THE PRESIDENT’S EMERGENCY ECONOMIC POWERS AND THE NEED TO UTILISE FDI TO JUMP START AND DIVERSIFY NIGERIA’S ECONOMY BY ADEMOLA ADEYINKA, MANAGING PARTNER/CEO SMART ADVISORY LTD
(A BUSINESS SOLUTION & ADVISORY FIRM)
(A BUSINESS SOLUTION & ADVISORY FIRM)
The news that President Mohammadu
Buhari will be seeking emergency powers from the National Assembly to push his government’s planned stimulus for the economy has generated a lot of controversies but remains one of the best news I have heard from this administration since inception if my idea of the emergency powers is what is being contemplated. Even though the details of the bill are yet unclear the thought behind it needs to be commended especially as it relates to using Foreign Direct Investment (FDI) as a strategy to jump start Nigeria’s ailing economy.
Some analysts believe that the economy bottomed out in Q2 of 2016 and also project some limited improvement for the rest of the year. Notwithstanding, any positive growth over the next two quarters is unlikely to be sufficient to offset the poor half year result characterized by a lot of policy inconsistencies and experimentation. Technically therefore, we expect a real contraction by the end of the year.
Buhari will be seeking emergency powers from the National Assembly to push his government’s planned stimulus for the economy has generated a lot of controversies but remains one of the best news I have heard from this administration since inception if my idea of the emergency powers is what is being contemplated. Even though the details of the bill are yet unclear the thought behind it needs to be commended especially as it relates to using Foreign Direct Investment (FDI) as a strategy to jump start Nigeria’s ailing economy.
Some analysts believe that the economy bottomed out in Q2 of 2016 and also project some limited improvement for the rest of the year. Notwithstanding, any positive growth over the next two quarters is unlikely to be sufficient to offset the poor half year result characterized by a lot of policy inconsistencies and experimentation. Technically therefore, we expect a real contraction by the end of the year.
Is there any reason to be optimistic towards 2017? It all depends on what the government does or does not do but there is reason to have cautious optimism. The 2017 budget is expected to be more expansionary than this administration’s first budget. A lot of lessons are expected to have been learnt in the art and science of budgeting and the real and apparent danger of budget padding. There are reasons to believe that oil prices will record some increase, the Niger Delta restiveness will be resolved and oil production will return to growth. There will be substantial complementary revenue from the non-oil sectors.
There is strong faith that the policy of blocking wastage will continue and corruption at the federal level will be at the lowest. Against this background, Foreign Direct Investment (FDI) could be used as the catalyst towards creating further foreign exchange liquidity, firming up the naira and diversifying Nigeria’s economy which hitherto had been heavily dependent on revenues from the sale of crude oil. To attract FDIs however requires a coordinated and proactive approach by the Federal Government which I do hope the emergency powers the President is seeking will address. There is the need to do a detailed analysis of the myriads of core problems confronting Nigeria with a view to plotting a critical path graph that can be used to prioritize government actions and policies. Governing Nigeria is a huge and complex project involving significant risks and investment. As a result of our peculiar complexity and risks as a nation, it becomes even more necessary to take a holistic view of the Nigerian project and identify the relationships between the various activities of government and work out the most efficient and effective way of running government in a period such as this.
The socio-economic and political structure of Nigeria has a considerable number of challenges, limitations and diversity which have all combined to shape our governance philosophy.
Many of these diverse challenges and limitations are the result of our long dependence on oil, many years of unchecked but rapid growth of corruption at all levels and the consequent high level of inequality in a country of about 170 million people. The Nigerian constitution
was structured in such a way as to
perpetuate some of these constraints.
The decision to seek emergency powers for the President to address our economic challenges is therefore a welcome development if it is properly channeled. To say Nigeria’s economy is in a bad shape and may become a threat to the rest of the world is saying the obvious. Everyone is in agreement that we are in a recession but what many don’t agree on is how long this recession will remain with us. This situation has not been helped by the huge regular demand
for foreign exchange which has battered the country’s currency and has left the managers of the economy confused and somewhat helpless. The solution to this double barrel jeopardy in my opinion is in
taking some emergency actions for the good of all.
Many of these diverse challenges and limitations are the result of our long dependence on oil, many years of unchecked but rapid growth of corruption at all levels and the consequent high level of inequality in a country of about 170 million people. The Nigerian constitution
was structured in such a way as to
perpetuate some of these constraints.
