FOREIGN DIRECT INVESTMENT IN NIGERIA: CHALLENGES AND PROSPECTS

Abstract

Foreign Direct Investment (FDI) in Nigeria represents a pivotal component of the nation's economic landscape, positioning it as the third host economy for FDI in Africa, trailing behind Egypt and Ethiopia. Despite encountering significant setbacks, such as negative FDI flows amounting to USD 187 million in 2022, primarily due to equity divestments, Nigeria continues to attract substantial investor interest, particularly in sectors like hydrocarbons, energy, and construction. Noteworthy greenfield projects have surged, with investments such as Airtel Nigeria's USD 731 million data centre in Lekki and Sun Africa's USD 1.8 billion solar power plant and battery storage facility exemplifying this trend. Nigeria's strategic economic diversification efforts aim to reduce dependency on oil by fostering a competitive manufacturing sector and enhancing integration into global value chains. The consolidation of trade, industry, and investment under the Federal Ministry of Industry, Trade, and Investment underscores this coordinated approach. While Nigeria offers advantages like a partially privatized economy, favourable taxation, abundant natural resources, and low labour costs, challenges such as corruption, political instability, lack of transparency, security challenges, import restrictions, and inadequate infrastructure persist. Additionally, bureaucratic hurdles and an underdeveloped power sector impose further constraints on FDI potential. The Nigerian Investment Promotion Commission (NIPC) plays a crucial role as a one-stop investment centre, authorized to negotiate special incentives for substantial investments. Despite the country's placement at 145th out of 180 economies on the 2023 Corruption Perception Index, 109th on the Global Innovation Index 2023, and 125th on the Index of Economic Freedom 2024, Nigeria remains a promising destination for foreign investors because of low labour costs, favourable taxation and a privatized economy. This article delves into the multifaceted challenges and prospects of FDI in Nigeria, offering a comprehensive analysis of the current investment climate and future outlook.