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Lessons from last Foreign Direct Investments report, way forward – Experts

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By Nkiruka Nnorom
Against the backdrop of consistent decline in Foreign Direct Investments (FDIs) as indicated by the latest report of the National Bureau of Statistics (NBS) on capital importation, economy experts have highlighted some of the lessons the fiscal authority should learn from the report to move the economy forward.

Part of the lessons, according to them, is the need for the government to improve on its corruption perception and also address some of the structural challenges confronting the economy, particularly the huge infrastructure deficit.

Foreign Direct Investments

Report on capital importation for quarter three, Q3’8, released last week by NBS showed that despite the low appetite in the capital market by foreign investors, which has resulted in huge outflows in the last few months, Foreign Portfolio Investment (FPI) accounted for chunk of the capital importation at 60.35 percent in Q3’18, though it tumbled 37.7 percent year-on-year (YoY) in November to $1.7 billion. However, FDI accounted for just 18.58 percent of the total capital importation, but increased quarter-on-quarter (QoQ) by 103.03 percent.

Although some of the economists argued that 103.03 percent QoQ growth in the FDI suggests greater diversification of the economy, but they emphasised the need for improvement in the ease of doing business.

Recall that the World Bank in its October 2018 Doing Business Report indicated that Nigeria’s overall Doing Business Ranking fell from prior 145 to 146, despite the recent effort by the federal government aimed at easing the business environment. The World Bank report showed that with the exception of an appreciable improvement recorded in tax payment (up 14 points) and Starting a Business (up 10 points), Nigeria continued to rank low in critical indices such as registering property (184), trading across border (182) and getting electricity (171), out of 190 countries surveyed.

Facilitate Ease of Doing  Business – Cowry Asset Mgt.

Suggesting a leeway to boost FDI, analysts at Cowry Asset Management, a Lagos-based investment banking firm, called for improvement in the ease of doing business in the country, though they opined that YoY growth in FDI suggests greater diversification of the economy.

“The federal government still needs to do more to facilitate its ease of doing business as well as improve on its corruption perception in order to attract more investments in the real sector and further grow the local economy as the country’s Gross Domestic Product (GDP) per capita continues to fall amid relatively faster population growth,” they said.

Structural challenges confronting the nation still remains – United Capital

Also, United Capital in a report titled, “Is Ease of Doing Business in Nigeria Getting Easier”, said that structural challenges facing the economy such as huge infrastructure deficit, the difficulty of getting electricity and regulatory bottlenecks, which are key concerns for investors, remain largely unresolved despite the obvious economic exigencies.

2019: Between ease of doing business and ease of doing fraud

The firm asserted that except radical reforms are instituted, investments in Nigeria may remain sub-optimal in the short to medium term.

It said: “To match Nigeria’s rising population size, projected at c.400 million by 2050, the country must address sustained infrastructural deficit to drive a sustainable and inclusive growth. The Apapa Port gridlock in Lagos is currently the best symbol of gapping infrastructure in the country, a reflection of the poor state of road networks, port congestion and regulatory lapses.

Clearly, this is reflected in the low ranking of the country in Trading Across Border (182) and Getting Electricity (171), according to World Bank Oct-2018 report on Ease of Doing Business. We believe capital flows are unlikely to rebound in Nigeria until the 2019 election outcome is clear.”

Confidence in long term outlook for a market necessary for FDIs – Emerging Africa Capital

Toyin Sanni, CEO, Emerging Africa Capital Group declared that it is not surprising that FDIs constituted just 18.58 percent of capital importation in Q3’18, saying that they are longer tenored investment that require a level of confidence in the long term outlook of a market considering that they are harder to unwind.

She explained that with elections approaching, investors, especially long term ones, typically become more cautious and want to see the country conduct a successful election before they proceed with such decisions. Sanni added that many investors may also wait to confirm the policy stance of the elected government before entering or investing more in the market.

She, however, disagreed with others on the state of ease of doing business in the country, saying: “This may not be necessarily related to the ease of doing business, an area in which the current government has made progress, but may relate more to the perception of the long-term attractiveness of our market such as the outlook for strong economic growth as well as risk-perception.”

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