The decision to seek emergency powers for the President to address our economic challenges is therefore a welcome development if it is properly channeled. To say Nigeria’s economy is in a bad shape and may become a threat to the rest of the world is saying the obvious. Everyone is in agreement that we are in a recession but what many don’t agree on is how long this recession will remain with us. This situation has not been helped by the huge regular demand
for foreign exchange which has battered the country’s currency and has left the managers of the economy confused and somewhat helpless. The solution to this double barrel jeopardy in my opinion is in
taking some emergency actions for the good of all.
Exploring all ways to attract huge FDIs into the country as quickly as possible is one of such actions. Nigeria’s balance of
payment (BoP) cannot be made favorable overnight especially with our huge population and long period of commitments to foreign exchange exposures. Nigeria is safe and secure for FDI notwithstanding our most recent challenges. The major factors determining foreign investment destination are size of the market, incentives and operating conditions, privatization, stable and predictable foreign exchange market as well as a trusted legal system that will protect both local and foreign investors.
payment (BoP) cannot be made favorable overnight especially with our huge population and long period of commitments to foreign exchange exposures. Nigeria is safe and secure for FDI notwithstanding our most recent challenges. The major factors determining foreign investment destination are size of the market, incentives and operating conditions, privatization, stable and predictable foreign exchange market as well as a trusted legal system that will protect both local and foreign investors.
Sadly, the large size of the Nigerian market is not being taken advantage of as evidenced by the relatively small foreign investment flow. This suggests that some other things are wrong and it is expected that the emergency powers the President seeks would address this anomaly. The easier short term proactive step towards addressing the huge gap between demand and supply of foreign exchange which was staring us in the face since 2014 could have been in the privatization of state owned assets especially the power and telecommunications assets which the previous administration conducted in the most bizarre and shoddy manner and which added little or no value to those industries. In privatizing state assets generally, one would have expected the greatest value to the citizenry and the state in terms of huge inflow of capital, transfer of technology and creation of jobs all of which were missing in the last privatization in the power sector.
Countries that are more strategic use sale of state assets through inward investment by way of FDIs to manage their balance of trade and improve their GDP with special attention on improving productivity of domestic manufacturing and service firms which will in turn create the much needed jobs. There are several ways of developing and enhancing the efficiency of the private sector through the use of FDIs. These ways are typically embedded in the transaction/sale agreements with a clear objective of ensuring that such FDIs naturally have spillover effect on other sectors.
There are also several possible channels of productivity spillover benefits that might boost economic performance in a country that is strategically attracting FDIs. These can be in the form of business linkages between the host country and the country of origin of the FDI, labour mobility, and competition among others. However, these benefits do not accrue automatically and should not be taken for granted. In order to benefit from spillover effects, a country like Nigeria must prepare the ground through well designed and well implemented policies. This should be an area of great focus for our Federal Government at this time especially now that the President has decided to seek for emergency powers from the National Assembly. As of now, there is no policy, structure or institution that looks critically at the value chain of the FDIs. This means that this critical line item on developmental strategy is being poorly managed. To support the President’s efforts towards arresting the recession and to ensure a win-win situation, all stakeholders, particularly the government, private sector and Multinational Companies, must participate and collaborate to recognize and tackle typical barriers or constraints to spillover effects.
Some of the issues to consider by the government include how to strengthen the FDI absorptive capacity of the country, technology/capacity transfer, enhancement of forward and backward links, establishment of an institutional framework, enhancement of links between FDIs and domestic firms, and ensuring that a well trained and qualified local labour force is available in the medium to long term. To complement
theseefforts, we should have a “Nigerianisation” or “Local Content Value” development program initiatives which will be mechanisms designed to support the implementation of the aforementioned prerequisites. The South African model is worthy of study and adoption. Currently, the impact of FDIs on the productivity of domestic firms in Nigeria has been limited. The reason for this is the lack of political and economic
strategic factors including a thoroughly researched “need-analysis”, considerable justification of the decisions to attract
FDIs, strategy for the sustainability of the FDIs as well as the identification of the spillover effects of such investments.
There is also government’s passive role in developing and implementing effective investment strategies and policies that can enhance the productivity of local firms. Many Nigerian companies are underperforming when compared with their likes in other parts of the world.
theseefforts, we should have a “Nigerianisation” or “Local Content Value” development program initiatives which will be mechanisms designed to support the implementation of the aforementioned prerequisites. The South African model is worthy of study and adoption. Currently, the impact of FDIs on the productivity of domestic firms in Nigeria has been limited. The reason for this is the lack of political and economic
strategic factors including a thoroughly researched “need-analysis”, considerable justification of the decisions to attract
FDIs, strategy for the sustainability of the FDIs as well as the identification of the spillover effects of such investments.
