The lingering foreign exchange (FX) liquidity crisis has seen investors scurry off the Nigerian market as investment inflows into Africa’s most populous nation plunged to a record low.
Nigeria, once Africa’s biggest economy, could barely lure in both portfolio investors and long term foreign direct investments as the country contends with varying macroeconomic challenges spooking investors confidence.
Data obtained from the National Bureau of Statistics (NBS) showed that foreign direct investment decreased by 75 percent to a paltry $29.8 million in the second quarter from $119 million recorded in Q1.
Foreign portfolio investment (FPI) which contributed the most to the total capital importation also fell by 32 percent quarter-on-quarter to $1.4 billion in the same period under review.
Analysts at FBNQuest Capital have attributed the waning appetite of foreign investors in Nigeria to the lingering FX crisis, rising inflation and worsening insecurity.
“The shift in foreign investor confidence was as a result of macroeconomic challenges, including FX liquidity concerns, rising inflation, and fiscal constraints,” the analysts said in a note on Thursday.
The naira has lost about 70 percent of its value under President Bola Tinubu’s administration and averaged N1,511.34/$ at the Investors and Exporters window this year.
It however gained a staggering 4 percent against the greenback on Wednesday to N1,625.15, according to data by the FMDQ.
The CBN under the new governor Olayemi Cardoso has been rolling out policies to keep the market in check. In September, the apex bank intervened by selling a record $543 million to Bureau de Change operators at 1,590/$ with a 1 percent margin.
In a renewed effort to shore up the naira and hammer rising inflation, the monetary policy committee raised the benchmark interest rates again in September by 50 basis points to 27.25 percent. But this has hardly borne any fruit in the form of investment.
“Despite the carry-trade opportunities for FPIs presented by the CBN’s hawkish monetary policy stance, the outlook for participation in direct investment remains bleak primarily because of concerns related to FX liquidity, security challenges and the unfavourable business environment, among others,” analysts at FBNQuest Capital said.
“Investors are not streaming in because it was like all the money they were throwing into the market was going into a hole. They were just losing money, a source familiar with the trends in the market matter told BusinessDay.
The source stated that some of the portfolio investors came in when the exchange rate was at 1,200 to a US dollar and thought 1,500 was the resistance level. But the naira is edging toward 1,700 meaning the liquidity brought in is already dwindling.
“That’s why they stayed away to keep watching the market and see what’s happening,” the source added.
Barriers of entry spooking investors confidence
BusinessDay reported on Tuesday that the delay in the issuance of Certificate of Capital Importation (CCI) formerly issued by commercial banks but now done by the CBN is shifting the sentiments of potential investors from the country.
CCI is a document issued by banks in Nigeria to foreign investors to confirm the inflow of foreign capital into the country.
The CCI is crucial for ensuring that foreign investors can repatriate dividends and capital gains from their investments. But there are now some backlogs yet to be cleared due to the involvement of the apex bank.
“There are backlogs of CCI issuances of some of these offshore investors. They’ve brought in money, they don’t have CCI. They’re afraid. So some of them that wish to do stuff will have to first clear the issue of CCI,” the source said.
The source described the seeming bottleneck “like shooting ourselves or scoring an own goal sometimes”.
Tobi Ehinmosan, a macroeconomic and fixed income analyst at Lagos-based FBNQuest Capital said investors only flock into an economy if it guarantees higher returns and provides an avenue to repatriate their gains.
“No one wants to invest in a struggling economy, because every investor invests to earn a certain kind of revenue,” Ehinmosan said.
“However, a struggling economy like Nigeria doesn’t guarantee that,” he stated.
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