ADDRESSING CONSTRAINTS TO FOREIGN INVESTMENT
Recently, Nicholas Gans, Director of PricewaterhouseCoopers, a leading global accounting and auditing firm, expressed concern about the poor implementation of International Financial Reporting Standards (IFRS) in Nigeria. The situation, he said, has proved a great disincentive for potential foreign investment, especially business ventures between Nigerian firms and their foreign counterparts.
According to Gans, this poor implementation of the IFRS in Nigeria's financial services sector is a drawback because Nigerian accounting principles are not globally recognized. He stressed that this will continue to pose huge threats to foreign investment as business interests that might want to assess the true financial status of Nigerian firms will be unable to do so.
The IFRS, it must be said, is a potent tool for stability in financial reporting and management. It provides for a backward and forward-looking statement that determines market valuation of financial institutions within a country. Such standards are used to determine valuation of assets, liabilities and income. To be effective and efficient, such accounting standards must tally, if not in whole, but in part, with what is obtained in international markets.
They play an important role in successful financial management.
We agree that the poor implementation of these standards may have inhibited foreign investment in Nigeria. Government should not ignore this fact since adherence to global standards has become critical if Nigeria is to play a key role in international financial markets. There are, however, many other serious factors that continue to inhibit foreign investment in our economy. One of these is policy inconsistency by government. This breeds lack of confidence and trust in the financial sector.
Uncertainties also result in instability. Invariably, no country can attract reasonable foreign investment if the domestic market is unstable and other socio-economic necessities such as security and power supply cannot be guaranteed. For many years now, these problems have remained unsolved in Nigeria. Successive governments have been half-hearted in addressing these crippling challenges.
For example, the problem of power supply remains one of the most serious issues. With about 15,000 megawatts needed to power the economy for industrial growth, current power generation and distribution still hovers between 2,000 and 3000 MW.
This, in addition to lack of essential infrastructure such as good transportation system, particularly roads and rail, and other ancillary socio-economic factors like quality manpower and unencumbered legal framework, discourages potential foreign investors. Investing in such inclement and unpredictable environment will amount to swimming in turbulent waters. It will make no business sense at all to foreign investors who have a choice of numerous countries to place their investments.
It is instructive that PricewaterhouseCoopers, in a recent report, summarised the past decade in some countries, including Nigeria, as years characterised by 'unsettling twists and turns.'
We urge the Federal Government to take the concern expressed by the accounting firm as an opportunity to retool, not just financial reporting standards in line with international requirements, but also address critical financial and institutional frameworks that militate against foreign investment.
One other area that requires urgent attention is security. In recent years, some multinational companies have closed shop because of incessant cases of kidnapping. We hope that the approval of the anti-terrorism bill by the Senate will help check the spate of kidnapping. It is also critical that the ongoing reforms in the banking sector and capital market continue unhindered, and with sincerity of purpose. All disincentives to investment in various sectors of the economy should be addressed decisively.