When it comes to FDI, Nigeria has multiple strengths. However, growth is still hindered by the inadequacy of infrastructure, corruption, and other systemic issues. Here is a look at the key trends observed in recent years.
In Africa, Nigeria is the third most favoured receiver of FDI after Egypt and Ethiopia. Traditionally, its energy sector and construction have been the strongest magnets. In 2021, the attraction of foreign investment is crucial, as the local economy is suffering from the far-reaching implications of the pandemic.
Some Key Figures
The pandemic exacerbated issues that were already pronounced. The country was desperately trying to cope with the effects of the oil countershock and the austerity measures. Then, COVID-19 came, and the demand for oil exports dried up. The global surplus had a detrimental effect on the country’s revenues.
In 2019, FDI had almost halved. It amounted to $3.3 billion, according to the UNCTAD 2020 World Investment Report. A year prior, this figure stood at $6.4 billion. The total value of FDI stock in 2019 was $98.6 billion. 19 new Greenfield Investments were launched worth $10 billion overall (a rise of 25%).
So, what are the sources of FDI today? The biggest investors are the UK and the US, France, China, and the Netherlands. Now, the government realizes the deficiencies of the local system that prevent further growth. It has been taking measures to boost the appeal of the region. However, in 2021, these will be hindered by the aftermath of lockdowns.
What Has Been Done
To be fair, the country has shown considerable improvement in multiple aspects. These include the ease of launching an enterprise, permit acquisition, electric supply, registration of properties, enforcement of contracts, and cross-border trading. For the second time, the country has been included in the top 10 performers.
In recent years, Nigeria has attracted capital flows from such major players as Uber, Facebook, and other US-based companies. Meltwater Group and Emergent Payments have also contributed. The second-biggest investor is China that is primarily focused on Nigerian textiles, automobiles, and aerospace technologies.
The local population has become more financially literate. Today, retail currency trading is growing rapidly. International brokers like Forextime provide new opportunities for remote investment. Nigeria now has the second-largest volume of daily Forex trading. Efx investment options are increasingly interesting to the local residents who access the largest financial market worldwide.
Key Strengths of Nigeria
- the largest population and GDP in Africa;
- a large domestic market;
- considerable reserves of oil and gas;
- fossil fuel reserves;
- big potential for agricultural development;
- low external and public debt;
- the economic liberalization of recent years, including encouragement of strategic alliances and public-private partnerships.
Key Weaknesses of Nigeria As FDI Location
First, the local transport system and infrastructure are still inadequate, which increases operating costs. Secondly, as an oil exporter, the country is susceptible to market volatility. Thirdly, the local judicial environment hinders dispute settlement.
Additional concerns include a lack of security and political stability, particularly due to the activities of Boko Haram. The country has deep divisions reflected in the behaviour of state and tribal authorities. These disagreements make federal-level initiatives difficult to implement.
What Has to Be Done
Nigeria’s key weakness is its over-reliance on fossil fuels. Collapsing oil prices cause an economic downturn. It is only through diversifying that this flaw can be eliminated.
The country needs a competitive manufacturing sector. On the one hand, it will boost local production. On the other hand, it will help integrate it into global value chains. The government understands it well. The Federal Ministry of Industry, Trade, and Investment was established to facilitate the merging of the three sectors. When these develop in unison, this will improve the conditions for trading and investment.
According to the World Bank’s 2020 edition of Doing Business Report, international business is complicated by the local environment. Nigeria is the 131st country in terms of ease of doing business. In 2019, however, it only ranked 146th, so progress is evident.
The country’s oil and gas reserves, cheap labor, favorable taxation, and partially privatized economy attract investors from abroad. At the same time, the influx is still limited due to bureaucracy, corruption, the inadequacy of infrastructure, and political instability. Clearly, the government still has a lot to do.