The deepening slump in foreign investment currently witnessed in the Nigerian economy is a bad omen for the country. The inauspicious trend should evoke sincere concerns among those in a position to address it. Aside from its pernicious impact, it is inexorably linked to every sector and touches every facet of our lives. Data from various reports show that investment inflow has sharply dwindled since the beginning of 2021, culminating in a negative status in the first half of the year. Not only do the data convey deepening effects, they show situations that could frustrate the enabling environment towards achieving a healthy economy.
The first wailing voice was raised by the Nigerian Investment Promotion Commission (NIPC), a government establishment created to encourage, promote and co-ordinate investments in the Nigerian economy. The agency, in a report published in July 2021, revealed that investment announcements in Nigeria declined by a whopping 80 per cent in the second quarter.
According to NIPC, investment inflow fell to $1.69 billion in the second quarter from $8.41bn in the first quarter. The report also revealed that the total value of investment interests in the first half of the year fell by $1.57 billion to $10.11 billion, compared with the value recorded in the second half of the previous year.
In another report, the National Bureau of Statistics (NBS) said that investment in Nigeria slumped to the lowest level in four years as of the first six months of 2021. The bureau, in its report entitled, ‘Nigerian Capital Importation (Q1 & Q2 2021),’which was released on July 28, 2021, showed that the total amount of foreign investment in the nation’s economy was $2.78 billion in the review period. This was against $7.15 billion recorded in the corresponding period (second half) of 2020, a shortfall of 62 per cent.
While the first quarter of 2021 recorded total investment inflow of $1.905 billion, the figure dropped to mere $875 million in the second quarter, representing a decrease of 54.06 per cent when compared with the first quarter of 2021. It also represents 32.38 per cent decrease as against the second quarter of 2020 when $1.29 billion investment came to the economy.
Although the picture of total investment inflow has been painted in gloomy colours, of greater concern is the deepening slump in Foreign Direct Investment (FDI), which has a greater impact on the economy to propel growth and expand job opportunities. This is against the comparatively limited impact of Foreign Portfolio Investment (FPI). The latter largely comprises investments in stocks and shares that naturally have limited linkage to job creation. Over the years, FPI has dominated investment inflow and this gives a false picture of a healthy economy.
According to the NBS recent report, the largest amount of capital importation by type was received through portfolio investment, which accounted for 62.97 per cent ($551.37m) of total capital importation. This was followed by other investments that accounted for 28.13 per cent ($246.27m) of total capital imported. Conversely, FDI accounted for 8.90 per cent ($77.97m) of total capital imported in Q2 2021, the lowest figure.
The FDI figure of a mere $78 million in Q2 from $148.59 in Q1, a decline of 47.53 per cent, has a direct link with job losses and low income which impacts negatively on tax revenue. For instance, the unemployment rate jumped from 13.4 per cent in 2016 when FDI was a key investment inflow, to 33.1 per cent in 2020, an increase of 197 basis points.
The NBS report also revealed a sharp decline in the sectors that mostly attract FDI and which have the propensity to create jobs and boost economic growth. These include agriculture, production, oil and gas, telecommunications, construction and IT services.
FDI in agriculture in Q2 2021 decreased to $28.9 million from $66.40 million in the previous period of Q1, a decline of 56.47 per cent, while production which recorded $182.19 million in Q1 2021 nosedived to $68.03 million, representing a 62.66 per cent drop. In the same sliding trajectory, the oil and gas sector attracted a total FDI of $57.25 million in Q1 2021 only to drop by 80.22 per cent to $11.32 million in Q2 2021.
The telecommunications sector received FDI totaling $56.28 million in Q1 2021, but dropped to a terrible level of $.34 million or 99.4 per cent. FDI in construction recorded zero inflow in Q1 2021 as against $1.50 million in Q2 2021. Similarly, FDI in IT services trickled to $0.03 million in Q1 2021, compared with $1.60 million in Q1 2021.
The scenario suggests that foreign investors have decided to look the other way because they are losing confidence in the economy. The sharp decline in foreign investment inflow witnessed in the first six months of 2021, could scuttle policies meant to boost the economy. This is because an investment deficit has implications for development, employment, revenue and income growth with ultimate effect on the GDP.
It is investors’ confidence that drives investment, whether domestic or foreign. The Federal Government should address all aspects of the unfriendly investment climate plaguing the economy. These include insecurity, infrastructure deficit, diverse institutional and regulatory and structural challenges, which erode investors’ confidence in the economy. Our institutions must be strong. The private sector should be strengthened to create jobs and drive the economy.
Investors are generally very cautious and painstaking in taking decisions with respect to FDI. The country must be conducive for investment as no one would be willing to invest in a hostile environment.
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