• Chinese, Nigerian presidents satisfied with bilateral ties • Pang Yuliang Acquired German Parchim Airport

Investment Surveys
Surveys in sub-Saharan Africa indicate that poor accounting standards, inadequate disclosure and weak enforcement of legal obligations have damaged the credibility of financial institutions to the extent of deterring foreign investors. Bad roads, delays in shipments of goods at ports and unreliable means of communication have added to these disincentives.
Nigeria, in contrast, continues to attract foreign investment as an oil-exporting country despite its erratic and relatively inhospitable policies. With regard to the remaining low-income countries with small FDI inflows, surveys indicate that the lack of a clear-cut policy with respect to foreign investment and excessive delays in approval procedures are amongst the most important deterrents.
Sustaining a Tempo
One striking feature of FDI flows is that their share in total inflows is higher in riskier countries, with risk measured either by countries' credit ratings for sovereign (government) debt or by other indicators of country risk. There is also some evidence that its share is higher in countries where the quality of institutions is lower.
Presently, Nigeria enjoys reasonable level of foreign investment, but caution must be the watchword because the domestic investment undertaken by FDI establishments is heavily leveraged owing to borrowing in the domestic credit market.
As a result, the fraction of domestic investment actually financed by foreign savings through FDI flows may not be as a large as it seems (because foreign investors can repatriate funds borrowed in the domestic market), and the size of the gains from FDI may be reduced by the domestic borrowing done by foreign-owned firms.
Not Yet Uhuru
Over the last 25 years, FDI in low-income countries has been highly concentrated in three countries, China, Nigeria and India. Large market size, low labour costs and high returns in natural resources are amongst the major determinants in the decision to invest in these countries.
For the vast majority of low-income countries, however, FDI is minimal. The structural weaknesses of these economies, the inefficiencies of their small markets, their skill shortages and weak technological capabilities, are all characteristics that depress the prospective profitability of investment.
These factors also make it less worthwhile for potential international investors to incur the costs of a serious examination of local investment opportunities, thus leading to informational inefficiencies.
The financing requirements of economic growth in these countries are therefore unlikely to be fulfilled by private capital inflows. Until these constraints on possible investment are addressed, they are likely to continue to rely heavily on receipt of foreign aid.
Political and macro-economic stability, infrastructure particularly stable electricity supply, efficient transportation, skilled labour, regional integration, investment by nationals, pro-business reforms, anti-corruption drive and the rule of law are critical to attracting FDI to the sub-region.
It is important that government concentrates on providing the basic infrastructures to support the local organised private sector (OPS) that are ready to invest domestic funds into the economy. The response to private initiatives by the Government is quite commendable, but there is need for more favourable policies targeting specifically the locals as opposed to the foreigners.
Foreign investors will only come under four conditions. One, when inadequate infrastructure is addressed. Two, energy must be provided. Power supply everyday will not be adequate for a refinery, thus creating a need for constant energy supply. Thirdly, water supply and lastly, security.
Experts claim there has been a boom in global FDIs in recent years. However, available statistics, shows that the sub-region received only less than one per cent, which is hardly enough to take care of the increasing poor population. The most effective means of alleviating poverty is by creating jobs. Unemployment or insufficient job opportunities in a country is as a result of investment inadequacy.
When there is an investing gap, resulting from lower domestic savings and shortfall in FDI, unemployment will occur because investment will not reach the optimum level. Consequently, it becomes critical that in a country where domestic investment is lacking, government must do everything within its power to encourage FDI flows.
As long as the average man still subsists on only one miserable meal a day (or less), the gains of billions of dollars of foreign investment, either direct or subtle, will continue to prove elusive, with a corresponding indictment on the ruling administration.
No one says the government has not tried or is still not trying to tackle the nation's myriad problems, but there cannot be any justification for increasing poverty alongside doubling investment, if the gains of investment only end up in private and already over-bloated pockets. That is a perfect recipe for anarchy and potential revolution. That must not be allowed to happen.
Document AFNWS00020070221e32l000my
This Day (Nigeria) - AAGM: Foreign Investment for Poverty Reduction.
Abimbola Akosile

