How Nigeria Can Attract Foreign Investment To Build The Economy
According to the World Bank, there are currently 685 million people, mostly from developing nations, living in extreme poverty, with economic conditions exacerbated by high food and energy prices. In Nigeria, headline inflation rose to 27.33 percent in October 2023, a stark leap of 6.24 percentage points from 21.09 percent recorded in October 2022.
Also, in October 2023, food inflation in Nigeria spiked almost to a two-decade-old high of 31.52 percent on a year-on-year basis, a 7.80 percent point higher compared to 23.72 percent recorded in October 2022. With inconsistency in crude oil production and dwindling exchange rates, there’s a huge task before the government at all levels to promote inclusive growth.
In addition to the government’s humongous task of promoting inclusive growth are other pressing issues including infrastructure deficit, inadequate power supply, limited transportation networks, and the absence of basic amenities. These aforementioned concerns pose substantial obstacles to smooth business operations in the country.
These hurdles facing Nigeria’s economy are historically perceived as complex and appear to have defied several attempts by leaders to find a lasting solution. One of these complexities is shown in how foreign investors often face difficulties navigating the labyrinth of obtaining permits, licenses, and compliance with state and local regulations. Limited access to finance, characterised by insufficient capital and high borrowing costs, presents a hurdle for both local and foreign investors. Despite government efforts to improve access through initiatives and partnerships, this remains a pressing concern.
While recent reforms show promise, addressing these gaps requires additional investments or partnerships from various sectors. Despite a decline in foreign direct investment (FDI) to $468 million in 2022 from $698 million a year earlier, Nigeria remains a beacon of opportunity. The government’s shift towards economic diversification away from oil dependency opens doors in sectors like manufacturing, agriculture, technology, renewable energy, and infrastructure, offering fertile ground for investors.
Though recent monetary policy reforms trigger concerns about economic stability, the government’s commitment to transparency measures and economic programmes should assuage short-term uncertainties. With the recent economic policies like the unification of the exchange rate and removal of the fuel subsidy, which has received commendations from the World Bank, the clarity, consistency, and transparency by which these policies are executed are critical for attracting FDIs.
The Nigerian business landscape, primarily driven by small and medium-sized enterprises (SMEs), faces challenges, notably limited access to finance. The new administration must create an enabling environment for financial institutions to offer accessible and affordable credit facilities tailored to SMEs’ needs, potentially through dedicated funding programmes and collaborations.
Adapting to economic and political climates remains crucial for sustained growth. Understanding market dynamics aids in adjusting portfolios during uncertainties, ensuring resilience amidst changing landscapes. Moreover, navigating global trade dynamics necessitates partnerships, local value addition, technological innovation, and advocacy for fair trade policies.
For example, Honeywell Group, a leading investment holding company with a legacy spanning 50 years in Nigeria, strategically evaluates sectors ripe for investment. Opportunities in natural minerals, real estate, hospitality, energy, and technology show immense growth potential within the Nigerian market. The group employs diversification strategies across these sectors to hedge against inflationary pressures.
The African Continental Free Trade Area (AfCFTA) presents opportunities for businesses and investors alike to capitalise on. According to World Bank, the implementation of AfCFTA would boost Africa’s income by $450bn by 2035 (a gain of seven per cent) while adding $76bn to the income of the rest of the world. Furthermore, AfCFTA is expected to create a market of over 1.3 billion people and a combined GDP of approximately $3.4 trillion.
Recent economic indicators, despite transitions and uncertainties, demonstrate Nigeria’s resilience. With a GDP growth rate of 2.51% (year-on-year) in Q2 2023, the economy reflects diverse sectoral strengths that can weather fluctuations and changes in leadership.
To truly understand Nigeria’s investment landscape demands not only astute navigation of challenges but also the adept seizing of opportunities and the formulation of adaptive strategies, pivotal for sustained success in this ever-evolving and dynamic market.
Written by Clifford Egbomeade
