Business Feature

Why investors shunned Nigeria since 2015 –Teriba, Muda Yusuf, others

• Nigeria not among 10 best investment destinations in Africa


While addressing the trade and investment forum at the recent Expo 2020 in Dubai, President Muhammadu Buhari said that Nigeria remains the most viable and attractive investment destination in Africa. However, PAUL OGBUOKIRI reports that the country has moved from the number one investment destination on the continent in 2013 to number 14


Egypt sits atop Africa’s investment destinations


In a recent report, Nigeria dropped from Africa’s top 10 investment destinations to 14 while Egypt remained the number one nation. This is according to a report by RMB titled, ‘Where to Invest in Africa 2021.’ According to RMB, a division of FirstRand Bank Limited, the ranking is based on countries’ operating environments.


RMB Africa Economist, Daniel Kavishe, said the pandemic ushered a new world and a new approach to this year’s list. Kavishe said: “We created a new set of rankings that incorporated some of the unavoidable COVID-19-induced challenges, of which the operating environment score was one.” According to him, fiscal scores are important indicators of how governments respond to COVID-19.


He said: “The inclusion of a fiscal score in our rankings aimed to score governments’ fiscal positions and provided a basis from which investors can understand specific jurisdictions.


“Although the pandemic brought devastation, it also enabled opportunities for reimagining policies and trade relationships. Increasingly clear now is that home-grown strategies to tackle poverty, inequality and unemployment across Africa must be implemented. If not, all of Africa suffers.”


According to him, capital will flow naturally to economies offering a good mix of opportunity and ease of doing business. According to the company, the top 10 African countries to invest in are Egypt, Morocco, South Africa, Rwanda; Botswana, Ghana, Mauritius, Côte d’Ivoire, Kenya and Tanzania. The company ranked Nigeria outside the top 10 at number 14.


The company said: “The sheer size of Nigeria’s economy and large population base has undoubtedly aided the country’s economic environment and has led to an increase in investments in the economy over the past 10 years.


In 2018 and 2019, Nigeria was ranked in the top 10 (eighth in both years). The company added that the nation’s economy was constrained by a weak policy environment and dire infrastructure provision.


According to the company, Nigeria was ranked 13 in 2017, and ranked number six in 2016. In 2014, Nigeria ranked as number two and dropped to number five in 2015.


Nigeria was top FDI destination in Africa in 2013

In 2013, Nigeria became the number-one destination for foreign direct investment, overtaking South Africa for the first time in a decade. It had a total FDI of $5.56 billion, PFI of $5,532 billion.


Earlier in 2012, the country had $7.07 billion. That year alone, high-level delegations from North America pledged vast sums to bring the country’s energy sector up to speed.


Before then, it was reported that foreign investors were coming to Nigeria in droves from all over the world and they had taken advantage of the congenial business environment created by the government to step up their volume of investments.


In January of that year alone, foreign direct investment (FDI) inflow into Nigeria was estimated at $5.2 billion (N800 billion). There were indications that this figure would continue to rise.


According to the 2012 World Investment Report, prepared by the Genevabased United Nations Conference on Trade and Development (UNCTAD), Nigeria emerged as Africa’s biggest destination for FDI in Africa in 2011, with $8.92 billion, up from $6.10 billion recorded in 2010.


UNCTAD ranked South Africa next with $5.81 billion, while Ghana ($3.22 billion); Congo, ($2.93 billion); and Algeria, ($2.57 billion) trailed behind in that order during the period under review.


The report ranked these countries as the top five African FDI destinations, based on the volume of FDI they received.


Though total FDI inflows to Africa declined in 2011 for the third successive year since the global economic meltdown began in 2008, the report noted that inflows to sub-Saharan Africa rose from $29.5 billion in 2010 to $36.9 billion in 2011, a level it said was comparable to the peak of $37.3 billion achieved in 2008.


The report further attributed the drop (a total of $42.7 billion) to the protracted social instability in Egypt and Libya, two North African countries which had been major recipients of FDI.


However, the table turned in 2015 when the country’s FDI dropped to $3.06 billion and the downward journey continued till 2018 when the country recorded a paltry N780 million.


