The foreign capital flow into Nigeria fell year-on-year by 17.5 percent to $1.6 billion in the first quarter of (Q1) 2022, the lowest first-quarter inflow since Q1 2017, according to new official data.
The data obtained from the National Bureau of Statistics showed that capital importation declined quarter-on-quarter by 28.1 percent from $2.2 billion in Q4 of last year.
A lack of reforms, which has culminated in weak economic growth, foreign exchange volatility and a harsh business environment, are some of the reasons Africa’s biggest economy has struggled to attract sufficient foreign investments since 2015.
Given the foreign exchange liquidity challenges and 2022 being a pre-election year, foreign investors are skeptical about coming to invest in the country, said Ayodeji Ebo, managing director/chief business officer at Optimus by Afrinvest Limited.
“Foreign investors took a lot of significant time to exit the country and in addition with the expectation of increased rates that we are seeing in developed countries, their investments in emerging and frontier markets including Nigeria will also reduce,” Ebo added.
A breakdown of the total investments showed that portfolio investment received the largest amount, which accounted for 60.9 percent ($957.6 million).
This was followed by other investment with 29. 3 percent ($460.6 million) and foreign direct investment (FDI) accounted for 9.9 percent ($154.9 million) of total capital imported in Q1 2022, according to the NBS.
Foreign investments are important in any economy as they serve as a catalyst for economic growth and technological development when domestic savings cannot.
They also aid the creation of new jobs and more opportunities as investors build new companies in foreign countries, leading to an increase in income and more purchasing power for locals.
“If you are unable to mobilise sufficient funds needed for investments like long-term one, that means that investments in capital formation will be significantly affected which is very critical in creating more jobs, stimulating GDP growth, reducing income inequality and poverty,” Gbolahan Ologunro, a senior research analyst at Cordros Securities, said.
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Since 2017, when oil-dependent Nigeria emerged from its first economic recession in five years (exited its second in 2020), the country’s economic growth has been sluggish, and only a few sectors triggered the expansion, further undermining the country’s capacity to create enough jobs to meet the growing number of labour market entrants.
According to the Nigerian Investment Promotion Council, the country needs to attract an average of $2 billion of FDI annually, which is significantly lower than the $10 billion estimates needed to achieve the desired economic growth.
The NBS said in terms of sectors, capital importation into banking had the highest inflow of $818.8 million, accounting for 52.1 percent of total capital imported in Q1 2022.
This was followed by capital imported into the production sector, valued at $223.7 million (14.2 percent) and the financing sector with $199.37 million (12.7 percent).
In terms of country of origin, the United Kingdom ranked top as the source of capital imported into Nigeria in Q1 2022, with a value of $1.021.2 million, accounting for 64.9 percent.
This was followed by the Republic of South Africa and the United States of America valued at $117.5 million (7.5 percent) and $82.1million (5.2 percent) respectively.
On the outlook for Q2, Damilola Adewale, a Lagos-based economic analyst, believes that considering the elevated political activities in the economy, foreign inflows will drop in Q2 as most foreign investors (especially long-term ones) will be more concerned about political risks.
“Moreover, we might not see any significant improvement in foreign inflows in Q2,” Adewale said.
