Comparative Analysis of Regulatory Quality and Foreign Direct Investment (FDI) Inflows in Nigeria and South Africa

This study evaluated the effect of regulatory quality (REQ) on foreign direct investment ‎‎(FDI) inflows in Nigeria and South Africa from 1996 to 2023. The specific focus of the ‎research is to ascertain: (i) what REQ have on FDI inflow to both countries; (ii) whether REQ ‎affects FDI inflows into the South African economy than into to Nigerian economy. ‎REQ index was sourced from the WGI database (2023), FDI inflows were sourced from the ‎World Bank database (2023), while exchange rate (EXR), inflation rate (IFR), and gross ‎domestic product growth rate (GDPG) were sourced from the Central Bank of Nigeria Statistical ‎Bulletin (2023). The study adopted the Robust Regression Analysis (RRA). This comparative ‎study evidenced that though REQ is a key FDI inflows driver in both countries, its effect is ‎more evident in South Africa than in Nigeria. Similarly, GDPG plays a more meaningful role ‎in enhancing FDI inflows in South Africa than in Nigeria. However, Nigeria is highly ‎sensitive to inflationary pressures and exchange rate instability compared to South Africa. ‎Consequently, the Nigerian government needs to prioritize stabilizing its macroeconomic ‎environment over other policies. To achieve this, the Nigerian government should reduce ‎inflationary pressures and manage its exchange rate volatility. There is also a need for the ‎Nigerian government to strengthen the REQ and ensure policy consistency will further ‎improve investor confidence. Meanwhile, the South African government needs to address its ‎structural issues, which may deter the country from enjoying the developmental benefits of ‎FDI inflows. Overall, government of both countries needs to adopt targeted reforms to ‎improve absorptive capacity, infrastructure development, and efficient capital utilization will ‎be imminent to enjoy the developmental benefits of FDI‎.