Nigeriaâ€™s reliance on hydrocarbons for government revenue and foreign-exchange remains a fundamental weakness of the economy, which subjects it to boom and bust cycles, a report has stated.
This has also continued to affect long-term investments in the country.
Analysts at Lagos-based Financial Derivatives Company (FDC) stated this in their latest economic bulletin.
Lack of economic diversification was a major deterrent for investors and partly plays a role in the foreign direct investments (FDI) inflow fluctuations tracked by the National Bureau of Statistics.
â€œWhen the price of oil is high, money inflows increase, and vice-versa. For instance, the price of oil peaked in 2014, the same year Nigeria recorded its highest FDI inflow in decade, at roughly $2.7 billion.
â€œAs the price of oil fell, FDI ebbed, as the 2017 figure of $981 million reflects. The prolonged state of insecurity in Nigeria is another major factor.
â€œIt does little to attract foreign investors. The country continues to contend with spurts of violence in the middle belt, between herdsmen and communal farmers; threats of secession in the South-east; and insecurity in the Niger Delta and North-east,â€ it stated.
According to the report, very few foreign companies are willing to jeopardise the lives of their employees and assets in such a volatile and sometimes violent environment.
It further noted that a third key fundamental factor is the poor investment climate characterised by overly stringent government policies, bureaucratic bottlenecks for securing permits, and a weak legal framework.
In 2015, MTN, one of the most prominent and successful foreign investors in Nigeria, was sanctioned with a $5.2 billion fine for failing to disconnect unregistered subscribers.
â€œSuch draconian punishment cannot be encouraging for prospective investors. And finally, the nationâ€™s huge infrastructure deficit is another major investment deterrent.
â€œThe lack of stable power means manufacturers have to rely on expensive alternative energy sources, such as diesel generators.
â€œIn addition, many investors are fearful that despite a large population, there is no viable market for their products due to the high rate of poverty and unemployment.
â€œGiven all of these factors, it is not difficult to see why many potential investors opt for other markets like Morocco, Kenya, and South Africa,â€ it added.
Over the decades, the federal government had adopted several policies to attract FDI into the national economy.
For instance, in the mid-80s, the Ibrahim Babangida regime implemented the structural adjustment program, aimed at liberalising various sectors of the economy and subsequently attracting foreign investors to the manufacturing industry.
This policy, although widely criticised at the time, had helped to attract FDI, which rose from an estimated $200 million in 1970 to $2 billion in 1994.
Unfortunately, the nullification of the 1993 general elections, and the ensuing political uncertainty, resulted in a reduction in FDI inflows between 1996 and 1999. With the return to democracy in 1999 and the ensuing surge in oil prices, FDI again rose to a place of prominence.
However, the drop in crude oil prices as well as the countryâ€™s slump into recession in 2016, affected investment confidence and FDI inflows.
But the federal government has continued to admonish foreign businesses interested in investing in Africa to look towards the attractive opportunities available in Nigeria, declaring that the countryâ€™s economic outlook for 2018, and in the foreseeable futureremains positive.
Vice President, Yemi Osinbajo has stressed the need for investors to take advantage of the opportunities the country offers.
He said government was determined to revamp the economy by improving the enabling environment for all investors, both domestic and foreign.
He informed them that the aim of the Economic Recovery and Growth Plan (ERGP), which was launched last year, was to restore growth by diversifying the economy, stabilising the macroeconomic environment, investing in infrastructure and improving the countryâ€™s business environment among others.
Buoyed by the non-oil sector, the Nigerian economy grew in real terms by 1.92 per cent in the fourth quarter (Q4) of 2017 (year-on-year), maintaining its positive growth trajectory since the emergence of the economy from recession in the second quarter (Q2) of 2017.
The Q4 GDP figures had also indicated that the economy recorded a real annual Gross Domestic Production (GDP) growth rate of 0.83 per cent in 2017, an improvement over the -1.58 per cent recorded in 2016.