Trade is an important source of growth in Nigeria and many developing countries. This is based on the implicit belief that trade creates jobs, expands markets, facilitates competition; disseminates knowledge and raises income both to individuals and government.
Foreign trade enlarges the market for a country’s output while export may lead to growth in national output and may become an engine of growth. Economists have been interested in factors which cause different countries to grow at different rates and achieve different level of wealth.
One of such factors is trade liberalization. Over many centuries, international trade has brought together remote parts of the world and different civilization; it has helped to improve disseminated knowledge and ideas, and shaped the course of regions and nations. In addition, trade liberalization helps to stimulate production, promote efficiency and reduce cost of production and thus increase international confidence in market mechanism of an economy
According to a United Nations report, foreign direct investment in Nigeria, Africa’s top oil producer, plunged by 43 per cent to $2bn when compared to other parts of the continent.
While investors literally made an about turn from coming to Nigeria as a result of dispute between the government and South African telecom giant MTN over repatriated profits. Banks HSBC and UBS both closed representative offices there in 2018, Ghana, a neighbouring country, enjoyed inflows of $3bn, as West Africa’s leading destination for foreign investment. Italy’s Eni Group was behind Ghana’s largest Greenfield investment project.
Foreign investment in sub-Saharan Africa rose by 13 per cent last year to $32bn, bucking a global downward trend and reversing two years of decline, according to the UN report.
It said the development of new mining and oil projects, a new US development-finance institution and the ratification of an agreement to create a continent-wide free-trade area could further boost foreign direct investment in 2019.
Africa stands in sharp contrast to developed economies, which saw FDI inflows plunge by 27 per cent to their lowest level since 2004, the United Nations Conference on Trade and Development wrote in its ‘World Investment Report.’
FDI outlook in parts of Africa
Some African countries fared better than others, however. The Southern Africa region performed the best, taking in FDI of nearly $4.2bn, up from $925m in 2017. Foreign investment in South Africa more than doubled to $5.3bn.
Though much of the South African jump came from intracompany loans, new investments included a $750m Beijing Automotive Group plant and a $186m wind farm being built by the Irish company Mainstream Renewable Energy.
Ethiopia remained East Africa’s top recipient of FDI at $3.3bn, despite an 18 per cent drop compared with the year before. Kenya, Uganda and Tanzania all saw increases in FDI inflows. Foreign investment in Uganda jumped 67 per cent to a record $1.3bn, boosted by the oil and gas development of a consortium that includes France’s Total, CNOOC of China and London-listed Tullow Oil.
The creation of the US International Development Finance Corporation could help support FDI inflows this year. A replacement for the Overseas Private Investment Corporation, it will be have a budget of $60bn and a mandate to make equity investments. The ratification of the African Continental Free Trade Area Agreement could also have a positive effect on FDI, especially in the manufacturing and services sectors.
A look into Nigeria ranking of 146th on the World Bank’s 2019 Ease of Doing Business report, a drop from 145th in the 2018 report. In the 2019 edition of its annual study, Where to Invest in Africa, RMB, the Johannesburg-based investment advisory firm, ranked Nigeria No.8 in Africa, where Egypt, South Africa and Morocco that took the first three spots respectively were cited for their economic diversity and improved environment.
Ethiopia, Kenya and Rwanda at fourth, fifth and sixth places are also credited with robust growth, strong macroeconomic policies and investment in infrastructure. As he spoke in Japan, Toyota, the world’s top automotive manufacturer, announced plans to establish its West African production hub in Ghana, even when Nigeria is the largest importer of Toyota vehicles in the sub-region, a telling reflection of Nigeria poor prospects.
THE WAY OUT FOR NIGERIA
The best way out for Nigeria is to liberalise and open up the railways, ports, airports, steel, mining, agriculture and downstream oil and gas sectors. As the licensing of two GSM operators in 2001 facilitated massive FDI, skills acquisition and telecoms services penetration, liberal policies opening up these sectors will do even better.
According to available information, the total investments today in Nigeria’s telecoms sector is $70 billion, while the telecoms sector provides over 174 million telephone lines, compared to the less than 500,000 active lines in 2001, and added 11.39 per cent to GDP in Q1 2019.
Liberalization has been praised for its beneficial effects on productivity in various sectors of the economy, the use of better technology and investment promotion which are mediums for stimulating economic growth. Liberalization may generate significant gains that enhance a country’s economic improvement. This suggests that trade encourages lower prices of imported goods and services and prevent price increase which in turns prohibit monopolies.
Nigeria is blessed with diverse resources that can place her among the top emerging economies and that the country should specialize in the production of certain products in order to keep prices at a competitive level and minimize cost of production. Alternatively, Nigeria’s relatively large domestic market can support the growth in the nation’s major sectors but cannot deliver sustained growth needed to make a visible impact on poverty reduction alone. Therefore, interaction with foreign market is critical to economic survival and the achievement of long term growth and development in Nigeria.
Buhari as a matter of Urgency should empanel and empower an economic team, partner closely the organised private sector and adopt a hands-on approach. Nigeria’s situation requires that he engage with OPS operators and work with states that are willing to join the Federal Government in promoting private capital and FDI in agriculture, mining, manufacturing, power and infrastructure.
Experts have said the steady inflow of FDI into Nigeria will accelerate the country’s quest to rank among the top economies in the world and reduce the unemployment rate in the country which stand at Youth Unemployment Rate in Nigeria averaged 23.63 percent from 2014 until 2018, reaching an all time high of 38 percent in the second quarter of 2018
By Parish Pascal
BINNABOOK PUBLISHER
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