Foreign direct investment in Nigeria hits $223M in the last 5 months

The International Monetary Fund (IMF) defines foreign direct investment as a type of cash inflow wherein investors transfer their funds to a business in a different economy with the intention of acquiring control or exercising strong influence or control over the management of a company.

Increased foreign direct investment is thought to support economic growth by raising the quality of employment in the nation and facilitating the technology transfer. The Organization for Economic Co-operation and Growth (OECD) asserts that foreign direct investment (FDI) is a vital component of a free and efficient international economic system and a key driver of national development.

Between January and May 2022, Nigeria garnered $223.3 million in foreign direct investments (FDI), a 3.7% increase from $215.3 million registered in the same period a year earlier.

Nigeria's FDI has substantially decreased recently, reaching a record low of $698.8 million in 2021, the majority of which was equity. However, given the advantages it has for the host nations, the majority of emerging economies want greater direct investment, according to Nairametrics.

Furthermore, the incability of foreign investors to return to their home countries with the money they earned from the Nigerian economy has hampered the flow of FDIs into the country. The International Air Transport Association (IATA) said last month that Nigeria has withheld $450 million in revenue from foreign airlines because of a lack of foreign currency.

This is a significant problem that has deterred foreign investors from investing in the economy, further producing a disruption in the supply of FX, and ultimately contributing to the devaluation of the naira. In a similar vein, while Nigeria remains reliant on imports, the drop in the country's crude oil output levels has also led to a decline in oil export revenues.

According to a scientific study by Iyaji Danjuma that was published in the CBN Journal of Applied Statistics, a nation's economy and the volume of FDI inflows are significantly positively correlated. It should be noted that Nigeria's real GDP increased by 3.11% the first quarter of the fiscal 2022, following a growth of 3.98% in the previous quarter.

Nonetheless, as rising inflation, currency rate depreciation, and insecurity continue to impede economic output, the country's economy has been tied to the mounting concern of an economic recession. The report also identifies infrastructure and trade openness as FDI-friendly variables.

Most countries seek foreign direct investment as a key source of capital inflows since it boosts the economy greatly, leading to the creation of crucial FX liquidity.

Receivers of FDI frequently receive employee training while running new enterprises, which helps the host nation improve its human capital. Profits from these investments also go toward the host nation's corporate tax collection.

For foreign investors to feel more at ease to invest their resources, the Nigerian economy must be viewed as a system that is deserving of investment and where firms prosper.