Foreign Direct Investment in Nigeria
For years the economy of Nigeria, Africa’s most populace nation, was held back by
political instability, poor government policies, a lack of infrastructure, and endemic
corruption. This started to change in the 2000s. In halting steps, Nigeria has moved
toward a more stable democratic form 12/15/2016 IEB Wireframe of government. In
2007, for the first time in the history of the country, following general elections there was
a peaceful transfer of civilian power. Since then, the government has pursued marketorientated reforms, including the removal of subsidies, privatization of some state run
businesses, lower trade barriers, and deregulation. The government has tried to rid itself
of corruption, albeit with decidedly mixed success. There has also been some attempt to
improve the country’s poor transportation and power infrastructure.
The reforms have had a positive impact. The GDP of Nigerian measured in constant
2005 U.S. dollars increased 2.75fold from $67 billion in 2000 to $183 billion in 2013.
When estimates of the “informal” or “black economy” sector are taken into account, the
GDP may have been 50 percent larger again in 2013. Since 2004, Nigeria has grown at 7
percent per annum compounded, faster than the West African average. Powering this
growth were high oil prices. Nigeria is a significant oil producer, and high oil prices have
helped improve government finances, but the industrial and agricultural sectors of the
economy are also growing. Sharp is a Japanese multinational corporation that has
engaged in foreign direct investment in Nigeria. The country of Nigeria has seen a
slowdown in FDI in recent years.
Foreign direct investment emerged as one of the major engines of growth. For years,
foreign investors stayed away from Nigeria, scared off by political instability and high
levels of corruption, but that too is starting to change. Encouraged by better economic
management, and the promise of a large domestic market, inward foreign investment in
Nigeria increased from $1.2 billion in 2000 to a peak of almost $9 billion in 2011 before
slipping to $5.6 billion in 2013. This surge in investment made Nigeria the top
destination for FDI in subSaharan Africa. Among recent investors has been General
Electric, which announced in 2013 that it would put over $1 billion into Nigeria over the
next five years. The investments include building a manufacturing plant to support the
power generation and oil extraction industries, and a service center for supporting GE
equipment. GE believes that its investment will create 2,300 jobs. Foreign retailers will
also probably make major investments in distribution infrastructure such as cold storage
facilities and warehouses. Currently, there is a chronic lack of cold storage facilities in
India. Estimates suggest that about 25 to 30 percent of all fruits and vegetables spoil
before they reach the market due to inadequate cold storage. Similarly, there is a lack of
warehousing capacity. A lot of wheat, for example, is simply stored under tarpaulins,
where it is at risk of rotting. Such problems raise foods costs to consumers and impose
significant losses on farmers.
While the majority of investments are still targeted at Nigeria’s large energy sector, there
are signs that this too is beginning to shift. A case in point is Procter & Gamble, which in
2012 invested $250 million to construct a state of the art plant to manufacture disposable diapers in Nigeria. Explaining the investment, a P&G spokesperson noted that “Nigeria
has a very strong, dynamic and growing population of now over 167 million people with
over 40 percent less than 15 years old. By 2050, Nigeria is projected to have the third
largest population in the world. This represents a rapidly growing number of consumers
and a wonderful opportunity to serve.” The P&G spokesperson also indicated that the
company would increase its investment if the government was successful in further
lowering import tariffs and consumption taxes, and resolved some of the infrastructure
problems that were currently holding back the country. Sources: K. Aderinokun,
“Nigeria: We Want to Make Nigeria the Hub of Procter and Gamble’s West African
Operations,” All Africa, August 21, 2012? N. Mazen, “General Electric Plans $1 Billion
Investment in NigePower,” Bloomberg, January 31, 2013? CIA, The World Factbook:
Nigeria, updated January 7, 2014? Staff reporter, “Well below Par,” The Economist,
November 29, 2014.
Case Discussion Questions
1. What factors held back the flow of FDI into Nigeria for most of the country’s history
as an independent nation?
2. Why did foreign direct investment into Nigeria start to accelerate after the mid2000s?
3. How do you think FDI might benefit the Nigerian economy? Is there any potential
downside to Nigeria from more FDI?
4. Nigeria is largely dependent on oil exports to drive its economy forward. Given the
sharp fall in global oil prices that occurred in 2014, what impact do you think this will
have on FDI into Nigeria?
5. Nigeria’s government is currently fighting a vicious insurgency mounted by Boko
Haram in the country’s remote and sparsely populated northeast. Should this be of
concern to potential foreign investors, most of who invest in the country’s populated
southern regions?
6. Imagine that you work for a large consumer products company selling basic household
goods. List the pros and cons of investing in Nigeria. Under what circumstances would
you recommend investing? Purpose
To assess your ability to apply the concepts from this week.
Overview In MBA 727, you will display your ability to apply the concepts from the overview
through case study analysis. Each week, you will read a case and complete a case
analysis. You are not to answer the questions at the end of the case. However, the
questions should help you formulate where your thinking should be taking you during
your analysis.
Action Items
1. Review the grading rubric for this assignment (below). 2. Read the closing case at the end of Chapter 8 in International Business. 3. Write a 3- to 4-page paper to discuss the questions in the reading using a business
brief format. Review the Business Brief Guidelines in the MBA Toolbox to assist you in
the proper formatting of your paper. Cite resources as appropriate to support your
findings. 4. As noted in the Overview above, do NOT merely list and answer the questions at
the end of the case. You are to use a free-flowing style to summarize your thoughts after
your research on the issues discussed in the case. 5. Submit your paper to turnitin.com. (Your professor supplied the course ID and
password during week 1.) 6. Read the originality report and modify your paper as needed. This may include
adding proper citations or better paraphrasing.
