BusinessDay

Bad economy scares foreign capital away from Nigeria (II)

Furthermore, hoarding of the greenback by political big wigs in preparation for the forthcoming 2023 general elections has further crumpled the FX market in terms of liquidity and supply, especially on the official exchange platform.

As a result, there remains a large premium between the official and parallel foreign exchange rates and every effort to unify these windows have proved useless. Also, the CBN’s resolve to halt dollar sales to accredited foreign exchange operators further contributes to the distortions experienced in the FX market. Already, this sale halt has cost the market about $6 billion a year of supply.

Despite happy times in the global oil market, Nigeria’s foreign exchange reserve has been on a steadily downward slide. As of May ending 2022, Nigeria’s FX reserves recorded a total of $38 billion, after topping up to $41.5 billion just eight months before as a result of a buoyant Special Drawing Rights (SDR) allocation and Eurobond issuance.

. Frequent attacks by Boko Haram terrorists, herdsmen clashes, kidnapping by bandits, and other heinous activities carried out by unknown gunmen and other political separatist movements have cost the Nigerian economy so much in foreign investments that have been hitherto diverted to neighbouring countries with relatively less favourable potentials when compared with Nigeria.

Poor infrastructure and political and institutional defaults have rendered Nigeria a no-go zone for many investors who would have favoured the country’s business atmosphere over other African nations

Poor infrastructure and political and institutional defaults have rendered Nigeria a no-go zone for many investors who would have favoured the country’s business atmosphere over other African nations. In March 2022, for instance, the national power grid suffered a total collapse up to 146 times, while partial failures totalled 73 times since 2010.

This embarrassing turn of events in the country’s power sector has made investors highly sceptical about funding profitable investments in the country. Also, Nigeria’s oil environment has been characterised by a heavy production cost burden and unchecked impunity. This, coupled with the increasing cost of power generation and distribution, has made the nation’s price environment heated beyond expectations.

Equally disturbing is the state of the nation’s political and institutional setting, which usually upsets the temperature of the country’s business ecosystem. As the 2023 general elections draw nearer, the degree of unpredictability of the country’s business environment becomes more severe.

Already, many political loyalists have become broadly divided along party lines, while many others have resorted to ethno-religious face-offs among themselves to support their choice candidate for the number one position in the country.

Read also: Bad economy scares foreign capital away from Nigeria (I)

Sadly, security forces seem to have been bought over by the highest bidding political pockets, and numerous unemployed thugs are being prepared to take risky orders in favour of their preferred candidates.

Within the legal system, the current leadership challenges owing to corruption allegations, among other woeful discoveries within the system, have made the entire legal body an unreliable entity. For these reasons, investors would rather hold and watch the turn of events as the presidential elections unfold.

Investors know that the volatilities that come with election periods are usually expressed in elevated prices, foreign exchange shortcomings, institutional breakdowns, outbreaks/breakdowns in law and order, and financial market squeezes.

For these reasons, the tense nature of pre, during, and post-election periods usually disallows investors from dabbling into the business environment.

While Nigeria’s journey towards a fully financially independent and capital-abundant nation remains a long-term possibility, the country needs to reposition itself toward becoming a more attractive destination to foreign investors in the short to medium term. This can be made possible by fixing the structural issues that characterise the macroeconomy on one hand, while focusing on strengthening the quality of institutions and recovering public trust in government on the other hand.

Get real time updates directly on you device, subscribe now.