There is now unanimity among economists that Foreign Direct Investment (FDI) is a key part of private sector investment which is needed to drive economic growth in developing countries. FDI is particularly needed to complement the level of domestic investment, as well as “securing economic-wide efficiency gains through the transfer of appropriate technology, management knowledge, and business culture, access to foreign markets, increasing employment opportunities and improving living standards.” For instance, Singapore, a poor, inconsequential former British crown colony with a meagre population of 1.6 million in 1960 and with no natural resources, was able to transform itself to one of the richest countries in the world with the third highest GDP per capita partly through attracting foreign investment. Consequently, developing countries are competing to attract FDIs into their countries to aid their growth and development drive.
Central to a country’s ability to attract FDI is its ease of doing business. Besides the more technical requirements, which consist of infrastructure and access to raw materials, communication and transport links, and skills and wage costs of labour, there are much more central requirements of political predictability, social cohesion and upholding the rule of law, part of which must consist of a strong and independent judiciary that will adjudicate promptly and impartially on trade disputes. Besides being prerequisites for attracting FDIs, these are actually preconditions for sustainable development in any society.
Sadly, Nigeria is doing badly in many, if not all, of these scores. Besides its macroeconomic instability, dilapidated or absent infrastructure and lack of social cohesion, it has a much more debilitating problem of political unpredictability and a culture of trampling on the rule of law.
Of course, Nigeria naturally has the potentials to attract lots of FDIs because of its size, population, natural and human resources; and investors are willing to overlook its unstable macroeconomic environment, the underdeveloped infrastructure and social tension and still invest in the economy. Sadly however, what most investors are unwilling to accept is political unpredictability and a culture of impunity. Sadly, it is these two instances that Nigeria is most notorious.
The history of FDIs in Nigeria is a history of government recklessness, unilateral and illegal termination of agreements, contracts and projects, often without any compensation. That has not ended even with the return to democratic governance and has continued to this day. Take for instance, the current attempt by the National Assembly to illegally, unilaterally and surreptitiously amend the Nigerian Liquefied Natural Gas (NLNG) Act to force the company to remit 3 percent of its annual budget as funding to the Niger Delta Development Commission (NDDC). This is expressly against the contract willingly entered into by Nigeria and the other stakeholders of the NLNG covered by Bilateral Investment Treaties (“BITs”) with France, The Netherlands and the United Kingdom to retain agreed fiscal and security regimes of the investment and not to levy any tax inapplicable to companies nationwide. Nigeria also agreed not to amend the NLNG Act without the express agreement of the other stakeholders.
The NDDC traversed the courts right up to the right to the top (Supreme Court) seeking to compel the NLNG to pay the levy but in all instances, the courts affirmed the right of the NLNG not to pay the levy. But like in all cases Nigerian, politicians, in cohort with special interests, are attempting to thwart the judgements of the courts by rushing an amendment to the NLNG Act and endangering the continued survival of the NLNG and future investments in the process.
Regrettably, it is always the case in Nigeria that once investors come in and their investments begin to flourish, Nigerian regulatory agencies or even governments begin to heckle these businesses seeking to extort money or subject them to hitherto unknown, un-agreed, hurriedly enacted and ultimately unjust laws and regulations in the name of protecting national interests. This is giving us a bad name, making the country unpredictable and thus, unattractive for investments. Yet the song on the lips of every government – and they are known to travel to the ends of the earth soliciting for it – is that of seeking for foreign investments.
In days past, Nigeria can afford to call the bluff of investors because it could rely on oil revenues. In these days of low oil prices, that is no longer possible. The government must work to remove all impediments to attracting the required FDI to aid Nigeria’s growth and development.