Nigeria is behind South Africa and Egypt as the leading destination in Africa for foreign direct investment (FDI) according to the FDI report released by Global Greenfield Investment Trends.

The World Bank said that “FDI is net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments.”

Earlier this year, Mallam Sanusi Lamido Sanusi, Central Bank of Nigeria (CBN) governor had stated that Nigeria recorded appreciable marginal growth in the FDI growth in Q4 2012 to about $6.07 Billion.

Nigeria also stood at sixth position among leading FDI inflow economies in the Middle East and Africa (MEA) region with 54 projects. The report lists leading countries in the region as: UAE (291), South Africa (147), Saudi Arabia (107), Oman (73), Egypt (54), Nigeria (54), Qatar (54), Kenya (50), Morocco (48) and Bahrain (37).

Nigeria and Egypt also recorded 20 per cent increase in FDI inflow, whereas other leading African countries suffered declines like South Africa five per cent, Kenya nine per cent and Morocco 34 per cent.

“The number of FDI projects attracted by Oman increased by 48.98per cent and its market share of inward FDI in the region increased from 3.16per cent in 2011 to 5.33per cent in 2012. Egypt and Nigeria also experienced an increase in project numbers by 20per cent in 2012.”

Dr. Egwaikhide Christian Imoudu, of the department of Economics and Management Sciences at the Nigerian Defence Academy (NDA) – Nigeria’s leading military academic institution – noted that FDI inflow into the economy is natural, considering its population, size and resource base. But he regretted that despite the huge inflow recorded annually over the past decade, not much impact is evidenced in the lives of the citizens.

“Nigeria as a country, given her natural resource base and large market size, qualifies to be a major recipient of FDI in Africa and indeed is one of the top three leading African countries that consistently received FDI in the past decade,” said Dr. Imoudu.

Writing in the International Journal of Business and Social Sciences (vol.3 No.6), D. Imoudu stated theFDI flow trend in the country has several implications for the economy.

“First, even though the volume of FDI to Nigeria has increased substantially since the 1990s, Nigeria remains largely marginalised in the context of financial globalisation. Second, spillover effects of FDI in oil exploration and other mining activities are minimal as the technology employed is capital rather than labour intensive. This means that the effect of FDI in Nigeria to date has been dependent on what the revenues are used for. Third, the flow of FDI to the extractive sector is not growth enhancing as much as other productive sectors, because oil sector is often an enclave sector with little backward and inward linkages with other sectors.

“Fourth, secondary and tertiary activities like manufacturing and services are not playing leading roles in the determination of national output, employment generation and income, and this partly explains why the majority of Nigerian citizens are living in poverty, the country’s huge petroleum resources notwithstanding.”

Consequently, he noted that “the solution to these problems is to attract FDI into diversified and higher value-added activities. In this regard, one important policy objective to reduce the barriers to FDI effectiveness is to build diversified economy through investment in human capital, infrastructure and productive capacity. Clearly then, the challenge for Nigeria is how to attract FDI in more dynamic products and sectors with income elasticity of demand.”

Mallam Sanusi, also expressed concerns over the nation’s dependence on earnings from the oil sector for economic sustenance.

Rising from last week’s CBN monetary policy committee (MPC) meeting in Abuja, the apex financial body expressed “concerned about the threat posed by developments in the oil sector arising from uncertain oil market environment high output leakages arising from oil theft which has negatively affected the oil sector’s contribution to GDP and the prospects for declining output if the state of affairs continues.

“The Committee observed that the accretion to reserves resulted principally from increased portfolio capital inflows. The Committee noted the potential effect of this development on exchange rates, reserves and the capital account in the event of capital flow reversal, and thus stressed the need to maintain stability and retain confidence of investors in the consistency of monetary policy.”

The FDI report 2013 noted that “while all regions of the world experienced a decline in FDI, the decline in FDI into Africa was less than the world average and
Africa increased its market share of global FDI projects from 5.56 per cent in 2011 to 6.01 per cent in 2012.

In contrast, the global market share of Western Europe fell 1.5 per cent in 2012, due to the European debt crisis and stagnating economic growth.”

It gave reasons for the poor growth in the developed economies to “lacklustre economic growth in Europe, Japan and Brazil, much slower growth in China, political instability in the Middle East, and policy uncertainty in the US all negatively impacted the global FDI market. The extreme case was in Syria, with a decline of more than 90 per cent in FDI projects in 2012.”