Foreign Investment: Nigerian Electricity

Foreign Investment: Nigerian Electricity

Many Nigerians hopefully think that one day, the nation will attract enough foreign direct investment (FDI) to enable the develop development of electricity in the country. The hope is FDI will thoroughly refurbish, upgrade or expand the generation, transmission and distribution capacities of the [now] privatised Nigerian Electric Power Sector (NEPS) to provide customers with “constant electricity” supplies.

Please think again! Foreign investors are not coming into Nigeria with $20 billion (at least) to revamp electricity in the country. Nigeria is in no shape to attract foreign investment, and it is unlikely it would have if things were going well. Does Grand Minister, Babs Fashola, disagree? The attraction of FDI is solely based on the assurance that if invested, it will yield ‘good secure’ profits for the investors. What other incentives are there for foreign investors to invest in Nigeria?

Do not forget Nigeria privatised grossly under-funded crap when it sold off NEPA / PHCN. Commercial investors are exploiters, not saviours. Free-flows of foreign investment has not come into NEPS or other sectors in Nigeria [other than the oil industry] in any appreciable magnitudes since the herald of the globalisation paradigm in the 1980s. There are three main reasons for this; (1) nature of energy, (2) country risk and (3) foreign investment impossibility, yes investment impossibility.

A rare but good question is, why does considerable foreign investment flow into the oil and gas sector (OGS) in Nigeria but not NEPS? Both are energy sectors, but their economics are very different. The OGS is a land resource-based industry; the dominant relationship that defines it is between the land and the entrepreneur. All drilling, mining and some agricultural enterprises fall into this category. If an entrepreneur has a licence, rights and access to the land, it can be exploited. Extracted stones, ores, oil and opium, can be stored indefinitely and exported anywhere on the globe.

People at the point of extraction do not really matter to the overall success of the enterprise as the Niger Delta experience has shown the world. Peace and stability are favourable but not necessary for such industries. Mercenaries and local armies/militia can violently protect such lands and enterprises if necessary. It is why even in the event catastrophic civil war, minerals and crops can be reliably extracted from the ground for export; a huge but worthwhile “security cost” for the foreign investor.

The NEPS is a customer resource-based industry which provides services for Nigerians. The dominant defining relationship here is between the customers and the entrepreneur. Electricity supply is an energy service, not a tangible good. Alas, electricity supplies cannot be stored and must be used or transmitted as produced; electricity cannot be globalised as a commodity even though it too can be exported or imported. Constant electricity requires consistently paid electric bills by customers. Peace, political stability, a strong economy (purchasing power and affordability), a good standard of living, the strict rule of law (contract-enforcement), power asset security, able customers are necessary for the electric power investment to function appropriately and successfully.

Unfortunately, Nigeria is simultaneously and persistently beset with rumours of the nation dividing and the nation rotting. Boko Haram insurgency/terrorism, Niger Delta militancy/sabotage; Fulani Herdsmen massacres; famous clergymen are inciting violence. Biafra embracing self-termination; nonfeasance is a dominant act of government, carefree disregard of the rule of law; these are all serious political risks.

The value of naira is collapsing fast; the dollar has become scarce; inflation is rising steeply. The value and sales of crude oil are in sharp decline; at least 3 in 4 citizens live below the poverty line; record corporate losses are in season. Severe skill shortages; significant educational inadequacies; these economic risks are not appealing. Nigeria’s present anti-corruption endeavour is looking like pro-corruption; courts favour the highest bidders; legislators are an unnecessary drain on the economy; kidnapping is rife; armed robbery is taken as normal; these social risks are scary. Which combination of the risks mentioned above would the foreign investor in electricity services be happy to absorb as a cost?

Ill-thought and failed privatisations are the only evidence of globalisation in Nigeria. During the Lagos Plan of Action (an all-African economic summit) in 1980, structural adjustment programs (SAP) was proposed by the West to African nations to be hurriedly implemented under the guise of fiscal policy discipline. The major promise the West at the summit was that if African governments agreed to adopt SAP, they would be well-supplied with FDI to facilitate the growth of African market economies. Nearly 40 years later, the FDI flows from the West have not reached the markets of Africa even though the SAP policies were adopted in various waves all over the Continent with mind-numbing consequences for citizens. Observers around the world see this as a betrayal of Africa by West interests while others class it a betrayal of Africa by its leaders.

Could Nigeria have self-financed its own electric power sector in the past? Yes! Nigeria has squandered between $600 billion and $1 trillion in oil revenues and aid on waste, but the Big Thieves are national darlings. Let them provide constant electricity! “We are broke!” President Buhari exclaims, but he also wants to develop the infrastructure vigorously with loans, not investment. It is a ‘paradox’ that the free markets proposed to African nations in 1980 was based on the premises that capital markets must provide funds and not states by way of debt-financing. Why are loans to Nigeria so much more readily available in a globalised world than investment?

Loans once taken have to be paid back with a very profitable (usurious) interest for the lender no matter how risky or stupid the purpose or the consequences for the borrowing nation. It gives Multilateral Investment Guarantee Agencies (MIGA) like the World Bank is a massive incentive to offer unwise loans to African countries. When it comes to seeking FDI, the World Bank is stringently cautious with risks, take several years to negotiate with host nations and demand imperious conditionalities/concessions. Such is what makes “Begging Bowl Politics” so attractive to Nigerian (and African) leaders. Foreign loans make for easy credit, while FDI requires forbidding financial guarantees.

It is time to kneel down [Lin Down] and beg… again. Foreign investment for Nigerian electricty is not coming!

Grimot Nane