2,419 words

20 February 2007

This Day (Nigeria)

AIWTHD

English

The Financial Times Limited. Asia Africa Intelligence Wire. All material subject to copyright. This Day (Nigeria) (c) 2007 All rights reserved
Reports claim global FDI inflows rose substantially in 2005, with the strong growth leading to an increase in the inflows to developed countries. Rising global demand for commodities was reflected in the steep increase in natural resource-related FDI, although the services sector continued to be the major recipient of FDI.
Africa received record high foreign direct investment (FDI) inflows in 2005 of $31 billion, but this was mostly concentrated in a few countries and industries, according to a new World Investment Report 2006, put together by the United Nations Conference on Trade and Development (UNCTAD).
FDI continued to be a major source of investment for Africa as its share in gross fixed capital formation increased to 19% in 2005. However, the region's share of global FDI remained low at about 3% in 2005.
Africa's top ten recipient countries - South Africa, Egypt, Nigeria, Morocco, Sudan, Equatorial Guinea, the Democratic Republic of Congo, Algeria, Tunisia and Chad, in that order, accounted for close to 86% of the regional FDI total.
In eight of these countries, FDI inflows exceeded $1 billion (more than $3 billion for Egypt, Nigeria and South Africa in particular). At the other extreme, FDI inflows remained below $100 million in 34 African countries. These are mostly least developed countries (LDCs), including oil-producing Angola, which witnessed a drastic decline in FDI receipts in 2005.
FDI inflows to the region were concentrated in a few industries, such as oil, gas, and mining. Six oil producing countries (Algeria, Chad, Egypt, Equatorial Guinea, Nigeria and Sudan, in descending order of the value of FDI) accounted for about 48% of inflows to the region.
Among developing regions, the highest growth rate in inward FDI was seen in West Asia (85%), followed closely by Africa (78%), both regions experiencing record inflows of $34 billion and $31 billion respectively. FDI inflows in the 50 least developed countries also recorded a historic high of $10 billion.
FDI outflows from Africa in 2005 remained small and originated from a few countries. Six home countries (Egypt, Liberia, Libyan Arab Jamahiriya, Morocco, Nigeria and South Africa) accounted for over 80% of total outflows.
FDI In-flow in Nigeria
Positive developments have occurred in Nigeria since May 29, 1999 when democracy replaced military governance. This has resulted in a number of spirited moves to attract investors - local and foreign - into the country.
President Olusegun Obasanjo in a bid to achieve this end embarked on a globe trotting mission that saw him interacting with other fellow Presidents and the business community of different countries, which yielded some results in debt relief (although the gains are yet to translate to economic liberty for the nation's teeming poor).
Foreign Direct Investment plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities and access to new technology, products, skills and financing.
For a host country or the foreign firm which receives the investment, it can provide a source of new technologies, capital, processes, products, organisational technologies and management skills, and as such can provide a strong impetus to economic development.
Unveiling FDI
Foreign direct investment is defined as a company from one country making a physical investment into building a factory in another nation. Direct investment in buildings, machinery and equipment is in contrast with making a portfolio investment, which is considered an indirect investment.
In recent years, given rapid growth and change in global investment patterns, the definition has been broadened to include the acquisition of a lasting management interest in a company or enterprise outside the investing firm's home country.
As such, it may take many forms, such as a direct acquisition of a foreign firm, construction of a facility, or investment in a joint venture or strategic alliance with a local firm with attendant input of technology, licensing of intellectual property. In the past decade, FDI has come to play a major role in the internationalisation of business.
Reacting to changes in technology, growing liberalisation of the national regulatory framework governing investment in enterprises and changes in capital markets profound changes have occurred in the size, scope and methods of FDI.
Some proponents of foreign investment point out that the exchange of investment flows benefits both the home country and the host country; although in the host developing countries, the ripple effect is felt largely in employment creation and empowerment.
There are two categories of FDI flow: portfolio and equity. But the greater focus is on equity investment because portfolio investment represents having money which is not recommended for interests in the sub-region.
FDI, according to experts, brings four deliverables in every nation. First is the finance to bridge the savings gap; management skill, foreign technology and avenue for exports. Foreign investments depend on three conditions: political and macro-economic stability; trade openness and competitive market.
