Nigerian Capital Imports 2019 and 2020: how the States Stand and Recommendations for Improvement
In order to begin the process of shifting gears towards making states and sub-regions the centers of development and productivity in the country, there is a need to track how the states and the FCT have been doing in terms of investment attraction.
Capital import is the total amount of actual inflow of production resources, particularly money and other goods, attracted into a given economy at a particular point in time. I use the term ‘attracted’ in this definition deliberately because as the world is currently constituted, capital does not just flow anywhere. It has to be sought for, cared for, protected and expanded.
Countries and cities that do a better job of attracting capital (especially patient private capital) into their domains, win on many fronts: increase stock of infrastructure, enhance growth, create jobs, maximize natural endowments and build a strong base for future growth.
Types of Capital Imports
In Nigeria, capital import is categorized into three: Foreign Direct Investment (FDI), Portfolio Investment (bonds, equity, money market instruments) and Other Investments (loans, trade credits, currency deposits and other claims).
The recently released 2020 reports of Capital Importation in Nigeria by the National Bureau of Statistics (NBS) raised a number of issues, especially the ignition of the much-needed conversation around improving the ability of the subnational to attract quality investments into their domains.
According to NBS (2020), a total of US$9,680 billion came into the country as capital imports in 2020. This represents a year-on-year (y-o-y) decline of 60% compared to 2019 performance of US$23,990. Of the 2020 total, according to the report, as illustrated in the chart above, FDI constitutes 10.06% ($1,029) — up 10.12% y-o-y; portfolio investment is 53.06% ($5,137) — down 68.61% y-o-y; while other investments stand at 36.88% ($3,514) — down 47.47% y-o-y.
This means that while the other two components of capital imports recorded a drastic decline in 2020, the FDI component actually grew by 10%, in spite of the pandemic. But it is important to note that 60% ($5,854) of the entire capital imports came into the country during the early part of the 1st quarter of the year, that is, just before the onset of the pandemic and lockdown.
The Sectors
In terms of the sectoral makeup of the imported capital , as shown in table 1 above, the banking sector takes the largest share, representing 38.75% of the total.
This sector and four other important ones like production (9.44%), telecoms (4.31%), agriculture (3.35%) and trading (2.97%) have consistently grown in their contribution to imported capital since 2018. On the flip side, such sectors as shares (19.57%) has recorded significant decline since 2018 when it represented 62% of total capital imports into the country.
Notably, oil and gas sector has not received impressive attention from investors over the last three years. Indeed, it share of capital imports has never reached 1% of the total. This clearly shows where investors’ appetite is.
The Sources
With regards to the sources of capital imports, the United Kingdom (UK) takes the lead in both 2019 and 2020, just like it has done over the past years.
45.89% and 43.06% of Nigeria’s capital imports in 2019 and 2020 respectively came from the UK. The other members of the top five countries that contributed to Nigeria’s capital imports in 2020 are: the United Arab Emirate (9.29%), Netherlands (9.19%), South Africa (9.04%) and the United States of America (7.64%). Others in the top 10 in 2020 are Singapore, Mauritius, Ireland, British Virgin Island and Congo.
As shown in the table above, the source of Nigeria’s capital imports has been skewed to very few countries over the past years. Only 11 countries contribute more than 90% of Nigeria’s capital imports in 2020, indicating how undiversified the country’s efforts at attracting investments have been.
The Destinations: how the States Stand
NBS started tracking the relative performance of states as destinations for capital imports since the 1st quarter of 2019. So, we have data for 8 quarters, enough to identify which state has done a good job of attracting quality investment, which state is consistent in attracting investments and which state is consistently at the bottom.
As shown in table 3 above, Lagos state is the undisputed leader as a destination for capital imports in Nigeria. 77% of all capital imports over the last 8 quarters went to Lagos State, with Abuja (the Federal Capital Territory) at a distant 22%. The other 35 states share an embarrassing 1% of the total capital imports.
Another disturbing insight from the above table is that while 26 states (including Abuja) attracted some amount of capital in 2019, only 11 states attracted investments in 2020, a clear retrogression in investment attraction across many states. Obviously we cannot explain this away with the emergence of the pandemic.
The results of efforts to attract capital or investment take time to materialize. The 2020 performance is a reflection of efforts in past years. By the same reasoning, slack must be cut for states that have made some efforts whose results are yet to pay off. For instance, in spite of its recent efforts to secure investments, Ekiti State is currently in the ‘black zone’ mainly because of past inactions in the direction of investment attraction.
Moreover, apart from Lagos and Abuja who are the obvious favorite destinations for investors and thus in the ‘green zone’ (the top 10), there is still wide disparities among states even in this zone.
First, states like Abia, Benue and Cross Rivers, though in the ‘green zone’ have not been consistent in terms of investment attraction. The figure shown for Benue state is what it made in the 1st and 4th quarters of 2019. It attracted nothing in 2020. The same goes for Abia (only Q3 2020) and Cross Rivers (only Q1 2019).
Whereas, states like Kaduna, though not as big a player in terms of value of investment, has consistently recorded capital imports in every quarter (except Q2 2020) of the last 8 being tracked.
And then there are ten states, the ones in the ‘black zone’ that not only have not recorded capital importation over the last 8 quarters, but also do not appear to be doing enough to attract any in the future. These are Bayelsa, Ebonyi, Gombe, Jigawa, Kebbi, Kogi, Plateau, Taraba, Yobe and Zamfara States.
