Foreign Direct Investment (FDI) into Nigeria may have returned to the downward trend after a mild recovery in 2018. The downward trend began in 2015.
The Capital Importation Report by the Nigerian Bureau of Statistics, NBS, shows that FDI stood at $666.33 million as at quarter three 2019 (Q3’19), a quarterly average of $222.11 million.
FDI position had fallen year-on-year (y/y) in the last three years, dropping by 56.9 percent to $981.75 million in 2017 from $2.28 billion in 2014, but recovered mildly by 21.2 percent to $1.19 billion in 2018.
However, a breakdown of the report shows that FDI at an average of $222.11 million in 2019, may fall below 2018 figure given a consistent trend through the year.
Further breakdown shows that the figure has continued to maintain a downward spiral as it fell YoY by 62.99 percent in third quarter 2019 and 10.23 percent Quarter-on-Quarter, QoQ, in the same period.
However, analysts at Financial Derivatives Company (FDC) have said that the take-off of the African Continental Free Trade Area (AfCFTA) in May this year may increase the level of FDI inflow, but stressed the need for clear and transparent policies as well as a strong legal framework to improve the investment climate.
“The good news is that Nigeria has finally signed the AfCFTA, which creates a larger market and will facilitate the free flow of goods within Africa, said Bismarck Rewane, Managing Director/CEO, Financial Derivatives Company.
“Nigeria stands to gain from AfCFTA on three fronts. Firstly, its large market (accounting for roughly 17% of Africa’s population and GDP) makes Nigeria an ideal place for business headquarters. Secondly, once these headquarters are established, Nigeria could see a further increase of FDI as companies invest heavily to export from within the AfCFTA and avoid tariffs.
“Thirdly, as the largest country in Africa, Nigeria offers a cheap labour force, which is a compelling opportunity for investors and should also contribute positively to Nigeria’s unemployment problem,” Rewane said.
He, however, said that for AfCFTA to be fully effective, the government must address stringent policies, bureaucratic bottlenecks for securing permits, high finance costs, low foreign exchange availability, and weak legal framework continue to deter investments.
“The other key challenge to investments in Nigeria is the country’s huge infrastructure deficit. The level of infrastructural development in a country plays a key role in attracting foreign investors. The epileptic power supply, poor road and rail infrastructure, and gridlocks at the ports have all increased the cost of doing business in the country.
“There is a need for clear and transparent policies as well as a strong legal framework to improve the investment climate. The Presidential Enabling Business Environment Committee (PEBEC) initiatives such as e-registration of business, e-filing for taxes, and the elimination of lawyer’s services in registering a business, among others, have helped to save time and reduce the cost of registering a business. In Kano for instance, businesses can now be registered in less than two days compared to months, previously,” he added.