Nigeria’s slip in FDI inflows

The fall in Foreign Direct Investment (FDI) inflows into Nigeria should be a cause for concern to the nation’s economic managers and a wakeup call to legislators to pass the long-stalled Petroleum Industry Bill (PIB).

Mozambique, the Southern African nation with significant gas reserves, has become the top recipient of FDI inflows into Africa as Nigeria’s stagnant oil and gas industry failed to attract significant investments.

According to data from the fDi report, a publication of the Financial Times, which focuses on the capital investments announced by foreign investors rather than the number of FDI projects, Africa recorded growth in FDI of 10.76 percent to $51.98 billion in 2013. Mozambique attracted the highest amount of FDI with $6 billion of announced investments, followed by Nigeria with $5.8 billion and South Africa with $5.4 billion.

Mozambique shot up the charts of FDI inflows into Africa as investments pour into its burgeoning oil and gas sector. With reserves estimated at 250 trillion cubic feet, the country has attracted investors such as Eni of Italy and Woodlands, Texas-based Anadarko. Further investments are expected, with the country’s strategic positioning near gas-hungry India and the Far East.

Meanwhile, in Nigeria, the PIB which aims to increase Nigeria’s share of profit from oil pumped off its shores has been stalled in parliament since 2008. Analysts say Nigeria has lost at least $28 billion since 2010 in scrapped or deferred investments in the oil sector due to a lack of movement of the PIB reforms.

Nigeria’s oil production, which has never risen above the 3 million barrels per day (b/d) mark, now hovers at 2.15 million b/d. The nation’s oil and gas industry, which accounts for 75 percent of the government revenue and up to 95 percent of dollar earnings, makes up only 14.4 percent of gross domestic product (GDP), a sign of its steady decline.

The FDI inflows into Nigeria as a percentage of the size of its economy also pale in comparison to Mozambique. Nigeria attracted 1.13 percent of its GDP as FDI in 2013 compared to 39 percent of GDP for Mozambique.

Nigeria is typical of large mature oil-producing nations such as Indonesia, Venezuela, Mexico, and Iran, which are facing challenges of offsetting base declines in oil production with new production – either from new hydrocarbon areas (offshore, unconventional) or by increasing recovery rates at existing fields. All are competing for foreign investments (to help boost output) from oil majors who have the capital, technology and management.

We agree with Jorge Castilla, head of Deloitte LLP’s energy sector practice in Mexico, that Mexico could draw investment away from African nations like Nigeria, where companies may see more challenges and instability than in North America.

Already, it is projected that Angola may also rival Nigeria as Africa’s largest oil producer by 2016 as it moves ahead on major deep-offshore projects.

Indeed, the time is now for Nigeria to shake off the inexplicable lethargy towards its oil and gas sector, which has been in decline for the past six years, especially as other oil producing nations with more difficult operating environments are managing to attract investments and boost output. Iraq, which is beset by sectarian violence, for example, has increased oil production to 3.3 million b/d and the government intends to raise crude output to 9 million b/d and export capacity to 7.5 million b/d by 2020. Nigeria should wake up from its deep slumber now.