There is also government’s passive role in developing and implementing effective investment strategies and policies that can enhance the productivity of local firms. Many Nigerian companies are underperforming when compared with their likes in other parts of the world.
A significant ratio of FDIs in Nigeria is concentrated in the oil and gas sectors, with little investment in other key sectors that drive the economy, such as agriculture, manufacturing,mineral resources, transportation and social infrastructure including education and health which could facilitate economic diversification strategies. That is why we still do not have many motor assembly plants setting up their plants in Nigeria despite the huge number of sales recorded in this country. We also don’t have foreign tertiary education institutions despite the huge enrollment from Nigeria.It is a disappointment that a market of over 150 million youthful population is struggling to convince foreign investors beyond reasonable doubt. Nigeria as a country has a very high absorptive capacity for FDIs but there seem to be no concerted effort to leverage on the country’s strengths to achieve this. It is the story of many years of incompetence, misrule and mismanagement which one would expect that Mr President’s emergency economic powers will address. Jump starting this bourgeoning economy requires that we adopt a holistic approach towards FDI. There should be a focus on building a partnership between government (public sector), domestic business (private sector) and FDI (external sector). This international joint-venture business model must be driven
by the government, because of its dominant role and control of resources, and must ensure a win-win arrangement for all parties.
by the government, because of its dominant role and control of resources, and must ensure a win-win arrangement for all parties.
For Nigeria to be an attractive and obvious destination for FDI in Africa, it is essential that the government mandates Nigerian Investment Promotion Council (NIPC) to be responsible for the development and implementation of policies concerned with the enhancement of productivity spillovers. NIPC as the custodian of this mandate would be much more effective than several scattered and fragmented institutions over a large number of ministries and governmental agencies, which are partly responsible for the low levels of productivity spillovers that we currently enjoy from FDIs. The
responsibilities of NIPC should include playing an active role in high-level co-ordination among all
stakeholders in foreign investment; setting standards for implementation practices and monitoring processes regarding the transmission of productivity spillovers; and allocating targets and attracting inward investment in industries that are essential for
Nigeria’s economic development and prosperity. There is no gainsaying the fact that foreign investment has not contributed
significantly to Nigeria’s economic diversification and the development of national human capital resources because of its concentration in the capital-intensive oil and gas sector. This trend should change to allow for the widespread transfer of skills, knowledge, technology, management and marketing attributes to local firms operating in the non-oil and gas sectors.The Federal Government should realize
that productivity spillovers evolve over a long period, hence it is necessary to initiate legislation to encourage existing foreign firms to establish business support centers
to facilitate interaction and cooperation with local firms. In light of the considerable absorptive capacity of local firms in Nigeria, we must strategically diversify sources of inward investment in order to expose local firms to various technological advancements, production techniques and management practices. The Federal Government should also encourage local firms
to further enhance their absorptive
capacities by merging into much
bigger entities capable of being credible partners, and becoming more creative and dynamic in dealing with their foreign counterparts. Responsibility for maximizing spillover effects for the local economy should be a major Key Performance Index (KPI) for NIPC. The various agreements should highlight and emphasize to foreign firms wishing to tap into the huge and potentially lucrative Nigerian market the country’s desire for knowledge enhancement and consideration that knowledge
is public good. Therefore, the transfer of knowledge and technology to local firms should be an integral part of their business strategy in Nigeria.
responsibilities of NIPC should include playing an active role in high-level co-ordination among all
stakeholders in foreign investment; setting standards for implementation practices and monitoring processes regarding the transmission of productivity spillovers; and allocating targets and attracting inward investment in industries that are essential for
Nigeria’s economic development and prosperity. There is no gainsaying the fact that foreign investment has not contributed
significantly to Nigeria’s economic diversification and the development of national human capital resources because of its concentration in the capital-intensive oil and gas sector. This trend should change to allow for the widespread transfer of skills, knowledge, technology, management and marketing attributes to local firms operating in the non-oil and gas sectors.The Federal Government should realize
that productivity spillovers evolve over a long period, hence it is necessary to initiate legislation to encourage existing foreign firms to establish business support centers
to facilitate interaction and cooperation with local firms. In light of the considerable absorptive capacity of local firms in Nigeria, we must strategically diversify sources of inward investment in order to expose local firms to various technological advancements, production techniques and management practices. The Federal Government should also encourage local firms
to further enhance their absorptive
capacities by merging into much
bigger entities capable of being credible partners, and becoming more creative and dynamic in dealing with their foreign counterparts. Responsibility for maximizing spillover effects for the local economy should be a major Key Performance Index (KPI) for NIPC. The various agreements should highlight and emphasize to foreign firms wishing to tap into the huge and potentially lucrative Nigerian market the country’s desire for knowledge enhancement and consideration that knowledge
is public good. Therefore, the transfer of knowledge and technology to local firms should be an integral part of their business strategy in Nigeria.
