The pain of severe dollar shortage is bitting deeper in Africa’s biggest economy as foreign direct investment (FDI) has plunged to $468.91 million, the lowest in at least nine years, according to official data.
Despite its mostly youthful large population and abundant natural resources, Nigeria is finding it increasingly hard to attract investments. New data from the National Bureau of Statistics (NBS) showed that FDI into the country fell by 33 percent in 2022.
Experts say for a frontier market with the population of Nigeria, attracting such a low level of foreign investment should be a big worry for the government as it has dire implications for social welfare and economic growth.
They say the country’s perpetual lack of structural reforms means deep-pocket foreign investors are pressing pause on its huge potential and abundant natural resources.
“The lack of clarity around the country’s foreign exchange management framework has weakened investors’ confidence,” an economist at a multinational firm in Nigeria said on condition of anonymity as he isn’t authorised to comment on government policy.
The International Monetary Fund has cited central bank intervention in Nigeria’s foreign-exchange market as a hindrance to capital inflows. The naira, in the official market, has depreciated 57 percent against the dollar since President Muhammad Buhari came to power in 2015.
The Central Bank of Nigeria is blocking foreign airlines from repatriating at least $802 million, according to data from the International Air Transport Association.
“We are not attracting sufficient capital largely because of bad government policies and our reluctance to implement market-friendly reforms,” the economist said.
Luqman Agboola, head of research at Sofidam Capital, said weak FDI inflows suggest the economy’s low growth cycle will continue because there is no other assured path to robust growth without attracting investment.
President-elect Bola Tinubu, who will take over from President Muhammadu Buhari on May 29, has pledged to review the central bank’s foreign-exchange policy.
“We are at a critical stage where the government’s lack of urgency in implementing the reforms that will open the economy to investment is under the spotlight,” Agboola said.
Other experts say the many challenges with doing business in Nigeria are scaring foreign investors away from Africa’s most populous nation.
Take the case of Shoprite, Africa’s largest grocer, which exited Nigeria to double down on its home market in South Africa in 2021 after 16 years of operations in Nigeria.
Even the traditional oil and gas firms from ExxonMobil to Shell that flocked into Nigeria for its oil are gradually pulling back on account of the various challenges in the country amid the allure of other markets with better fiscal terms than Nigeria.
“Nigerians will pay the ultimate price of the country becoming less of an investment destination, particularly in the form of jobs. For a country whose population will surpass that of the United States by 2050 to become the third most populous nation globally, jobs are critically needed,” Kelvin Atafiri, the CEO of Cavazanni Human Capital Limited, said.
According to the NBS, portfolio investment dropped to $2.4 billion, with trade credits, loans, currency deposits, and other claims, which are classified under other investments, amounting to $2.4 billion in the year under review.
The NBS said the top destinations that attracted the most investments in 2022 were Lagos State ($3.59 billion), and the Federal Capital Territory ($1.62 billion).
Other states that attracted foreign investments in 2022 were Akwa Ibom, Anambra, Ekiti, Enugu, Katsina, Kogi, Oyo and Plateau.
In the first quarter, only six states – Abuja, Anambra, Katsina, Lagos, Oyo, and Plateau – attracted a total of $1.57 billion as capital importation.
In the second quarter, capital inflows totalled $1.54 billion. Lagos attracted the most capital ($1.05 billion), followed by the FCT ($453.95 million), Anambra ($24.71 million), Kogi ($2 million), and Ekiti ($500,000).
The total value of capital importation into Nigeria in Q3 2022 stood at $1.1 billion, while in Q4, a total of nine states, including the FCT, attracted a total of $1.06 billion.
Abia, Adamawa, Bauchi, Bayelsa, Benue, Borno, Cross River, Delta, Ebonyi, Edo, Gombe, Imo, Jigawa, Kaduna, Kebbi,
Nasarawa, Kwara, Kano, Niger, Ogun, Ondo, Osun, Rivers, Sokoto, Taraba, Yobe and Zamfara failed to attract any foreign investments in 2022.
The top three destinations of capital inflows into the country in 2022 were the United Kingdom, the United States and South Africa.
The total capital inflows into Nigeria stood at $1.1 billion in Q4 2022, lower than the $2.2 billion recorded in the same period a year earlier, indicating a decrease of 51.5 per cent year-on-on.