The decline in foreign direct investment (FDI) into Nigeria since 2007 entered a new low in 2010. The Central Bank of Nigeria (CBN) 2010 annual report show that the FDI figure was $668 million dollars. It was $3.31 billion US dollars in 2009.
This is a dismal figure for a country seeking to transform its economy through trade and investment. Though we do not have the figures for domestic investment, it is often rare that the two move in opposite direction.
In the same CBN 2010 annual report, it is a different case with portfolio investment, which is usually short term and in paper instruments, as it climbed to over $3 billion US dollars for the first time. Effectively, there is now a preference for short term instruments in Nigeria rather than long term investments by foreigners in Nigeria. In other words, rather than take a long bet and risks on the Nigerian economy, foreigners are taking a short term bet, reflecting the strongest of all signals that the long term outlook of the Nigerian economy is uncertain. This is a serious indictment of our economic policies and programmes and the blame should not be put at the door step of foreigners but firmly at our doorstep.
We presume that the government will disagree with this in its entirety. It will lay claim to the efforts of the Nigerian Investment Promotion Council (NIPC), especially the recent success in improving its one stop shop policy. However, many analysts and we at BusinessDay are not surprised at the figures. 2010 was a preceding election year.
Indeed, 2010 was only a pre-election year but also full of uncertainties especially in relation to the succession of the former president, President Umaru Musa Yar’Adua. The tensions generated in the year and the uncertainties that followed would have provided investors enough reasons to stay away for now. While this explains the drastic fall in the figure for 2010 when compared to 2009, it does not explain the fall from 2006 and 2007 when the figure reached a sensible $7 billion US dollars.
The greatest motivation for FDI is attitude of government to businesses, and this has been lacking since 2007. Intermittently, the signals that have been coming from different government officials is that investors and business owners can be treated with contempt, leaving some with uncertainty about where they stand with the government. Second, and in relation to that, the government has treated concessionaires, some owners of privatised government enterprises shabbily in that some of the terms of the agreements have not been honoured. In addition, since 2007, the government has not pursued reforms that signals the shift towards private investment and management in the Nigerian economy. Also, the inconsistency with several international laws that include that of the World Trade Organisation (WTO).
However, the president Jonathan-led government has started well. First, by changing the focus of the former commerce and industry ministry to that of trade and investment. Investment is backbone of all industries and in a country with a population of 160 million, there is no need for a “preference” but the promotion of all forms of investment. What is now required is a concrete improvement in the government’s attitude towards businesses, both domestic and foreign. However, if the government does not change its attitude in signalling a preference for private investment and management in the country, the fall in FDI may continue and remain permanent at this low level.
The concrete arrangements that government can make include looking into the laws and the discharge of laws that govern investment and see ways they can be improved. The conclusion of the Petroleum Industry Bill (PIB) will hasten investment in oil and gas. The removal of subsidy on petrol will hasten investment in refineries. A look at the bottlenecks in all the free trade zones and see ways in which investment is impeded will also help.
Finally, it is the right treatment of those that have already invested that will be the greatest pull of foreign investment in Nigeria.