Nigeria’s FDI doubles in 2023 – a rare positive for Tinubu government

Foreign direct investment (FDI) flows to Nigeria more than doubled in 2023, reversing a sharp decline from the previous year and defying both global and African trends, according to a new report by the UN Conference on Trade and Development (UNCTAD).

FDI into Nigeria reached $1.9 billion last year, up from $895 million in 2022, but still below the $3.3 billion recorded in 2021. Since 1990, Nigeria recorded its highest FDI levels in 2009 and 2011, with investments reaching $8.7 billion and $8.9 billion, respectively.

FDI refers to investments made by a foreign entity in the business interests of another country, such as establishing business operations or acquiring business assets. It is crucial for economic growth, providing capital, creating jobs, and fostering technological advancements.

Nigeria’s FDI increase in 2023 stands in contrast to the overall decline in both global and African FDI flows. Global FDI fell by 2% to $1.3 trillion, influenced by trade and geopolitical tensions and a slowing global economy, the UNCTAD report released Thursday showed.

The drop would exceed 10% if not for a few European economies that recorded large investment flows. FDI to developing countries fell by 7% to $867 billion, with Africa seeing a 3% decrease to $53 billion.

The significant rise in Nigeria’s FDI comes amid tightening financing conditions, which led to a 26% fall in international project finance deals, essential for infrastructure investment. This type of financing is crucial for the poorest countries, making them more vulnerable to global downturns.

In Africa, Central Africa saw the largest drop in FDI inflows at 17%, while Southern Africa recorded a 22% increase, bucking the trend.

Nigeria’s investment growth would be a significant development for President Bola Tinubu’s government, which has faced stringent criticisms after its decision to scrap petrol subsidy and devalue the naira plunged the country into its worst economic crisis in a generation.

Both policies have caused widespread hardship, pushed inflation to a 28-year high, making basic necessities unaffordable for many. The government said the International Monetary Fund-backed policies were aimed at raising revenue and attract foreign investment.

Protectionist Policies

The UNCTAD report said the global investment landscape is increasingly disrupted by crises, protectionist policies, and regional realignments, which fragment trade networks and supply chains. Despite these challenges, the report suggests modest growth in global FDI for 2024 is possible, supported by easing financial conditions and investment facilitation efforts.

Investment growth is noted in several global value chain-intensive manufacturing sectors, such as automotive and electronics, particularly in regions with easy access to major markets. However, many developing countries remain marginalized, struggling to attract foreign investment and participate in global production networks.

To attract more investment, UNCTAD advised countries to enhance transparency mechanisms, such as using digital government tools, to boost business confidence.

“Investment is not just about capital flows; it is about human potential, environmental stewardship and the enduring pursuit of a more equitable and sustainable world,” says UN Trade and Development Secretary-General Rebeca Grynspan.