Project – Nigeria’s Economic Diplomacy and Foreign Direct Investment Attraction. A Study of Nigerian Investment Promotion Commission (NIPC), Abuja

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Economic diplomacy has become an important instrument through which states pursue national economic interests within the international system. It involves the use of diplomatic relationships, negotiations, international partnerships, trade relations, investment promotion and other external economic engagements to advance a country’s economic objectives. In a globalized economy, countries compete for foreign capital, technology, markets and international business partnerships, making diplomatic engagement increasingly relevant to investment attraction. Nigeria formally embraced economic diplomacy as an important component of its foreign policy during the economic difficulties of the 1980s, with the objective of using external relations to promote trade, investment and economic development (Ubi & Akinkuotu, 2014). Eze (2017) similarly explains that economic diplomacy has become increasingly important to Nigeria because diplomatic missions, international partnerships and bilateral relationships can facilitate investment flows and contribute to the country’s economic development.

Foreign direct investment (FDI) is an important component of international capital flows and is often associated with employment generation, technology transfer, managerial skills, access to international markets and productive capacity. For developing economies such as Nigeria, FDI can complement domestic investment where domestic capital formation is insufficient to support large-scale economic transformation. However, the benefits of FDI depend partly on the sector in which investment occurs and the extent to which foreign enterprises develop linkages with the domestic economy. Akinlo (2004), in an empirical investigation of FDI and economic growth in Nigeria, found that the contribution of foreign capital to growth was not uniform and suggested that extractive investment may generate fewer developmental benefits than manufacturing investment. UNCTAD (2009) similarly observed that Nigeria had historically attracted substantial FDI into the oil sector while non-oil FDI, particularly investment capable of supporting manufacturing and broader economic diversification, remained comparatively limited.

The Nigerian government has therefore established institutional and policy mechanisms intended to improve the investment environment and attract both domestic and foreign investors. A major institution in this regard is the Nigerian Investment Promotion Commission (NIPC), which was established under the Nigerian Investment Promotion Commission Act of 1995 and subsequently consolidated under the 2004 Laws of the Federation. The Commission is responsible for encouraging, promoting and coordinating investments in the Nigerian economy and serves as an important interface between investors and government institutions. Its functions include investment promotion, investment facilitation, policy advocacy and coordination of investment-related government processes. The NIPC’s institutional role reflects the recognition that attracting investment requires more than simply possessing natural resources or a large domestic market; it also requires active promotion, investor facilitation and policy coordination (Nigerian Investment Promotion Commission, 2024; UNCTAD, 2009).

Economic diplomacy can support FDI attraction by reducing information gaps between potential investors and host countries and by creating international networks through which investment opportunities can be communicated. Diplomatic missions, government-to-government engagements, investment conferences, bilateral agreements and international business forums can provide opportunities for countries to present their investment advantages and communicate reforms to potential investors. Harding and Javorcik (2011) found that investment promotion can contribute to FDI attraction, particularly when investment promotion agencies actively communicate opportunities and target investors. Their findings suggest that investment promotion agencies can serve as mediators between the investment environment of a country and actual FDI inflows. In Nigeria, this role is particularly relevant to the NIPC because the Commission is expected to market investment opportunities, facilitate investor entry and provide information capable of reducing some of the uncertainties associated with investing in the country.

Nigeria’s economic diplomacy and investment promotion efforts, however, operate within a complex domestic and international investment environment. Investors consider several factors when deciding where to locate capital, including market size, macroeconomic stability, infrastructure, taxation, regulatory predictability, security, access to foreign exchange, labour conditions and the ease of establishing and operating businesses. UNCTAD (2009) identified the need for Nigeria to improve the overall business environment and adopt an effective investment-promotion approach as part of a strategy for increasing non-oil FDI. More recent Nigerian investment policy developments have continued to emphasize investment facilitation, regulatory reform and the creation of a more attractive investment environment. The Nigeria Investment Policy 2023–2027 also reflects the government’s continuing effort to strengthen the investment climate and improve the country’s capacity to attract productive investment (UNCTAD, 2023).