New information technology systems, decline in global communication costs have made management of foreign investments far easier than in the past. Change in trade and investment policies and the regulatory environment globally in the past decade, including trade policy and tariff liberalisation, easing of restrictions on foreign investment and acquisition in many nations and the deregulation and privatisation of many industries, has probably been the most significant catalyst for FDI's expanded role.
Direct Investment Benefits
Foreign Direct Investment is not only a transfer of ownership from domestic to foreign residents but also a mechanism that makes it possible for foreign investors to exercise management and control over host country firms - that is, it is a corporate governance mechanism.
Nigeria has one of the highest rates of investment returns in the emerging markets, presently estimated to be 30 percent. International flows of capital reduce the risk faced by owners of capital by allowing them to diversify their lending and investment
Second, the global integration of capital markets can contribute to the spread of best practices in corporate governance, accounting rules, and legal traditions. Third, the global mobility of capital limits the ability of governments to pursue bad policies.
Four, FDI allows for the transfer of technology - particularly in the form of new varieties of capital inputs - that cannot be achieved through financial investments or trade in goods and services.
FDI can also promote competition in the domestic input market. Five, recipients of FDI often gain employee training in the course of operating the new businesses, which contributes to human development in the host country. Lastly, profits generated by FDI contribute to corporate tax revenues in the host country.
Plum Tele-communications
Before 2001 when the first GSM service was launched by the then Econet Wireless, now Celtel, telephony was predominantly for the very affluent at the time. De-regulation of the sector has however placed Nigeria amongst the countries with the fastest growing telecommunication sector.
Reports state that the telecommunications industry, currently at the growth rate of 32% was the fastest growing sector in the Nigerian economy in 2006. In 2005 the sector recorded a growth rate of 30%.
Since the much-awaited liberalisation process began, the Nigerian Communications Commission (NCC), the regulatory body in the communications sector, has promoted creative innovation and competition among the operators in the country.
By 2006, fifth anniversary of GSM revolution in Nigeria, the number of telephone lines stood at 28 million representing an increase of 48% over the figure recorded in late 2005. The current figure is closer to 32 million lines.
Despite the growth rate recorded in the last two years, the huge population and market is yet to be saturated, which was why an Arab firm, Mubadala Development Company chose to invest $400m into the lucrative sector, for a licence as the fifth mobile telephony operator.
Natural Blessings
Nigeria is blessed with a rich diversity of fin-fish and shellfish resources. Investing in the harvesting of these natural resources would result in the generation of employment to several thousands of Nigerians engaged in processing activities, both small and large scale (i.e. smoking and canning), which can earn the country substantial foreign exchange from its export.
This is in addition to creating employment through storage, transportation, marketing, facilities maintenance and food businesses.
Food security, rural development and poverty alleviation are inter-woven. Fish, according to reports, contributes 40 per cent of total dietary protein consumption in Nigeria. The country earns appreciable foreign exchange from exportation fisheries products. Between 1994 and 2000, Nigeria earned $56.0 million from shrimps and prawns exports, which increased to $65 million in 2005.
Beyond these, Nigeria is reputed to harbour more than 34 mineral resources scattered in all the states of the federation. Among them are tantalite, kaoline, mica, barite, bitumen, diatomite and a number of them.
Recently President Olusegun Obasanjo stated that in view of the enormous mineral endowment in the country, the Federal Government has taken substantial steps to build investor confidence and attract mining capital.
Infrastructure
Infrastructure covers many dimensions, ranging from roads, ports, railways and telecommunication systems to institutional development (e.g. accounting, legal services, etc.).
Poor infrastructure can be seen, however, as both an obstacle and an opportunity for foreign investment. For the majority of low-income countries, it is often cited as one of the major constraints. But foreign investors also point to the potential for attracting significant FDI if host governments permit more substantial foreign participation in the infrastructure sector.
Recent evidence seems to indicate that, although tele-communications and airlines have attracted FDI flows, other more basic infrastructure such as road-building remains unattractive, reflecting both the low returns and high political risks of such investments.
