Dangers of Nigeria’s negative foreign investment inflow

A report a few days ago that Nigeria recorded a negative Foreign Direct Investment (FDI) inflow in 2022 is indeed a worrisome pointer to the persisting unattractiveness of the country’s investment climate. According to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report released early July 2023, Nigeria “experienced negative (-$187 million) inflows due to equity investments.” Following this trend too, first quarter 2023 capital inflow into the country also dropped significantly by 28 percent, from $1.573 billion in the first quarter last year to $1.132 billion (year-on-year). According to the report released by the National Bureau of Statistics (NBS), the bulk of the capital inflow (in the first quarter 2023) was from portfolio investment (57.32 percent); ‘other investments’ accounted for 38.31 percent while FDI was merely 4.20 percent.

The NBS explained that the decline in capital importation can be attributed to “a variety of factors, including the prevailing global economic uncertainty as well as the persistent political instability within Nigeria.” The NBS said “these factors have likely contributed to a cautious approach among foreign investors, leading to a decline in capital inflow.” Although these statistics (of FDI inflows) are for 2022 and first quarter 2023, current trends and near-future situations in Nigeria are unlikely to be anything different. Indeed, as implied by the NBS, capital importation (FDI and Foreign Portfolio Investment, FPI) is largely a function of the economic climate of a recipient country. Therefore, the decline in FDI (especially into negative levels) is an ugly testimonial of a poor and deteriorating investment climate for any nation. And in this case, Nigeria!

The UNCTAD report and the NBS data therefore serve as a timely indictment of the Government of Nigeria and its propaganda on so-called improvement in the ease of doing business in the country in the past several years. In point of fact, on the contrary, Nigeria’s investment climate has been getting gloomier and uncompetitive; with numerous businesses fleeing the shores of the country to more enabling and attractive environments. Whether in the manufacturing sector, the aviation industry, shipping and logistics business or the hospitality or automobile sectors, the Nigerian economy has been experiencing an exodus.

Specifically, not a few of the International Oil Companies (IOCs) have left the shores of Nigeria (either fully or in part) in the past few years. Some left on grounds of “energy conversion” for greener pastures while others got practically suffocated by the stifling business environment. Local operators or entrepreneurs who acquired these businesses (in full or part) are yet grappling with the scorching and uncertain terrain in Nigeria.

Today, if any sector is in distress, it is the aviation industry — where for all of eight years, the Federal Government of Nigeria under President Muhammadu Buhari kept struggling to ‘re-start’ the defunct Nigerian Airways. The effort ended up a huge fraud — with nothing to show for it, while billions of dollars (of public funds) went down the drain. The story of foreign airlines operating in Nigeria and whose well-earned revenues running into hundreds of millions of dollars remain trapped in the country — sends all the ugly signals to the world. Deep-seated corruption within the officialdom is yet prevalent in the industry: it accounted for the quick exit of the otherwise reputable Virgin (Atlantic) Airlines from Nigeria. Virgin that entered into a Memorandum of Understanding (MoU) to emerge as the country’s national carrier was ‘sabotaged’ even by the bureaucrats of the Federal Government. Who wants to invest in the aviation industry today?

Despite the pretensions to the contrary, there was a time when the industrial sector in Nigeria was really booming: Nigerians rode in locally assembled cars, buses and trucks. Volkswagen Automobiles produced cars in its Lagos plant; Peugeot cars in Kaduna; Leyland produced trucks/buses in Ibadan and ANAMMCO in Enugu also assembled buses and trucks. Dunlop produced tyres in Lagos and its plants elsewhere and Michelin tyres were produced in Port-Harcourt. In the textile industry, the giant UNTL Textile Mills in Kaduna, Chellarams, President Industries, Chanrais and many others across the country practically ‘clothed Nigerians.’ Unfortunately, none of these businesses is alive today; all are moribund, with their erstwhile huge warehouses serving mainly as places of worship!

It won’t be out of place to say that a number of factors combined to make Nigeria the ‘investment desert’ that it is today (having negative FDI in 2022). There are internal and external factors — major among them being policy somersaults by successive governments, entrenched corruption, ill-digested policies, insider abuses/sabotage, mono-product economy, insecurity, etc. External factors would include the impact of globalisation, global insecurity and wars, COVID-19 pandemic, among others. Successive governments in Nigeria seem not to have gotten their priorities right; thus, economic diversification always received mere lip service while the so-called infrastructural development efforts almost always turned out hollow. On the contrary, the infrastructural gap has kept widening over time!

In the fiscal policy realm, for no obvious reasons, governments over the years have been creating multiplicity of taxes and levies. These now constitute serious disincentive and impediment to existing and potential investors. This is why the few-weeks-old President Bola Ahmed Tinubu administration is flagging the tax issue to, perhaps, decisively deal with the incubus. In this regard, it has empanelled the Taiwo Oyedele-led Presidential Committee on Fiscal and Tax Reform. The government has also gone ahead through Executive Orders to suspend/postpone the effectuation of some tax laws enacted at the twilight of the President Muhammadu Buhari administration, including the Finance Act 2023.

Fittingly and properly, operators in the real sector of the Nigerian economy have interpreted the President Tinubu gesture as “shallow”, and are demanding for “absolute reversal and not suspension” of the tax laws, among others. Indeed, the Nigeria Employers’ Consultative Association (NECA) insists that the transformation of the country’s economy would require an absolute reversal of key tax measures and not just postponement. NECA director-general, Adewale Oyerinde, who spoke at a recent Nigeria Employers’ Summit at Abuja, said the “taxes have the potential to worsen the nightmares of the organised businesses and push many into extinction.”

Truly, if the Tinubu administration is bent on turning Nigeria’s investment fortune around for good, it must deal decisively and expeditiously with the tax conundrum — that has practically stalled the country’s economic growth for long. As reported by the National Bureau of Statistics (NBS), if portfolio investment is accounting for over 57 percent and FDI is merely 4.20 percent of foreign investment inflow at this point in time, then Nigeria is fast degenerating into a ‘pariah state.’ But Nigeria badly needs a total transformation, well diversified and productive economy, safe and secured polity on the backdrop of minimal corruption and committed and transparent leadership. So much political will and clear-headedness is a sine qua non!

The federal government’s palliatives here and there and tokenism cannot pull out the economy from its current place far in the woods.