Posted by By SEUN ADESIDA on
The Managing Director of the World Bank (Asia and Africa) Dr. Ngozi Okonjo-Iweala) has said that Nigeria is not yet the investment bride of the world.
The Managing Director of the World Bank (Asia and Africa) Dr. Ngozi Okonjo-Iweala) has said that Nigeria is not yet the investment bride of the world. This was disclosed over the weekend at the Annual Dinner/ Bankers Nite of Lagos Chapter of Chartered Institute of Bankers of Nigeria (CIBN). She was delivering a paper titled: Africa as an Emerging Investment Destination: The challenges, the opportunities.
According to Okonjo-Iweala, "Nigeria received about 30 per cent of the total foreign direct investments (FDIs) coming into Africa between 2000 and 2007, while a country like South Africa accounts for over 18 per cent. But on debt and equity portfolio flows, a total of $59billion came to Africa between 2000 and 2007 with South Africa taking the lions share of 88 per cent. Kenya and Uganda received 6.5 per cent, leaving Nigeria and other 42 countries to share the remaining 6 per cent. So, Nigeria has not been much of a destination for portfolio flows."
She said "excluding South Africa, the bulk of FDI is going into the natural resource sectors. That is the case for Nigeria, although telecoms and banking have benefited. The banking system recently received an additional capital of $13billion from foreign sources."
"The challenge, she said "is not Nigeria becoming the investment bride of the world but how to maximise the long run development benefits from capital inflows to Africa while minimizing the associated risks, after emerging as the investment bride of the world. Maximising the benefits would require creating jobs for youths by getting FDI into labour intensive manufacturing sector.
In fact, FDI in the manufacturing has been empirically associated with positive effect on economic growth, but how to attract it and to ensure that agriculture benefits from the ongoing food price boom, which has been linked to energy prices both on the input side and as a result of increased focus on bio fuels."
The former Nigerian minister also revealed that doing so would make investments in rural infrastructure and agricultural Research and Development (R&D) aimed at a new green revolution sectors unlikely to attract strong private investor interest but, if forthcoming, will play a major role in growth, economic diversification and poverty alleviation.
The danger in FDI inflows, she said "is that there is every likelihood to be a mismatch between the long term development financing needs of Africa and the interest of investors in search of relatively liquid investments with much shorter horizons. Long run FDI investment may be concentrated in oil and gas, minerals and metals because of prolonged commodity price boom."
She explained that trying to define the risk is tricky because risks evolve with financial integration and sophistication and there are always surprises. She added: "my point is if a sophisticated, well regulated and closely supervised financial system like that of in the United States of America can have crisis, so can African countries, Nigeria inclusive. If you think managing the risks is going to be easy, then look at the experience of emerging market countries over the past three decades, but Africa has the advantage of being a late starter in the field of private capital inflows and hence the opportunity to learn from the mistakes of other countries."
On the responsibility of the Nigeria financial sector to mitigate these risks, she said "as the first point of call for capital inflows, bankers bear a special responsibility.
The financial sector, as you know, plays a key role in resource allocation and in risk management, but it can also propagate and amplify risks. If external liberalization is not accompanied by adequate prudential supervision of banking sector it could lead to excessive risk taking by banks and a subsequent crisis.