The reality of economic growth is that business and investment spending are the true indicators of the economy. To understand where the economy is headed, forget about the populace’s spending and look into the interest rates, the productivity level of that country, economic attractiveness and readiness. I would borrow a leaf from the quote of Robert Trout, a successful society is characterised by a rising living standard of its population, increasing investment in factories and basic infrastructure and the generation of additional surplus, which is invested in generating new discoveries in science and technology. Simply put, no economy can succeed without any form of investment.
The EY report revealed that Nigeria’s economic attractiveness has been overtaken by other African countries; the country has lost the race of the investment destination in the continent. Can Nigeria equalize? The EY’s attractiveness program focuses on insights derived from understanding growth from Foreign Direct Investment (FDI) perspective into countries and regions across globe. The survey use custom-designed methodology and explores both developed and emerging markets. The program helps public sector and business leaders to make economically sound strategy and policy decisions.
According to Investopedia, FDI can be defined as an investment made by a firm or individual in one country into business interests located in another country. Generally, the macroeconomic variable takes place when an investor establishes foreign business operations or foreign business assets, including establishing ownership or controlling interest in a foreign company. It is the term that describes investment from one country into another country that involves establishing operations or acquiring tangible assets, including stakeholders in other businesses.
In recent years, Nigeria’s FDI has been struggling. In 2017, it was $981 million, a drastic fall from its previous peak of $5 billion in 2008. Truly, there are many factors militating against the growth of the FDI ranging from, prolonged insecurity, poor infrastructure and the likes. This macroeconomic indicator is highly quintessential because is it assumed to benefit a developing country by supplementing domestic investment, creating employment opportunities, transfer of technology, increase domestic competition and improve the trade openness of the economy.
The report released revealed that despite the drag in economic growth in the country, Africa investment attractiveness has improved. However, Nigeria experienced a decline while South Africa, Morocco, and Kenya showed a stronger FDI gains ahead with more projects coming their way. Nigeria is losing the race to investment attractiveness and hope to improve is dashed with the recent closure of business offices of HSBC and USB; two major global lenders that attract investors.
Here from the horse’s mouth:
We have tracked FDI for a number of years, and while we can easily assess trends in terms of shifts by sectors and geography, there is little analysis that contributes to understanding whether individual countries are under-or over-achieving in attracting FDI. To build that analysis, FDI projects have been tracked against the size of the economy, and its score on the annual World Bank Ease of Doing Business ranking. Through this analysis, it appears that countries with strong growth rates and that adopt more business-friendly policies tend to perform better in attracting FDI. Rwanda is, by far, Africa’s most successful country in terms of attracting FDI. This is evidenced by the fact that Rwanda ranks as one of Africa’s most business-friendly destinations. It is also one of the continent’s most consistent rapid growth economies. Rwanda receives 1.5 FDI projects for every US$1 billion of GDP. Measured on the same criteria, South Africa receives only 0.32 projects, attracting only 20% of what Rwanda does, given its relative size. Major economies, such as Nigeria and Angola trail by an even larger margin, receiving only 0.16 and 0.02 projects respectively. Both countries also rank very low on the Ease of Doing Business rankings compared with their counterparts in the continent. That, coupled with their recent low growth after plunging oil prices in 2016 and the same scenario persisting in 2017, would explain their low score according to this methodology.
The report hinged the falling FDI on the volatility of oil prices which the economy over depended on. The country’s reliance on crude oil for revenue and foreign exchange remains a weak link for sustainable economic growth and development. The lack of diversification puts the economy at the mercy of the dictates of the oil sector which is vulnerable to boom and doom cycles. When oil price is high, FDI inflows increase and when there is a fall, the latter follows suit. According to National Bureau of Statistics, in 2014, during the increase in oil price, the country recorded its highest FDI inflow at nearly $2.7 billion. Shamefully, as the oil price fell, the FDI follows like a lover. The over reliance on the oil sector serves as a dictate to the level of FDI inflows in the economy, Nigeria can no longer continue like this on this race else we lose out.
More so, the prolonged insecurity in the country is one factor militating against the increase in FDI inflow, the issue of insecurity in the country has become a war of giants. Insecurity put off foreign investors; safety first. Another, hindrance to the nation’s successful race to investment attractiveness is the poor infrastructure. The lack of stable power supply serves as a deterrent to major investments in the country. The cost of running a company in the country is high as a result of the reliance on expensive alternative energy source and the throat-cutting cost of petrol or diesel. With all these foxes that spoil the vine, it is not surprising to see Morocco, Kenya and South Africa overtook Nigeria.
However, the game is not yet over; all hope is not lost. The federal government has to get down to business and correct these incongruities. There should be efforts to expand the revenue base of the economy through diversification and expansion of tax base. Implement plans to strengthen the regulatory framework for investment. Wonderfully, Nigeria jumped 24 places to 145 out of 190 countries surveyed in the 2017 World Bank Doing Business Index. This is a sign that the business environment of the economy is friendly and ready for business. Nonetheless, is there any hope soon for the country? Owing to the coming 2019 election with all the burahrah of political uncertainty, no wise investor would pitch his/her tent of investment in Nigeria for the time being. The economy is fragile at this stage, so, the FDI will be kept below its peak in the next months or years unless the country experiences a ‘growth miracle’.
The race towards investment attractiveness is within reach, all depends on the strength of the athlete. Can the country race well?