Centrality of FDI in economic development - BUSINESSDAY
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.” What is more, studies have consistently shown a strong relationship between foreign investment and economic growth. Examples also abound. 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 into the country. To put it simply, large inflows of FDIs are now a sine qua non for developing countries to achieve a sustainable high trajectory of economic growth. It therefore goes without saying that developing – and even developed – countries are always in competition to attract FDIs into their countries.
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 security, 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 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 insecurity, 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 recent travails of successful foreign businesses in Nigeria like the South African telecommunications giant, MTN and pay TV firm, Multi Choice. Another shameful example was the attempt by the National Assembly, last year, 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) 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.
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, resurrecting hitherto forgotten infractions, 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.
The most depressing part is now the attitude of Nigerian public officials, which suggests calling the bluff of foreign investors and telling them to keep their FDIs. Meanwhile, virtually every knowledgeable person in the country knows the country does not have the resources to provide the necessary infrastructure, amenities and jobs needed to revamp the economy and assure sustainable economic growth. The government must begin to reset its priority and rein in its overzealous officials who appear to know nothing about the fundamentals of growing an economy.