Foreign Direct Investment as Local Indirect Divestment

“On the whole, China depends more on domestic investment and consumption than on exports to generate its growth.” –Cambridge Dictionary

Recent reports have decried the drastic drop in foreign direct investment flows into the country. The decline had started much earlier before the pandemic worsened the situation last year. With specific reference to the numbers, net FDI into Nigeria dropped from $4.45b in 2016 to $3.50b in 2017. It further went down to $2.0b in 2018 and then rose to $3.3b in 2019, before dipping again to $2.6b in 2020.

Many people tend to confuse foreign investments with foreign remittances. The difference is that while foreign investment could form part of foreign remittances if the investment is in cash, foreign remittances are not necessarily foreign investment. A lion share of foreign remittances is meant for consumption and other expenses which are not investments. For instance, many Nigerian families are dependent on relatives who send money from outside the country, periodically for their upkeep.

The so-called benefits wittingly or unwittingly, occur along with the investment. It is like saying that associated gas is a benefit that comes with oil production. That statement could be true if the country knows how to and has capacity to utilise associated gas. Where neither the knowledge nor capacity exist, the gas could either be flared or reinjected.

Governments must also lead the way by investing appropriately in the economy. Government’s investment should not be in business but in its enablers. Government should concentrate on those factors that support and boost business. Failed, failing or outright lack of infrastructure is a disincentive to investment, be they local or foreign. Access is one of the major challenges of both agriculture and industry. Aside the risk that it poses to economic agents, there is the additional challenge of increasing the production cost which makes output uncompetitive.

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