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Nigeria’s fragile economy drags down West Africa’s FDI by 11%

According to United Nations Conferences on Trade and Development ( UNCTAD ) investment report 2018, Nigeria’s fragile economy dragged down West Africa Foreign Direct Investment (FDI) by 11 per cent to $11.3 billion in 2017 from $12.7 billion in 2016.
FDI to Nigeria fell by 21 per cent to $3.5 billion in 2017 from $4.4 billion in 2016. Based on the investment report, domestic demand was well below investors’ expectations and several consumer-facing companies from South Africa exited Nigeria in 2016.
“Nigeria accounts for about 80 per cent of West Africa economy. A sensational weight of Nigeria can actually influence other West Africa countries. Even if other countries in that region have material improvements, Nigeria‘s declining economy has the capacity to bring down the whole of the West Africa region,” Johnson Chukwu, CEO, Cowry Asset Management Limited said.
Countries in the West Africa region include Burkina Faso, the island nation of Cape Verde, Gambia, Ghana, Guinea, Benin Republic, Guinea-Bissau, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo.
Nigeria and Ghana are the top investments destinations in West Africa having an FDI inflow of $3.5 billion and $3.2 billion in 2017 respectively.
Ibrahim Tajudeem, Head of Research, Chaphill Denham said, “These are the top two countries in terms of access to West Africa markets.”
Despite being one of the top investment destinations in the West Africa sub-region, Nigeria’s FDI inflows to Nigeria have been treading down since 2012 through 2017 with the exception of the year 2016.
In 2013, FDI inflows were $5.6 billion, down from $7.1billion in 2017. In 2014 and 2015, FDI inflows recorded $4.6 billion and $3.0 billion respectively. However, FDI rose during the hit of the recession in 2016 to $4.4 billion. By 2017, FDI declined to $3.5 billion.
“There is no particular tread for FDI. There will be some up and down movements. Investments are not planned in a day. They are planned for a long period of time. The planning process would have started five years before 2016 and it was later disbursed in 2016,” Tajudeem explained
Despite the decline, the report was optimistic that a modest recovery in oil production and the general economy in 2017 as well as the introduction of an investor and export (I&E) window to bid for foreign exchange should help entice companies to return to Nigeria in the future.
At the same time, new technology start-ups in Nigeria, backed by venture capitalists from South Africa and elsewhere, are helping to diversify FDI inflows.
Also from the report, global FDI flows fell by 23 per cent in 2017, to $1.43 trillion from a revised $1.87 trillion in 2016 .The decline is in stark contrast to other macroeconomic variables, such as GDP and trade, which saw substantial improvement in 2017. A decrease in the value of net cross-border mergers and acquisitions to $694 billion, from $887 billion in 2016, contributed to the decline.
FDI flows to developing economies remained stable at $671 billion, seeing no recovery following the 10 per cent drop in 2016. FDI flows to Africa continued to slide, reaching $42 billion, down 21 per cent from 2016. The decline was concentrated in the larger commodity exporters.
UNCTAD will host a discussion of the interface between industrial and investment policies at its 6th World Investment Forum, which will take place in Geneva on  22nd –26th October 2018 .
Global flows are forecast to increase marginally, by up to 10 per cent, but remain well below the average over the past 10 years. Higher economic growth projections, trade volumes and commodity prices would normally point to a larger potential increase in global FDI in 2018.
 
 
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