Foreign direct investment: How ready is Nigeria?

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By UDEME CLEMENT

As the Federal Government battles to sustain capital inflows into the economy through Foreign Direct Investment (FDI), analysts are of the opinion that pragmatic steps must be taken to tackle insecurity in the country.

Already, World Investment Report (WIR), of the UN Conference on Trade and Development (UNCTAD), revealed that FDI flows to Nigeria fell to $6.1 billion (N933.3 billion) in 2010, showing a decline of 29 per cent from the $8.65bn (N1.33 trillion) realised in 2009 fiscal year.

Also, statistics obtained from the 2010 annual report by Central Bank of Nigeria (CBN) shows that the total foreign capital inflow into the Nigerian economy in 2010 was $5.99 billion.

The record shows that that FDI represents, 78.1 percent drop from $3.31 billion in 2009. Analysts attributed the decline in FDI to the increasing rate of insecurity in the country as well as infrastructural decay. Excerpts:

Nigeria is safe for FDI – Mr. Mark Iloh, Registrar International Logistics and Administration: Nigeria is secure for FDI notwithstanding recent bombings in some parts of the country.

This is because investments are expenditure on physical assets, which are not for immediate consumption but for the production of consumer and capital goods and services.

President Jonathan

Investments made by business firms are governed by the desire to maximise profit in the long-run. FDI is viewed as a major stimulus to economic growth in developing countries due to its ability to deal with two major obstacles.

The major factors determining foreign investment destination are size of the market, incentives and operating conditions, and privatisation.

Size of the market: Some studies found Gross Domestic Product (GDP) growth rate to be a significant explanatory variable for sub-Saharan Africa as a whole. GDP is a major factor.

Only three countries in the sub-Saharan African low-income countries are amongst the nine main recipients of FDI flow in the recent years, and Nigeria is close to being classified as a large market according to (UNCTAD) United Nations Conference on Trade and Development benchmark of $36bn GNP (Gross National Product), indicating that small market size needs not be a constraint in the case of resource endowed, export-oriented economies.

In fact the extractive industries in the low-income African countries continue to attract foreign investors and investments.

In contrast, some countries have large markets but received proportionately relatively small (below1 per cent) foreign investment flow.

Labour costs and productivity: Empirical findings have proved that relative labour cost to be statistically significant particularly for foreign investment in labour-intensive industries and for export oriented subsidiaries.

The decision to invest in a country has been heavily influenced by the prevailing low wage rate. The rapid growth in foreign direct investment to Nigeria has been attributed primarily to the availability of low cost labour.

However, when the cost of labour is relatively insignificant (when wage rates vary little from country to country) the skills of the labour force are expected to have an impact on decisions about FDI. Productivity levels in sub-Saharan Africa are low than in low-income Asian countries and attempt to redress the skill shortage by importing foreign workers.

Incentives and operating conditions:  Low taxes have no major impact on FDI particularly when they are seen as compensation for continuing comparative disadvantage removing restriction and trade barriers and providing good business operating conditions are generally believed to have a positive effect on investment by foreign investors.

Open door policy and enhanced incentives for investors in a special economic zone contributes to the initial influx of FDI in a particular country, but lack of transparency in investment approval procedures and extensive bureaucratic system are still deterring foreign investors.

Privatisation: Privatization has attracted some direct investment flow in recent time as a result of privatization, progress is still slow in the majority of low-income countries, partly because the divestment of state assets is a high political issue with the privatization exercise in Nigeria some substantial amount of foreign direct investment cash flow has been introduces into the country.

Mrs.-Ifueko-O.-Okauru

There are varying impacts of foreign direct investment on economic growth in Nigeria by various Scholars but with high degree of responsibility, foreign direct investment is positively associated with GDP and greater inflow of foreign direct investment will spell a better economic performance for the country.

Infrastructure covers many dimensions ranging from roads, ports, railways and telecommunication systems to institutional development. Surveys in sub-Saharan Africa indicates that poor accounting standards, inadequate disclosure and week enforcement of legal obligations have damaged the credibility of financial institutions to the extent of deterring foreign investors. Bad roads, delays in shipment of goods at ports and unreliable means of communication have added to these disincentives.

Infrastructure development and proper emergency management system are important – General Manager, Lagos State Emergency Management Agency, Dr. Oluwafemi Oke Osanyintolu: Government is already embarking on massive infrastructure development in order to attract more FDI.

Mr. Mark Iloh

Infrastructure development is imperative to economic growth and development, especially at a time the government is trying to restructure the economy for greater productivity.

Emergencies are not random and do not occur by accident, they are the convergence of hazards risks and vulnerable conditions in the human environment and could have adverse effect on the economy if not properly managed.

Disasters not only revealed underlying social, economic, political and environmental problem but unfortunately contribute to worsening them, such events pose serious challenges to development, as they erode hard-earned gains in terms of political, social and economic as well as infrastructure and technological development.

Global and national trends have revealed that disaster occurrence is at an escalating level and requires the global communities to intensify collective efforts towards reducing and mitigating the number and effects of natural and man-made disaster.

Statistical Survey has revealed that there is an increased level of human induced emergencies/disasters in Nigeria with particular reference to highly urbanised states in Nigeria with special reference to mega-city Lagos.

This upsurge is as a result of high entropic interaction between man-man/man-environment producing simultaneous interesting reactions thereby making the environment a space of opportunity and more a space of risk with negative undesirable output (emergencies/disasters) which include but is not limited to; Flooding, collapsed building, explosions, fire outbreak, epidemic outbreak in the economic environment.

Government must provide a conducive environment for inflow of FDI – Mrs. Ifueko Omoigui Okauru, a fellow, Institute of Chartered Accountants of Nigeria, Chartered Institute of Taxation of Nigeria and the first female executive Chairman, Federal Inland Revenue Service (FIRS): Government should provide an enabling economic environment for influx of FDI. Aside from that, there must be transparency and accountability in the system.

Nigeria needs sincere leaders and technocrats to drive positive changes in the economy. Also corporate entities need sincere managers with vision and skills to drive changes. Government should improve in its efforts to fight corruption and improve on security network in the country. Government needs performance management to build a growing economy like Nigeria .

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