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Taming Nigeria’s obsession with foreign direct investment

The universal principle of development has shown that domestic capital takes the lead while foreign capital follows suit
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Nigeria’s media space was recently awash with reports of President Bola Tinubu’s failure to secure major Foreign Direct Investments (FDIs). On 28 April 2024, Mr Ajuri Ngelale, President Tinubu’s Special Adviser on Media and Publicity, reported that Nigeria had secured US$600 million from the Danish shipping and logistics company, A.P Moller-Maersk (Maersk for short), to expand existing port infrastructure during the 2024 World Economic Forum Special Meeting in Riyadh, Saudi Arabia. Within 48 hours, however, Maersk debunked the news, stating that it had not signed any new investment deal with the Nigerian government. By the same token, QatarEnergy disclosed two days later that it was not drawn to Nigeria’s business climate despite President Tinubu’s visit to Qatar. While the inflow of foreign capital is widely upheld and celebrated as a critical necessity for attaining economic development in several low- and middle-income countries, obsession with such investments is often fuelled by certain ideological convictions that favour a wholesale acceptance and preference of foreign capital and corresponding disdain towards local investments.

The proclivity of the African ruling class to prioritise foreign investments over their local equivalence is essentially undergirded by their blanket adoption of the Western development paradigm. This paradigm attributes Africa’s development dilemma to what it considers the continent’s deep-rooted orientation towards traditional development imperatives. In its current manifestation, this framework finds expression in the epistemological tradition of liberal institutionalism through which different multilateral financial institutions, purveyors of economic reforms and their bourgeois academic enablers, strive to convince many low- and middle-income countries that development is led by the private sector. This liberalisation thesis emphasises the inflow of foreign investments as the primary driver of economic growth and development. Unfortunately, the African ruling class has displayed a strong preference for this liberalist approach to capital investment over local alternatives.

For starters, it is important to point out that the assumption that foreign capital is the main driver of national development, despite its volume relative to domestic investment, is misleading. The universal principle of development has shown that domestic capital takes the lead while foreign capital follows suit. Examples from Western Europe, the United States, Japan, China, South Korea, and other more industrialised countries largely show that their national development was substantially driven by economic nationalism. Given the importance of local investments in driving national development, it is not surprising that these countries formulated national strategies, policies and programmes to support and promote the growth of their domestic industrial giants such as General Motors, Ford, McLaren Group, Volkswagen Group, BMW, Toyota, Honda, Nissan, Sonny, Panasonic, Mitsubishi, Toshiba, Hyundai, Daewoo, Sam Sung, LG, Kia, and so on. Whereas every country requires increased productive investment to prosper, it is rather perplexing that Africa is unduly fixated on attracting foreign investments rather than providing institutional and financial support to local industries and investments.

Second, every investor is necessarily driven by profit maximisation and will seek any available opportunity to achieve this objective. It is disconcerting and ironical to hear foreign investors claim that they want to “assist” their host countries in job creation, industrialisation and foreign exchange preservation. It is, therefore, a misguided lesson of development to expect that any country or foreign investor would deliberately choose to “assist” others in their development initiatives. Countries do not engage in acts of charity; rather, they solely prioritise their national interests which revolve around the security and prosperity of their citizens. It is only coincidental if the pursuit of such interests inadvertently benefits others.

Third and as a corollary, it is also based on the wrong lessons of development that African leaders spend far too much time and humongous scarce resources chasing foreign investors through wasteful travels and investment promotion jamborees. This is because serious foreign investors often have more information about the underlying economic fundamentals of their prospective investment destinations than the wasteful propagandistic PowerPoint investment promotion jamborees can ever offer.

