Nigeria’s ailing economy: FDI to the rescue

The new government in Nigeria has begun aggressive marketing of the country for inflow of foreign capital to enable it to restore its ailing economy to the path of growth. Does it have what it takes to achieve this monumental initiative? How far will it go without addressing the hydra-headed problem of corruption that has become a drag to the country’s progress?

By Chris Uba

Nigeria is desperately in need of sustainable economic growth to jump-start its   economic development that has stagnated over the years. For close to a decade, the country has been struggling to return to the path of growth without any appreciable progress. The history of  the immediate past administration  of Muhammadu Buhari, was replete with persistent  cases of zero growth.  That regime witnessed three recessions.

The move by the new regime will help to improve the quality of life of the citizenry whose living condition, the World Bank  and  other multilateral agencies  said is ,now, below poverty line.

The petroleum sector is the mainstay  of the African largest economy, contributing 36% to annual GDP, 75% to government revenues and accounting for virtually all foreign exchange earnings. Now, the country does not earn enough revenue from this sector because of  the activities of the militants in the Niger Delta, the oil bearing region of the country. Currently, it scarcely  meets its OPEC quota. This is in addition to the fluctuation of the price in the international oil market. The diversification project has not started yielding encouraging results yet. Hence, the new government must strategize on how to  change the economic narrative of the country.

Economic growth refers basically to an increase in the production of goods and services in an economy in one period of time compared with a previous period.  Increases in capital goods, labour force, technology, and human capital can all contribute to economic growth. In economics, growth is commonly measured in terms of the increase in aggregated market value of additional goods and services produced, using estimates such as gross domestic product (GDP).

 The new administration has vowed to reset the economy but nobody knows how long it will take to  put things into shape. The Nigeria’s Minister of Finance and Coordinator of the Economy, Olawale Edun, stated this at his maiden press briefing in Abuja, the nation’s capital where he outlined  President Bola Tinubu’s vision, agenda and strategy for the economy.

 “I think as we all know, we are not where we should be. The economy is barely growing above the rate of population growth. But it was not always so, and I think in trying to look at the way forward, if we now have a situation of slow growth, double-digit inflation, weak/depreciating exchange rate, as well as security concerns that are resulting in an economy that is not growing and not taking Nigerians out of poverty.

“If we think back to the last time when the economy was stable- when it was growing, when inflation was low, and the interest rate was affordable, that period was about a decade ago. Growth was about 6% in 2013 and 2014,” the Minister said.

 Zero economic growth has unleashed excruciating poverty on Nigerians. The World Poverty Clock, a tool used to track poverty progress worldwide, has reported that there are 71 million extremely poor Nigerians, according to 2023 data. The National Bureau of Statistics (NBS) also classified 133 million Nigerians as multi-dimensionally poor. In 2022, a World Bank report stated that sluggish growth, low human capital, labour market weaknesses, and exposure to shocks are holding Nigeria’s poverty reduction back. The report titled “A Better Future for All Nigerians: Nigeria Poverty Assessment 2022”, represents the culmination of the World Bank’s engagement on poverty- and inequality-relevant data and analytics in Nigeria in the past two years. There are deluge of such reports on poverty  situation in the most populous African nation.

 The question, now, is: what is the way out of this mess and what solution does the government intend to offer to extricate  the country from this?

As part of the effort to address this problem the government needs huge  inflow of  foreign capitals. The Finance Minister  who confirmed this said that  part of the key policy plank of  Tinubu’s administration is to create an environment for steady inflow of foreign direct investments (FDI) into Nigeria. This policy thrust, he said,  is informed by the belief that huge inflow of FDI will restore the country’s ailing economy to the path of sustainable growth and by so doing precipitate the economic development of the country. It is also believed  that the policy will help to improve the quality of life of the citizens whose living condition has  fallen to the lowest ebb.  

This is one of the many challenges confronting the new government inaugurated on May 29, 2023. The new leadership is working on how to put the economy back on track with a view to enabling it gradually return to meaningful GDP growth. It believes that the solution lies in the steady inflow of FDI into the country. FDI accounted for 20.8% of the country’s GDP in 2021. While this figure represents a twofold increase from the previous year (rising from $2.3billion in 2020 to $4.8billion in 2021). FDI project attraction in Nigeria has plateaued and declined since 2020. Moreover, Nigeria’s economic growth was forecasted to decline from 3.1% in 2022 to 2.8% in 2023, according to Global Data’s Macroeconomic Outlook Report on Nigeria.

The question remains: can Nigeria attract greater FDI amid a landscape of financial corruption, Islamist insurgency and one-dimensional economic strategies?

