Initiating catalysts for Nigeria's FDI growth

Nigeria is facing a crucial moment as it grapples with declining Foreign Direct Investments (FDI) and foreign exchange earnings. Analysts are urging the country to launch catalysts to boost FDI inflow, especially as the 2023 general election approaches. Niyi Falade, the Group Executive Director of Custodian Investment, sheds light on the current situation and the steps needed to revitalize Nigeria's FDI growth. Falade points out the alarming data, highlighting the significant drop in FDI over the years. In 2019, Nigeria recorded FDI of 2.3 billion, which further decreased to 2.2 billion in the first five months of 2022. This downward trend is concerning and underscores the urgent need for intervention. Falade emphasizes the importance of market size, economic indicators, and the operating environment in attracting FDI. While Nigeria boasts the largest market in Africa, it falls short in terms of economic growth and the operating environment. The country's GDP growth of less than 4% pales in comparison to Egypt's steady growth of over 9%. Additionally, investors are wary of Nigeria's challenging operating environment, including FX instability, security concerns, and multiple exchange rates. Falade stresses that addressing these issues is crucial to restoring investor confidence and attracting FDI. He acknowledges that despite previous challenges, Nigeria has attracted substantial FDI in the past. However, the current disparities in the operating environment, particularly FX instability, pose significant hurdles that deter investors. The sharp contrast between the official and parallel FX markets, with rates varying significantly, creates uncertainty and risk for investors. Falade proposes addressing the FX issues as a critical step to attract FDI, suggesting that focusing on foreign portfolio investments in the short term could provide some relief. While FPIs have brought in 1.7 billion in the first half of the year, FDI remains the cornerstone for sustainable economic growth. Falade underscores the need for comprehensive reforms to enhance Nigeria's attractiveness to investors. He advocates for improving power infrastructure, reducing tax burdens, and fostering a conducive business environment to stimulate FDI inflow. Comparing Nigeria's current challenges to other African nations like Egypt and Ethiopia, Falade stresses the importance of addressing key issues to remain competitive in attracting FDI. He points out that 54% of FDI in Africa is directed towards manufacturing, highlighting the need to develop Nigeria's manufacturing sector and address power supply challenges. Reforming tax policies to align with international standards is also crucial to enhance Nigeria's investment climate. In conclusion, Falade reiterates that tackling the root causes of Nigeria's FDI decline is essential for sustainable economic development. As the country navigates uncertainties in the lead-up to the 2023 general election, implementing strategic reforms and reinvigorating catalysts for FDI growth are imperative for Nigeria's economic recovery and growth.