FDI, which rose slightly again to $2.31 billion in 2019 has never regained the lost grounds as it has trailed very far behind Egypt and Democratic Republic of Congo which are the first and second investment destination on the continent respectively.


Data from the United Nations Conference on Trade and Development (UNCTAD) shows that Nigeria received $2.3 billion of FDI inflows in 2019, a yearly decline of 48.5 per cent.


Only Egypt ($9 billion) and the Democratic Republic of the Congo ($3.4 billion) received more inward FDI during a year that saw FDI inflows across the whole African continent fall 10.3 per cent to $45.4 billion.


Nigeria’s FDI slumps to its lowest in 11 years


Specifically, FDI dropped to $77.97 million in Q2 2021, indicating a 49.6 per cent and 47.5 per cent decline compared to $154.76 million and $148.59 million recorded in the previous quarter and Q2 2020 respectively.


The last time Nigeria recorded lower FDIs was in Q1 2010 when it managed to attract foreign direct investments valued at $73.93 million. According to the Organisation of Economic Co-operation and Development (OECD), FDI is an integral part of an open and effective international economic system and a major catalyst to a country’s development.

However, Nigeria has failed to attract foreign investments in form of FDIs to its local businesses in recent times, which is a cause for worry especially for a country in dire need of an economic boost.


Most economies target increased FDI due to its importance in driving economic growth. Foreign Direct investment boosts the creation of jobs in the host country as investors build new companies in the country, which in turn leads to increased income, more purchasing power, and an overall boost in the economy. However, the current state of Nigeria’s economy, ravaged by various structural, fiscal, monetary, and socio-economic issues has further dampened investors’ sentiments towards investing in the economy.


It is worth noting that a World Bank report, released earlier in the year, had projected a weak FDI trend for African countries in 2021. However, the reality of FDI investments in the current year remains far distant compared to the previous year, which was affected by the Covid-19 pandemic, lockdown measures, and restrictions to movement.


Despite the report, the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, described Nigeria as the best investment destination in Africa at the recent Paris Peace Forum in France even as he urged French investors to invest in the country.


The CBN boss said Africa holds the best frontier for development in the world today, with the continent providing the highest yield from investments.


Meanwhile, a report on global investment trends by the United Nations Conference on Trade and Development shows that FDI flows to Africa declined by 18 per cent to an estimated $38 billion in 2020, from $46 billion recorded in 2019.


The reduction in direct investment was attributed to lower crude oil prices and the closure of oil development sites at the start of the pandemic due to movement restrictions. Foreign portfolio investments (FPIs) in Nigeria recorded a 77.4 per cent year-on-year decline in the first quarter of 2021 to stand at $974.1 million.


This is according to data obtained from the Central Bank of Nigeria (CBN) on Nigeria’s foreign investments. Portfolio investments dropped from $4.31  billion recorded in Q1 2020 to $974.1 million in Q1 2021.


Quarter on quarter, however, this was a 1,635 per cent increase compared to $56.15 million recorded in the previous quarter (Q4 2020). FPIs generally consist of securities and alternative foreign financial assets that are passively held by foreign investors.


It involves an investor purchasing foreign financial assets, such as; equities, bonds, derivatives, mutual funds, and guaranteed investment certificates, among other instruments.


According to the Chief Executive of Economic Associates, Dr Ayo Teriba, the Federal Government must improve the business operating environment by bridging the infrastructure deficit, driving FX reforms, and reinforcing fiscal sustainability, all of which will improve private-sector ingenuity and fuel investments.


He, however, said that as it stands, the country’s inability to generate stable revenue and the worsening of its debt profile will further serve as significant headwinds to achieving this objective.


Why investors are staying away from Nigeria


Although President Buhari said that his administration focused on policies, projects and programmes that support private sector investors and has introduced numerous fiscal incentives and infrastructure projects aimed at enhancing the viability of investments, indications are that foreign investors have been avoiding Nigeria since 2015 because they are not sure of the protection of their investments according to EU investors.


Speaking at a recent EU-Nigeria business forum, Michel Arrion, head of the EU delegation to Nigeria said that, “If they invest here, if they sign a contract, if they have a problem, can they go to court? Can they enforce their contracts.


So, the problem is the question of the rule of law.” “It is not a question of money. Those big companies will bring their financing.


They will be bankable. The problem is not the money. The problem is not the investor, the problem is not the market, the problem is the image of Nigeria and the capacity of Nigeria to have strong institutions to protect the citizens and also the residents and the investors.”


“If you want us to go into the north-east or into the Delta, we will have problems with criminality, kidnapping; if people start kidnapping engineers, it is a very bad signal.”

“We need another monetary policy. You can’t continue with the system of dual exchange rate. So, sooner or later, you will have to harmonise those exchange rates.”


Other experts who spoke to Sunday Telegraph, unanimously blamed unfriendly investment climate, intractable security challenges and acute infrastructure deficit, among other institutional and structural problems as the core factors responsible for the FDI to the country.


In separate interviews, the immediate past Director-General, Lagos Chambers of Commerce & Industry (LCCI), Dr. Muda Yusuf and Fiscal Policy Partner, PwC Nigeria, Mr. Taiwo Oyedele, canvassed key reforms to boost investors’ confidence in Nigeria’s domestic economy. The LCCI’s former director-general pointed




out that diverse institutional, regulatory and structural challenges had eroded investors’ confidence in the Nigerian economy.


Specifically, Yusuf said: “It is investors’ confidence that drives investment, whether domestic or foreign. Investors are generally very cautious and painstaking in taking decisions with respect to Foreign Direct Investment (FDI).


“This is because FDIs are often long term and invariably more risky, especially in volatile economic and business environments. Uncertainties aggravate investment risk. Investors in the real sector space are grappling with structural problems especially around infrastructure.”


Yusuf, therefore, identified key areas of the troubled economy that completely eroded confidence, especially since 2015 when President Muhammadu Buhari took over the leadership of Africa’s biggest economy. He noted that there “are grave concerns about liquidity in the forex market. There are concerns about the accelerated weakening of the currency.


There are issues of heightened regulatory and policy risks in many sectors. “Investors’ confidence has also been adversely affected by the worsening security situation in the country. Meanwhile, our domestic economy is still struggling to recover from the shocks of the Covid 19 pandemic.


These are the likely factors affecting investment decisions,” he said. He, however, suggested that the country’s ability to attract FDI would largely depend on how its political leadership could position the economy and work out strategies to restore investors’ confidence in the economy. LCCI’s former director-general, thus, canvassed the investment climate quality, which according to him, would make a huge difference if objectively mapped out and passionately implemented.


He, also, asked the Federal Government “to ensure an acceleration of necessary reforms to make Nigeria a much better investment destination. We need policy reforms, regulatory reforms and institutional reforms, among others.


“We should accelerate the ongoing foreign exchange reforms; we need to undertake trade policy reforms to liberalise trade in sectors of weak comparative advantage; we need regulatory reforms to make regulations more investment friendly.


“We need to create new opportunities in the public private partnership (PPP) space, especially in infrastructure. We need to see more privatisations of public enterprises. It is important as well to quickly fix the ravaging insecurity in the country. All of these are crucial to boost investors’ confidence.”


Oyedele, also Chairman of the COVID-19 Intervention Committee for PwC West Africa, shared Yusuf’s position on factors responsible for fall in the FDIs, observing that investment “is attracted by the prospect to earn competitive risk adjusted returns.”


As much as Nigeria presents a huge opportunity for descent returns in virtually every sector, he argued, the risk factors have escalated in recent times especially insecurity, foreign exchange risk and policy uncertainties.


He, therefore, said these factors made the country’s risk adjusted returns unattractive and unappealing, saying while it was unfortunate; it was not surprising to see the significant decline in the flow of FDI into the country.


Even for existing businesses across sectors, Oyedele explained that the country “is experiencing low gross capital formation and decline in purchasing managers’ index both pointing towards low domestic investment.”


In this light, Oyedele recommended that the Federal Government should be deliberate in addressing the key challenges especially insecurity and policy environment to attract the much needed foreign and domestic investments.




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