The effectiveness of Nigeria’s economic diplomacy can therefore not be considered separately from the performance of institutions responsible for investment promotion and facilitation. While diplomatic relationships may create opportunities for investment, investors ultimately require practical mechanisms through which they can obtain information, navigate regulations, secure permits and resolve administrative challenges. The NIPC’s One-Stop Investment Centre was designed to coordinate relevant government processes and provide investors with a more integrated interface with government. This institutional approach is consistent with evidence that investment promotion agencies can influence FDI attraction when they actively facilitate investors and coordinate investment-related processes (Harding & Javorcik, 2011). However, empirical evidence concerning the NIPC has not always been uniform. Zakari, Aliero and Abdul-Quadir (2012) found a significant difference in FDI inflows before and after the establishment of the NIPC, whereas Babatunde et al. reported that the Commission’s influence was not statistically significant over their period of analysis, attributing this partly to issues of institutional autonomy and policy continuity. These differing findings make further investigation important.

The issue of FDI attraction is particularly important because Nigeria has sought to diversify its economy and reduce excessive dependence on the petroleum sector. UNCTAD’s assessment of Nigeria’s investment environment emphasized the need to attract investment beyond oil exploitation and strengthen sectors such as manufacturing and agro-allied industries. The Nigerian Investment Promotion Commission currently identifies investment promotion, facilitation and policy advocacy as central elements of its mandate, while recent investment-policy developments have emphasized structural reforms intended to improve the investment climate. Available NIPC information indicates that Nigeria recorded approximately US$4.01 billion in FDI inflows in 2025, the country’s highest annual inflow since 2014, suggesting that investment attraction remains an active component of Nigeria’s economic policy agenda. Nevertheless, the existence of FDI inflows does not by itself establish how much of the outcome can be attributed to economic diplomacy or to the activities of the NIPC, thereby creating a need for focused empirical research (Nigerian Investment Promotion Commission, 2025; UNCTAD, 2009).

Against this background, Nigeria’s economic diplomacy can be understood as a broader framework through which the country uses external economic relationships to pursue investment and development objectives, while the NIPC represents a key institutional mechanism for translating investment-promotion objectives into practical investor engagement. The interaction between diplomatic relations, investment promotion, policy advocacy, investor facilitation and the broader investment environment may affect Nigeria’s ability to attract FDI. Although previous studies have examined economic diplomacy in Nigeria and others have investigated the NIPC’s role in FDI attraction, there remains a need to examine these issues together from the perspective of the NIPC as an institutional actor. This study therefore focuses on Nigeria’s Economic Diplomacy and Foreign Direct Investment Attraction, using the Nigerian Investment Promotion Commission (NIPC), Abuja, as a case study. The study is intended to provide empirical evidence on how economic-diplomatic strategies, investment promotion activities, international partnerships and investment facilitation relate to Nigeria’s ability to attract FDI.

1.2 Statement of the Problem

Nigeria possesses several characteristics that can make it attractive to foreign investors, including a large domestic market, abundant natural resources, a strategic position within West Africa and a significant labour force. Despite these advantages, the country has historically faced difficulties in converting its economic potential into sustained and diversified foreign investment inflows. UNCTAD (2009) identified the concentration of FDI in the oil sector and the relatively low level of non-oil investment as important concerns, while Akinlo (2004) demonstrated that the contribution of FDI to Nigerian economic growth depends partly on the nature and sectoral composition of foreign investment. The problem therefore extends beyond attracting any form of foreign capital to the question of whether Nigeria’s economic diplomacy and investment-promotion mechanisms are sufficiently effective in attracting productive and diversified FDI.

A second problem concerns the effectiveness of the institutions responsible for promoting and facilitating foreign investment. The NIPC was established to encourage, promote and coordinate investment in Nigeria and has responsibilities that include investment promotion, facilitation and policy advocacy. While these functions position the Commission as a central institution in Nigeria’s investment-attraction strategy, empirical studies have produced different findings concerning its effectiveness. Zakari et al. (2012) reported a significant relationship between the establishment of the NIPC and increased FDI inflows, whereas Babatunde et al. found that the Commission’s influence was not significant over the period examined. The divergence in these findings raises questions concerning the extent to which the activities and institutional capacity of the NIPC contribute to Nigeria’s FDI attraction.

