Insecurity Kills Foreign Investors’ Appetite in Nigerian Economy

As the federal government continues to count the losses of the flight of foreign direct investment as a result of the general insecurity, Festus Akanbi writes that no meaningful progress can be recorded until the nation is rid of terrorism and other organised crimes

As families of victims of last week’s massacre at the St. Francis Catholic Church in Owo, Ondo State gather themselves for the burial of their loved ones, while the perpetrators of the dastardly act are still at large, certainly, the news of the murder of the innocent worshipers which is still trending on local and international media will accentuate the current loss of confidence of foreign investors in Nigeria’s economy.

Disturbing Statistics 

Apart from the slowdown in investment flow, statistics show that several multinational firms are making their exit from Nigeria over security-related issues.

For instance, in the first quarter of the year 2022, data from the Nigerian Investment Promotion Commission showed Nigeria is losing its attraction to promoters of foreign direct investment. NIPC revealed that the value of investment announcements in the first three months of 2022 was $8.41 billion. This is a 69 per cent or $2.58 billion lower than what was announced in the first quarter of 2021.

The rising effects of insecurity in Nigeria have also affected the ease of doing business in the country, as a 2019 World Bank annual ratings on the ease of doing business ranked Nigeria 131 among 190 countries.

Similarly, the National Bureau of Statistics (NBS) recently released data that showed that Nigeria generated a total of $698.7 million from FDI in 2021. An analysis of the figures released showed that FDI has been fluctuating from 2012 to 2022. But the FDI generated in 2021 was the lowest the country recorded in 10 years. The latest capital importation report from the NBS reflected that FDI fell by $332 million to $698.7 million in 2021 from $1.028 billion in 2020.

The report also showed that 10 states out of the 24 that failed to attract FDI in 2021, have not attracted foreign investments in the last three years. Since the outbreak of the COVID-19 pandemic, many firms have been impacted negatively. Some firms have closed while others are barely existing. The next challenge most firms face is insecurity. Scarcity of foreign exchange and policy flip-flop are some of the challenges that make investments in Nigeria very risky.

Analysts’ Projections

Before last week’s bloodbath, the nation’s economy had been battling with the exodus of foreign investors over the rising spate of insecurity in Nigeria with economic analysts warning that unless the government can tame such terrorist groups like the Boko Haram and its other variant called the bandits, no serious foreign investors will be ready to commit his resources in a war zone like Nigeria.

This was the concern of a panel of experts who spoke in Abuja at a recent capacity building workshop for the NBS staff, titled ‘Data Management Strategies to Improve National Planning and Development.’ They charged the NBS to embark on a national survey in collaboration with the academia to bring out a solution to security challenges in Nigeria.

The severity of the threat of insecurity to investment inflow was raised by the Chairman, Royal Statistical Society (RSS), Dr. Olaniyi Matthew Olayiwola, who lamented that the development has affected transportation, commerce, and the trading industries. He regretted that both local and foreign investors are now afraid of investing in the country due to insecurity.

He said: “Nigeria has lost a lot of FDIs due to insecurity challenges we are having in the country, there are so many factors dragging the Nigeria economy down, depriving investors of investing in the country and so many that can invest in the country to help the GDP.

“Because of the insecurity, they are finding it difficult to invest and the economy is deeply affected. Look at the transportation system, commerce, trading, and some other things. The security situation is also making it difficult for the country to exchange what is being produced.”

The RSS Chairman pointed out that there are so many people that are very rich in the country and are capable of having so many industries but that they believe that if they establish themselves in the country and a crisis pops up, their establishment may be set ablaze.

This was also the opinion of a professor of Economics at Godfrey Okoye University, Enugu State, Felix Onah,  who explained that “The insecurity in the country is affecting the level of investment in the country and also the Gross Domestic Product. When companies leave the country, their production in the country is taken away and this would negatively affect the GDP of the country. Domestic investment is also adversely affected by the insecurity of the country, for example, farmers cannot go to the farm and even manufacturers cannot plan for the future. This would then lead to the reduction in agricultural and manufacturing output that would cause an adverse economic effect on the GDP.” 

Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr. Muda Yusuf, said the investment prospects in the country had nosedived due to insecurity. He added that the situation had led to the exit of both large, small and medium scale enterprises in places worst hit. 

The ex-Director-General of the Lagos Chamber of Commerce and Industry stated that insecurity in the oil-producing states had led to the exit of some oil companies, adding that oil theft and illegal refineries had hindered Nigeria from contributing to its quota at the Organisation of the Petroleum Exporting Countries. 

Yusuf said, “The South-South is another area where insecurity is a major problem. Many of the oil majors have left the country, because of pipeline vandalism, illegal refineries, and oil theft. Some have divested, and some have left the onshore and gone deep onshore because they can no longer operate on land.” 

Perceptions

Explaining that insecurity also had implications for the perception of the country, Yusuf stated, “With the terrible news about kidnappings, Boko Haram and all, how many investors want to come here? The only class of investors that would come are, one, those who would only come for a short term, maybe they are trading and would want to dump their products and go back. For those who want to invest long-term, not many of them would want to come in because the risk is high. Second, we would only be able to attract investors who have a high appetite for risk and not all investors have the same appetite for risk. These have made us lose investors that don’t have a high appetite for risk and attract those with a high appetite for risk.” 

Yusuf further said that the consequences of low investment had affected the ability of a country to create jobs, generate tax revenue, and others in the economy as insecurity was escalating daily.

The Slowdown in FDI Inflow

Analysts said the level of insecurity in many states of the country is so high that it poses a financial disadvantage that discourages any investor to invest in an atmosphere of chaos and confusion.

Although there are other few developing countries whose economic modules are discouraging to foreign investors, analysts said the Nigerian story is very disturbing. This story, they said, is compounded by insecurity in the last eight to 10 years. Within this period, human security has been violated, and most citizens especially in the northern states and a few of the southern states have not been protected against threats.

In some parts of the country today, we have a situation in which bandits now rule by proxy. Analysts said it defies logic for anyone to expect foreign investors to commit their money in a turbulent environment like that of Nigeria. They argued that investors cannot be excited by insecurity, as they will rather go where they are sure of the return on investment.

Nigeria flaunts intimidating economic data. Its enormous and youthful population makes it an investors’ attraction anywhere in the world. Unfortunately, also, the twin evil of the prevailing insecurity in the country, and the unfavourable economic policies of the government have continued to drive away foreign investors. 

This is why the outgoing and the incoming administration should be serious about the war against terror.