Improving Nigeria’s investment prospects
Nigeria’s prodigious natural resources, its large population and economy are the major magnets for Foreign Direct Investment (FDI). Over the past decade (2003 to 2013), Nigeria has attracted $177 billion in foreign investment, according to Ernst & Young (EY). These investments have funded 365 projects and created 93,161 jobs.
Nigeria has seen strong compound growth in FDI projects of close to 20 percent since 2007; the country received 6 percent of Africa’s total FDI for new projects and 11 percent of capital invested since 2007. Most of the FDI, capital and new projects, have been in coal, oil and natural gas projects.
Between 2007 and 2012, Nigeria’s top investors: the US, UK, France and China, have invested the most in the hydrocarbons sector pumping in $20.8 billion; 39 percent of it from the US. US-based international oil companies – Chevron, Exxon-Mobil and Conoco-Philips (until it sold its assets to Oando) – are active in the oil and gas sector. Though oil majors like Anglo-Dutch Shell have been divesting from the country Nigeria’s oil and gas sector stills hold promise if regulatory uncertainties about the petroleum industry are sorted.
A breakdown of Nigeria’s infrastructure project shows that the logistics sector attracted 66 percent, power generation and transmission 23 percent, construction sector 7 percent and, social and welfare, 4 percent of FDI. By capital value, logistics sector drew in 51 percent, construction sector 25 percent, power generation and transmission 22 percent and, social and welfare 2 percent.
As at July 2013 the total of active investments in power plants and transmission grids is valued at $14 billion. The respective values for roads and bridges, ports, rail and airports are $16.5, $7 and $2.8 billion. A sign that Nigeria is tackling it’s infrastructural problems.
More attention will have to be paid to gas-for-power as most of Nigeria’s power plants rely on gas. Projects like the 434MW Geregu II gas-turbine, one of several power plants under the National Integrated Power Project (NIPP), are gas-fired power plants. Going forward, the expectation is that infrastructure investment opportunities, alongside investments in telecommunications, consumer products, construction and business services, will boost FDI.
It’s noteworthy that despite the challenges in infrastructure, corruption, security among others investors’ interest in the country has not waned. Perhaps this is because many other emerging markets are suffering from the consequences of global monetary tightening.
According to EY, Nigeria’s continued growth rate and the recent GDP rebasing, an improving business environment and a population of about 170 million people justifies the country as a powerhouse in a dynamic, high growth region – Angola, Ghana, Ethiopia, Tanzania, Mozambique and Zambia are among the fastest growing economies in the world.
EY anticipates that “Nigeria will continue to be a key hub for investment into Africa, and is likely to emerge as one of the most attractive developing market investment destinations in the world in coming years”.
However, Nigeria ranks low in terms of social tension, ease of doing business and the poor quality of its labour force. If the country is going to attract more infrastructure investments which will connect farms to factories and provide jobs for millions of jobless youth these aspects of the economy have to be fixed. Growing consumer demand in Africa’s largest market, a strong pull factor, are up against major roadblocks that frustrate the double-digit growth Nigeria needs to attain.
A significant portfolio of active infrastructure investments coupled with a large pool of well trained Nigerians living in a calm and friendly business environment will contribute to diversifying the economy. Hence, as the general elections draw near, the ruling political party and the opposition have to come up with a convincing economic strategy for accelerating Nigeria’s socio-economic development.