How Nigerian States Can Attract More Foreign Direct Investments

If you had to set up a Bakery, where would you put it? Kebbi or Lagos?

What would you consider? Market? Constant power supply to make bread all day round? Access to cheap raw materials like wheat? Lagos State has the larger market but Kebbi has cheaper access to wheat, a raw material used in baking. Lagos State on the other hand charges more in tenement rates and local government levies than Kebbi State, but Kebbi State has no railways. Tough call.

These are the questions every investor, Local and Foreign battles within selecting were to locate a factory, do we go for the educated workforce or access to capital? Both are important.

Tesla Motors for instance is in Germany. Germany has the market, the Labour and the subsidies for car manufactures, but Germany’s top tax rate is 15%, US top tax rate is 21%, so Tesla has an incentive to make cars in Germany, not just in Californian and export to Germany. What about Ireland? The tax rate is 12.5% They have Google, Microsoft, Amazon, Facebook with the European headquarters in Ireland. Ireland has a stated policy of keeping taxes low and attracting companies that want to enter Europe via Ireland.

We can agree on one thing, a good policy attracts FDI. Bad policies drive out FDI. There is this quote, wrongly credited to the bible, “Heaven helps those that help themselves.” My version is this, “Wealth comes to those that help themselves.” When an investor comes to a State what is the response of the State? Is it joy that the investor will create jobs, boost commerce, which will generate taxes that will fund public services? Or do the states simply view the investor as a cash cow? ATM?

In March 2010, the town of Topeka in Kansas USA changed her name temporarily to Google. Why? Google back then was building super-fast Internet connections in selected US cities under its program called “Fiber for Communities” (we are talking 1 gigabit per second speed). Many US cities are bidding to attract Google to their town to invest and create jobs. The name change was Topeka’s marketing gamble to Google, in essence, Topeka was telling Googe, “we want your business so much, we are willing to change our name.” Corny? Maybe, but give the town an A grade for trying.

Why would a Town want to change its name to attract jobs? Well because that town has bills to pay, and understands that they cannot survive on Federal transfers or grants. The Mayor of Topeka cannot depend on the Consolidated Revenue Fund (aka FAAC) to flow from Washington to Kansas based on metrics such as “landmass” and “minimum responsibility of states,” so each town and city has to become creative to attract business to their town. They understand a business creates commerce around it and that commerce generates spinoff activities which create more commerce and then pay other types of taxes e.g. Value Added Tax. In essence, States and towns are thus in competition to build roads and schools to attract jobs to their State.