Tackling Obstacles to Foreign Investment Inflow into Nigeria

As President Bola Tinubu continues to expect the gains of his  foreign investment drive, economic analysts said his administration should also resolve the myriad of problems militating against businesses in Nigeria, writes Festus Akanbi

There is no doubt that the symbolism of President Bola Tinubu’s investment drive played out just before he rang the Closing Bell of NASDAQ, New York, a ceremony organised by the United States Chamber of Commerce, Nigerian Exchange Group Plc (NGX Group) and Nigerian Investment Promotion Council (NIPC) recently.  

Calling on foreign investors to bring their capital into Nigeria, the president, in an emotion-laden voice and determination said his government is working on easing the free flow of capital. He also noted that his administration is actively working on reducing bottlenecks to ease the free flow of capital for investors.

“It is not about if Nigeria is open for business, it is about who wants to do business with Nigeria. Our administration has moved the exchange rate regime to a managed float and removed fuel subsidy. I call on you to come and invest in Nigeria,” the president confidently said.

The closing bell ceremony was part of events lined up in the NGX Roadshow, supported by Stanbic IBTC, CardinalStone Partners, and Chapel Hill Denham.

At the same event, the chairman of Nigerian Exchange Group Plc (NGX Group), Umaru Kwairanga, urged the president to lead the capital market reforms that will drive the actualisation of his mandate of double-digit economic growth for Nigeria.

“Under President Tinubu’s leadership, the country has made significant strides,” said the chairman of NGX Group.

He added: “The removal of fuel subsidies and liberalisation of the foreign exchange market have boosted confidence in our capital market, with the Nigerian Exchange Limited’s All-Share Index surging by 29.04 per cent since inauguration.”

He noted that while this represents success, significant opportunities lie ahead and the capital market is in more need of reforms that can further unlock increased prosperity for the Nigerian economy. Citing the reforms, the chairman highlighted legislative adjustments that will make listing more attractive and urged the president to champion the reforms.

Making Nigeria an Investment Destination

Leaving no one in doubt about his eagerness to make Nigeria an investment destination, President Tinubu’s shuttle diplomacy has also taken him to the doorsteps of some world leaders including the G20 Leaders Summit in New Delhi, India, on September 9, 2023, while he deployed his deputy, Vice President Kashim Shettima to world leaders at BRICS Summit of Heads of State and Government in Johannesburg, South Africa from August 22 to 24, 2023.

Analysts said that the president’s confidence and sincerity in his efforts to make Nigeria irresistible to investors played out in some of his presentations in New York, where he admitted that there are knotty issues to be resolved.

He said: “The knotty issues require direct supervision on my part. Despite many contending obligations, I will sit down and oversee the process of removing these encumbrances to job and wealth creation for the Nigerian people. We know the industry. We grew up in it. We are positioned to solve the problems, and we are pragmatic, and we will solve the problem.”

As it is, one of his takeaways is the commitment of the ExxonMobil President of global upstream operations, Liam Mallon, to increase its presence in Nigeria. He had assured President Tinubu that he is aware of the new and personal commitment that the president, as well as his barely four-month administration, is bringing to bear on behalf of Nigeria and asserted that he (Liam Mallon) is well placed to reciprocate the President’s efforts with new investment as he pledged new production of nearly 40,000bpd in its Nigerian operations in phase one of a new investment push in Nigeria.

In India, where the president was able to secure the commitment of Indian investors to commit nearly $14billion to the Nigerian economy, he once again promised to make life comfortable for intending foreign investors.

 “We are ready to give you the best returns for investment possible; there’s nowhere else like our country. Nigeria offers the best returns for investment today, so invest now,” Tinubu told Indian business leaders from the pharmaceutical, power, petrochemical, and agricultural sectors.

“Among these new investments, Indorama Petrochemical Limited has pledged a new investment of $8bn in the expansion of its fertiliser production and petrochemical facility in Eleme, Rivers State,” the President’s Special Adviser on Media and Publicity, Ajuri Ngelale, revealed in a statement.

Removing Obstacles to Investment

As impressive as the current drive for foreign investors is, analysts believe the government still has a long way to go in removing all the anti-investment factors currently scaring away foreign investors from the country. One of them is corruption which has been described as a serious obstacle to Nigeria’s economic growth and is often cited by domestic and foreign investors as a significant barrier to doing business. 

Nigeria has moved up four places in the latest 2022 Corruption Perception Index (CPI) although the country did not improve on its previous year’s points, according to a new index released by Transparency International (TI).

Despite maintaining its previous score of 24 out of 100 points in the 2021 assessment, Nigeria’s position went up to 150th in the new index compared to its 154th position out of 180 countries assessed in the 202 rankings.

Perhaps, one of the leading factors to the apathy of foreign investors in Nigeria was the instability in the nation’s foreign exchange market.

Analysts observed that although the current administration is trying to bring sanity into the market by putting an end to multiple exchange regimes, the reality is insufficient FX earnings and the corresponding fall in the foreign reserves are making repatriation of dollar revenue by foreign investors difficult.

To tackle this problem, Chief Economist & Head of Research, Middle East & Africa, Standard Chartered Bank, Razia  Khan said that a more liberalised foreign exchange market will be a key priority for the incoming leadership of the Central Bank of Nigeria.

According to her, “Tackling inflation and overseeing a transition to a better-functioning, more liberalised FX regime will be the key priorities.”

She explained that “Both will likely require substantial meaningful tightening, to restore confidence. As a first step on FX, a tighter monetary policy backdrop will be needed.”

She added “As an almost simultaneous step, all autonomous supply (including from oil companies) should be allowed on the official FX market, to create more FX liquidity where it is most needed.

 “Price-discovery on the official market – that is, more FX flexibility – will also be needed to reduce (hopefully once and for all), the importance of the parallel market,” she submitted.

Encouraging Local Investors

Observers said while there is nothing wrong with the campaign to bring more foreign investors, there is an urgent need to encourage the indigenous ones by putting in place the needed infrastructure. They argue that unless there is law and order in place, no foreign investor will commit his resources in a jurisdiction where he cannot rely on the court to settle disputes.

Another issue begging for urgent attention is the instability in the power sector. Analysts say Nigeria’s underdeveloped power sector is a bottleneck to broad-based economic development and forces most businesses to generate a significant portion of their own electricity.  Reform of Nigeria’s power sector is ongoing, but investor confidence continues to be weakened by regulatory uncertainty and limited domestic natural gas supply.  

They also raised the fear that the unabated security lapses remain a concern to investors in Nigeria due to violent crimes, kidnappings for ransom and terrorism in certain parts of the country.  Up till last week, members of the Nigerian security forces continued to lose their lives in virtually all the regions of the country, an indication that the battle against terrorism is far from being won. Analysts said, that until the issue of security is settled, all the investment drive of the incumbent administration cannot yield the desired results.

It is until after these bottlenecks are effectively tackled that the gains of the current foreign investment drive can become manifest.