A third problem relates to the interaction between economic diplomacy and the domestic investment environment. Diplomatic engagement can promote Nigeria’s investment opportunities and establish international relationships, but investors also respond to domestic conditions such as regulatory predictability, infrastructure, macroeconomic stability, taxation, security and the ease of conducting business. Eze (2017) emphasizes the importance of diplomatic missions, international partnerships and bilateral relationships in facilitating FDI, while UNCTAD (2009) stresses that effective investment promotion must be accompanied by improvements in the broader investment environment. This creates an important empirical question: to what extent can economic diplomacy and investment-promotion activities overcome or mitigate investment barriers confronting potential foreign investors in Nigeria?

The fourth problem is the limited contemporary institution-specific evidence connecting Nigeria’s economic diplomacy directly with FDI attraction through the NIPC, Abuja. Previous studies have separately examined economic diplomacy, investment promotion and FDI in Nigeria, but differences in research periods, methodologies and institutional contexts make it difficult to draw a single conclusion about the current role of the NIPC. Furthermore, changes in Nigeria’s investment policy framework, international economic relations and investment environment create a need for updated evidence. The NIPC’s continuing responsibilities for investment promotion, facilitation and policy advocacy make it a relevant institution through which these issues can be examined. This study therefore seeks to investigate the relationship between Nigeria’s economic diplomacy and FDI attraction, with specific attention to the activities and experiences of the Nigerian Investment Promotion Commission, Abuja.

1.3 Purpose of the Study

The main purpose of this study is to examine Nigeria’s economic diplomacy and its influence on foreign direct investment attraction, using the Nigerian Investment Promotion Commission (NIPC), Abuja, as a case study.

Specifically, the study seeks to:

1. examine the influence of Nigeria’s bilateral and multilateral economic relations on foreign direct investment attraction;
2. determine the influence of investment promotion activities of the NIPC on foreign direct investment attraction in Nigeria;
3. examine the influence of investment facilitation and policy advocacy on foreign direct investment attraction in Nigeria; and
4. assess the influence of Nigeria’s international economic partnerships and diplomatic engagements on the attraction of foreign direct investment.

1.4 Research Questions

The study will be guided by the following research questions:

1. To what extent do Nigeria’s bilateral and multilateral economic relations influence foreign direct investment attraction?
2. To what extent do the investment promotion activities of the NIPC influence foreign direct investment attraction in Nigeria?
3. To what extent do investment facilitation and policy advocacy influence foreign direct investment attraction in Nigeria?
4. To what extent do Nigeria’s international economic partnerships and diplomatic engagements influence the attraction of foreign direct investment?

1.5 Research Hypothesis

The following null hypothesis will be tested at the 0.05 level of significance:

H₀: Nigeria’s economic diplomacy has no significant influence on foreign direct investment attraction in Nigeria.

1.6 Significance of the Study

The study will be significant to the Nigerian Investment Promotion Commission (NIPC) because it will provide empirical evidence concerning the relationship between economic diplomacy and FDI attraction. The findings may help the Commission assess the effectiveness of its investment-promotion, facilitation and policy-advocacy activities and identify areas requiring further institutional strengthening.

The study will also be useful to the Federal Government of Nigeria, particularly institutions responsible for foreign affairs, trade, investment and economic development. The findings may provide information that can support the formulation and implementation of policies aimed at using Nigeria’s international relationships to promote productive investment.

The study will be relevant to Nigerian diplomatic missions and economic-diplomacy practitioners because it will examine how international relationships and diplomatic engagements may contribute to investment attraction. The findings may assist diplomatic representatives in understanding the importance of communicating investment opportunities and facilitating connections between foreign investors and Nigerian institutions.

The study will benefit foreign investors and prospective investors by highlighting institutional and policy factors associated with investment attraction in Nigeria. A clearer understanding of the investment-promotion and facilitation mechanisms available through the NIPC may assist investors in understanding how government interfaces with prospective and existing investors.

