Bad economy scares foreign capital away from Nigeria (I)

Nigeria’s feeble economy has made it nearly impossible for foreign investors to consider channelling their investment interests into the country. The fear of the unknown has made business interests awry in the disfavour of the Nigerian investment space, even though the country yearns for more augmented capital to help galvanise its already fast ebbing economy.

Fast sliding into a comatose, Nigeria’s business climate seems not to favour international interest anymore, as it used to be when investors pumped billions of dollars to support the country’s hyped growth and expected development concerns.

Then, Nigeria’s business environment was buoyant enough to give back to these investors in multiplied folds yielding a healthy symbiotic relationship between these investors and the Nigerian business space. Today, the story is somewhat different.

In 2021, Nigeria’s data powerhouse released a report showing the country’s lagging capacity to attract foreign capital.

Unchecked round-tripping and arbitraging activities by some select few in the political ruling class have contributed to the foreign exchange scarcity problem that the country faces

According to the report, 2021 was characterised by a $6.7 billion capital inflow from foreign countries. That was a compromise compared with the $9.7 billion received into the country in 2020. Meanwhile, according to the report, this was the lowest inflow experienced since 2016.

The National Bureau of Statistics (NBS) reported that the country’s foreign capital inflow dilemma for that year resulted from an attendant foreign exchange crunch, which was occasioned by a significant decline in foreign exchange inflows from diaspora remittances and other foreign investments.

Foreign direct investment (FDI) inflow for 2021 stood at $698.78 million, representing a 32 percent decline from the over $1.03 billion received in the previous year. Also, foreign portfolio investment (FPI) inflow fell to a 5-year low from $5.14 billion in 2020 to $.39 billion in 2021. In 2022, a similar story can be established regarding foreign capital inflow into the country.

Capital importation into the country further dipped by 28 percent in Q1’2022. According to the NBS, total capital inflow into the country in Q1’2022 was $1.57billion, down from $2.19 billion in Q4’2021. As a result, fewer than expected states were able to access foreign capital for domestic investment in the first quarter of the year 2022.

Among those states who received foreign funding were Lagos, with $1.12billion, representing 71 percent of total capital inflow for the quarter and the Federal Capital Territory (FCT), with $44.81million in total foreign capital share.

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Others are Anambra, Oyo, Katsina and Plateau states with total foreign capital funding of $4.15million, $2 million, $0.70 million and $0.04 million, respectively. By share proportion, foreign portfolio investment (FPI) gulped the most significant inflow volume, totalling $957.58 million or 60.87 percent of the total foreign flow.

This is followed by other financial inflows (OFIs) with up to $460.59million, representing 29.28 percent. Foreign direct investments (FDIs) occupied the least strata in share proportion of total inflows for the observed period. A total of $154.97 million, representing a relatively meagre 9.58 per cent of cross-border inflow, was enjoyed by FDI operations in Q1 2022.

Admittedly, the inflow of international financial resources is meant to augment domestic savings through the canalisation of internal and external capital stock to aid job creation and enhance domestic liquidity. Howbeit, Nigeria’s ability to take advantage of potential foreign funding has been inhibited by a number of home-grown forces. With these forces currently in play, any policy-motivated capital formation programme may never yield its desired results.

Nigeria’s investment environment has been weakened by the attendant coarseness that characterises the nation’s foreign exchange market and the subsequent naira volatility. Unchecked round-tripping and arbitraging activities by some select few in the political ruling class have contributed to the foreign exchange scarcity problem that the country faces.