The United States has said in its 2020 investment climate report that pervasive corruption, high cost energy/erratic power supply and intense security challenges are amongst the bottlenecks militating Nigeria’s investment climate.
Other developments that have worked against the most populous black nation, according to the report, include inconsistent regulatory and legal environment, a slow and ineffective bureaucracy and judicial system, and inadequate intellectual property rights protections and enforcement.
The US 2020 investment climate report which was published this week and obtained by our correspondents, detailed all the facets of Nigeria’s investment trajectory, recognised investment reforms undertaken by the government of Nigeria in the area of ease of doing business and pioneer tax holiday to investors.
It noted that the Nigerian government has undertaken reforms to help improve the business environment, including making starting a business faster by allowing electronic stamping of registration documents, and making it easier to obtain construction permits, register property, get credit, and pay taxes, saying the reforms undertaken since 2017 have helped boost Nigeria’s ranking on the World Bank’s annual Doing Business rankings to 131 out of 190.
It however, said: “No growth is expected in the near term and although 2019 ended with a real growth rate of 2.3 per cent, this is still below Nigeria’s population growth rate of 2.6 per cent. With the largest population in Africa (estimated at nearly 200 million),
Nigeria continues to represent a large consumer market for investors and traders. Nigeria has a very young population with nearly two-thirds under the age of 25. It offers abundant natural resources and a lowcost labour pool and enjoys mostly dutyfree trade with other member countries of the Economic Community of West African States (ECOWAS).”
It also said that Nigeria’s full market potential remains unrealised because of pervasive corruption, inadequate power and transportation infrastructure, high energy costs, an inconsistent regulatory and legal environment, insecurity, a slow and ineffective bureaucracy and judicial system, and inadequate intellectual property rights protections and enforcement.
Referencing the nation’s persistent power sector failure, one of the black spots undermining its economic growth, the report noted that, “Nigeria’s underdeveloped power sector remains a bottleneck to broad-based economic development. Power on the national grid currently averages 4,000 megawatts, forcing most businesses to generate much of their own electricity.”
It disclosed that the World Bank currently ranks Nigeria 169 out of 190 countries for ease of obtaining electricity for business. Reform of Nigeria’s power sector is ongoing but investor confidence continues to be shaken by tariff and regulatory uncertainty. However, three years after its launch, differing perspectives on various PSRP interventions have delayed implementation.
The Ministry of Finance is driving the implementation effort and has convened three government committees charged with moving the process forward in the areas of regulation, policy, and finances.
“Discussions between the government and the World Bank are continuing, but some sector players report skepticism that the World Bank’s $1 billion loan will be enacted, though FGN may proceed without it.
The plan is ambitious and will require political will from the administration, external investment to address the accumulated deficit, and discipline in implementing plans to mitigate future shortfalls.
“It is, nevertheless, a step in the right direction, and recognises explicitly that the Nigerian economy is losing on average approximately $29 billion annually due to lack of adequate power”, the report observed.”
It pointed out that the country’s trade regime remains protectionist in key areas, even as the trade regime, the report pointed out, was characterised by high tariffs, restricted forex availability for 44 categories of imports, and prohibitions on many other import items with the aim of spurring domestic agricultural and manufacturing sector growth.
The report noted that the Nigerian government continues to promote import substitution policies such as trade restrictions, foreign exchange restrictions, and local content requirements in a bid to attract investment that would develop domestic production capacity and services that would otherwise be imported.
The import bans and high tariffs used to advance Nigeria’s import substitution goals have been undermined by smuggling of targeted products (most notably rice and poultry) through the country’s porous borders, and by corruption in the import quota systems developed by the government to incentivize domestic investment.
“Nigeria’s imports rose in 2019, largely as a result of the country’s continued recovery from the 2016 economic recession. U.S. goods exports to Nigeria in 2018 were valued at $2.7 billion, up nearly 23 per cent from the previous year, while U.S. imports from
Nigeria totaled $5.6 billion, a decrease of 20.3 per cent.” U.S. exports to Nigeria are primarily refined petroleum products, used vehicles, cereals, and machinery. Crude oil and petroleum products continued to account for over 95 per cent of Nigerian exports to the United States in 2018 (latest data available).
