Menu

Two GCC countries are eating Nigeria’s lunch. What Tinubu can do about it 16 Jun 2023

On 10 May 2023, as then-President-elect, Bola Tinubu, jetted out of Nigeria to Europe. This second overseas travel since he officially won the February presidential election was designed to have him “engage with investors”. A statement by his media aide also said that he would be marketing his administration’s “readiness to enable a business-friendly climate” during the trip. The sense of duty that this suggested, at least regarding the mobilisation of foreign investments into the country, was a welcome development.

Restoring Nigeria as a choice destination for foreign direct investment (FDI) is exigent. In the past eight years of the Buhari administration, insecurity, statist economic leaning, global macroeconomic challenges, and local market risks had discouraged foreign investments into the country. According to data from World Investment Report 2022 by the United Nations Conference on Trade and Development (UNCTAD), Nigeria attracted a total of $19.2 billion in FDI between 2015 and 2021. This represents only 38.9 percent of the $49.3 billion in total FDI flows into the country in the preceding seven years.

To be sure, global cross-border investment in real economic activities increased over these two seven-year periods, despite multiple and overlapping global challenges, including the 2008 global financial crisis, the 2014 global economic downturn, Covid-19 pandemic, high inflation, and the ongoing Russia-Ukraine war. Between 2008 and 2014, the global FDI total was $10.0 trillion. Over the next seven years, the figure increased by 11.5 percent, to $11.2 trillion.

While the United States and China continued to predominate, growth in FDI to the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia – the economic juggernauts of the Gulf Cooperation Council (GCC) region – should not be lost on Nigeria. From $5.0 billion in 2008, FDI flows to the UAE reached $20.6 billion in 2021. And after a sharp decline to $1.4 billion in 2017, FDI flows to Saudi Arabia totalled $19.3 billion in 2021. The two countries have been deliberate in attracting FDI in recent years, despite vast fiscal savings in their respective sovereign wealth funds, and in preparation for the ‘post-oil’ economy.

The common policy driver for FDI into the UAE and Saudi Arabia has been the economic diversification programmes of the two major oil producers. Pursuant to its programme, the UAE has invested heavily in sectors such as renewable energy, aluminium production, tourism, aviation, re-export commerce, telecommunications, and advanced technologies. The country’s Strategy for the Fourth Industrial Revolution (4IR), launched in 2017, aims at strengthening its position as a global hub for 4IR technologies and innovation. Through its Annual Investment Meeting (AIM) congress, including this year’s edition, to which Financial Nigeria was a media partner, the UAE is angling for increased FDI. It is also positioning to serve as a conduit for foreign investments into a growing number of African countries – a role that South Africa seems to have abdicated because of its governance dysfunctions in the post-apartheid era, which Nigeria has been unable to take up.

On its part, Saudi Arabia has begun active promotion of its solid minerals sector for investment. Over 9,000 attendees from 145 countries participated at the astutely named Future Minerals Forum early this year in Riyadh. As part of the outcomes of the event, 60 international agreements and Memoranda of Understanding in the fields of mineral exploration, technology, communications, the application of sustainability standards, certification, and the industrialisation of the mining sector were signed between a number of Saudi government agencies and participating companies and institutions. Foreign and joint investments in Saudi industrial sector now exceed 542 billion riyals (US$146.3 billion), according to the country’s Ministry of Industry and Mineral Resources.

Nigeria has similar aspirations for broad industrial development beyond its own oil and gas industry. Since the administration of President Olusegun Obasanjo (1999-2007), the country has harped on economic diversification. But although Nigeria has lacked significant fiscal savings for the rainy day of post-oil, it has also been lax with promoting its non-oil sectors. For instance, much of the country’s abundant solid minerals deposits have been untapped. Informal mining – which in many cases are without legal permits and off the coverage of taxation by the government – has otherwise defined the sector.

Nigeria has to start to compete with the GCC countries for foreign investment. Yes, we can compete with them. What the UAE and Saudi Arabia lack, Nigeria has on offer to global investors. The most important comparative advantage is Nigeria’s big market, which guarantees return on investment. Foreign investors willing to come to the country to invest in the value chains of productive sectors including agriculture, solid minerals, technology, manufacturing, renewable energy, etc. have a substantial domestic market to serve. Nigeria also has a diverse cultural landscape that supports Western way of life. And the country parades governance and market institutions as well as entrepreneurial orientation that are familiar to international investors.

This suggests that President Tinubu would have opportunities to change the waning interest of foreign investors in Nigeria. But the tasks cannot be accomplished by mere posturing. His critics said his latest trip to France was meant to attend to his health challenge and not for any serious investment drive for the country, contrary to the statement by his media aide.

To turn Nigeria’s investment situation around, the President must urgently restore hope and belief in Nigeria’s democracy and market institutions. This entails the restoration of policy and functional independence to institutions such as Central Bank of Nigeria. However, for independent institutions to function well, they have to be competently led and goals-oriented. This is why the notion that Tinubu would form a “government of national competence”, essentially appointing a good number of knowledgeable people with relevant experience into impactful portfolios, can be quite helpful.

The new President would also need to reorganise the country’s finances. Currently, the prevailing narrative is that the country is debt distressed and nearing insolvency on account of debt service obligations absorbing over 90 percent of fiscal revenue. But this is more about symptom. The cause, which is broken fiscal governance, has to be urgently fixed. The seeming contract and loan racketeering by the Buhari administration at the ending of its tenure should be a starting point for fixing the country’s fiscal mess – which includes the commitments for launching a national carrier three days to the end of the tenure of the administration.

Despite the country’s outsized debt service burden, formulating a clear fiscal outlook, supported by confidence-inspiring monetary authority, can boost investor confidence in Nigeria within a short period of time. Putting forward a credible fiscal plan can be quite compelling for investment, defeating a sense of disinterest on account of the immediate past fiscal frailties and anomie.

It is also important to unite the country through nation building efforts. This is crucial for stemming the tide of insecurity. For the new administration, forging national unity should go beyond lame efforts at ethnic and religious appeasement. It must include the inclusion of competent youth in the government, and the integration of this demographic into the aspirations of the country.

Finally, a hands-on approach is required for effective leadership of the country. It is in this regard that prayers for the health of President Tinubu, instead of derision when he is trying to get medical treatment that he needs, are important. The President needs to encourage the empathy by making appreciable public disclosures on his health situation. Over the next four years, Nigeria needs to be actively and deliberately led to attract foreign investment, which is very key for turning the economy and the quality of life of Nigerians around.

Jide Akintunde is Managing Editor of Financial Nigeria magazine, and Director, Nigeria Development and Finance Forum. He wrote the original version of this article for the Guild of Public Affairs Analysts of Nigeria (GPAAN) on 22 May 2023.