Foreign direct investment is perceived to have a positive impact on the economic growth of the country on the receiving end.
This has caused governments to give incentives intended to attract and retain foreign direct investments as well as make the country investor-friendly.
Nigeria has not been left out as successive governments since 1999 have sought to make Nigeria more investment friendly.
This has taken the form of tax holidays and most recently reducing the time required to register businesses in order to advance on the ease of doing business rankings.
In this article, we examine the meaning of foreign direct investment in Nigeria, its history, impacts on the economy, problems and prospects.
Meaning of Foreign Direct Investment
Foreign Direct Investment according to Wikipedia is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.
It could be made by buying a company in the target country or expanding the operations of an existing business in that country and could take the form of mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans.
History of Foreign Direct Investment
Political independence of most African countries in the 1960s coincided with the cold war era. As a result most African countries were skeptical about free trade and foreign direct investment.
This had a negative impact on the development and standard of living in most countries. Low standards of living and under development led many African countries to begin to consider foreign direct investment as an option for economic growth.
It is difficult to place the exact date when foreign direct investments began in Nigeria. This is because there was participation of foreign businesses in the Nigerian economy before independence. Companies such as 7up bottling company and Unilever are examples.
However, it is safe to assume that FDI increased with the discovery of oil in Nigeria. Much of Nigeria’s FDI is based in the oil and gas industry as a result of the neglect of the other sectors of the economy.
Impacts Foreign Direct Investment on the economy
Provision of more jobs
Foreign direct investment helps to create more jobs in addition to the existing jobs provided by local businesses.
Reduction of poverty
When more jobs are created, poverty is reduced as the people who get these jobs have a reliable source of income. The standard of living in a country is also increased as a result.
Economic growth and development
Foreign investors help a country’s economic growth and development. Their presence alone adds to the number of existing jobs and reduces poverty. This is seen in the way governments strive to make their countries investor-friendly.
Improvement in productivity/transfer of technology
When foreign investors set up shop in a country, they usually come with better ways of doing things. Because they often come from countries that are more technologically advanced than the host nation, they bring the most current technologies used in their field with them. This leads to a transfer of technology.
Problems of Foreign Direct Investment in Nigeria:
Since 2008, Nigeria’s security problems have been on the increase. No part of the country is exempt from this. From insurgency in the North to kidnappings and clashes between farmers and herdsmen in the south, every area is affected.
This creates a problem for foreign investors who have to worry about their security. The few who are brave enough to set up shop have to invest heavily in security. When the country is secure, valuable investment from outside the country is lost.
Lack of proper infrastructure
Nigeria’s infrastructural development is inadequate for development. Basic infrastructure like roads are lacking or dilapidated. This adds an extra burden to entrepreneurs who have to take this into consideration. This could discourage investors altogether or limit the amount of investment coming in.
Every industry regardless of its size needs power in order to survive. Nigeria’s power generation is less than 8000MW-a grossly inadequate amount for a country of Nigeria’s size.
Entrepreneurs spend lots of money to generate electricity for their businesses. Money which could be invested in production.
Read Also: 15 functions of the Central Bank of Nigeria
Unstable government policies
The political environment is critical to the success of the economy. In Nigeria, government policies are frequently unstable and often abandoned the moment the person who made them leaves office. This makes foreign investors skeptical of investing since they are not sure of the current policies being sustained by succeeding governments.
Corruption at any level is inimical to growth. Whether its from the government of members of the civil service, corruption has driven several businesses out of Nigeria and stopped potential investors from investing in the country.
While foreign direct investments has its challenges, there is still hope and room for improvement. In order to reap its benefits, here are a few steps that must be taken.
Ways to Improve Foreign Direct Investment in Nigeria:
Create political stability
While it seems democracy is here to stay, the political class must take deliberate steps to ensure that government policies are continued and not scrapped the moment an administration leaves office. This gives investors confidence that their investments are safe and would attract more investment.
It is easy to look at the immediate manifestations of insecurity and begin to fight them but this would only solve part of the problem. Rather, remote causes such as lack of education and jobs should be treated as well as increasing the number of security personnel which is currently inadequate.
Investment in infrastructure
A good transport system and power are some of the basic infrastructure needed for entrepreneurs to thrive. An investment into the provision of quality infrastructure would attract investors.
States that cannot develop every area at once can create industrial centers that have all these facilities in place.
Corruption would not be stopped in a year. Maybe not even in four years but everything that makes it easy for corruption must be stopped. Workers must be paid adequate wages and early too.
This reduces the temptation to demand for kickbacks. There must also be transparency in government activities. Nigeria’s present position as one of the most corrupt countries does much harm to her hopes of attracting foreign investors.
Read Also: 10 Ways to Reduce Unemployment in Nigeria
Foreign direct investment is critical to the development of any economy. For Nigeria to achieve her potential, there must be a concerted effort to grow it. Sadly in spite of the amounts of foreign direct investments getting into the country, there is little to show for it.
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