Massive FDI slump spotlights how badly Nigeria is being run

Foreign direct investment into Nigeria plunged by a third last year as a severe dollar shortage deterred global investors from expanding in Africa’s biggest economy.

Investment fell to $468 million in 2022 from $698 million a year earlier, the National Bureau of Statistics said on Tuesday. FDI has collapsed about 90% from a high of $4.7 billion in 2008, the government data shows.

For overseas investors, Nigeria’s multiple exchange rates and the central bank’s rationing of dollars are a big deterrent according to Bloomberg. South Africa’s Nampak Ltd., the continent’s biggest packaging company, in December said it was planning to quit Nigeria and some other companies have already exited.

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. According to Bloomberg, Tinubu will need to move quickly to reassure and attract global companies, halt economic slide and create jobs.

“Absolute clarity on the foreign-exchange policy is critical if we want to encourage foreign capital,” said Yemi Kale, chief economist at KPMG in Nigeria and former head of the nation’s statistics office. The new government needs to undertake “substantial fiscal reforms aimed at reducing deficit finance and improving revenue generation,” he said.

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% against the dollar since Buhari came to power in 2015.

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Companies have been exiting Africa’s most-populous nation because of the dollar shortage and restrictions on repatriating funds. Emirates Airlines halted flights to the country in August because it can’t get its money out of the country.

The Central Bank of Nigeria is blocking foreign airlines from repatriating at least $802 million, according to data from the International Air Transport Association, IATA.

Declining capital flows mean that the government’s income will reduce, said Mosope Arubayi, an economist at IC Securities Ltd. in Accra, Ghana. “Lower inflows also mean more pressure on the exchange rate of the naira.”