By Franklin Alli

Nigerian Investment Promotion Commission (NIPC) has enjoined policy makers to introduce poverty reduction considerations into the country’s FDI policies, and FDI considerations into the poverty reduction strategies.

Speaking on the occasion of the Ministry of Trade and Investment’s first bi-annual seminar for journalists NIPC’s CEO, Mr. David Adelugba, highlighted the sort of effects and transmission mechanisms of which our policymakers should be aware when making policies and designing strategies for either poverty reduction or FDI attraction.

In his paper, entitled ‘The Contribution of Foreign Direct Investment to Poverty Alleviation,’ he noted that there are different types of FDI, namely: infrastructure FDI, labor-intensive FDI, capital-intensive FDI; “Zone” creation of Industrial Parks; service sector FDI, e.g. tourism, agriculture / agro-processing FDI; FDI in state-owned enterprise (SOE) restructuring, M&A and joint venture investments versus wholly foreign-owned enterprises (WFOEs) and export oriented FDI.”

Represented by Deputy Director, Executive Secretary’s Office, A.S.Takuma, he pointed out that FDI in infrastructure sectors can make a substantial direct and indirect contribution to poverty reduction and sustainable human development (SHD.

“Amongst other benefits, infrastructure FDI can address basic human needs; improve security and “quality of life”; provide access to markets, employment opportunities and education; simultaneously improve the efficiency and reduce the cost of utility service provision; and free scarce government resources for other socially desirable investments.”
According to him, FDI policies can affect poverty reduction, and poverty reduction policies can affect FDI.

“The task of our policymakers is to coordinate policies affecting the two areas in such a way as to optimize the contribution of FDI to poverty reduction.

“We believe that, in the context of seeking to reduce poverty, FDI promotion must address the following concerns: No disincentives to labor employment; encouraging FDI outside urban centers; balancing labor market flexibility and workers welfare; avoiding bias against, and promoting, SMEs; enforcing environmental safeguards; promoting FDI participation in the provision of basic needs; and broad stakeholder participation in FDI-related policies.”

“FDI is not just composed of capital flows, but a package of long-term capital, technology and management skills, productive capacity, and so on, and has both direct and indirect impact on the economy.”

In assessing the effects of FDI on human development and poverty reduction it is important to draw a distinction between its direct and indirect impacts.

FDI clearly does make a direct contribution, for example through measurable employment and income generation, but its aggregate impact seen in these terms is very small, and it is the indirect contribution that is of greater consequence.

The indirect benefits of FDI for a host country’s economic development are transmitted through linkages (backward and forward), spillovers, demonstration effects, and so on.