Uncertain Fiscal Policies: FDI Inflow To Remain Low

• Uncertain Fiscal Policies: FDI Inflow To Remain Low

Since Nigeria ordered International Oil Companies (IOC) to pay US$20 billion in back taxes last month, analysts home and abroad have questioned the Federal Government approach to boosting its fiscal revenue.

To some, the move will scare Foreign Direct Investors interested in the Nigerian economy after what happened to MTN Nigeria in 2018 when the Federal Government ordered the telecoms company to pay $2 billion in taxes and two weeks later, the Central Bank of Nigeria directed the same company to refund $8.1 billion in ‘illegal repatriation.’

Months later, MTN Nigeria was cleared of wrongdoing but not the fall in its share price and the uncertainty surrounding its future financial projections.

The company on Thursday announced its expected earnings per share for 2018, surprising it was below experts’ projections by almost 50 per cent. This didn’t go well with investors that subsequently reduced their holdings ahead of March 7, the scheduled date for the audited financial report. MTN shares dipped by 4.9 per cent on Friday.

Rob Shuter, MTN Group President and CEO, attributed the development to the challenges faced in Nigeria in 2018, its largest market.

While experts agreed that the Federal Government must increase tax revenue through increased participation of foreign and local investors in the country, “eliminating fiscal uncertainties and generally improving the ease of doing business in Nigeria is key,” expert at Anderson Tax said.

“It is essential that the government does not place undue reliance on the imposition of multiple taxes and levies on companies engaged in oil and gas activities, as the principal way of boosting its internally generated revenues,” Tolulope Adebowale of Anderson Tax said in its publication.

In recent years, Foreign Direct Investment has been falling year after year, when compared with the performance from previous years. In 2014, Nigeria earned $4.7 billion from FDI, that number quickly dropped to $3.1 billion in 2015. In 2016, the number surged to $4.4 billion but later declined by $900 million to $3.5 billion in 2017. The number has since dropped to $2.2 billion in 2018, the lowest in 13 years.

According to the CBN, Foreign Portfolio Investment accounted for over 70 per cent of the total foreign inflow in 2018, while Foreign Direct Investment accounted for less than 30 per cent.

Experts believed the uncertainties surrounding fiscal policies may further scare the few foreign investors interested in the economy in 2019 going by what is happening since the current administration decided to up tax revenue.

Analysts at Investors King Ltd said fixed income market will continue to attract investment since Federal Reserve won’t be raising interest rates any time soon and the Euro-area is experiencing economic slowdown even at zero interest rates. The focus would be on emerging economies.

The analysts expect FDI to remain weak as they do not anticipate a significant change in policies but agreed the CBN would have to maintain current monetary policy rate to sustain inflow.

“The economy was and is not really viable to encourage foreign investors to invest for a long term,” says Paul Aluko, a Research Analyst at MBC Securities Limited, Lagos.

Experts advised the Federal Government to create a business-friendly environment where foreign investors are not scared of sudden change in fiscal policies or business climate.