Investment Surveys
Surveys in sub-Saharan Africa indicate that poor accounting standards, inadequate disclosure and weak enforcement of legal obligations have damaged the credibility of financial institutions to the extent of deterring foreign investors. Bad roads, delays in shipments of goods at ports and unreliable means of communication have added to these disincentives.
Nigeria, in contrast, continues to attract foreign investment as an oil-exporting country despite its erratic and relatively inhospitable policies. With regard to the remaining low-income countries with small FDI inflows, surveys indicate that the lack of a clear-cut policy with respect to foreign investment and excessive delays in approval procedures are amongst the most important deterrents.
Sustaining a Tempo
One striking feature of FDI flows is that their share in total inflows is higher in riskier countries, with risk measured either by countries' credit ratings for sovereign (government) debt or by other indicators of country risk. There is also some evidence that its share is higher in countries where the quality of institutions is lower.
Presently, Nigeria enjoys reasonable level of foreign investment, but caution must be the watchword because the domestic investment undertaken by FDI establishments is heavily leveraged owing to borrowing in the domestic credit market.
As a result, the fraction of domestic investment actually financed by foreign savings through FDI flows may not be as a large as it seems (because foreign investors can repatriate funds borrowed in the domestic market), and the size of the gains from FDI may be reduced by the domestic borrowing done by foreign-owned firms.
Not Yet Uhuru
Over the last 25 years, FDI in low-income countries has been highly concentrated in three countries, China, Nigeria and India. Large market size, low labour costs and high returns in natural resources are amongst the major determinants in the decision to invest in these countries.
For the vast majority of low-income countries, however, FDI is minimal. The structural weaknesses of these economies, the inefficiencies of their small markets, their skill shortages and weak technological capabilities, are all characteristics that depress the prospective profitability of investment.
These factors also make it less worthwhile for potential international investors to incur the costs of a serious examination of local investment opportunities, thus leading to informational inefficiencies.
The financing requirements of economic growth in these countries are therefore unlikely to be fulfilled by private capital inflows. Until these constraints on possible investment are addressed, they are likely to continue to rely heavily on receipt of foreign aid.
Political and macro-economic stability, infrastructure particularly stable electricity supply, efficient transportation, skilled labour, regional integration, investment by nationals, pro-business reforms, anti-corruption drive and the rule of law are critical to attracting FDI to the sub-region.
It is important that government concentrates on providing the basic infrastructures to support the local organised private sector (OPS) that are ready to invest domestic funds into the economy. The response to private initiatives by the Government is quite commendable, but there is need for more favourable policies targeting specifically the locals as opposed to the foreigners.
Foreign investors will only come under four conditions. One, when inadequate infrastructure is addressed. Two, energy must be provided. Power supply everyday will not be adequate for a refinery, thus creating a need for constant energy supply. Thirdly, water supply and lastly, security.
Experts claim there has been a boom in global FDIs in recent years. However, available statistics, shows that the sub-region received only less than one per cent, which is hardly enough to take care of the increasing poor population. The most effective means of alleviating poverty is by creating jobs. Unemployment or insufficient job opportunities in a country is as a result of investment inadequacy.
When there is an investing gap, resulting from lower domestic savings and shortfall in FDI, unemployment will occur because investment will not reach the optimum level. Consequently, it becomes critical that in a country where domestic investment is lacking, government must do everything within its power to encourage FDI flows.
As long as the average man still subsists on only one miserable meal a day (or less), the gains of billions of dollars of foreign investment, either direct or subtle, will continue to prove elusive, with a corresponding indictment on the ruling administration.
No one says the government has not tried or is still not trying to tackle the nation's myriad problems, but there cannot be any justification for increasing poverty alongside doubling investment, if the gains of investment only end up in private and already over-bloated pockets. That is a perfect recipe for anarchy and potential revolution. That must not be allowed to happen.
Distributed by AllAfrica Global Media. (allafrica.com)
FTDL54399297
Document AIWTHD0020070221e32k00049