States and paucity of FDI
NIGERIA’S ‘feeding bottle’ federalism is coming home to roost. The country has been running a unitary system disguised as federalism, and the negative effects of centralisation have begun to show economically.
Today, most states are not economically viable. Worse, they do not seem to be working hard to be. Why would they? Apportionments come from the Federation Accounts Allocation Committee monthly. With the naira grossly devalued, the volume of the allocations keeps increasing. This is why most states have abandoned creative ways to raise revenue and attract investments.
According to the latest capital importation data by the National Bureau of Statistics, 32 out of the 36 states and the FCT attracted zero capital importation (foreign investment) in the first nine months of 2024, up from 27 states in 2023.
The data shows that only Lagos, Ekiti, Enugu, Kaduna and the FCT recorded capital importation in the period under review.
Lagos attracted the highest sum, $4.6bn, followed by the FCT, which recorded $2.39bn imported in the first nine months of 2024.
Ekiti received $120,000 and $100,000 in the third quarter of the year and $10,000 each in the first and second quarters, respectively.
Enugu and Kaduna only attracted capital inflows in Q3 with $180,000 and $1.95m respectively.
The figures show that the states did poorly in attracting FDIs and most of the governors’ foreign tours have yielded nothing.
Many essential elements need to be available to attract FDIs. Investors place their investments wherever they feel they could profit and achieve bountiful ROIs. They look at the security of their ventures. So, it is almost improbable for any investor, especially an international one, to invest in an insecure place where bandits, insurgents and kidnappers reign.
So, for most investors, the security of their investments is number one. Second is the issue of poor infrastructure. The woeful infrastructure is driving away potential investors from the states. Poor infrastructure raises costs. In several instances, investors build roads, set up power plants and organise security. All this raises the cost of production.
The issue of multiple taxation remains. There are always too many taxes for an investor to pay and harmonising the taxes and even reducing them considerably could help attract investments.
Thus, instead of investing in troubled climes, an international investor will go where there is little headache.
Therefore, instead of embarking on ceaseless international trips that yield no dividends, state governors should focus more on creating an enabling environment for foreign investors.
The governors should take advantage of the New Electricity Act to improve power supply in their domains. States should attract robust investments through the Clean Energy Initiatives from different parts of the world.
Governors should collaborate with the Federal Government to make the states more secure through proactive policing. They should make state police possible in conjunction with the state assemblies, the National Assembly, and the centre.
Solid infrastructure is key. There should be a good network of roads in the states and the FCT to encourage international investors. Many states have impassable roads in their rural areas and for those considering agricultural investments, states must work on good roads for the seamless evacuation of products.
Probity and accountability should be embraced at all levels of government. High-level corruption does not encourage investors. Bribing government officials to obtain one licence or the other is a turn-off for them.
States should concentrate on areas where they have competitive advantages to attract investors.
