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SME Guide

Enhancing Foreign Direct Investment for Manufacturing and Job Creation in Nigeria


Nigeria is the largest economy in Africa, with a GDP of over $500 billion. However, the country faces high unemployment rates, especially among the youth. The National Bureau of Statistics estimates the unemployment rate at 33%, indicating that over 30 million Nigerians are jobless. Additionally, the manufacturing sector contributes less than 10% to GDP, well below the average in comparator emerging economies.

Attracting foreign direct investment (FDI) into the manufacturing sector can help drive industrialization, economic diversification, and job creation. This article examines the opportunities and challenges of boosting FDI in manufacturing to promote employment in Nigeria. It provides an overview of FDI in Nigeria, the rationale for targeting manufacturing, analyses the impediments to investment, and recommends policy reforms to attract more FDI into job-creating industries.

Overview of FDI in Nigeria

Nigeria has significant natural resources, a large domestic market, and an advantageous geographical location that make it an attractive destination for foreign investors. FDI inflows increased in the 2000s following economic liberalization and reached a peak of $8.9 billion in 2011. However, flows have declined in recent years to $2.2 billion in 2020 due to a fall in oil prices, policy uncertainty, security challenges, and the COVID-19 pandemic. The stock of FDI stood at $98.6 billion in 2020, equivalent to 24% of GDP.

The UK, US, Netherlands, France, and China are the major sources of FDI for Nigeria. Investment is concentrated in extractive industries, which accounted for over 70% of the FDI stock in 2020. Other key sectors include telecoms, banking, cement manufacturing, and services. Greenfield investments made up over 75% of FDI projects during 2015–2020, indicating investor interest in building new productive capacities in Nigeria.

The Case for Targeting Manufacturing

Structural transformation through industrialization is critical for sustaining rapid economic growth and job creation in Nigeria. However, the manufacturing sector remains underdeveloped. According to UNIDO, manufacturing value-added accounted for just 9.1% of GDP in 2020, compared to 13% in comparator lower-middle-income countries. Weaknesses in the business environment have constrained private investment in manufacturing.

Attracting FDI into labour-intensive manufacturing industries can help drive industrialization and create significant employment opportunities. Global manufacturing value chains present opportunities for Nigeria to accelerate industrial development by participating in linkages such as component production, packaging, and assembly.

Targeted efforts to attract manufacturing FDI can enable the transfer of capital, technology, and expertise. Multinational companies can play an anchor role in the ecosystem by sourcing inputs locally and providing training and technical assistance to local firms. Attracting manufacturing FDI aligns with the Nigerian government’s strategic priorities under the Nigeria Industrial Revolution Plan to raise manufacturing contribution to GDP to 20% by 2025.

Challenges and Deterrents of Investing in Nigerian Manufacturing

Despite the potential, investor perceptions of Nigeria as a challenging business environment have hampered FDI in manufacturing. The key deterrents include:

Inadequate and high-cost infrastructure

Manufacturers require reliable and affordable electricity, water, roads, and broadband connectivity to efficiently produce and distribute goods. However, Nigeria ranks low on infrastructure quality. Power supply is erratic, with firms relying on expensive petrol and diesel generators. High logistics costs due to poor road and port infrastructure also undermine competitiveness.

Policy Inconsistency and Regulatory Constraints

Frequent changes in trade, monetary, and industrial policies create uncertainty for long-term investments. Investors also face hurdles in obtaining approvals, permits, and land. Complex customs procedures and trade restrictions impede integration into global value chains.

Security Risks

The precarious security situation, evidenced by frequent kidnappings, ethnic clashes, terrorism, and vandalism, increases operating risks and costs. Investors are reluctant to commit capital given the incessant disruption to production and distribution.

Corruption and weak institutional capacity

Inconsistent contract enforcement, customs delays, high costs of compliance with bureaucratic procedures, and requests for facilitation payments discourage investors. Weak institutional capacity also hinders the development of skills, technology, and linkages needed for manufacturing.

Small Domestic Market

With a per capita income of $2,250, Nigeria’s consumer market remains small. For manufacturing firms focused on the domestic market, low purchasing power is a key deterrent. Participation in regional markets is constrained by barriers and tensions affecting ECOWAS trade integration.

Foreign exchange scarcity

Due to low export earnings, tighter global financial conditions, and falling oil revenues, Nigeria faces severe foreign exchange shortages. The limited availability and high cost of foreign exchange raise production costs and hinder the repatriation of profits by foreign manufacturers.

