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Nonye Obi-Egbe: FDI and the Nigerian investment climate

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Nonye Obi-Egbe: FDI and the Nigerian investment climate

by Nonye Obi-Egbe

The number one producer of crude oil in Africa, the Federal Republic of Nigeria is having trouble lifting its population out of extreme poverty.  For the last ten years the country has experienced strong growth, largely due to oil revenues.  And yet this West African country, the most populous of the continent with around 173 million inhabitants, has hardly benefited.

Thus begins the Berne Declaration 2013 – Swiss traders’ opaque deals in Nigeria.  According to figures from the United Nations Conference of Trade and Development (UNCTAD), Nigeria received over 76 billion dollars in foreign direct investment in 2012.  This figure falls neatly after only 45 countries, where the United States takes the lead at 3 trillion dollars.  Accounting for the state of economic development in the first 45 countries, including South Africa, Nigeria is actually not in a bad position being 46th on the list.  However, it remains to be seen how well these figures contribute to the growth of the country.

Foreign direct investments (FDIs) are direct inflows of investment (money, technology etc.) from entities in a country to entities in another country.  Researchers believe that FDI can improve an economy because of its injection of technological expertise and capital financing.  This relationship, some contend is not always direct or profitable; yet the understanding is that for a country to benefit from FDI, such a country must have acceptable levels of infrastructure, a friendly investment climate, relatively developed human capital, and government support.  Specifically, the Organisation of Economic Co-operation and Development (OECD) says,

The net benefits from FDI do not accrue automatically, and their magnitude differs according to host country and context. The factors that hold back the full benefits of FDI in some developing countries include the level of general education and health, the technological level of host-country enterprises, insufficient openness to trade, weak competition and inadequate regulatory frameworks.  Conversely, a level of technological, educational and infrastructure achievement in a developing country does, other things being equal, equip it better to benefit from a foreign presence in its markets.

Therefore, given that the Nigerian economy is yet to reap the full benefits of FDI, it is entirely safe to assume that the country is lacking in almost all of the identified supporting factors.

Both education and health receive prime placement in the Millennium Development Goals (MDGs), targets that Nigeria enthusiastically agreed to pursue.  By 2015, all children in the country should be able to complete a full course of primary level schooling.  Additionally, there should be a two-third reduction in infant mortality, a three-quarter reduction in maternal mortality and access to reproductive health for all.  With less than two years to go, Opinion Nigeria reports that as at August 2013, 6 out of 10 children are in school and there is a small reduction in both maternal and infant mortality.  These slight improvements are yet to be seen or felt nation-wide however, and the low-income earners still have trouble receiving timely healthcare.

The Federal Ministry of Science and Technology and the National Technology Development Agency (NITDA) are just two of the agencies responsible for technological development in country.  In fact, the tagline of the ministry reads, ‘harnessing technology for Nigeria’s social & economic development’.  Still, technology in Nigeria is years behind those in developed countries, and closely related with technology is infrastructure, most of which is publicly owned therefore poorly managed.  Unfortunately, it seems to be getting worse; the International Finance Corporation (IFC) Doing Business 2014 rank for Nigeria fell nine points from 138 in the 2013 ranking.  A large part of that can be attributed to technological issues like electricity.

Other research into the relationship between FDI and economic growth in Nigeria points to a shortage of skilled labour – the issue of human capital development.  The NOGICD Act 2010 and the NCDMB are improving human capital in the oil and gas sector, the sector that receives most of FDI inflows to the country.  This however, does not solve the problem in the other sectors like manufacturing.

The Nigerian government is keen to attract foreign investment into the country; there are, in fact, a number of legal frameworks that encourage and support FDI.  Additionally, the Nigerian Investment Promotion Council (NIPC) was set up to organise, support and encourage investments in the country.  However, the opaque nature of our investment climate, evident in the shady business deals and underhand investment transactions, reduce and in some cases prevent much-needed investment.  Paradoxically, the effects of FDI should indirectly eliminate or reduce corruption, but without government support, we cannot have FDI and it seems government support goes hand in hand with cronyism and bribery.  Summarily, we may continue to have large inflows of FDI but its direct effects on our economy will remain a quandary.

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