Nigeria economy relies largely on its oil sector and it seemed ok until Saudi Arabia  started an oil price war and the pandemic  which brought the entire world to a standstill; consequently crippling a major source of revenue, and hampering Nigeria’s abilities to pay obligations.

One in three Nigerians in the workforce unemployed, among the world’s highest jobless rates, fanning social discontent and insecurity.

FDI provides more lasting advantages for the economy. Yet, it fell dramatically during the 2016 recession – FDI inflow contracted from $2.3 billion in 2014 to $1 billion in 2016.

FDIs subsequently tumbled. Events that worsened this fall include the MTN  repatriation scandal, the backlog of taxes slammed on oil companies and the withdrawal  of two global financial institutions in Nigeria.

Foreign investors thus reacted negatively to these developments and withheld investment due to the perceived risk and uncertainty surrounding the Nigerian business environment.

Within six years the proportion of FDIs to total investment flows dropped from 20% in 2016 to 4% in 2019. The actual valued has stayed just below $1 billion since 2016.

By default, this means FPIs have been rising. In 2016, portfolio investments were 35% of total investment, by the end of 2019, data from the National Bureau of Statistics showed FPIs had hit 68%. A dramatic increase from $1.8 billion to $16.4 billion.

Nigeria became one of the most attractive markets in the world because of our attractive yields on bond instruments.

Consequently, FPIs became a significant channel for acquiring foreign exchange in Nigeria. And the CBN continued to fuel this position

The apex bank even restricted local investors from participating in the OMO market – a high-interest bond that attracted foreigners. Its desire was to use these OMO bills to attract foreign investors while pushing local investors to spend their money on other sectors like agriculture.

No one knew Saudi Arabia would start an oil price war which led us to where we are right now apart from the pandemic.

The coinciding events created uncertainty and resulted in selloffs by foreign investors, as evidenced by the selloff on the stock exchange and the current lack of liquidity in the debt  market.

This story is not new. Whenever crude oil prices plunge, foreign portfolio investors take their leave and Nigeria loses on both sides. We lose forex inflow from dwindling crude oil prices and also lose forex to investors who are pressed to leave.

Nigeria, however, is not alone in this predicament. Countries like China and Egypt have faced similar problems with FDIs and FPIs, but they were able to scale through with their governments embarking on various projects which rerouted a growth projectile.

China was the world’s second-largest recipient of foreign direct investment (FDI) after the United States in 2019.

Year-on-year FDI inflow rose by 5.8% in 2019 partly due to “40,000 new foreign-funded enterprises”, established in the country last year.

As China continue to take a more active role on the global stage, Nigeria can learn from the Asian country.

China had embarked on the implementation of initiatives like the public-private partnership  (PPP) on infrastructure development. The country grants income tax exemptions to foreign investors who reinvest profits earned in China. It also created Special Economic Zones (SEZs), and constantly reviews its foreign investment law to accommodate transparency.

Similarly, Egypt- the largest  recipient of FDI in Africa in 2019, went through various structural reforms to achieve this feat. In 2016, Egypt adopted the floating exchange rate system to restore investors’ confidence in the country. It enacted the Industrial Permit Act to ease the procedures for obtaining licenses for industrial establishments. Currently, the country is making headway on its privatization program of 23 State-owned enterprises (SOE).

Taking a cue from these examples will help Nigeria improve prospects for attracting foreign investments.

Providing tax incentives is rather tricky for a government that is looking to diversify its revenue base, specifically through taxes. However, China was able to gain in the long run, by granting tax concessions to businesses who reinvested their profits in the country. That way, the country was able to grow, while FDIs continued to rise.

A stable business environment will attract investors, but to keep them, Nigeria must give them some other reason besides oil.