In general, it is clear that there is a direct link between amount of capital imported by a particular state and the level of development (especially wealth or poverty) in that state.
Lagos state has the highest amount of capital imports as well as the lowest incidence of poverty in the country. Conversely, Jigawa, Taraba and Yobe States (and indeed nearly all the states in the ‘black zone’ listed above) are among those with the highest poverty headcounts in the country.
Recommendations
My first recommendation is to the National Bureau of Statistics (NBS). One data point that will enhance clear understanding and reflect a fair performance of all states is, which type of capital goes to which state.
At present, it seems that the entire portfolio investment and money market security is recorded for Lagos state. While it is understood that the Nigerian Stock Exchange operates from Lagos, it does not mean that the entity is owned by the state.
There is an urgent need to rejig the makeup of Nigerian’s capital imports. Given the country’s level of unemployment and infrastructural deficits, she needs to attract more greenfield, or at least, brownfield investments.
A mere $1 billion in 2020 ($934.34 million in 2019) FDI for a population of 200 million people is grossly inadequate to make a positive difference in the development of the country. Singapore, a country of about 5.6 million people, attracted $15 billion FDI in 2019.
Meanwhile, a situation where portfolio and other investments (shares and government borrowings respectively) constitute nearly 90% of total capital importation into Nigeria means that there is little foreign capital-backed production activities going on in the country. The direct consequence of this is seen in the increasing level of unemployment and poor (and declining) infrastructure in the country.
Further, Nigeria needs to do more, urgently, to diversify her sources of capital imports. A situation where only 11 countries contribute more than 90% of her capital imports is akin to putting one’s eggs in one basket. There is a need to expand this scope.
From the analysis of the sources of Nigerian capital importation since 2018, there are other countries like Philippines, Australia, Mexico, Turkey, Indonesia, Korean Republic, Egypt, Hong Kong etc. who although have not featured in the top 10 sources, consistently trust the country and put their resources in her economy.
Efforts must be made to incentivize investors from these countries to expand their investments and refer others in their network to do same. But Nigeria has to put her house in order first.
The Federal Government must significantly improve efforts in leading the states to enhance the general business environment in the country. However far the country might have come in Ease of Doing Business recently, she has not come far enough.
As I noted in a piece a few weeks ago, “it still takes several days to get a business registered in the country, electric power is still a big headache, credit facilities is still non-existent for many businesses, it still takes months to register properties and get construction permits in many states, it still takes forever and high expense to get justice in business-related cases from the courts, multiplicity of taxes on struggling businesses are still the order of the day in many states, and exporters still need to ‘settle’ a slew of government agencies at the ports to get their goods across borders”.
More than ever before, the country’s investment environment has to be more welcoming, safe and predictable.
Meanwhile, it is clear that Nigeria has a latent potential in services, especially banking, telecommunication and trading services. Production (manufacturing) and agriculture have also shown a consistent promise.
Targeted investment promotion programs must be designed to highlight the strengths of these sectors to global investors, especially those who are not yet investing the country.
Going forward, efforts to remake Nigeria’s capital import and set it on the path of appreciable and consistent growth need to be driven by the sub-regional governments.
States must establish an effective investment promotion agency, directed by a highly competent board, staffed with qualified and dedicated hands that will craft and provide a solid structure for delivering actionable investment promotion strategies.
Having this agency in place, however, is not enough. The governors must back the agency with strong political will, including dealing decisively with corruption and providing a predictable environment that investors can trust.
One state that has demonstrated the power of an investment promotion agency backed by strong political will is Kaduna state. In addition to $800 million the state secured in FDI between 2015 and 2019, a number of investors have pledged more than $2.1 billion in investment over the coming years.
These were made possible primarily because the Governor, Mallam Nasir El-Rufai, has been deliberate in pushing for reforms and generally creating an environment that is business-friendly and investment-ready. Other states must copy and adapt this model.
In conclusion, to attract significant amount of investments into the country, there must be partnership and coordination of efforts at all levels.
As noted by Mr Asue Ighodalo, Chairman of NESG, a Think Tank that has since 1993, supported Nigeria with innovative policies that have had positive impact on the economy, there is a need for “strategic partnership between our national and subnational government, the private sector, civil society and our youth to accelerate our economic growth and development”.
A country’s investment promotion efforts is a team game, vertically and horizontally, between the different tiers of government and among various states, respectively. The National Economic Council has to be alive to its responsibility of creating innovative platforms that get the Federal and State Governments engaged in mutually beneficial alliances for improved investments in all the states.
Policies must be properly coordinated to achieve the most optimal results for the country. A state in the country is only as conducive for investment as the entire country or region is.
Decisions taken by the Federal Government could have a consequential impact on the achievement of any state’s investment objectives. A case in point is the recent decision of the Federal Government to reduce import duties on cars — from 35% to under 10%. This runs against the interest of the automobile assembly companies whose investment commitments Kaduna State recently secured.
In just a single breath, policy and goal misalignment between the states and FG can lead to investments worth billions of Dollars chased away from several states.
Lastly, the Nigerian Governors Forum must encourage cooperation among states that are in the same geo-political region to work together to improve security and create synergies that benefit the entire country.
