Why foreigners invested lowest amount in Nigeria stocks in 11yrs

Foreign investors invested the lowest amount of money in Nigerian stocks in 2021, as economic reforms dragged and opportunities in other markets proved more compelling.

Foreigners invested N434.50 billion in stocks in the whole of 2021, according to data by the Nigerian Exchange Group (NGX), the lowest since 2011 when N422 billion was invested. The amount is also 40 percent less than the N729 billion invested in 2020, a year ravaged by the COVID-19 pandemic.

The trend highlights the slow pace of economic reforms in Africa’s largest economy last year particularly regarding foreign exchange, according to three foreign investors interviewed by BusinessDay.

“The foreign exchange management in Nigeria casts a dark cloud over any plans by investors to put money in the country,” one foreign investor told BusinessDay.

“You don’t expect investors to flock into your assets when they are not assured of getting their money out whenever they wish, and let’s not forget the economy is not in particularly great shape,” the investor said.

Nigeria has battled a crippling foreign exchange shortage since 2020 following the collapse in crude oil prices which forced the Central Bank to dust off the cobwebs on its old playbook of rationing dollar sales.

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Several investors said they were trapped in the country last year while others that did get dollars from the CBN were not able to do so at the time they would have wanted.

Multinationals operating in the country, who could not get sufficient dollars to repatriate dividends to shareholders, were also forced to re-invest in their local units to hedge against the naira depreciation and rising inflation.

With their fingers burnt from the foreign exchange shortage, foreign investors stayed on the sidelines last year and are not likely to return this year.
“There are better opportunities elsewhere,” another foreign investor told BusinessDay. “No one will wait for Nigeria,” the investor added.
Nigerian stocks posted a 6.07 percent return in 2021, an amount that is much lower for foreign investors when the naira devaluation is factored in.

In local currency terms, Nigeria’s return was only enough to see it ranked as the ninth-best performer in Africa and does not even feature on the top 20 list for frontier markets.

The Lusaka Securities Exchange (Zambia) was the best performer in Africa with a return of 93 percent.
The Ghana Stock Exchange posted the second-highest return with 38.59 percent while South African stocks posted a 24 percent gain.