward spiral with incessant kidnapping, banditry and the widespread farmers-herders crisis.
While there has been some improvement in infrastructure, there is still a considerable deficiency, and available infrastructure is not enough to support full-scale economic development.
Although foreign direct investments contribute to the economic development of the host countries, it is worthy to note that investors are not charities, but they look out for business opportunities that will provide maximum ROI (Return on Investment). In 2020, Nigeria ranked 131 out of 190 countries in the ease of doing business report. This represents an unattractive environment for potential investors.
Despite the enormous challenges facing Nigeria, its economic growth potential is still, to a great extent, untapped, with an abundance of both natural and human resources lying fallow and underutilized. Apart from crude oil, Nigeria has over 40 mineral resources– some of which are yet to be explored. Nigeria has an economic prospect more appealing to foreign investors, and only a few economic powerhouses can rival.
To fulfil Nigeria’s economic potential, the economy requires a massive infusion of FDI. This is crucial to addressing the problems of unemployment, and poverty. It will also help to transfer technology and stimulate massive economic development. Here are some things that have to be done.
Government must commit to business-friendly policies that encourage and protect investments in the country. While investors understand the position of risks associated with business, there must be clarity in economic policies to boost the confidence of investors.
The Nigerian Investment Commission Promotion Act of 1995, Amended in 2005, provides a robust fiscal framework for both local and foreign investment in Nigeria. However, issues surrounding the transparency of the regulatory system need serious attention. Although Nigeria’s regulatory system often conforms to international standards, enforcement and application remain below par.
Another critical policy is the exchange rate policy. This has been largely inconsistent over the years, with the continuous devaluation of the Naira resulting in deep neck inflation and lower purchasing power for the people. According to an economic expert, “the naira keeps depreciating because the demand for the naira is not as high as expected,” and this is attributed to the country’s low production of finished goods.
Nigeria’s medium and long-term industrial revolution must prioritize investment in the manufacturing sector to create a sustainable framework that is attractive to foreign investors. This approach will cause a net improvement in Nigeria’s export of finished goods.
Operating an open border and free trade is critical to a country’s foreign investment potential. Recently, the government announced the reopening of the last four borders after it shut all its borders in August 2019 and halted all trade engagement with its neighbours. This move, according to the government, was to protect the economy and combat cross-border security breaches.
It is important that the lessons learnt from this economic error be allowed to guide the country’s international trade policies. As one of the founding members of the AfCFTA, Nigeria must commit to operating an open border to bolster trade and attract investments.
Security of Life and Properties
Investors are driven by gain, and therefore seek secure environments that will enable undisrupted business activities. Unfortunately, Nigeria has suffered a near collapse of its security architecture. The criminal activities of terrorists, bandits, and kidnappers have hindered business activities and discouraged local and foreign investors.
According to NBS, at least 24 states in Nigeria have not attracted foreign investment due to gross insecurity. Ten out of these states have not attracted FDI in the last three years. Compounded by the United States and other European Union countries’ issuance of travel advisory to their nationals against Nigeria, Foreign investment will continue to take a hit.
Federal and State governments must collaborate to restore peace and order in Nigeria, especially in the northern part of the country that has been most affected. Restructuring of security agencies through reforms and the right incentives to combat crimes and insurgencies must be a priority.
Citizens and foreigners must be able to go about their daily business activities without fear of attack or harassment.
Investment in Infrastructure
According to the African Development Bank, Nigeria will require $3 trillion or $100 billion annually over the next three decades to address infrastructure deficiency. Government must commit to a medium and long-term policy on bridging the infrastructure deficit in Nigeria.
Electricity, which is a crucial factor in a sustainable business operation, remains haphazard in generation and distribution. In the first quarter of 2022, the national grid has collapsed at least thrice, causing a nationwide blackout. It is imperative to prioritise investment in power generation and transmission in order to attract investments, especially in the manufacturing sector.
The transportation sector is another area worthy of immediate attention. Investment in power must go alongside with construction of accessible road networks linking major cities, rails, airspace and waterways. Also, the government must empower the Nigerian Investment Promotion Commission (NIPC) to target potential foreign investors and act as a one-stop agent for all negotiations regarding potential investment in Nigeria.
Nigeria can follow in the footsteps of emerging economies like China, Brazil and India by attracting quality direct investment that delivers economic prosperity.