The prime functions of a newly revamped ministry are to reverse a decline in foreign direct investment (FDI) and to boost trade. On July 11, the federal government said it would replace the Ministry of Commerce and Industry with the Ministry of Trade and Investment (MTI). The new ministry, to be headed by Olusegun Aganga, the former minister of finance, will lead Nigeria’s efforts to increase private investment from both domestic and international sources, as well as to expand the manufacturing base and the number of local jobs.
The federal government has targeted N34trn ($221bn) in investment over the next four years as part of Vision 2020, the development plan that aims to place the country among the leading 20 world economies by that year. The federal and state governments will provide N10trn ($65bn) and N9trn ($58.5bn), respectively, while some N15trn ($97.5bn) of this investment is expected to come from the private sector – both domestic and foreign.
Indeed, FDI is expected to play a key role in the country’s economic transformation. On August 4 Aganga said the government had developed a “blueprint” to increase levels of FDI. This focuses on seven key sectors: agriculture, water resources, solid minerals, manufacturing, oil and gas, trade and commerce, and tourism.
Key to the new programme is an emphasis on growth through exports as well as import substitution. With respect to the latter, the government has already signalled its intention to increase the domestic production of goods that it currently imports, such as fertilisers, rice and sugar. To ensure the development of local manufacturing capabilities, and thus further economic growth, foreign investors would be required to transfer skills to Nigerian employees under the new policy regime.
Aganga has also called on the country’s banks to act as ambassadors to foreign investors. On August 3, while speaking about the ministry’s plans to gather data on investors in Nigeria, the minister said that banks “can and should assist government to use their relationship with local and foreign investors to bring investments into the country”. He emphasised that the country is looking for investments that would create local jobs.
According to the 2011 edition of the “World Investment Report” (WIR), an annual report on investment trends released on July 26 by the UN Conference on Trade and Development (UNCTAD), FDI flows to Nigeria fell to $6.1bn in 2010, a decline of 29% from the $8.65bn recorded in 2009. By comparison, global inflows of FDI amounted to $1.24trn in 2010, an increase of about 5%, while FDI to Africa fell by about 9% to $55bn.
The oil industry continues to dominate FDI flows to Africa, according to UNCTAD. The WIR attributed the 2010 decline in Nigeria’s inbound FDI to ongoing uncertainty regarding the Petroleum Industry Bill (PIB), as well as the “unresolved political problem in the Niger Delta”, where most of the country’s oil reserves are located. The PIB, which has been delayed repeatedly since being introduced to the National Assembly in 2008, is generally perceived to be unfavourable to the oil industry. Although the international oil companies (IOCs) that invest in Nigeria have reacted positively to certain parts of the PIB, they object to the new system of taxes and royalties proposed by the bill.
As a result, IOCs may be turning to Ghana as an alternative to Nigeria. According to the WIR, “The start of major oil production [in Ghana] has attracted the interest of transnational corporations, some of which are seeking an alternative sub-regional source of oil to Nigeria.” FDI flows to Ghana increased by about 50% between 2009 and 2010, from $1.69bn to $2.53bn, in contrast to Nigeria’s sharp decline.
The fact that these two countries compete for investor attention has not gone unrecognised by Nigeria’s leaders. Shortly after the release of the WIR, Mustafa Bello, executive secretary of the Nigeria Investment Promotion Commission, said the country was facing a “major challenge” and needed to bring more representatives of international companies to the country to show them the benefits of investing in Nigeria.
“They keep talking of Ghana, but if you put two states together in Nigeria you produce Ghana. So why go to Ghana when you end up sending the products to Nigeria? Come where the market is so that you can capture the entire sub-regional market and grow,” he said.
The recent decline in Nigeria’s FDI may simply have been the result of the political and economic uncertainty leading up to the May 2011 elections. Frank Nweke, director-general of the Nigerian Economic Summit Group, told OBG he expected FDI to grow now the elections are over. “Given the relative peace and stability in the Niger Delta and the successful conduct of the 2011 elections, I believe there will be increased FDI into Nigeria in the coming years,” he said.
Moreover, Nweke added that plans to increase FDI were not limited to oil. “The government is making a deliberate and conscious effort to diversify the economy by creating opportunities for private investments in the energy sector, as well as in agriculture and manufacturing,” he said.
Developing all seven identified areas of the economy will generate jobs, reduce imports and otherwise help the country move up the value-added ladder.