Nigerian Foreign Direct Investment: Acceleration and Threats

Nigeria’s history comprises of significant challenges leaving the nation to face civil war, poor governance, corruption, and terrorism. This has had significant consequences for not only their economy but specifically for Nigerian foreign direct investment (FDI). In the mid – 2000s the country saw a revelation concerning political stability and governance which, for the first time, led to substantial inflows of foreign investors. Today, Nigeria still confronts numerous challenges including the rise of terrorists groups like Boko Haram, but remains confident in their continuous effort to exert influence on the global economy. Foreign direct investment in Nigeria has experienced various fluctuations over the past 20 years but remains one of the country’s top priorities.

After gaining independence in 1960 Nigeria’s country and economy underwent high amounts of restructuring before experiencing the oil boom of the 70s which led to large investments by international corporations such Exxon mobile, Shell – BP, and Chevron[1].  Though despite reaching tremendous growth rates of above 25% in the early 1970s, Nigeria has unfortunately been cursed extremely with high levels of political instability and inadequate government and leadership. These insecurities within Nigeria have resulted in extreme levels of economic volatility which has led to low levels of foreign direct investment.

For the first time, through the course of the mid – 2000s, Nigeria experienced various transformations relating to better political stability, successful government reforms, and higher quality governance, which as represented in figure A[2], led to a large influx of foreign direct investment. In 1999, Nigeria ended sixteen years of military leadership as civilian rule was finally restored.[3] Nigeria went on to achieve its first ever peaceful transfer of civilian power in its 2007 general elections, marking the significant reduction in military intervention, which had plagued the country for 29 of its 40 years of independence, during the 20^th century.[4] Furthermore, in August of 2006, the Nigerian government agreed to terms of sovereignty over Bakassi Peninsula which had been disputed land with Cameroon for decades.[5] All these events within Nigeria contributed significantly to global perception of a politically stable nation which was one of the key factors leading to increased foreign direct investment throughout the mid – 2000s. Throughout the early – mid 2000s the Nigerian government also began to invest highly in the country’s infrastructure. Projects such as the Lagos Rail transit, which has had immense impacts on economic growth and development, had its official announcement of construction in December of 2003 and groundbreaking in 2008.[6] In addition to a new rail system, former president Olusegun Obasanjo created the national Integrated Power Project plan in 2004 which was designed as a solution to Nigeria’s long history of power challenges.[7] Despite certain delays in construction and high costs these infrastructure projects have shed a positive lights on the Nigerian government’s efforts and ability to improve infrastructure and therefore contributed to the influx of foreign direct investment.

            Throughout the early – mid 2000s, the Nigerian government also began to take more intensive anti – corruption measures. In September of 2000, The Independent Corrupt Practice Commission (ICPC) was established in aim of preventing and investigating corruption, educating the public on corruption and enforcing prosecution against offenders.[8] In addition, two years later in December of 2002 Nigeria launched, in further commitment to fight corruption, the Economic and Financial Crimes Commission (EFCC), whose duty was to investigate and examine all financial crimes and corrupt practices.[9] These agencies developed by the Nigerian government allowed for better monitoring and prevention of corruption, leading to lower investment risk and increasing foreign direct investment.

Finally, various government reforms concerning privatization, removal of subsidies, and deregulation allowed Nigeria to pursue more market orientated policies encouraging foreign direct investment. In 2005, the Nigerian government enacted the Electric Power Sector Reform Act (EPSR Act) which revolutionized the industry by ending the monopoly formerly controlled by government run Nigeria Electricity Power Authority (NEPA).[10] This reform highly increased market competition within the power sector, lowering the prices and further encouraging foreign direct investment. Furthermore, other reforms include the commencement of deregulation of the downstream sector of the Nigerian oil industry in 2002 in which various taxes and import duties were removed. Regulatory agencies such as the Petroleum Products Pricing Regulatory Agency (PPPRA) were also established in aim of achieving complete liberalization of the industry by 2003, which was later achieved. This resulted in the sectional growth of the oil industry through the optimal development of resource allocation and application, which reflected further positive signs for foreign investors.[11]  Thus, the various reforms and government actions have led to the highest and most successful inflow of foreign direct investment in Nigeria’s history.

