Since the time of President Olusegun Obasanjo, except for President Umaru Yar’Adua who assumed office due to illness, it has been a tradition for new presidents to undertake extensive research trips in search of foreign investment. It is down to civil servants to arrange these research trips for their personal gain. If one evaluates these research trips, one will find that they have always been a waste of time and money.
The government has done little to evaluate policy implementation to determine future needs and necessary revisions. The same initiatives undertaken by President Bola Tinubu when he took office a year ago have not produced results. Which of the promises regarding foreign investment have been fulfilled? Promises are not being fulfilled because the physical and policy environment is hostile to profitable investment.
Former Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, has shown us that inappropriate economic policies can ruin an economy and even humanity. The dual policies of going cashless and redesigning the currency led to a deep economic recession and the death of many bank customers. The artificial scarcity at the time meant that money could not perform its basic function as a medium of exchange. This resulted in a decline in demand for existing goods, which ultimately led to a large amount of unsold inventory, leading producers to cut production and eventually lay off employees temporarily until sales recovered. This measure, taken at a time when the economy was recovering from the adverse effects of COVID-19, has once again plunged the economy into recession. Even the two recent economic policies of removing fuel subsidies and unifying the exchange rate have caused disruptions to economic activity in the past 12 months and the Federal Government cannot honestly boast that it has improved the lives of its citizens. It is therefore imperative that the government evaluate the effectiveness of policy measures from time to time and stop implementing overlapping policies. The question at this point is why foreign investors are not fulfilling their promises to the President and why some are relocating.
When it comes to physical requirements, the country lacks major infrastructure support for foreign investment. The major infrastructure is not the road network. Transport and communication infrastructure are important, but one of them is virtually solved regarding communication. Power is a major infrastructure, without which it becomes the main cost in the production equation. Over the years, the transport infrastructure has improved significantly, but the state of power continues to deteriorate every time due to the country’s failure to develop various sources of power generation and distribution modes.
In some cases, we were told that generation had improved but distribution remained a problem. A country the size of Nigeria, generating less than 4,000 megawatts, is not without generation problems, but it has not generated even 10,000 megawatts since independence. South Africa, an industrial economy and member of the G20, generates about 50,000 megawatts and buys electricity from Botswana to keep its industry afloat through the economic downturn.
Unless electricity is improved, Nigeria cannot industrialize because electricity is the force that changes low production. States that have 24-hour electricity will lag behind other states in industrialization and development. Abia State seems to be moving in the right direction in this regard, posing a challenge to other states and the Federal Government. Hopefully, facilities will continue to be expanded so that the entire state has 24/7 supply. If it continues to pursue foreign investment without electricity, the Presidency will be wasting money or encouraging corruption. If there is any foreign investment worth pursuing by the Federal Government, it is in power generation and distribution. With the right monetary, fiscal, fiscal and industrial policies in place and electricity available, other types of investment will naturally flow in.
Now, regarding the CBN’s monetary policy, the policy of tightening credit and printing money by increasing the monetary policy rate is anti-investment. Currently in Nigeria, there is no investment that can generate 20 percent annual returns and asking investors to pay 20 percent for credit will discourage borrowing in the financial markets. The capital market is not yet very advanced in terms of product selection and customer acquisition. The CBN Monetary Policy Committee should look at the demand side of credit instead of thinking that it can fight inflation with a tight monetary policy when price increases are more affected by exchange rate depreciation and shortages of goods and services. High inflation also has a negative impact on domestic and foreign investment.
The focus of loans from the Industrial Bank should be more on small and medium-sized industries that can create more jobs. The key problem these companies currently face is related to the same problem of generating electricity to run their businesses. Most companies need electricity for production, the costs of which start from purchasing generators, installing solar panels, inverters and batteries to generate electricity, to fuelling and maintaining the generators. Sometimes, half of the loans obtained are dedicated to providing electricity facilities at the initial stage of production.
Therefore, the BOI can provide special electricity to emerging industries when giving loans.Furthermore, state ministries of industry can create small business villages with established road and power infrastructure so that entrepreneurs can already be supported in terms of costs.Most of the Okada and Marwa riders are artisans with skills that are not being utilised due to the power issue.
Also, within the framework of its monetary policy, the CBN, as part of its mandatory statutes, must protect the value of the national currency from foreign exchange in terms of stability and the volume of reserves. In this case, banks must be wary of leakages and speculative attacks in the foreign exchange market.
One of the major problems with a market-determined exchange rate is the instability resulting from speculative activity. The CBN needs to work to strengthen the value of the Naira to attract foreign investment. Foreign investors need to convert their profits from Naira to their home currency when they repatriate them. This conversion is a major determinant in the decision to invest abroad. In other words, the significant depreciation of the Naira over the past 12 months is enough of a disincentive to attract foreign investment.
In the field of fiscal policy, the issue of income and wages needs to be resolved in time. Investors (domestic and foreign) are usually interested in the income profile of a country. They prefer a high-income country with a population of 50 million to a low-income country with a population of 200 million. Investors are interested in the demand for their products. Nigerians often think that a population of 200 million is a good market, but investors do not think so. Wages and salaries in Nigeria are among the lowest in Africa. With such low wages and low incomes, it is not possible to attract new investments. Recently, the Angolan government announced that the minimum wage will be $120 per month from June 1, 2024.
Uncertainty surrounding the agreement on Nigeria’s minimum wage is contributing to delays in foreign investors’ decisions to stay in Nigeria and in new investors’ entry into the country. Investors should be considering whether changing domestic wages can stimulate demand, but they are being made to wait.
Earlier this year, it was reported that a four-ministry joint committee was being formed to formulate and implement multilateral or intergovernmental policies. The ministries involved include the Ministry of Finance, the Ministry of Economic Planning and the Ministry of Industry. This is a good move for policy synchronization and I hope that this move will still exist and that the relevant committees will be allowed to function. Many African countries are moving forward, widening the development gap between us and African countries at a time when we should be taking the lead.
As I mentioned in last week’s article, the federal government is more interested in taxing existing businesses than in new productive frontiers. This is counterproductive — anti-investment policy. If investment is encouraged with the right policy mix, production will increase, unemployment will decrease, and the government will collect taxes from new and old businesses and employees. This is the kind of expansion the country needs right now, and it’s the way to go.
