Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
69
where there is a clear plan for the government to use the bond receipts to invest in
infrastructure. 69
4.6.2. LOWER-MIDDLE INCOME COUNTRIES
Barriers
Given the heterogeneity of the COMCEC members within this income group, the obstacles and
challenges the group faces are diverse and not necessarily applicable to all countries
concerned. For example, Indonesia faces challenges in reducing its dependence on natural
resources as the main draw of capital flows. And Morocco, despite progress in attracting
inflows through a series of economic reforms, remains exposed to spillover effects from less
stable regional neighbours, diminishing its attractiveness as an investment location.
Conversely, Nigeria’s recent surge in capital flows does not necessarily reflect improvements
in the country’s economic environment relative to other developing countries: it is ranked
120th of 140 countries in the World Economic Forum’s Global Competitiveness Report 2013-14,
and 131st out of 185 countries in the World Bank’s 2013 Ease of Doing Business index (see
Appendix for further data). However, investors are keen to gain a foothold in Nigeria’s large
domestic market, which appears capable of sustained growth.
A number of the general barriers that lower-middle income countries face are similar to those
encountered by countries in the low-income group:
General barriers
 Rule of law, transparency and uncertainty. Issues relating to the rule of law,
transparency and uncertainty permeate all income groups except the high-income one.
In this group, for example, Indonesia’s policy environment has potential for
improvement; and capital flows into Nigeria’s oil and gas sector, the mainstay of the
economy, have been hampered in recent years by uncertainty caused by the delay in
the passing of the Petroleum Industry Bill (PIB).
 Weak enforcement of regulations and lack of capacity. Issues such as an
underdeveloped infrastructure – especially electricity supply in the case of Nigeria –
and registering property, paying taxes and enforcing contracts are also widespread
throughout many of the LMICs and represent persistent challenges for investors.
 Over-dependence on natural resources. Both the Nigerian and the Indonesian
economies are heavily reliant on commodity exports, meaning that their attractiveness
to foreign investors is linked to the outlook for commodity prices. Portfolio inflows to
Indonesia, for example, have risen and fallen in line with global commodity prices. The
69 “The changing nature of private capital flows to Sub-Saharan Africa”, Shockwatch Bulletin, Overseas Development Institute,
2013