            Despite the acceleration of FDI throughout the mid – 2000s, over the past five years terrorism has become a new threat to Nigeria and incoming foreign direct investment. In May of 2013, President Goodluck Jonathan declared a state of emergency in three states in the northeastern part of Nigeria, due to the rise of attacks carried out by the terrorist group called Boko Haram. Boko Haram attacks within Nigeria peaked between the years of 2012 and 2015 in which it carried out 746 attacks with a high of 270 in 2015, killing an approximate total of about 11,500 people.[12] This has resulted in significant negative consequences on Nigerian foreign direct investment. According to a study done by the World Investment Report 2013, Nigeria experienced a fall of 21.3% in foreign direct investment between 2011 and 2012.[13] Fortunately, most of Boko Haram’s attacks have been highly concentrated in the northern part of Nigeria, away from the financial center and capital of Nigeria, Lagos. Despite this the negative impact on the south remains high. Mass migrations of refugees from the north into the southern part of Nigeria has led to large increases in financial and psychological pressures for thousands, while also severely halting business operations throughout the country.[14] Over the past year, Nigeria has seen change, as combined efforts between the Nigerian army and international forces under the initiative of Nigeria’s most recent president Muhannadu Buhari, have yielded positive results in the war against Boko Haram. Fighters have retreated into the Sambisa Forest and in late 2016 reports claim that the last strongholds of the terrorist group were captured along with the rescue of 1,800 hostages.[15] There was also a presentation given by Nigeria’s new foreign minister of industry, trade and investment, Okechukwu Enelamah, in which he mentioned the issue of peace and security in Nigeria. Mr. Enelamah stated that, “Even though Boko Haram still is a threat in terms of individual sporadic attacks…they no longer occupy territory, or…[act]… like an alternative government or alternative group that has its own territory that it controls.” He continued, saying, “the country and we believe that it is a war that will be won and a war that we are winning.”[16] I believe that this information provides evidence that the control impact of the Boko Haram terrorist group has been significantly reduced over the past year. Despite this, the group still has not been fully eradicated and levels of political instability remain throughout the nation. Thus, foreign investors should on account of recent success of military coalition and government, once again raise investment interest in the Nigerian economy, but continue to proceed with certain levels of caution.

             The political instability, poor governance, corruption, the damage done by terrorism and the fight against Boko Haram, have seen significant progress throughout the mid – 2000s and over the past year. Thus, Nigeria has become highly desired amongst international investors on the global market and if to continue on this path will see a bright road ahead for foreign direct investment in the future.

Sources

---

[1] (Effoduh 2015)

[2] (World Bank 2016)

[3] (Hagher 2011)

[4] (Hill 2017)

[5] (BBC World News 2017)

[6] (Obiukwu 2014)

[7] (Onukwugha, et al. 2012)

[8] (Opara 2007)

[9] (Opara 2007)

[10] (Press 2005)

[11] (Maduekwe 2007)

[12] (Uhrmacher and Sheridan 2016)

[13] (TOCHUKWU 2013)

[14] (TOCHUKWU 2013)

[15] (Al Jazerra 2016)

[16] (Enelamah 2017)

1.  

Exploitation of Emerging Economies by Western Civilizations

Case Study:

Sierra Leone vs Britain

In order to investigate the exploitation of today’s emerging economies such as Sierra Leone, one must first start from a historical perspective and analyze some of its earliest beginnings. Originally, the British went to Sierra Leone to send freed slaves in the late 1700s and early 1800s, at a time when they had agreements with local chiefs and tribes and only stayed in area of Freetown. During the scramble for Africa in the later 1800s they attempted to colonize, rule over the rest of Sierra Leone and use it for a valuable trade post and exploit its resources.  The British intentions were to exploit is people and labor in order to gain control of the land in terms of trade and strategical vantage points due to high tensions between rival European nations such as France. They also later went on to further exploit its rich reserves of natural resources bauxite, diamonds and gold.

British Rule implemented policy referred to as “Divide and Rule” explicitly designed for the exploitation of the native country and its population mainly through the taxing and persecution of its people.

In Jarred Diamond’s Guns, Germs and Steel: The Fates of Human Societies he discusses how the Spanish explorer Pizarro captured the Inca’s King Atahualpa and demanded a ransom after he had already massacred thousands of the Inca men. Diamond explains how, “Atahualpa’s people brought mountains of gold to ransom him, but Pizarro had him executed anyway.” By, “Depriving the indigenous defenders of leadership,” Pizarro was implementing his, ““divide and conquer” strategy.”

