October 1, 2024, marked the occasion of Nigeria’s 64th Independence celebration from British colonisation. The occasion also ushered President Bola Ahmed Tinubu’s (PBAT) administration into its 17th month, whose electioneering philosophy was to give Nigeria “A Renewed Hope.”
Looking at the country’s Independence journey so far from a socio-economic perspective, there is no gainsaying that Nigeria is operating below its full potential. For perspective, countries such as India, China, and Bangladesh with similar macroeconomic profiles in 1960 have all outgrown Nigeria on several fronts (including per capita GDP), despite having fewer natural resources and less favourable climatic conditions.
Even more concerning is the current dire state of Nigeria’s key macroeconomic and social variables –weak GDP growth relative to the population growth rate (10-year average: 2.1% vs 2.5% forpopulation, NBS), multi-decade high inflation rate (September 2024: 32.2%, NBS), record high debt profile (Q1’2024: ₦121.7tn, DMO), rapid currency depreciation (down 88.9% in 10 years to ₦1,669.15/$, CBN), deteriorating security conditions (98,906 deaths due to insecurity since 2012, CFR), and global highest out of school children (2024: 18.5m, UNICEF) to mention but a few. These developments have raised concerns about the country’s prospects over the next 64 years.
Claims of $30.0bn in FDI and Offsetting ₦30.0tn Ways and Means Liability
Over the past 16 months, the PBAT administration has prided itself on reforms to reset the Nigerian economy including attempts at FX liberalisation, removal of energy subsidies, and tax reforms. Some of his administration’s achievements were highlighted during the Independence Day speech, including claims of having attracted $30.0bn in FDI and fully offsetting the ₦30.0tn cumulative ways and means liability to the CBN.
We note that rather than actual FDI flow, the $30.0bn claim represents FDI commitment owing to the President’s efforts to deepen bilateral and multi-lateral investment ties to strengthen the domestic economy. Based on official data from the NBS, Nigeria only secured $391.6m in FDI between May 29, 2023, when PBAT assumed office and the end of Q1:2024. Besides, data from the 2023 UNCTAD global investment trends monitor report also revealed that only 3.9% (that is, $1.9bn) of the $48.0bn FDI flows to Africa in the year came to Nigeria –suggesting that nothing dramatic has happened to FDI flows in the past year.
While we laud the PBAT drive to improve long-term capital inflows, we note that Nigeria has a weak history of actualising investment commitments. For instance, Nigeria secured well over $100.0bn in FDI commitment (NIPC) during the previous 8 years of President Muhammadu Buhari but only actualised $7.3bn (NBS).
Also, the claim that the FG has cleared the ₦30.0tn ways and means liability owed to the CBN contrasts with information on the DMO’s website. According to the DMO, the FG securitised ₦22.7tn of the ways and means liability taken by the previous administration (tenor: 40 years, holder of security: CBN, moratorium on principal repayment: 3 years, interest rate: 9.0% p.a.) in 2023, and repaid the balance ₦7.3tn between Q1 and Q2:2024 with the proceed of NT-Bills issued in the period. Moreover, given the prevailing challenge of revenue underperformance for the FG and the pricy nature of capital in both the domestic and international markets (due to global-wide policy normalisation that began in 2022), it would have been cumbersome to raise ₦22.7tn (about $14.8bn) in just 15 months to repay the ways and means liability and still fund overheads.
Key Imperatives to Prioritise
In the quest to create better prospects for Nigeria and Nigerians to wade through another 64 years, we attempt to articulate key imperatives that the PBAT administration should prioritise to support his dream of a near-term turnaround for the economy and lay the foundations for a greener Nigeria.
1. Enhance security architecture: Over the last decade, insecurity challenges have festered in Nigeria, negatively affecting the business environment. According to the MAN, over 800 mid-to-large scale businesses shut down between 2014 and 2023, with 50.0% to 60.0% of these closures due to insecurity. This is not surprising given the lingering crises of banditry, insurgency, kidnapping, and militancy in key regions of the country. According to the 2024 Global Peace Index ranking report, Nigeria with a score of 3.583 points ranks 153/163 countries. This metric further underscores the fact that insecurity remains a major challenge to the country. For investors to fully commit to their promised investment, the PBAT administration would need to adopt a holistic approach to tackling all forms of insecurity through improved investment in security architecture, regular training and better personnel remuneration, and institutionalisation of checks & balances mechanism to end sabotage. This is pertinent given the prognosis of the Rational Choice Theory (Downs, 1957) which suggests that investors will avoid investment when perceived risks outweigh benefits.
2. Improve investment in human capital: The success of any FDI depends on the quality of the human capital in the country of investment. On this basis, for investors to be willing to commit their capital on a long-term basis across key sectors of the economy, the PBAT administration would need to improve investment in human capital, especially in the areas of funding for education and health. Currently, Nigeria’s share of education (5.3%) and health (4.8%) budgets are below UNICEF and WHO recommended baselines of 26.0% and 7.0%, respectively. In addition, the new national minimum wage of ₦70,000 (c.$43.75) is not competitive enough to retain Nigeria’s best brains in these critical sectors. Hence, the government would need to improve on both cash and non-cash incentives to professionals in these sectors to create the necessary enablement for FDI inflows.
3. Boost tax system competitiveness: Before PBAT assumed office, Nigeria was said to have more than 100 different taxes imposed on businesses. This is particularly bad for an economy seeking to attract large-scale FDI. We are hopeful that the recommendations of the Special Presidential Fiscal Policy & Tax Reform Committee headed by Taiwo Oyedele (part of which was recently gazetted) which is targeted at streamlining the number of taxes on businesses and optimising outcomes will be fully implemented in the coming months to ensure that the business environment becomes more accommodating to domestic and foreign investors.
4. Increase infrastructure investment: Lately, FDI inflows to Nigeria ($1.9bn) have significantly trailed Egypt ($9.8bn), South Africa ($3.4bn), and Ethiopia ($3.3bn). A major reason for this disturbing reality is the poor state of critical infrastructure such as energy and transportation relative to these peers. To change this narrative, the FG would need to come up with clear and actionable plans on how to improve these critical infrastructures in the shortest possible time so that FDI could be incentivised.
5. Uphold the rule of law: As of 2023, Nigeria ranks 120/142 on the global rule of law index and 23/34 in SSA according to the World Justice Project (WJP). This ranking is particularly poor for an economy seeking to attract large-scale FDI. Hence, the PBAT administration should intensify efforts to ensure that the legal system is thoroughly reformed to promote accurate and efficient dispensation of justice and eliminate conflating court rulings. Also, the executive arm responsible for enforcing court injunctions should be strengthened to become apolitical to gain the confidence of local and global investors.
In addition to the items listed above, other key imperatives that the FG would need to prioritise to ensure that every promised investments are actualised include improving the monetary policy sector autonomy, entrenching fiscal policy consistency, and eliminating public sector bureaucracy and corruption.
Afrinvest
