Last evening, the keynote speech of Dr. Kingsley Moghalu, CEO of Sogato Strategies Group at the Business and Investment Forum for Nigerian Governors was published, detailing Dr. Moghalu’s strategic approaches to foreign investment in Nigeria. Dr. Moghalu has some straightforward yet insightful applications for how foreign direct investment can be exponentially more beneficial to Nigeria than once thought, and what measures Nigeria must take to ensure FDI increases.

As reported in the Guardian:

The Nigerian market is defined by four main characteristics- a large population, which translates to “market”, skilled manpower, abundant natural resources, and a surfeit of entrepreneurial spirit. These four things differentiate Nigeria from many other markets in Africa.

The second perspective is that perceptions of risk in Nigeria and Africa in general are grossly exaggerated. Africa in the 21st century offers good opportunities to investors bold enough to overcome such lopsided perceptions of risk in order to create wealth in a part of the world that offers huge economic opportunities.

The Nigerian market is also an increasingly sophisticated market. Customers are discerning. And in a competitive environment, which now exists as a result of market-oriented economic policy reforms enacted by the Government of Nigeria, any investor must bear this in mind.

On the other hand, the Nigerian market is characterized by excessive dependence on crude oil, which poses a major strategic risk for the country’s economy, a weak manufacturing sector largely as a result of inadequate power supply, high unemployment, and food insecurity. Other characteristics include weak infrastructure, a weak export base that has created a high level of import dependency, and deteriorated educational and health systems. All these characteristics, however, create investment opportunities.

The second perspective is that perceptions of risk in Nigeria and Africa in general are grossly exaggerated. Africa in the 21st century offers good opportunities to investors bold enough to overcome such lopsided perceptions of risk in order to create wealth in a part of the world that offers huge economic opportunities.

The perceptions of risk in Africa as unique or exclusive are, in fact, mostly a cultural reaction to the continent, which is seen by many business executives in advanced industrial economies as either exotic or mysterious, or else as not really part of the global economic system. Risk, where it can objectively be identified, can be managed and mitigated by the scientific application of risk management approaches - risk tolerance, risk treatment, risk transfer, or risk termination.

Thirdly, foreign investments in Nigeria must be sustainable. For foreign direct investments to be sustainable, they must create wealth not just for foreign investors, but also for Nigerians. That is a win-win scenario and that should be one of the major outcomes of this forum. The time is long past when “foreign investment” in Africa was all about extracting wealth while leaving Africans poorer than they were before the “investors” arrived! This is part of the root causes of the crisis in Nigeria’s Niger Delta.

Today, foreign investment must create economic and social value for the host country, even as foreign investors certainly have a right to run viable businesses. But as we have seen in the global financial crisis, there is a difference between “viable business” and the unchecked greed that created much of the mess the world is in today. This has led to the return of strong government in the economic playing field. This point leads naturally into my next perspective.

Fourthly, Nigeria’s governments have the responsibility to create an enabling environment for effective, value-adding foreign investment, without losing the prerogative of sovereignty. This means that investor confidence must be protected by visionary governance that puts the interests of the average Nigerian first, not those of political parties, politicians or a few, already wealthy rent-seekers. It must be protected by establishing and supporting a culture of business ethics and integrity through effective regulation. Corruption poses a fundamental strategic risk to Nigeria and its governance and has kept many foreign firms from investing in the country. Ensuring policy consistency is essential if we are to obtain long-term benefits from foreign direct investment; foreign investment policies that change at the whim or caprice of every newly elected government will not do. They generate needless disputes that weaken investor confidence and raise questions about the sanctity of contracts, - one of the basic tenets of the rule of law. Fifthly, and finally, we must look at foreign direct investment from a deeper perspective than just that of the quantity of dollars or how many companies come into a developing country as foreign investment. We must look at the quality and structure of foreign investment, and we must address the question of whether FDI automatically catalyzes development.

It is widely believed that FDI is essential for development. It certainly can play a key role in role in development, provided certain conditions are met, as has been the case in the Newly Industrialised Countries (NICs) of Asia. But there is also significant empirical evidence that FDI complements, but does not substitute, local factors that are essential for development. In any case, the present global economic crisis has led to a downturn in FDI flows world-wide, including to Nigeria.

The ways in which foreign investment can contribute concretely to development include the diffusion of technology into the host country’s economic system, strategically targeted foreign investment in the real economy (power, manufacturing), service industries, export-oriented industries, and the use of local suppliers, rather than a lopsided focus on extractive industries.

But the most important prerequisite for FDI to contribute to economic development is the presence of a well-educated workforce. Human capital development by the Government of Nigeria, by itself and in partnership with foreign investors where possible, is therefore of critical importance. This is because the level of absorptive capacity of an economy, which is determined by how educated its workforce is to take advantage of the technology and employment generated by FDI, is what determines whether FDI contributes to real economic growth or not. Intricately linked to this conditionality is the presence or otherwise of adequate infrastructure. These are the two key “location factors” that determine the impact of FDI.

The point is that foreign direct investment must be pursued or executed from the standpoint of strategy, i.e. quality, structure and concrete, measurable long-term objectives regarding its contribution to economic development. A strategic approach to foreign investment means that Nigeria should seek foreign investment not in an indiscriminate manner, but rather the country must first ensure the presence of adequate infrastructure, especially power, before intensifying its drive for FDI, or else first target energy and power FDI as a base for further foreign investments. And Nigeria should simultaneously transform its education sector to ensure the presence of world-class human capital if it is to reap solid benefits from foreign investment in the Nigerian economy.