Policy Reforms and Incentives to Attract Manufacturing FDI

Nigeria has introduced reforms and incentives aimed at improving the business climate and attracting export-oriented manufacturing FDI. These include:

  • Export processing zones: These provide land, infrastructure, and expedited business approvals at preferential rates to exporters. There are over 30 zones across Nigeria managed by the Nigeria Export Processing Zone Authority (NEPZA).
  • Pioneer industry tax holiday: Manufacturing companies classified as “pioneers” enjoy a 3-5 year tax holiday. Additional incentives are provided for investments in economically disadvantaged areas.
  • Import duty waivers: Manufacturers can import equipment and raw materials duty-free, provided output is at least 70% exported. Duty exemptions are also offered on imports for skills and technology transfers.
  • Free Trade Zones: Nigeria has over 10 free trade zones that provide warehousing, logistics, and export-oriented manufacturing targeting regional markets. These include the Lagos Deep Offshore Logistics Base and the Kano Free Trade Zone.
  • One-Stop Investment Centre: The Nigeria Investment Promotion Commission (NIPC) has an online portal for registering and providing aftercare services to investors to fast-track investment.
  • Industrial parks: States are developing serviced industrial parks with shared infrastructure to reduce overhead costs and ease land acquisition for investors. Notable ones include those by Lagos, Kaduna, and Kano States.
  • Automotive policy: This aims to attract assembly and component manufacturing through import restrictions and tax holidays. So far, it has attracted investment pledges of over $3 billion.

However, more reforms are needed to lower production costs, increase competitiveness, and attract efficiency-seeking FDI.

Recommendations for Attracting More Manufacturing FDI

Based on the analysis of Nigeria’s investment climate, the following policy actions are recommended:

Improve power supply and reduce energy costs.

Increasing generating capacity, upgrading the transmission grid and distribution networks, and investing in alternative energy sources like solar can improve reliability. The eligible customer framework allowing manufacturing firms to directly buy power from IPPs also helps secure affordable supply.

Boost infrastructure spending and enhance PPP frameworks.

The government should increase capital spending focused on transport networks, broadband infrastructure, and industrial hubs to lower logistics costs. Well-structured PPP models can also leverage private expertise and financing for infrastructure projects.

Deepen trade integration within Africa.

Finalizing the Africa Continental Free Trade Area (AfCFTA) and reducing non-tariff barriers can enable manufacturers to access regional markets and raw materials. Nigeria should also boost engagement with development finance institutions for co-financing of export-oriented manufacturing projects.

Strengthen investment facilitation.

Consolidating institutional mandates for investment promotion into a one-stop shop can streamline administrative procedures and approvals. Process digitization and transparency in approvals at the national and state levels also help.

Enact stable and transparent trade and industrial policies.

Policies should foster integration into regional and global value chains through competitive input costs. Import tariff rationalization, avoiding FX restrictions, and boosting backward integration can attract exporters.

Improve skill development and technical training.

Partnerships between industries, universities, and TVET institutions can customize training to build workforce skills needed by investors. Technical assistance to local firms also enables supply chain development.

Ensure policy stability and contract enforcement.

The government should entrench consistency, transparency, and consultation in policymaking. Strong and predictable legal frameworks and efficient commercial dispute resolution also reassure investors.

Address security challenges.

More expenditure on security operations, intelligence sharing, community policing, and deradicalization campaigns is required. A safe operating environment is key to attracting investors and retaining existing ones.


Nigeria has strong fundamentals and large investment potential, but an unfavourable business climate has hindered the manufacturing FDI needed for structural transformation. Implementing targeted policy reforms can help address production bottlenecks, facilitate integration into value chains, and boost Nigeria’s attractiveness for manufacturing projects that create mass jobs. Sustained efforts to improve the investment climate and competitiveness will enable Nigeria to leverage FDI as a catalyst for industrialization and inclusive economic growth.


National Bureau of Statistics (2020) Labor Force Statistics: Unemployment and Underemployment Report

UNIDO. (2021). International Yearbook of Industrial Statistics 2021 United Nations Industrial Development Organization

Nigeria Export Processing Zones Authority (2020) Annual Report for Year Ended December 31, 2020

Nigeria Investment Promotion Commission (2021) Nigeria Investment Promotion Commission 2020 Annual Report

World Bank (2020) Nigeria Development Update, December 2020: Rising to the Challenge: Nigeria’s COVID Response


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