Despite relative improvement in capital importation, Foreign Direct Investment (FDI) inflow into Africa’s largest economy is worsening, according to latest data from the National Bureau of Statistics (NBS) released yesterday.
This is no thanks to poor investment climate characterised by overly stringent or impromptu government policies, bureaucratic bottlenecks for securing permits, and a weak legal framework. Total capital importation into Nigeria in 2018 stood at $16.8 billion, compared to $12.2 billion in 2017, representing a year on-year growth of 37.49 percent thanks to portfolio investment, which accounted for 70.20 percent or $11.8 billion of total capital importation in the period.
The report, however, revealed that FDI still accounts for miserable 7.11 percent or $1.19 billion of total capital imported in 2018, close to the same amount the government raised in a single Eurobond issue of $1 billion on February 9, 2017. On a year-to-year basis, FDI fell 58.75 percent in Q4 2018 to $156.08 million, from $378.41 million recorded a year earlier, while portfolio investment into the country dipped by 59.89 percent to $1.39 billion, from $3.48 billion recorded in the same period of 2017. Nigeria’s FDI dropped to $156.08 million in Q4 2018, signifying a 70.59 percent drop when compared to $530.63 million recorded in the previous quarter, while portfolio investment was down 19.06 percent to $1.39 billion, from $1.72 billion recorded in the third quarter of 2018. The NBS report showed the
United Kingdom emerged as the top source of capital investment in Nigeria in 2018, with $6,007.99 million, accounting for 35.74 percent of the total capital inflows in 2018. Gbolahan Ologunro, an equity research analyst at CSL Stockbrokers, said FDI declined in Q3 and Q4 due to elevated political risk in the economy at that time coupled with concerns over weakening global economy, which reduced appetite for emerging market assets generally.
“In addition to that, while inflows into equity declined, we saw inflows into bonds rise. In a risk-off environment, the appetite for risk-free assets increases, basically investors more or less rebalance their portfolio by allocating more funds to less risky assets than risky ones, which was what played out in Q4,” Ologunro said. Ologunro explained that the long awaited passage of the Petroleum Industry Bill (PIB) is one of the key reforms investors are looking forward to that will see significant inflows. “The power sector is another key sector where investors expect that if government can get its hand completely off that sector by ensuring tariffs are cost-reflective, then you will see more players making investment across the entire value chain,” he said.
Ayodele Akinwunmi, head of research at FSDH Merchant Bank, said generally, investment policies are more relevant to foreign direct investors than how yields are performing because they relate more to the longterm developments in the economy than short-term developments. “When the elections are over, whoever wins, whether the opposition or the incumbent, they will face the reality, but again it is still going to be affected by what is going on globally,” Akinwunmi told BusinessDay by phone. Other investment accounted for 22.69 percent or $3.8 billion of total capital, while on a quarter-on-quarter basis, the total value of capital importation into Nigeria in the fourth quarter of 2018 stood at $2.1 billion. This, however, represents a decrease of 25.05 percent compared to Q3.
DIPO OLADEHINDE & OLUWASEGUN OLAKOYENIKAN
