We all know that Nigeria is Africa’s largest economy, and with a population of 200 million people, one with huge potential for growth. It is therefore a country of the significant potential for foreign direct investment and foreign investors. But, for several reasons including a weak macroeconomic environment, policy inconsistency and the absence of a well-defined strategy for FDI as a component of economic growth strategy, FDI into Nigeria has declined markedly in the past several years.
Nigeria’s strategy for FDI
1. First, have a strategy: the priority sectors for the governments at federal and state levels need to be clear. The quality of investment, the quality of the government structure that handles FDI and formulates investment policy, and measurable, long term objectives regarding FDI and performance management regarding the contribution of FDI to economic development, are essential. These should be woven into a single thread that becomes the basis for execution, communication and engagement with potential investors.
2. Develop factor endowment: with skilled human capital as a priority need, strategies for FDI must focus on this frequently neglected objective. The presence or absence of productive knowledge in a society is the most important foundation for economic transformation, which remains necessary for a country such as ours with an economy still in need of diversification.
3. Align FDI with a transformational paradigm shift, for example away from extractive industries or towards value-added derivatives of such industries.
4. Improve national coordination of FDI activities between national and sub-national units.
5. Offer strong investor protections: Legal regimes in Nigeria must be adapted to facilitate increased flows of high-quality investment, in particular in light of regional trade realities such as ECOWAS, and now the African Continental Free Trade Area (AfCFTA). Beyond this, Nigerian authorities – and foreign investors- should incorporate political risk guarantees into major FDI agreements. This includes making use of guarantees offered by the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA) for losses relating to currency inconvertibility and transfer restrictions, expropriation, terrorism, war and civil disturbances, breaches of contract, and failure to honour sovereign financial obligations.
6. Partial Risk Guarantees offered by the World Bank’s International Development Association (IDA), the arm of the Bank that leads to low income and lower-middle-income developing countries, cover an even more extensive range of situations than MIGA products. They can support participants in private projects such as Build-Operate-Transfer (BOT) and concession projects, public-private partnerships (PPP), and privatizations.
7. Improve the quality of governance and institutions: Assessments of governance and institutional capacity to create a sustainable investment environment play an important role in attracting quality investment.
The Nigerian Investment Promotion Commission (NIPC) has done a good job in recent years despite a difficult macroeconomic environment, including in terms of revenues it has generated for the Federal Government from foreign investments into Nigeria. I know from personal experience that, despite the early stages of the security challenges from terrorism, the Central Bank of Nigeria’s far-reaching reforms in the banking and financial sector which stabilized the sector after the global financial crisis of 2008, contributed to marked increases in FDI into Nigeria from 2009-2014. These reforms led to improved ratings of Nigerian by agencies such as Standard and Poor’s, Fitch, as well as the inclusion of Nigeria in the JP Morgan Africa Emerging Market Bond base Index alongside South Africa, which was previously the only sub-Saharan African country on the index.
Address by Professor Moghalu, President & CEO, Sogato Strategies LLC, Former Deputy Governor, Central Bank of Nigeria at the United States-Nigeria Investment Summit held in New York City, recently.
Presented By Romano Pisciotti