In the World Bank’s 2020 ease of doing business report, Nigeria ranked 131st worldwide for ease of doing business. This portends that a lot of investments the country may and could have attracted were moved to other more appreciably ranked countries.
Twitter is a prime example of investors that snubbed Nigeria and opted for Ghana for its first African office. Another example is South African-owned chain of stores, Shoprite, which recently exited Nigeria. The list goes on and on.
It’s tough to define how dangerous it is for any country to endure a paucity of foreign investments. With its direct bearing on gross domestic product (GDP) and GDP being arguably the ultimate indicator of growth and standard of living of any country, foreign direct investments (FDI) basically brings economic growth.
Nigeria’s GDP pegged at USD432.2 billion in 2020. This was a 3.53% decline from 2019 where it peaked at USD448.1 billion showcasing a 12.82% increment from 2018. Performance has been topsy-turvy since, and so has success in attracting inflows; nonetheless, there have been some signs of progress.
For example, being ranked 131st last year, when in 2019 Nigeria was 146th.
Again, according to the World Investment Report 2020, Nigeria is amongst the most promising poles for growth in Africa becoming third-best host economy for Foreign Direct Investment in the continent behind Egypt and Kenya.
Still on signs of progress, Nigeria’s credentials in terms of macro-economic performance amongst its African counterparts may appear pleasing on the surface or when we analyse holistically. But how do the numbers really compare with facts? Let’s take a look.
GDP – Gross Domestic Product
GDP is vital because it gives information about the size of the economy and how it is performing. Growth in per capita GDP increases the typical living standard for individuals.
Nigeria leads Africa in this measurement metric. In North Africa, Egypt’s 2020 GDP was USD363 billion. South Africa had USD302 billion, East African Kenya carried a GDP of USD99 billion whilst Ghana, our West African contemporaries posed a GDP of USD72 billion. These Figures from leading African nations pale in comparison with Nigeria’s USD432 billion.
Egypt – North African countries with the exception of Egypt suffered a decline in their investment inflows in 2019. Egypt remained the largest FDI recipient in 2019 with inflows increasing by 11% to USD9 billion. Egypt’s strategy has been the colossal diversification away from oil and gas and into telecommunication, real estate and consumer goods. This, to a great extent, improved its macroeconomic stability and strengthened investors’ confidence. Thus, whilst there existed a general lull in inflows in other North African countries, Egypt soared.
Nigeria – For some reason, Nigeria hasn’t been as adept at diversification as it is expected to be. The development of the USD600 million steel plant in Kaduna is a sluggish step but in the right direction. The country’s major selling point has been oil and gas. With dwindling investments in this sector, there is little chance for improvements in the amount of FDI inflows.
After consecutive increases in 2017 and 2018, FDI to Nigeria almost halved in 2019 to USD3.3 billion. It will be unfair and almost unrealistic to attribute all of our economic travails to the dwindling marketability of oil and gas. Insecurity and rising operational costs are severe factors that will consistently put off investors if not fully addressed as statistics have confirmed.
Ghana – FDI to Ghana totalled USD2.3 billion dropping 22%. Ghana to an extent has diversified into agriculture, oil and does major business with mining. West Africa generally, has suffered arguably the worst in terms of FDI with investors seemingly favouring the North, East or Central.
Kenya – Kenya may just have lost ground to Ethiopia and Uganda in terms of attracting FDI. They made huge investments into Information Technology, and despite this, still endured a worse off position in 2019 by 18% with only USD1.3 billion mobilized. Uganda grew almost 20% to achieve USD1.3 billion while Ethiopia generated USD2.5 billion
South Africa – South Africa’s inflow was encouraging after what was a horrendous 3 years from 2015 to 2017 where they averaged a meagre USD2 billion a year (too small for their capacity and potential). In 2019, they made USD4.6 billion, although this represents a 15% decline. To their credit, the country appears diversified enough, with mining, manufacturing and services constituting its markets.
World bank carried out an analysis on AFRICA covering the decade 2011-2020 and made these findings:
- The top 10 African countries which include Egypt, Nigeria, South Africa, and Ghana generated over USD300 billion worth of foreign direct investment.
- Egypt tops the chart with USD 56.2 billion, followed by Nigeria and South Africa with USD45.1 billion and USD41.3 billion respectively.
- Ethiopia grew the most in the period, rising over 200%.
- South Africa contracted by 15.6%.
The Financial Derivatives Company Limited has touted Africa to garner as much USD29 trillion by 2050 based on the movements from their current trend.
Obviously, 2020 was such a setback with how the pandemic affected the global economy. Africa’s real GDP contracted by 2.1% in the period, deviating from its consistent improvement trend. Nevertheless for 2021 and beyond, if Nigeria embraces diversification like Egypt has done and addresses its rising costs and insecurity challenges, it just may live up to its billing as Africa’s giant even as it concerns attracting FDI.