Moghalu: How foreign direct investment can lift Nigeria out of poverty

Kingsley Moghalu, former deputy governor of the Central Bank of Nigeria (CBN), says foreign direct investment (FDI) can help lift a country out of poverty if it is targeted at the real economy.

Speaking on Saturday during a US-Nigeria investment summit in New York, Moghalu said the most important requirements for FDI to successfully contribute to real development in a country like Nigeria are the presence of a well educated workforce and infrastructure.

Moghalu, former presidential candidate of the Young Progressives Party (YPP), noted that Nigeria needs to adopt a strategy and incorporate political risk guarantees into major FDI agreements.

“We all know that Nigeria is Africa’s largest economy, and with a population of 200 million people, one with huge potential for growth. It is therefore a country of significant potential for foreign direct investment and foreign investors. But, for several reasons including a weak macroeconomic environment, policy inconsistency and the absence of a well defined strategy for FDI as a component of economic growth strategy, FDI into Nigeria has declined markedly in the past several years,” Moghalu said.

“First, the impact of FDI on developing countries depends very much on the
host country’s level of development. FDI has more impact in high-income developing countries than in low-income ones. In the latter, factors such as the quality of, and access to secondary school education are more important for development.

“Foreign investment can help lift a country from poverty if it is targeted at the real economy, for instance electricity, manufacturing, service industries, and export oriented industries, and uses local suppliers, as opposed to a lopsided focus on extraction industries.

“The most important requirements for FDI to successfully contribute to real development in a country like Nigeria are the two key “location factors” – the presence of a well educated workforce, and infrastructure.

“It is this question of the absorptive capacity of an economy, which is determined by how well educated and skilled a workforce is to take advantage of the possible technology and employment generated by FDI, that determines whether or not FDI contributes to real economic growth. Of course, such growth must be inclusive growth — broad based across sectors and with increased productivity of the labor force, if it is to be meaningful.”

Moghalu added that Nigeria should focus on the kinds of foreign investment that can help it solve the twin challenges of human capital and electricity infrastructure as a sustainable base for other kinds of FDI.

He also noted that restoring security in the country is a prerequisite for productive investment in Nigeria.