Furthermore, in alignment with this strategy the Inca ruling family was ravaged by a disease epidemic, which originated from Europe, immediately creating a succession crisis. Civil war broke out within the Inca empire where, “Atahualpa led one side and is Brother Huascar the other. The witty Pizarro was able to play the two sides against each other, achieving the ultimate victory for himself. Each side in the Inca civil war saw the other as the greatest threat.” This is exactly what happened in Sierra Leone where the British divided the country based on its two largest ethnic groups, the Temne and the Mende, feeding on the already strong rivalries and playing each group against each other to gain the overall advantage and power over the region. Once divided they also had to pay extremely heavy taxes and were forced into labor maintaining roads which left them no time to engage in subsistence farming, thus threatening their livelihood and survival. As a result, each chief was left with no choice but to rebel.

 In response not only did the British resist against the rebel armies but opted for a “scorched earth policy” which meant burning entire villages, farmlands and terrorizing communities. Eventually the native population gave in and granted Britain full control of the territory. Their misrule and exploitation of the land, and its people to gain control of valuable territory and resources set a strong negative tone and has had lasting negative impacts in terms of political tensions, conflict and hate. It ultimately gave birth to multiple military coups and an eleven year civil war broke out in 1991, which devastated the country, leaving 50,000 people dead and displacing approximately half of the five million population. (This was well represented in Leonardo’s epic movie Blood Diamond, where he nailed the Zimbabwean/ South African accent.)

In the past, many emerging economies have especially been exploited on account of their land and large reserves of valuable natural resources, such as diamonds and gold, as in Sierra Leone’s particular case. More recently, Sierra Leone has been exploited by foreign mining companies such as the British companies London Mining and African Minerals mainly for their iron ore reserves. London Mining and African Minerals are carrying out the actions that are being practiced all throughout resource rich developing nations by western companies seeking to make large profit margins. Minerals are being stripped from the country and going overseas, with no reinvestment back into the country of its origin.

In 2010 the Sierra Leone government gave two big leases to London Mining and African minerals. Both Deals violated the Minerals and Mine Act introduced in Sierra Leone in 2009 which was specifically drawn up with international support to prevent mineral exploitation. The act was brought forward to prevent the reoccurrence of previous cases such as, in which Siaka Stevens, former Sierra Leonean Prime Minister, made secret extraction deals for his own benefit, leading to a rebellion, which was supported by Liberia and lead to a mass amount of Sierra Leone’s diamonds being pilfered, smuggled and sold in Liberia.

London Mining and African Minerals not only took advantage of these corrupt governments to strike deals that benefit themselves, they manipulated and squeezed all that they could from the government, the land and the country. London Mining and African Minerals claimed that without the generous support from the government they would not have invested in Sierra Leone and would have taken their business elsewhere. Unfortunately, due to the Sierra Leonean government being corrupt, economically unstable and desperate for investment this leaves them in no position to bargain and do what they can to attract foreign investment, despite its limitations. Therefore, the foreign British mining companies took advantage of them and use their power as multinational corporations and exert large amounts of pressure onto the Sierra Leonean government to sign contracts that highly favor these multinational mining companies.

There are three major concerns in regards to these new deals between the two British mining companies and the Sierra Leonean government, with the first being that Government has ignored the fact that mining companies must always pay royalties, as London Mining has been exempt from paying when it is in a tax-loss position. The second is that the Government has severely lowered tax rates of both companies, while simultaneously introducing a tax on goods and services that has led to an increase in consumer prices. Not only does this put more pressure on the already struggling 60% of the population living below the national poverty line, but it result in huge outflows from the country and its economies. With the low tax rates and failure of these companies to reinvest into Sierra Leone large amounts of money are not being invested back into the country’s economy and instead leaking out to the British and global markets, thus depriving Sierra Leone of potential stimuluses that could be used to improve the country’s standard of living and overall well-being.

