Through all this, the question on everyone’s lips is ‘Why? Why is FDI on the decline?’ The obvious answer for some would be that all of Africa has experienced a decline in foreign investment. Hence, it is unsurprising that Nigeria’s FDI inflow has declined. Perhaps investors no longer see the promise and potential they once saw in Africa. However, I disagree with this school of thought. Nigeria is not only witnessing a decline in foreign investment, but it is also experiencing an exodus of foreign investors. For example, Procter & Gamble, a multinational consumer goods company and producer of household brands including Pampers and Tampax exited Nigeria in 2023. This mass exodus is indicative of a growing unwillingness to invest in Nigeria. In my opinion, the answer to the cause of the FDI decline and the exit of multiple foreign companies can be summed up into one word: risk.  

The concept of risk and reward is the very heart and soul of investment. The basis for the assessment of risk is simple. It is based on the probability that the investment will yield or fail to yield the expected profit or any profit at all. Where the risk is too high, risk-averse investors are less willing to participate, even where there is a high potential for reward. There are two forms of risk that investors consider: market risk and business risk. 

Market risk stems from the effect of external factors on the entire financial market. Some of the factors affecting market risk in Nigeria are insecurity, legal uncertainty of regulations and policies, and corruption.  

The market risk for investors and entrepreneurs within Nigeria is exaggerated. The Central Bank of Nigeria has, this year alone, increased interest rates three times. The federal and state governments have often unexpectedly enacted policies that affect business activities in their jurisdictions, without adequately conferring with stakeholders, leaving them with little recourse to legal action. The example of the Lagos State partial ban of commercial motorcycles, (okadas), in February 2020 readily comes to mind. The transportation service providers affected included Gokada, a company co-founded by a Bangladeshi-American national that had managed to raise $5.3 million from local and foreign investors only a year before. The okada ban forced the company to dismiss 50 per cent of its workforce and venture into logistics. Moreover, in 2023, the Corporate Affairs Commission released a notice increasing the minimum paid-up share capital for companies with foreign participation from ₦10 million to ₦100 million, with a six-month compliance deadline which was then withdrawn less than a week later. These events demonstrate instability, and the lack of regulatory transparency further complicates risk assessment for foreign investors.  

With transparency comes predictability. It is this predictability that allows investors to make informed decisions based on market trends. Unfortunately, transparency and predictability are not immediately synonymous with Nigeria. In 2023, President Bola Ahmed Tinubu announced the removal of fuel subsidy which changed the landscape of doing business in Nigeria. The changes included inflation and an increase in the cost of transportation and power generation. Factors such as additional regulation on foreign investment, currency volatility, transaction fees, taxes and costs payable when transacting across borders lead to increased risk for foreign investors. 

Business risks are the factors that may result in lowered profits or failure of business operations, and include competition, financing, human capital and product production. Following news that Nestle, Guinness and other businesses collectively lost ₦900 billion in 2023, it is unsurprising that major corporations continue to divest or exit Nigeria entirely. Despite investing a whopping $100 million in Nigeria only three years ago, Kimberly-Clark a multinational company which birthed brands including Huggies and Kotex, in its official press release published in May 2024, announced plans to exit Nigeria partly due to ‘economic developments in the country.’ The company’s operational costs were reportedly more than ₦500 million per month despite operating at a lower capacity, which rendered the business unprofitable. In addition to the jobs lost, the company’s exit marks a setback to the improvement of menstrual healthcare in Nigeria. The losses incurred by these companies are a significant threat to their ability to carry on with business operations. This is business risk come to life. 

Andre Schulten, the chief financial officer of Procter & Gamble, attributed the company’s exit from Nigeria to the difficulty for a dollar-denominated company to create value in Nigeria and operate within its macroeconomic environment. In a similar vein, Nestlé reported a loss of over ₦100 billion before tax in 2023, with the company noting that ‘despite the strong operational performance, the net profit is impacted by significant devaluation of the naira.’ Both instances demonstrate the business risks that Nigeria’s economic climate has exposed investors to. 

As the saying goes, ‘return of investment is more important than return on investment.’ In other words, loss of potential earnings is bad, but loss of the capital invested is even worse. Applied to Nigeria’s current economic climate, there is a high risk of investors losing their initial capital investment, which discourages foreign investors who make decisions based on a risk-reward analysis. As reported in the 2019-2020 Global Investment Competitiveness Report, reducing risk is a key strategy for governments to attract investment.