Impact Project: Improving the Investment Climate in Nigeria

 I recently enrolled in a Massive Open Online Course (MOOC) offered by the World Bank Group on Financing for Development. I have always had an interest in finance and economics and how knowledge from these disciplines can be utilized to create a better world, not only for the rich, but also for the poorest of poorest. My hunger for poverty alleviation has truly been fed to an extent through this month-long MOOC. For my final project, which is an impact project for Financing for Development, I have chosen to write on a topic that I found interesting and indeed, timely. The importance of “Improving the investment climate” of a country cannot be overemphasized. I will analyze this topic from a standpoint of Africa’s largest economy, Nigeria. While highlighting the current situation of Nigeria’s investment climate, problems with the existing climate and why there is a need for change, I will also offer proposed solutions to these impeding factors that could better the situation of things. 

Nigeria’s Investment Climate: Status Quo

Nigeria’s rich investment climate and market resources remain untapped by the potential for investment. Recently, investment motivation has declined generally owing to several impeding factors. Nigeria’s continuous GDP growth has been explained by the expansion in the mobile telecommunication, agriculture, service and trade industries. Oil production share of GDP has declined as the service industry continues to boom. Nigeria’s low cost labor, the opportunity for exposure to the largest economy in the continent and plentiful natural resources are all factors that have attracted investment, especially foreign investment. These strengths could be capitalized to produce even larger and more strategic results as they relate to the investment climate. 

Factors Impeding Nigeria’s healthy Investment Climate

• Corruption and political situation: This is probably Nigeria’s biggest cause of decline in investment motivation
• Security concerns, recent attacks by terrorist group Boko Haram and rampant kidnapping activities are curbing interest for investment in Nigeria
• Inadequate infrastructure: Lack of improved modern infrastructure and the discouraging state of roads and transportation systems have posed difficulties for conducting business in the country
• Inefficient power supply  
• Inefficient tax administration system: At only 12% tax to GDP ratio, government is not effectively capturing tax revenues
• Ineffective judicial system

Why is there a need for a healthy Investment Climate?

• A healthy investment climate does not only benefit the investor through investment expansion and potential expected profit, but also affects other stakeholders including Nigerians, the Nigerian government and ultimately, other countries of the world
• Nigeria’s growing economy provides an opportunity for investor interest  
• GDP to tax ratios remain low, there is potential for increased revenues for development
• A healthy investment climate provides for continuous economic boost which contributes to poverty alleviation
• Increased investment provides funding for miscellaneous projects through tax revenue
• Increased investment opens up employment opportunities domestically, unemployment rate continues to increase in 2015, (9.9 percent in Q3 2015, Tradingeconomies.com). Nigerian youth will benefit from  job creation and human capital development
• Capture opportunities for Foreign Direct Investment (FDI), leading to partnerships and strategic free trade agreements  

                                                  Possible solutions?

• There is need for government intervention in the area of mitigating the risk of corruption. Some mechanisms that could be implemented include; imposing transparency in government spending and activities, limiting bureaucracy in administrative processes and incorporating modern technology to help in tracking identifying problem areas if need arises
• Eliminate red tape in business entry and registration administration procedures by simplifying the procedures 
• Establishing a more efficient and transparent taxation system to capture and increase tax to GDP ratio, providing tax revenue for government spending
• Targeting areas and industries in the country in need of development and channeling investment innovations to these areas. For example, conflict-stricken northeastern Nigeria
• Reducing security risk to encourage private investment through more responsive security measures
• Facilitating trade logistics by much needed improvement in power supply distribution and transportation systems revamp

Through the suggested strategies above taken into action in a timely manner, I have faith that the situation of things with regards to Nigeria’s investment climate will take a turn and continue to motivate both foreign and domestic investment in the nearer future. I look forward to a Nigeria that provides a fertile ground for private investment, continuous boost and innovation in the economy, reduced unemployment and ultimately a better redistribution of wealth and the eradication of poverty. A Nigeria where even the poorest live comfortable lives.

You may also find this discussion on Nigeria's investment climate by Joe Femi-Dagunro, founder and president of the Nigerian German Business Group (NGBG)  interesting.