NIGERIA: FOREIGN VS LOCAL INVESTORS

Nigeria is today in a dilemma: Should it go all out to make friends out of foreign investors or try its best to encourage local investors?

Foreign investment usually comes in hard currency and with some level of technology in tow; two important inputs needed in today's Nigeria due high dependence on now very unpredictable crude oil prices. 

When the prices rise.Nigeria smiles broadly because foreign exchange inflow and reserves grow but when they seek bottom, Nigeria groans. So foreign inflow of the non-oil type is always welcome especially in downswing or slow recovery years like we are in.

But, these non-crude oil inflows now come more as short term funds or portfolio investment that can be quickly withdrawn or disposed of, when economic indicators in countries like the US, UK and other developed ones point to higher fund costs.

That's when the Nigerian stock market crashes and every one suddenly realises the beauty in encouraging local investors especially of the retail and institutional type.

Yet, what grows  foreign inflow may exactly be suitable for encouraging local investment.

For example, the National Bureau of Statistics announced today that the inflation rate in Nigeria dropped for the 12 th month in January this year to 15.13%, down 0.24% on December's 15.37%.

Yesterday, the same Bureau had also released data that said average term deposits interest in 2017 last quarter was 8.8%. Now, who is that local saver who will gather his kobos in banks for 8.8% while the same money loses value monthly at 15.3%?

To make matters worse, the maximum lending rate by the same quarter was 31.1% with maximum prime lending rate at 17.8%.

Again, who is that local investor that will now borrow at minimum 17.8% and sometimes as high as 31.1% and hope to declare dividend that will be enough to provide above 15.3% returns for its investors?

The truth is that the strangle hold on the economy by foreign inflow and outflow needs to be tackled effectively before investing in Nigeria begins to make real and long time sense for foreign and local investors at the same time.

Unfortunately, that depends on not only how much flows in but more importantly on how well Nigeria utilises what is available.

For example, when emphasis is on procurement and use of alternative energy sources like solar energy without a corresponding effort to encourage local technology base for it, the evil day is only postponed or a new window for dependence on foreign input is only added. It also happened with GSM take off and others.

When in these times emphasis is on social distribution of unbaked income as in the form of manna from God crude oil revenue, and on increased recurrent expenditure because of bloated government and corruption that refuses to go away, Nigeria mortgages its future instead of sacrificing for the future.

Yet, while the world is actually thinking of alternative energy sources, Nigeria as crude oil producing country could be better focus on more environment friendly usage and technology for oil and gas.

While the temptation exists to build railway lines to connect Nigeria with Niger for example, such money could be better spent in building state of art healthcare facilities to reduce drain through medical tourism; in reviewing the educational system in ways that will reduce the outflow of Nigerian bright children out   for studies; and provide incentives to encourage investment in import substitution.

Also government can be deliberately trimmed down; and savings therefrom or gains from new revenue drives can be better utilised in creating enabling environment for more local savings and investment; encouraging local demand for locally produced goods and services especially of the import displacing type and seeking ways to encourage long term foreign funds as against short term ones.

This is because, foreign and local investors are actually not at opposite ends of the economic equation but belong on the same side if the right policies are set in motion to encourage real investment as against speculative entries and exit.

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