This is even as the stock of U.S. foreign direct investment (FDI) in Nigeria rose to $5.6 billion in 2018, a substantial increase from $3.8 billion in 2016, but only a modest increase from 2015’s $5.5 billion in FDI. U.S. FDI in Nigeria continues to be led by the oil and gas sector”.
The report stated that agencies created by the Nigerian government to promote industrial exports remain burdened by uneven management, vaguely defined policy guidelines, and corruption.
This is even as the country’s inadequate power supply and lack of infrastructure coupled with the associated high production costs leave Nigerian exporters at a significant disadvantage.
Many Nigerian businesses fail to export because they find meeting international packaging and safety standards is too difficult or expensive. Similarly, firms often are unable to meet consumer demand for a consistent supply of high-quality goods in sufficient quantities to support exports and meet domestic demand.
The report alleged that most Nigerian manufacturers remain unable to or uninterested in competing in the international market, given the size of Nigeria’s domestic market. On corruption, the report observed that, corruption risk associated with the Nigerian business environment, potential investors often develop anti-bribery compliance programs.
It noted that the Nigerian court system is slow and inefficient, lacks adequate court facilities and computerized document-processing systems, and poorly remunerates judges and other court officials, all of which encourages corruption and undermines enforcement. Judges frequently fail to appear for trials and court officials lack proper equipment and training.
Also, it said that the constitution and law provide for an independent judiciary; however, the judicial branch remains susceptible to pressure from the executive and legislative branches. Political leaders have influenced the judiciary, particularly at the state and local levels.
According to the report, the United States and other parties to the Organisation for Economic Co-operation and Development (OECD) Anti-Bribery Convention aggressively enforce anti-bribery laws, including the U.S. Foreign Corrupt Practices Act (FCPA).
“A high-profile FCPA case in Nigeria’s oil and gas sector resulted in U.S. Securities Exchange Commission (SEC) and U.S. Department of Justice rulings in 2010 that included record fines for a U.S. multinational and its subsidiaries that had paid bribes to Nigerian officials.
Since then, the SEC has charged an additional four international companies with bribing Nigerian government officials to obtain contracts, permits, and resolve Customs disputes”, it said.
It said that security remains a concern to investors in Nigeria due to high rates of violent crime, kidnappings for ransom, and terrorism.
“The ongoing Boko Haram and Islamic State in West Africa (ISIS-WA) insurgencies have included attacks against civilian and military targets in the northeast of the country, causing general insecurity and a major humanitarian crisis there.
Militant attacks on oil and gas infrastructure in the Niger Delta region restricted oil production and export in 2016, but a restored amnesty program and more Federal Government engagement in the Delta region have brought a reprieve in violence and allowed restoration of oil and gas production.
The longer-term impact of the government’s Delta peace efforts, however, remains unclear and criminal activity in the Delta – in particular, rampant oil theft – remains a serious concern”.
The report noted that maritime criminality in Nigerian waters, including incidents of piracy and crew kidnapping for ransom, had increased in past years but the Nigerian government has shown its determination to end the menace by recently launching an integrated maritime security infrastructure, otherwise known as the Deep Blue Project.
A development it said has continued to produce good result with the International Maritime Bureau (IMB) disclosing in it Q2 2021 report saying that the Gulf of Guinea recorded its lowest piracy report in 27 years in the first six months of the year. The report noted that the businesses report that bribery of Customs and Port officials remains common to avoid delays, and smuggled goods routinely enter Nigeria’s seaports. In conclusion, the report observed that although the constitution and laws provide for freedom of speech and press, the government frequently restricts these rights.
A large and vibrant private, domestic press frequently criticizes the government, but critics report being subjected to threats, intimidation, and sometimes violence as a result.
Security services increasingly detain and harass journalists, including for reporting on sensitive topics such as corruption and security.
As a result, some journalists practice self-censorship on sensitive issues. Journalists and local NGOs claim security services intimidate journalists, including editors and owners, into censoring reports perceived to be critical of the government. Ahmed Amaechi