Foreign direct investment (FDI) and economic growth in Nigeria: A sectoral analysis

The current research investigates the Foreign Direct Investment (FDI) and its role in the economic growth in Nigeria, focusing specifically on the sectoral FDI inflows from 1980-2024. While existing literature acknowledges the benefits of FDI, such as capital provision, technology transfer, and enhanced access to foreign markets, few studies have thoroughly examined its sectoral impacts in Nigeria, leaving a glaring knowledge gap. To fulfil the gap, we conducted a mixed method research, in which both quantitative and qualitative studies were designed and implemented.

We first collected quantitative data from multiple databases (UNCTAD, IMF, OECD, World Bank & CBN) and ran analyses on GDP, FDI inflows, exchange rate, interest rate, natural resources, inflation rate, openness and foreign reserves. The FDI inflows in the oil and gas, manufacturing, banking, telecommunications, trading, agriculture and servicing sectors were also analyzed by the Time Series and OLS. The analyses above revealed that oil gas, manufacturing, banking, telecommunications and trading sectors attracted FDI inflows into the economy, and that FDI flowing into the servicing and agriculture sectors showed negative impact on economic growth.

We then gathered qualitative data by carrying out semi-structured interviews with eighteen FDI practitioners in Nigeria, in line with the data saturation and ethical guidelines. We adopted thematic analysis and coding schemes to examine the interview data. The outcomes showed that the oil gas and telecommunications sectors attracted the most quantum of FDI in Nigeria, while the agricultural and servicing sectors, despite their potential, experienced grave challenges in attracting FDI, related to infrastructure and market access, which deter foreign investors. The services and agriculture sectors have declined due to the overdependence on oil, which is a classic case of the 'resource curse.' The government's failure to promote productive activities through incentives or subsidies in non-oil sectors has further discouraged foreign direct investment (FDI) in areas like agriculture and services.

Our novel contribution lies in employing a mixed-method approach used for the first time in this context to demonstrate, across two studies, that Nigeria’s economy is heavily reliant on the oil and gas sector, and that this dependency risk can be mitigated through strategic investment in agriculture, manufacturing, technology, and services, representing a risk-management motto of ‘not putting all eggs in the same basket’. Research findings have advanced knowledge by clarifying which sectors attract the most FDI and how these inflows contribute to the economic growth. Findings have also improved FDI practices by identifying challenges in attracting FDI to high-potential sectors in Nigeria, thus providing a foundation for more effective investment strategies. Research limitation and suggestions are discussed.