In doing an analytical analysis we can see the amount money being lost to these power and money driven multinational corporations. After lowering the taxes as well as violating the Minerals and Mining Act of 2009, as mentioned earlier, London Mining negotiated a 6% corporate income tax rate for its first three years of operations in Sierra Leone compared to the required 30% as stated in Sierra Leone’s Tax legislation. Both London Mining and African Minerals have also been granted full exemption from goods and services tax, as well as taxes implemented on imported capital goods, vehicles and equipment or Customs tax. The National Revenue Authority has estimated that these exemptions accumulate to a total loss of approximately $US224million in 2012 which was about 8.3% of the country’s GDP. Christian Aid, who maintains a high presence in Sierra Leone, estimated that between 2014 and 2016 the government would have lost a total of $US131million in revenue, which is an average of $US44million per year. This $US44million can be used to education 2.9million children which could educate ¾ of the total population of children under18. As it is extremely evident and is well summarized by Christian Aid worker Joseph Ayamba, “The granting of tax incentives to mining companies, especially African Minerals and London Mining in the country has resulted in massive revenue losses to the government and largely hinder the government capacity to support its development priorities such as health, education and agriculture.” These companies are clearly manipulating their own power, exploiting the country’s resources and leaving a long term trail of poverty and devastation.

 Finally, the third concern is that specifically with African Minerals, it is not clear if government is enforcing the section of the mining act, demanding that all extractors are required to setup an independent fund to rehabilitate the environment. This has already led to detrimental effects on the environment and the populations in the surrounding areas. Mining has caused massive dust pollution which has affected many communities, and created vital health problems. There have also been accounts of flooding which have crippled communities in the Lunsar townships which are located in the Northern Province of Sierra Leone. The mining itself and some of these affects have also had detrimental impacts on farmlands which have had repercussions for an already starving population. Along with decades worth of reckless diamond mining these companies are destroying the Sierra Leonean natural environment. Mining has led to soil erosion, deforestation, and the complete breakdown and loss of whole ecosystems, which also forced populations to relocate. This can be connected to the work of Pope Francis in Laudato Si where he discusses many ecological issues that our ever-changing world is facing. He mentions in his first chapter the loss of biodiversity which is exactly what the companies such as London Mining and African Minerals are doing, after striking corrupt deals with the government that exempt them from certain environmental restrictions. Pope Francis also commented further on the issue of water, noting that mining companies are not only causing flooding, threatening people’s lives, because of their minimal restrictions deforestation and land degradation, resulted in heavily polluted water systems and created large amounts of stagnant bodies of water. These specific conditions, especially the stagnate bodies of water, very similar to what was seen in the movie we watched about the Zika virus epidemic in South America, prove to play lethal roles in the spreading of epidemics such as malaria. Sierra Leone saw approximately 1.7million cases in 2013, in a country consisting of a total population of approximately six million. Collectively, this all contributes to one of Pope Francis’s last major issues which is the decline in the quality of human life and the breakdown of society. Unfortunately everything is connected and one lapse in the chain-link fence, can cripple the whole system. Despite many of these issues such as malaria and environmental degradation already existing in countries like Sierra Leone poor government policies allow these foreign companies to enter the country of their choosing, cut special deals, exploit the country’s resources, destroy it’s environment, and have a overall negative impact on the population’s well-being and country’s economic standing. They take advantage of these poorly - structured emerging economies, who actually need help and assistance, rather than attempt to create a positive long-lasting impact, seek to benefit from large profit margins. As said in the words of a London Mining Supervisor when interviewed by a reporter for the London School Economics Newspaper, “Exploit and go love, that’s all we’re here to do, exploit and go.”

I believe that the exploitation of Sierra Leone and its resources can also be analyzed with in relation Karl Polanyi’s The Great Transformation: The Political and Economic Origins of Our Time(1944). Polanyi believed that a market economy must include markets for all resources including labor, land and money. Polanyi discusses how the one of the two major developments of the 19^th century was the rise of market capitalism and how the market society in which industrialization was situated, was the key for disaster, as a result of the fictitious commodities of labor, land, and money.  He further exclaims how a commodity as in regards to labor, land and money is, ““entirely fictitious,” and that this fiction, “supplies a vital organizing principal, which is that anything that inhibits the functioning of these markets as if they are commodity markets should be prohibited.” Polanyi defines a commodity as something that is for sale in markets and explains that, “labor is an essential human function that is not always intended for sale, land is nature and therefore is not produced for sale and finally money is produced at all except by banks.” Polanyi argues how large-scale production and the investments needed to provide the conditions necessary for a capitalistic market created new risks and as a result required businesses to secure supplies of labor, land, and credit. This was only possible if these resources, land, labor and money, could be purchased in markets, but as defined by Polanyi, these commodities are fictious and cannot be produced for sale in markets. Therefore, attempting to trade them in markets and allocating them through the price system is an unnatural development leading to the destruction of society. Labor cannot be exploited or underutilized without affecting the nature of the person or population, and land similarly cannot be exploited without harm to the environment, if commodified these consequences are inevitable. Therefore, in reaction to the rise in market capitalism and protection of economies and societies Polanyi discusses the reality of the double movement which was, “the widespread expansion of “real” commodity markets accompanied by protective actions to limit the consequences of commodifying land, labor, and capital – the “fictitious” commodities.”

