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A new report by the National Bureau of Statistics (NBS) showed that Nigeria managed to generate $698.7 million from Foreign Direct Investment (FDI) in 2021. This is the lowest in 10 years and a clear indication that the economy is heading in the wrong direction. The NBS report is also backed by a report from the United Nations Conference on Trade and Development (UNCTAD), which revealed that FDI in Nigeria dropped to $11.55 billion from 2016 to 2020. It was $35.25billion in May 2015 when President Muhammadu Buhari assumed office. This means that FDI in Nigeria declined by $23.70billion from 2015-2020.
Foreign Direct Investment is one of the three major types of investments and a critical source of capital inflow into a country. Portfolio investment, foreign loans and trade credits are other sources of FDI. The sharp drop in FDI should be a major concern to the government. It is an indication that Nigeria is losing a significant degree of investors’ confidence in the economy. The development will lead to a reduction in economic growth of the country. A breakdown of FDI in Nigeria over the last 10 years showed that in 2012, it stood at $2.60 billion. It declined to $1.27billion in 2013. It went further down to $1.4billion in 2015, $1.04billion in 2016, $981.75billion in 2017, $1.19billion in 2018, $934 million in 2020 and $698.78million last year.
The NBS report also indicated that 24 states across the six geopolitical zones failed to attract any foreign investment in 2020. This is contrary to claims by some of the state governors. The failure of the Federal Government to address the rising insecurity is a key factor for the low inflow of FDI into the country. Other factors responsible for the poor FDI include the issue of foreign exchange and inconsistent government policies. Undoubtedly, investors are reluctant to invest in a country where the ease of doing business is poor and the investment climate is uncertain. Investors are likely to invest in a country with economic and political stability, stable power supply. Unfortunately, Nigeria’s business environment is currently not considered ‘friendly’ for good return on investment. These are some of the issues the government should address.
Not long ago, the Director-General of the World Trade Organisation(WTO) and former Minister of Finance, Dr. Ngozi Okonjo-Iweala, expressed concern over the drastic drop in foreign investments in Nigeria. She said the cost of trade in the country remains too high to attract foreign and domestic investments in the economy. Her worry delivered virtually during the recent two-day mid-term ministerial review retreat at the Presidential Villa, Abuja, came against the background of statistics showing that foreign portfolio investment inflow in Nigeria dropped to N262billion year-on-year as at August 2021, from N470.2billion in the corresponding period of 2020.
Total transactions for domestic and foreign components of the portfolio investments in the equities market in the Nigerian Stock Exchange as at August 2021 increased only marginally by 0.9 per cent to N1.213trillion as against N1.207trillion in the corresponding period in 2020. Though global foreign direct investments fell by 42 per cent, from $1.5trillion in 2020 as a result of the effects of the COVID-19 pandemic, according to data from UNCTAD Investment Trade Monitor, published in January, 2021, that of Nigeria was said to go beyond the pandemic.
To attract more foreign investments, the government must check the rising insecurity. There is no doubt that Nigeria’s suffocating business environment is a major factor in the drop in foreign investments. Indeed, the present business environment is most unfriendly. The ease of doing business is still scary despite a slight improvement recorded last year. Worsening insecurity remains a big concern to potential investors. With mounting infrastructure deficit, high cost of production occasioned by epileptic power supply, multiple taxation from different government agencies, Nigeria cannot attract the needed foreign investments. For instance, at about 32.5 per cent, Company income tax in Nigeria is considered among the highest in the world.
In most counties, it is between 15 and 16 per cent. This is in addition to our inefficient port and rail infrastructure. All of these are disincentives to investment. It is, therefore, not surprising that most investors are moving to other countries where taxes are reasonably low, and where the government is interested in creating jobs rather than imposing high taxes. The economy needs investments to stimulate growth and generate revenues. But, any shrewd investor must enquire about the safety of his investment before doing so. Available statistics revealed that every geopolitical zone has witnessed a massive drop in investment.
For instance, a recent report on FDI in the country estimated at $93.3billion between 2013 and the first quarter of 2020, showed that the South East region received the least amount of $203.898 million. Comparative figures from the NBS report indicate that South East only outperformed North East and North West from 2013-2020, with capital importation of $39.4billion (0.04 per cent) and $29.9billion (0.03 per cent), respectively. The South West received the largest, $81.8billion, representing 87.70 per cent of the total FDI, South South $470.6 million (0.50 per cent), and North Central, $10.7billion (11.51 per cent). Above all, there is need for reforms at all levels of government to strengthen investors’ interest in the country.