There is no doubt that the current Federal Government administration desires to make changes and be
progressive in the pursuit of
national development. Since the administration of President Mohammadu Buhari came to power, the country has recorded
an acceptable level of credibility
as a result of the zero tolerance for corruption, reduction in the level of corruption and a seemingly prudent approach to treasury management.
The bold step to take now in other to complement other efforts is aggressive marketing for foreign capital investment for the mutual benefit of both the country’s overall
development, as well as offering a respectable return to investors.
progressive in the pursuit of
national development. Since the administration of President Mohammadu Buhari came to power, the country has recorded
an acceptable level of credibility
as a result of the zero tolerance for corruption, reduction in the level of corruption and a seemingly prudent approach to treasury management.
The bold step to take now in other to complement other efforts is aggressive marketing for foreign capital investment for the mutual benefit of both the country’s overall
development, as well as offering a respectable return to investors.
The return on investment from Nigeria can be mouthwatering.
There may be need to revisit the recent privatization of state assets with a view to identifying the value
chains and benefits to the citizenry. If the public good dictates that there is need to restructure the
privatization with a view to attracting the much needed FDIs there should be no reluctance on the part of government and one expects that the emergency powers being sought will cover this. Nigeria offers huge opportunities to prospective investors. We have
huge deposit and competitive pricing of gas feedstock for those who may want to generate power on their own; renewable corporate
tax holidays in specific sectors is possible; equal tax treatment and investment privileges for foreign and local investors; availability of foreign ownership of up to 100%;
unified law, which is applicable to
investment by both local and foreign entities; free-trade zone areas; government equity participation if required; and many similar investment-friendly measures. There is the ever present huge market and a youthful population that guarantees demand
and consumptions. The only issue we need to work on urgently are
security and ease of doing business. There is also a need to
quickly restore the credibility of the judiciary which has been battered by too many conflicting court judgements. The government also has a responsibility to make the gateways into Nigeria more friendly and appealing. Our airports can be
put offs for foreigners.
There may be need to revisit the recent privatization of state assets with a view to identifying the value
chains and benefits to the citizenry. If the public good dictates that there is need to restructure the
privatization with a view to attracting the much needed FDIs there should be no reluctance on the part of government and one expects that the emergency powers being sought will cover this. Nigeria offers huge opportunities to prospective investors. We have
huge deposit and competitive pricing of gas feedstock for those who may want to generate power on their own; renewable corporate
tax holidays in specific sectors is possible; equal tax treatment and investment privileges for foreign and local investors; availability of foreign ownership of up to 100%;
unified law, which is applicable to
investment by both local and foreign entities; free-trade zone areas; government equity participation if required; and many similar investment-friendly measures. There is the ever present huge market and a youthful population that guarantees demand
and consumptions. The only issue we need to work on urgently are
security and ease of doing business. There is also a need to
quickly restore the credibility of the judiciary which has been battered by too many conflicting court judgements. The government also has a responsibility to make the gateways into Nigeria more friendly and appealing. Our airports can be
put offs for foreigners.
Aside the aforementioned, Nigeria
is a signatory to a number of multilateral agreements, as well as
international and regional organizations, and has a number of bilateral agreements. If Nigeria is well packaged it should result in
international rating agencies pronouncing the country as a preferred investment destination that is open for business. The emergency powers being sought by the President should therefore be used to pursue policies that will present us as a safe and caring environment for establishing, developing and growing business enterprises both in the country itself as well as a gateway to the surrounding regional markets.
is a signatory to a number of multilateral agreements, as well as
international and regional organizations, and has a number of bilateral agreements. If Nigeria is well packaged it should result in
international rating agencies pronouncing the country as a preferred investment destination that is open for business. The emergency powers being sought by the President should therefore be used to pursue policies that will present us as a safe and caring environment for establishing, developing and growing business enterprises both in the country itself as well as a gateway to the surrounding regional markets.
Indeed, the horizon looks promising. Only if we do what is right.
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