Foreign direct investment hits $223.3m in 5 months
By Jeph Ajobaju, Chief Copy Editor
Foreign Direct Investment (FDI) in Nigeria totalled $223.3 million in the first five months of 2022 (5M 2022), 3.7 per cent more than $215.3 million in 5M 2021, but 7.5 per cent less than $241.5 million in 5M 2020.
Central Bank of Nigeria (CBN) data shows that FDI nosedived to $698.8 million in full year 2021 (FY 2021), most of it in form of equity, even as most developing economies want FDI because of its multiple benefits.
The International Monetary Fund (IMF) categorises FDI as inflow in which investors invest in an enterprise in another economy to gain control or exert significant influence over the management of the firm.
Increased FDI is believed to help improve employment in a host country, allowing the transfer of technology, thereby contributing to economic growth.
The Organisation for Economic Cooperation and Development (OECD) says FDI is an integral part of an open and effective international economic system and a major catalyst for a country’s development.
The inability of foreign investors to repatriate their proceeds from Nigeria has affected FDI inflows
The International Air Transport Association (IATA) lamented in June that Nigeria is withholding $450 million flight ticket revenue of foreign airlines due to forex exchange (forex) shortages.
This is a major issue which discourages foreign players from putting their money in the economy, causing more shock in forex supply and leading to naira depreciation.
Reduction in crude oil production has also resulted in decline in oil export earnings, while Nigeria is still heavily dependent on imports.
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Factors that determine level of FDIs in Nigeria
A study by Iyaji Danjuma, published in the CBN Journal of Applied Statistics, finds that the economy of a country has a significant positive relationship with the amount of FDI inflows, per reporting by Nairametrics.
Nigeria’s real Gross Domestic Product (GDP) rose 3.11 per cent year-on-year (YoY) in in the first quarter ended March (Q1 2022) against 3.98 per cent in Q4 2021.
However, the economy has been tethering on the brink with the rising fear of recession as inflationary pressure, exchange rate depreciation, and insecurity continue to hamper economic productivity.
The study also finds that trade openness and infrastructure are factors with positive effects on FDI.
But terrorism index, political violence, and corruption contribute to the decline in FDI, all of which are experienced in the Nigerian economy.
FDI
FDI is a major form of investment inflows desired by most economies as it contributes to the economy and helps provide forex liquidity.
Recipients of FDI gain employee training in the course of operating new businesses, which contribute to human capital development. Profits generated by these investments contribute to corporate tax revenues.
It is imperative for the Nigerian economy to be seen as an investment-worthy system, where businesses thrive so that foreign investors can feel confident to bring in their money.
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