      This is unfortunately exactly what went wrong in Sierra Leone. In its early history Sierra Leone was just conquered by the British and therefore there wasn’t much to be done, but that isn’t the case amongst recent matters. Since Sierra Leone gained independence in 1961 they have partaken in a capitalistic market and although having commodified the fictious commodities they have placed prevention measures to prohibit the exploitation of its economy, resources and people. A perfect example of this is the Mineral and Mining Act of 2009 which prevents environmental and economical exploitation of the country and its resources. Consequently, due to a weak economy, corrupt government and multinational company pressures the Sierra Leonean government by passed these protective measures on behalf the British companies. Therefore, allowing for the exploitation and degradation of Sierra Leone’s resources, environment, and economy and as stated by Polanyi, the ultimate deterioration of the whole society, thus preventing any form of human development.

The manipulation of emerging economies by western civilization is unfortunately still a reality in today’s world. Through the impact of colonization, globalization, and the capitalistic market system, without any protective measures, developing countries are continually exposed to high risk of further exploitation.

Bibliography

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2.      "British Mining Companies Exploitation of Sierra Leone." Africa at LSE. N.p., 23 Dec. 2013. Web. 24 Apr. 2016. <http://blogs.lse.ac.uk/africaatlse/2013/12/23/british-mining-companies-exploitation-of-sierra-leone/>.

3.      Chasteen, John Charles. "Born in Blood and Fire." Google Books. W. W. Norton & Company, n.d. Web. 25 Apr. 2016. <https://books.google.com/books?id=fC90B5xkYyIC&pg=PA51&lpg=PA51&dq=Pizarro%27s%2Bdivide%2Band%2Brule&source=bl&ots=XorpxEy12Z&sig=Jdsug85Xe7iv8GwQwLojisJQaXY&hl=en&sa=X&ved=0ahUKEwiPtMTrrbDMAhUCMj4KHfguBy8Q6AEIPTAF#v=onepage&q=Pizarro's%20divide%20and%20rule&f=false>.

4.      Diamond, Jared M. Guns, Germs, and Steel: The Fates of Human Societies. New York: W.W. Norton, 1998. Print.

5.      Francis, Pope. "Laudato Si' Study Guide: Chapter One - The Tablet." The Tablet. N.p., 25 June 2015. Web. 29 Apr. 2016. <http://thetablet.org/laudato-si-study-guide-chapter-one/>.

6.      "Malaria: Fighting the Other Epidemic in Sierra Leone." MSF USA. N.p., 23 Jan. 2015. Web. 25 Apr. 2016. <http://www.doctorswithoutborders.org/article/malaria-fighting-other-epidemic-sierra-leone>.

7.      "Malaria: Fighting the Other Epidemic in Sierra Leone." MSF USA. N.p., 23 Jan. 2015. Web. 26 Apr. 2016. <http://www.doctorswithoutborders.org/article/malaria-fighting-other-epidemic-sierra-leone>.

8.      Mosselmans, Bella. "Stop British Mining Companies’ Exploitation of Sierra Leone." WE ARE RESTLESS. N.p., 25 Sept. 2014. Web. 29 Apr. 2016. <https://wearerestless.wordpress.com/2014/09/25/stop-british-mining-companies-exploitation-of-sierra-leone/>.

9.      "Sierra Leone: The Agonizing Experience of a West African State under British Colonial Domination." Standard Times Press. N.p., n.d. Web. 25 Apr. 2016. <http://standardtimespress.org/?p=6223>.