To answer this question,  since he assumed duties as President ,Tinubu has never hidden  his determination to market Nigeria. When he attended the Paris Summit for a ‘New Global Financial Pact, which held 22 – 23 June, this year he stoked foreign investors’ interest with some of his actions including the removal of petrol subsidy and the start of foreign exchange reforms. He has also committed himself to addressing the security situations in the northern part of  country as well as assuring would-be investors that measures have been put in place for them to repatriate their profits to their home countries.   

Recently, the Minister of Information and National Orientation, Mohammed Idris, who gave a score card of Tinubu’s achievements,  noted that the recent foreign trips embarked on by Tinubu have attracted $15billion pledges of FDI. He said the pledges span sectors such as energy, steel, defence, automotive, among others.

The Minister said  over the past few months, the President embarked on a series of diplomatic missions, showcasing Nigeria’s potential and fostering international partnerships. His itinerary included events such as the Summit on New Global Financing in Paris, the G20 Summit in India, the United Nations General Assembly in New York, the Saudi-Africa Summit in Riyadh, the G20 Compact with Africa Conference in Berlin, Germany, and the Climate Change Summit in the UAE.

He stressed that these engagements were not mere diplomatic formalities but a deliberate effort to stimulate economic growth, create job opportunities, and enhance overall prosperity for Nigerian citizens.

“The positive outcomes of these international shuttles are evident in expressions of interest from various quarters to invest in critical sectors of Nigeria’s economy,” he said.

The minister enthused that the influx of foreign investments is poised to contribute significantly to infrastructure development, enhance petroleum refining capacity, facilitate technology transfer, and advance key sectors, and to further solidify Nigeria’s position on the global economic stage. The President is also networking with international finance corporations and countries that would facilitate FDI into Nigeria.

His  Special Adviser Information and Strategy ,Bayo Onanuga, who shared the same sentiment  with the Information Minister  said  the President has taken some very bold steps in the area of economy, in the area of social engineering in the last few weeks, and particularly concerning removal of fuel subsidy, a harbinger of corruption, and the unification of the multiple exchange rates, which has caused a very positive multiplier effect.

 However, the removal of fuel subsidy and the move to merge foreign exchange rates, two headline reforms introduced by the administration have triggered problems such as high fuel prices and the depreciation of the Naira, two monstrosities which combined  to cause a general spike in costs of services and goods.

Today, many Nigerians complain of a rise in the cost of living. According to the latest NBS report, Nigeria’s inflation, which rose to 26.7 % in September, again rose to 28.2% in November from 27.33% in October. Food Inflation remains untamed, rising from 31.52% in October to 32.84% in November 2023.

To compound the economic problems, some multinational companies such as GlaxoSmithKline, Procter & Gamble have announced their exit from our country, complaining about the difficult operating environment and the scarcity of dollar.

Tinubu is not unaware of the side effects of his move to reset the economy. “Removing fuel subsidies had a great structural effect on the economy of the states. But we are confident that we will overcome these challenges and bounce back better,” he said. Although his administration has earned plaudits from the World Bank, the IMF and rating agencies such as Moody’s and Fitch, he is not carried away by the praises.

FDI does not come on a platter. Like other countries that are also seeking FDI, the government in Nigeria must create an enabling environment to make the country attractive for investments. Those countries, among them Singapore, India and  China, that have become heaven for FDI, are leaving no stone unturned for foreigners to invest in their domains.

 Corruption has impacted the Nigerian economy.

As the Nigeria seeks influx of FDI to kick-start her struggling economy it  must seriously show commitment to zero-corruption. A country that is noted for corruption does not attract investments from the outside world. Therefore if Tinubu wants his drive for FDI to succeed, he must step-up fight against corruption.

A study by PwC showed that “corruption in Nigeria could cost up to 37% of GDP by 2030 if it is not dealt with immediately. This cost is equated to around $1,000 per person in 2014 and nearly $2,000 per person by 2030. The boost in average income that we estimate, given the current per capita income, can significantly improve the lives of many in Nigeria”.

According to PwC report, weak investment, especially FDI is harder to predict and do business under such circumstances. Also affected is lower human capital as fewer people, especially the poor, are unable to access healthcare and education.

This implies that improvement in corruption control encourages inflow of FDI to the country, whereas a decrease in corruption control has an insignificant effect. The conducivenesses as well as attractiveness of its business operating environment are imperative  for FDI inflow.

The recent case between Nigeria and Process & Industrial Developments Limited (P&ID) revealed the high level of corruption in Nigeria. The country was spared having to pay out $11 billion in damages at the worst possible time in its history. Had the ruling been found in favour of P&ID, the scale of damage that Nigeria would have been exposed to, are better imagined than experienced?