Nigerian leaders have acquired infamy for travelling from one country to another in search of foreign investors. Former President Olusegun Obasanjo remains the most travelled Nigerian leader, visiting 97 countries during his tenure (1999 to 2007) in a desperate effort to attract foreign investments, secure debt forgiveness, repair Nigeria’s tainted global image and restore ties with countries and multilateral bodies that had imposed sanctions on the country. In general, Obasanjo’s economic diplomatic shuttles merely attracted “foreign investors” who mainly colluded with the compradorial class to buy Nigeria’s privatised national assets at ridiculously low prices. By May 2023 when former President Buhari completed his eight-year tenure, he had reportedly travelled to 43 countries—some more than once—in a wild goose search for FDIs. However, data from the National Bureau of Statistics shows that FDI dropped from US$1.45 billion in 2015 to US$698.7 million in 2021 and further to US$468.08 million in 2023. In the same vein, Nigeria’s GDP plummeted from US$493 billion when President Buhari assumed office in 2015 to US$440.8 billion in May 2023 when he completed his tenure. Despite spending a whopping ₦21.04 billion on overseas trips in a slippery search for FDIs in the last three years, 14 sub-national governments in Nigeria failed to attract any foreign capital to their states. This suggests that the attraction of FDI has become a decoy for the wastage of public revenues.

More fundamentally, local investors/investments are hardly accorded a quarter of the privileges often made available to their foreign counterparts even when the former have a greater impact on national development through foreign exchange preservation and revenue reinvestments. Some of the concessions often accorded foreign investors include generous tax exemptions, government subsidies, the right to complete ownership of their enterprises and complete profit repatriation. There is no gainsaying the fact that these preferential treatments drastically erode most of the touted benefits of such investments.

Despite certain limitations, the success story of the Dangote Industries Limited—Nigerian multinational industrial conglomerate—clearly attests to what indigenous investors can achieve given the right measure of government support. Similarly, the state support for the Innoson Vehicle Manufacturing and Air Peace Limited, even while limited, shows that they can compete favourably with their foreign counterparts. It is deducible, therefore, that if the existing indigenous companies are adequately supported through relevant protectionist policy formulation and implementation, tax incentives, subsidies, patronage, and so on, Nigeria will not only achieve a favourable balance of trade and payment regime but also play a leading role in regional and global political economy.

Without addressing the underlying issues that make Nigeria’s business environment unattractive to investors, President Tinubu has started shuttling from one country to another under the guise of attracting FDIs. Among others, the issues that must be addressed to attract FDIs include exchange rate volatility, widespread security challenges across the country, energy crisis, pervasive corruption, rising cost of production, policy inconsistency, and so on. It is not surprising that QatarEnergy identified the climate of insecurity in the Niger Delta as one of the justifications for its refusal to respond positively to President Tinubu’s invitation to invest in Nigeria. Apart from widespread insecurity (including the abduction of expatriates), the electricity crisis in Nigeria continues to degenerate.

Besides its extremely low electricity generating capacity (Nigeria generates an average of 4,000MW of electricity for over 200 million people across the country), Nigeria’s power grid has collapsed no fewer than six times in 2024 alone due to gas supply constraints, transmission infrastructure vandalism, and liquidity crisis, among others. In all, Nigeria has recorded a total of 105 cases of power grid collapse between 2015 and May 2024. The immediate consequence of the Nigerian hostile business environment is that several manufacturers and multinational supermarkets have either shut down, relocated to other more business-friendly environments or switched from manufacturing in Nigeria to importation. These companies include Michelin, Dunlop, Tower Aluminium, Etisalat Group, WEMPCO, Evans Medicals, Shoprite, Unilever, GlaxoSmithKline, Sanofi, and Procter & Gamble. In particular, the oil sector has witnessed mass divestment as no fewer than 26 oil companies and investments—including Shell, ExxonMobil and ENI—pulled out and sold their stakes to domestic investors.

Given the foregoing massive divestment of the economy, it is a wild goose chase for President Tinubu, just like others before him, to continue to traverse the world in search of new foreign investors when Nigeria’s hostile economic fundamentals have neither been arrested nor domestic investors adequately supported. Addressing these hostile business concerns will serve as a magnetic force for attracting both domestic and foreign investments rather than myriads of poorly calculated globe-trotting and wasteful investment promotion jamborees.

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