Nigerian Business Climate: Foreign Direct Investment in Nigeria

Posted on Apr 12, 2016

By Adeniyi Duale

Economic growth for most economies is largely driven by Foreign Direct Investment (FDI). Most countries encourage FDI in order to facilitate productivity, reduce unemployment and encourage the possibility of transfer of technology. FDI’s ultimately result in the increase per capita income and reduce the amount of poverty manifested in most economies of the world.

The Nigerian economy received a boost during the crude oil boom, with a lot of investors making portfolio investment based on the country’s role as an emerging market. At this point, foreign investments were made regardless of the prevailing corruption, inadequate infrastructure and inconsistent policies which would ordinarily discourage investments in Nigeria or any other country. According to data available, Nigeria has in the last four years received foreign capital of about 10 billion dollars annually.

Recently, the competition by Private Equity funds for investment opportunity in Nigeria and Africa as a whole has increased tremendously. According to a prominent business magazine, any private equity fund which does not have a dedicated Africa focused fund is not ready for serious business. However, investors making investment moves would only put their money in opportunities and economies where they are guaranteed returns and easy repatriation of their investment. These portfolio of investments are short term in nature and inherently volatile and can be easily reversed.

In the past 24 months, Nigeria has been faced with a huge reduction in revenues (as well as foreign reserves) as a result of the economic downturn in the oil market, that being the major source of the country’s revenue. The country has also failed in the past to invest in infrastructural development to help cushion the effect of such an economic time. As a result of this reduced revenue, the CBN has currently placed a restriction on foreign exchange allocation in a bid to conserve the country’s limited foreign exchange reserves.

Click here to download the full publication