Nigeria Grapples with Impact of Declining Oil Foreign Investment

By Abubakar Ismail
In recent years, Nigeria’s economy has faced mounting challenges as foreign direct investment (FDI) in the oil sector shows signs of decline, indicating a shift in the global investment landscape, with profound implications for Nigeria, a country heavily reliant on oil revenue.
According to recent data from the National Bureau of Statistics (NBS), FDI inflows into the country’s oil sector have experienced a notable downturn. Figures reveal a decrease of 15 per cent in oil FDI over the past two fiscal quarters alone, plunging from $2.5 billion to $2.1 billion.
“This decline in foreign investment in our oil sector is a cause for concern,” remarked Aisha Abdullahi, an Economist. “Nigeria’s economy is intricately linked to its oil industry, and any reduction in FDI threatens economic stability and growth prospects”.
The ramifications of this dwindling investment are palpable across various sectors of Nigerian society. As oil revenues diminish, the government faces mounting pressure to diversify the economy and reduce dependence on crude oil.
However, progress in diversification efforts has been slow, leaving the country vulnerable to fluctuations in oil prices and investment patterns. For context, Mele Kyari, the Group Chief Executive Officer (GCEO) of the Nigerian National Petroleum Company (NNPC) Limited, emphasized the formidable challenge posed by crude oil theft in Nigeria.
While speaking during a visit by the House of Representatives’ Special Committee on Oil Theft to NNPC’s headquarters in Abuja, Kyari said that the nation would face dire consequences if the rampant theft of crude oil persists unchecked.
“The decline in oil FDI highlights the urgent need for Nigeria to accelerate its economic diversification agenda,” stated Dr. Ibrahim Yusuf, a financial analyst based in Abuja. “Diversification is crucial not only for economic resilience but also for job creation and sustainable development.”
The impact of reduced oil FDI extends beyond the economic sphere, affecting social programs and infrastructure development initiatives. With fewer resources at its disposal, the government may face challenges in funding essential services such as healthcare, education, and infrastructure maintenance, potentially exacerbating socio-economic disparities.
Analysts said that the country must redouble its efforts to attract foreign investment across various sectors and create an enabling environment for businesses to thrive. According to them, this requires robust policies, streamlined regulatory frameworks, and targeted incentives to attract investors and stimulate economic growth.
As Nigeria navigates the complexities of a shifting global investment landscape, stakeholders emphasise the importance of proactive measures to mitigate the impact of declining oil FDI. By prioritising economic diversification, fostering a conducive business environment, and implementing strategic policies, Nigeria can weather the challenges posed by fading oil investment and chart a path towards sustainable development and prosperity.
“FDI serves also as a barometer of how investors perceive the economy. The lowest FDI in 13 years implies that investors have become less comfortable with the long-term stability of the economy,” Eze Odiri, a public sector consultant, said.
According to him, it must be noted that 2023 was an election year hence investors may have decided to take a wait-and-see approach.
“FDI which is normally longer-term capital is much more beneficial to a country as it creates the organic growth of businesses, boosts job creation, and eventually generates revenue streams for government via taxation, levies, etc. FDI is also a major source of foreign exchange to the country.
“This reduction in capital importation will lead to less job creation and less revenue for the government in the medium to long term. It also affects the exchange rate as less foreign exchange is available for the CBN.
“The real effect of the Federal Government’s foreign investment drive will be seen in capital importation numbers and not on the pages of newspapers,” he added.
Last year, Nigeria stood as Africa’s third-largest recipient of Foreign Direct Investment (FDI), trailing only Egypt and Ethiopia. Positioned as one of the continent’s most promising hubs of economic growth, Nigeria magnetises a plethora of investors across sectors such as hydrocarbon, energy, and construction.
According to the UNCTAD’s 2022 World Investment Report, FDI inflows to Nigeria surged to $4.8 billion in 2021, marking a significant uptick from the previous year’s $2.3 billion and surpassing pre-pandemic levels.
With a total FDI stock estimated at $91.8 billion, equivalent to approximately 20.8 per cent of the nation’s GDP, Nigeria continues to allure investments, with the oil and gas sector leading the pack followed by telecommunications, manufacturing, real estate, and agriculture.
The United Kingdom boasts a rich history of trade and investment with Nigeria, standing out as one of the foremost contributors to the country’s economic landscape.
Alongside this established relationship, China has emerged as a significant player in Nigeria’s development, notably focusing on bolstering infrastructure through ventures like roadways, railways, and power generation facilities. Similarly, the United States maintains its prominence as a key investor, particularly within Nigeria’s vital oil and gas industry.
In the second quarter of 2022, data from the Bank of Nigeria reveals a substantial surge in capital influx, reaching $1.5 billion compared to $875.62 million in the same period of 2021, marking a notable 75.34 per cent increase.
Portfolio investments led the charge, comprising 49.33 per cent (757.32 million), closely trailed by other forms of investment at 41.09 per cent ($630.87 million), while foreign direct investment contributed 9.58 per cent ($147.16 million) to the overall capital inflow.
Remarkably, the United Kingdom emerged as the largest contributor, accounting for 50.8 per cent of the total investment, outpacing other significant investors such as Singapore (9 per cent) and South Africa (8 per cent).