The study will also be useful to policymakers and development agencies because FDI can play different roles in economic development depending on its sectoral composition, quality and linkages with the domestic economy. Evidence from the study may support policies that seek not merely to increase investment volumes but also to encourage investment capable of contributing to diversification, employment, technology transfer and domestic productive capacity.

Finally, the study will contribute to academic literature on economic diplomacy, international relations, investment promotion and FDI in Nigeria. It may provide a basis for future researchers who wish to examine the relationship between diplomatic strategies, investment institutions and international capital flows in Nigeria and other developing economies.

1.7 Scope of the Study

The study focuses on Nigeria’s economic diplomacy and foreign direct investment attraction, using the Nigerian Investment Promotion Commission (NIPC), Abuja, as the case study.

Content Scope

The study will focus on four major dimensions:

• bilateral and multilateral economic relations;
• NIPC investment-promotion activities;
• investment facilitation and policy advocacy; and
• international economic partnerships and diplomatic engagements.

The dependent variable, foreign direct investment attraction, will be examined through indicators such as investor interest, investment inflows, establishment of foreign-owned enterprises, reinvestment and attraction of investment into priority sectors.

Geographical Scope

The study will be conducted at the Nigerian Investment Promotion Commission in Abuja, Nigeria. Abuja is selected because the NIPC’s headquarters and key institutional activities relating to investment promotion and coordination are located there.

Population Scope

The study will focus on relevant NIPC officials and personnel involved in investment promotion, facilitation, policy advocacy, investor relations and related activities. Where appropriate, the study may also obtain information from other stakeholders directly connected with investment promotion.

Conceptual Scope

The independent variable is Nigeria’s economic diplomacy, while the dependent variable is foreign direct investment attraction.

Economic diplomacy is examined through bilateral and multilateral relations, investment promotion, investment facilitation, policy advocacy and international economic partnerships. FDI attraction is examined through the ability to generate investor interest, facilitate investment entry, attract foreign capital and encourage investment into productive sectors of the Nigerian economy.

1.8 Operational Definition of Terms

Economic Diplomacy: The use of diplomatic relations, negotiations, international partnerships and external economic engagements by a state to advance its economic interests, including trade, investment and economic development.

Foreign Direct Investment (FDI): Investment made by an individual, company or institution from one country into a business or productive enterprise located in another country with the intention of establishing a lasting interest and a degree of influence or control.

FDI Attraction: The process and outcome of encouraging foreign investors to establish, expand or maintain productive investments within Nigeria.

Investment Promotion: Government or institutional activities designed to communicate investment opportunities, attract prospective investors and encourage investment into a country or specific sectors.

Investment Facilitation: Measures and services designed to make it easier for investors to establish and operate businesses by simplifying procedures, coordinating government processes and providing relevant information and assistance.

Nigerian Investment Promotion Commission (NIPC): The Nigerian government institution established to encourage, promote and coordinate investments in the Nigerian economy and to facilitate interaction between investors and relevant government institutions.

Policy Advocacy: Activities through which an institution communicates investment-related concerns and recommendations to government authorities with the aim of improving policies, regulations and the investment environment.

Bilateral Economic Relations: Economic relationships between Nigeria and another individual country involving areas such as trade, investment, development cooperation and economic agreements.

Multilateral Economic Relations: Economic engagements involving Nigeria and multiple countries or international/regional organizations through which trade, investment and broader economic interests are pursued.

International Economic Partnership: A cooperative relationship between Nigeria and foreign governments, international organizations, regional organizations, businesses or other relevant actors intended to advance economic objectives.

Investment Climate: The collection of economic, political, legal, regulatory, infrastructural and institutional conditions that affect investors’ decisions to establish or expand businesses in a country.

Investor Facilitation: The provision of information, guidance, coordination and administrative assistance intended to help prospective and existing investors navigate the processes associated with investing in Nigeria.

Economic Development: Sustained improvement in a country’s productive capacity and the economic and social conditions of its population through activities such as investment, employment creation, industrialization, diversification and improved productivity.

Project – Nigeria’s Economic Diplomacy and Foreign Direct Investment Attraction. A Study of Nigerian Investment Promotion Commission (NIPC), Abuja