NIGERIA’S mismanagement of its physical and economic space continues to deliver adverse outcomes. The crash by 80 per cent in foreign capital inflow over two years as revealed by the Central Bank of Nigeria follows on the back of the COVID-19 pandemic, insecurity, and the unfavourable business operating environment. Considered indispensable to significant economic growth, the federal and state governments need to adopt effective policies to liberalise the economy and attract huge foreign investment to drive development, reduce poverty and create jobs.
Adding to other dismal statistics, the CBN in its monthly economic report, said capital inflow fell sharply from $17.1 billion January to July 2019 fell sharply to $3.4 billion January to July 2021. It had fallen to $8.6 billion in 2020, the first full year of COVID-19. The bank pinned the capital flight on the “risk averseness of foreign investors on account of uncertainties associated with the pandemic, oil price shocks and fragile economic activities.” Others cite the country’s chaotic foreign exchange market and naira devaluation, insecurity, and dwindling investment opportunities in a poorly managed economy.
No economy can grow dramatically without foreign investment. It sustains even the world’s richest industrialised countries. Nigeria’s inability to attract the much-needed foreign capital reflects its existential paradox as a country with an immense physical and human endowment that however perpetually fails to reach its potential.
Its domestic private sector and the financial services industry are not deep enough to mobilise the quantum of resources needed to meet the infrastructure and investment gaps.
Broadly, money flows into a country through two means: Foreign Direct Investment and Foreign Portfolio Investment. FDI, the most preferred for an emerging economy, is direct money inflow invested through substantial equity participation by a foreign investor. FPI is money invested in stocks and bonds in the country. Unlike FDI, it is unstable and of short-term duration. Called “hot money,” their performance depends on the profitability of the stocks in the near term and the stability of the economic environment. Attracted mainly by instant high returns, at the first sign of turbulence or uncertainty, portfolio investors flee, seeking safer harbours.
Buffeted by the oil price crash since mid-2014, contraction in the productive sectors and the prolonged lull in the capital market, worsening ease of doing business, insecurity and the pandemic, portfolio investors have bolted. A report said N287.57 billion FPI left the country from January to July 2020 compared to an inflow of N143.65 billion. The Nigerian Exchange Limited data revealed foreign investors pulling out N1.64 trillion from the capital market from 2018 to 2020. A desperate move by the CBN to attract FPI by offering up to 14 per cent yield on its treasury bonds at a time United States bonds offered 1.8-2.0 per cent fell apart from 2019 when Saudi Arabia began an oil price war, and the COVID-19 pandemic devastated the global economy, thus drying up a major source of forex for Nigeria, reported Stears Business.
FDI inflow, the long-term stream, has also suffered. From $2.3 billion in 2014, it fell to $1 billion in 2016, tilting the balance of capital inflow in favour of the unstable FPI segment. From 35 per cent of the total capital inflow in 2016, FPI accounted for 68 per cent by 2019, said the National Bureau of Statistics.
The President, Major-General Muhammadu Buhari (retd.), and state governors should realise that no country stumbles into economic success; this requires planning, adoption of the right policies and the political will to see them through. All three are lacking in Nigeria. The two tiers must improve the operating environment. Ranked 131 out of 190 countries on the World Bank’s Ease of Doing Business Report 2020, Nigeria embarrassingly ranked 21 among the 54 African countries surveyed, coming far behind Mauritius (No 13), Rwanda (38), and Morocco (53).
Making Nigeria an attractive investment destination requires improving infrastructure, restoring stability to the forex market, improving the ports and airports, ending lawlessness and impunity, and strengthening the rule of law and the enforcement of contracts. Investors seek safety above all else; insecurity; featuring terrorism, banditry, and piracy, vandalism, kidnapping, and armed robbery are among the factors that repel foreign investors. The US, United Kingdom, Canada, Ireland, and other EU countries have issued travel advisories to their nationals and businesses against travelling to the country.
On power, where the World Bank ranks Nigeria 169 of 190 countries on the ease of obtaining electricity for business, the US Department of State describes it as “a bottleneck to broad-based economic development” requiring a radical overhaul. The average 4,000 megawatts delivered daily to businesses and homes cannot sustain Africa’s biggest economy.
Instead of the Buhari regime’s imprudent borrowing binge, it should privatise and liberalise the railways, ports, airports, and steel sectors to attract FDI. Liberalising the telecoms sector facilitated $80 billion in FDI and 500,000 jobs from 2001 to 2021, said the Nigerian Communications Commission. Active telephone lines jumped from 400,000 to 180 million today.
The states must drop their indolence, waste, and fiscal incompetence by transforming them into vibrant economic units. They should have economic programmes that leverage agriculture, mining, SMEs, ICT, manufacturing, and services. To attract domestic and foreign investment, they should harmonise their tax systems, invest heavily in rural infrastructure, education, and skills acquisition. Competition among its seven autonomous federating units enabled the United Arab Emirates to attract $19.88 billion FDI in 2020, a 44.2 per cent increase despite the pandemic.
Experts recommend adopting investment-stimulating policy measures. China overtook the US as a top FDI recipient in 2020 with $212.5 billion following its adoption of Public-Private Partnership for infrastructure, reviewing income tax and investment laws to create greater transparency, and upgrading special economic zones. Egypt overtook South Africa in 2019 as Africa’s largest FDI beneficiary following reforms of its foreign exchange management, privatisation of state-owned enterprises, investment in power and transport infrastructure, and liberalisation. Its $5.9 billion FDI inflow in 2020 said UNCTAD’s World Investment Report, retained Africa’s top spot; Nigeria dropped to fourth place with $2.4 billion, below South Africa’s $3.1 billion and Ghana’s $2.65 billion.
Buhari and the state governors should move urgently with the right economic policies to increase public revenues; reverse poverty, illiteracy and joblessness.
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