Nigeria: Towards A Paradigm Shift From Portfolio Investment To Foreign Direct Investment

Last Updated: 20 May 2016
Article by Aderinsola Fagbure

Time Magazine January 24th 2015 was of particular interest to me as it featured two different articles on the potential growth expectations of Private Equity (PE) investments in Africa. These publications succeeded in raising in my mind a recurrent image of Wall Street investment bankers running, briefcases in hand, into tropical, rich and culturally vibrant Africa; in spite of the fears of endemic diseases, security concerns and in some instances a language barrier. Recent statistics indicate that African capital markets are receiving increasing investor interest.

According to a new report on African initial public offerings (IPOs) from Pricewaterhouse Coopers (PwC), the amount of capital raised on African exchanges is above $11 billion, up over 100% from the previous year. The report further mentioned that the number of IPOs and further offers (FOs) increased from 60 in 2013 to 84 in 2014. Nigeria has become even more attractive to investors with the rebasing of its GDP, resulting in an 89% increase in its economic size. The country now boasts of having the largest economy in Africa with an estimated nominal GDP of USD 510 billion, surpassing South Africa's USD 352 billion. Heightened talks about diversification of the local economy have further increased Nigeria's potential to attract investments.

However, the practice of portfolio investing which has been the norm over the years has not resulted in significant economic development.  This is because PE investors (a refined form of portfolio investors) are particularly interested in short-term investments with quick returns. This approach to capital generation is not effective and has in some instances been described as akin to neo-colonialism, hence the need for a shift in orientation from portfolio investment to real-term Foreign Direct Investment (FDI). Experts have described FDI as involving the acquisition or creation of productive capacity, which implies a long-term perspective and involves some assets that cannot be moved without considerable loss. The economic crises that the nation currently finds itself in the wake of growing unemployment and dwindling oil resources, has brought to the fore the importance of FDI.

It is understood that a nation's capacity to woo long-term investors will determine to a large extent the amount of foreign capital it can attract. It is unfortunate that Nigeria's potential as an investment hub is very high but remains largely untapped. The nation has been variously described as the number one frontier-market economy in terms of its possibility of attracting the most attention from European and American multinationals. With this recognition in mind, one wonders why the nation remains unable to maximize her investment potentials.

The answer to this question lies majorly in legal cum institutional challenges, as highlighted in the World Bank Doing Business in Nigeria report. This Report is an annual publication by the Bretton Wood's institution which reflects how easy or difficult it is for a local entrepreneur to open and run a small to medium-size business when complying with relevant regulations. In the last 10years, Nigeria has consistently ranked low. The 2015 report ranks Nigeria 170th out of the 185 countries surveyed, with the nation performing badly in all the parameters used. This result is an aggregate of the scores posted in the various indicators examined.

The 10 topics included in this year's ranking are; starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. It is evident from these findings that regulatory and policy bottlenecks continue to deter investors. A cardinal point of the current administration's economic agenda is to make Nigeria an easy place to do business. This commitment towards making Nigeria a preferred destination for investors was re-iterated by the Vice- President, Prof. Yemi Osinbajo at the 2015 Annual Conference of the Nigerian Bar Association.

The current administration's commitment to economic development has been commended locally and internationally. In the past few months, the nation has welcomed an influx of foreign missions and trade delegations from several countries, notably those from the United Kingdom, France, Germany and Brazil. These Foreign investors are willing to do business in Nigeria with some even specifying their preferred sector of the economy. Agriculture, power and energy seem most attractive. It is evident from media reports that these investors know what they want. With this recognition in mind, the Nigerian government must understand that prudent investors will not risk capital by investing in a foreign market unless the financial prospects are promising and the legal structure is sufficient to protect that investment.  The current Lord Mayor of the City of London, Hon. Alan Yarrow, during his recent visit to Nigeria, was quoted as saying that the United Kingdom was ready to invest in the economy of Lagos state, adding that there is huge potential for investments in the country.

Negotiating foreign investment agreements must be done in such a manner that the needs of the host country are adequately balanced with those of the investor. The question on the lips of many is," do we as a country know what we want?"In this light, it is important to review the approach to negotiating investment agreements because for FDI to be truly worth the while, it must result in real economic and infrastructural development. Relevant agreements should be drafted in such a manner that local content is emphasized. Any agreement that would jeopardize local production should be avoided. Government should have the upper hand in such negotiations because the nation's large population as well as the availability of natural resources should be used as a bargaining tool.   Any investor interested in doing business in Nigeria must engage the services of Nigerians both as employees and consultants. They must be willing to set up industries and run such businesses with a view to ensuring that manpower development is prioritized. As between the host country and the investor, the rules of the game must be clearly identified. Once a foreign firm undertakes a foreign direct investment, some bargaining power shifts to the host country government, which has an incentive to change the terms of the investment to reap a greater share of the benefits.

The search for new answers to economic development is ongoing and as a Firm which prides itself as development law experts, we have taken up the challenge to extensively analyze the Nigerian business climate with a view to improving business operations. We recognize the need to strengthen our institutions and laws to make the nation an attractive investment destination. It is an undisputed fact that the NIPC is central to government's effort to reinvigorate Nigeria's investment environment. This Commission is in a vantage position to drive a national investment consciousness which cuts across the entire citizenry. Conclusively, Nigeria may consider borrowing a leaf from the 'Akwaaba model' in Ghana, whereby nationals at all levels, starting from the taxi driver to the President, see themselves as investment ambassadors. This investment drive must be channeled in such a way that it portends long term benefits to the Nigerian economy. Investment agreements must be drafted with a view to ensuring that these investors do not just rush in and out but must establish a long term presence which will yield the necessary developmental benefits.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions