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Was he making
polite conversation, or angling for a share of the voter mind ahead of
next year’s polls? As polite conversation, the comment was hard to
ignore. And as a pitch for votes, difficult to take seriously. Either
way, could the president honestly believe that because of “the
deliberate formulation and deft implementation of policies that ensure
faster return on investment” Nigeria has begun to attract more foreign
investment? Thus, the papers reported the theme of President Goodluck
Jonathan’s speech last week, while receiving the letters of credence of
the new Croatian Ambassador to Nigeria.

Of the three
components of foreign investment, Ivica Tomic (the new ambassador),
would have wondered, of which could the president have been speaking?
Obviously, not investment of the portfolio variety. The recent travails
of equities on the floor of the Nigeria Stock Exchange (NSE); and of
the management of the exchange itself are much too familiar. It would,
therefore, be hard for anyone to think that investment (in an
assortment or range of securities, or other types of investment
vehicles) for the sole-purpose of deriving income (as opposed to
participating in the management of the investee firm under a direct
investment) could be thriving in this country. Besides, most experts on
these matters agree that investment of this type is too flighty to
anchor this economy’s need for funds with which to drive growth on.

Which is why one
promptly dismisses the possibility that the president might have had
bank loans in mind during his welcome address to the Croatian diplomat.
If portfolio investment is flighty, then bank loans are decidedly
anathema. Ask transition and emerging economies in east and central
Europe (Croatia, being one of them) about this. The biggest source of
the transmission of the global financial crisis to those economies was
their considerable exposure to lending from parent banks in advanced
European economies to their local subsidiaries. As soon as the crisis
hit, and bank balance sheets the world over came under pressure, the
parent banks called in these loans, and their subsidiaries went under
water. Now, domestic banks in Nigeria are yet to surface from the
morass after their own experience of the Great Recession. The
president, himself, made a lot about this when he assented to the bill
setting up the Asset Management Corporation of Nigeria (AMCON). So,
without doubt, bank loans, as a source of foreign investment cannot be
trending up, at least, not before AMCON repairs the industry’s balance
sheet.

What about foreign
direct investment? That is, investment by non-resident persons and/or
groups in brick and mortar facilities in this country, in the
expectation of profitable returns over the medium – to long-term. With
rates of return in Europe and North America currently at all time lows,
the hurdle rates for such investments here would not be exceptional.
And anecdotal evidence (from the telecommunications sector for example)
indicate that some of the highest rates of return on investment
anywhere in the world are to be met with here. In part, this is because
costs are high. Each such business must generate its own power, source
for its own water supply, install its own security infrastructure, etc.
All of this bid up the domestic cost of doing business – and add a risk
premium to operating in the country.

In the main,
however, the same reason why public infrastructure is not available in
support of domestic businesses, governance failure, is the biggest
reason for the high average revenue per user figures in the country.
How do we establish where the risk premia for doing business in an
economy such as this stops, and where price gouging starts? In the
absence of competent government, this will remain conjectural.

In spite of all these, could this economy genuinely have attracted
new foreign direct investment, especially when we have fallen down all
the league tables that matter: doing business, Transparency
International, the global budget process ranking, etc.? It gets a lot
more counter-intuitive. Same week as the president was offering his
assurances, an Israeli employee with Solel Boneh, a construction
company, was reported to have paid US$170,000 to kidnappers to secure
his release. Moreover, the Movement for the Emancipation of the Niger
Delta (MEND) threatened simultaneous attacks across oil installations
in the Niger Delta!