Despite the bold economic reforms of the Tinubu-led government that were exciting to investors, investment into the country’s production sector dipped 53.8 percent in the third quarter of 2023, data from the Capital Importation Report shows.
The National Bureau of Statistics report shows that foreign direct investment into the manufacturing industry dipped to $279.5 billion in Q3 of 2023 from $605 billion in Q2, when it recorded the most growth in 10 years.
On a year-on-year basis, it increased by 184.6 percent from $98.2 billion in 2022.
“We should not expect an instantaneous response from investors after the reforms and that is why investment into the sector dipped,” Segun Ajayi-Kadir, director-general of the Manufacturing Association of Nigeria (MAN), said in a response to questions.
“The fallout of the reforms and the challenges it has thrown to us are the things investors watch for clarity and to see if the reforms measures are sustainable,” he said.
According to him, there is a need for other supporting measures such as improved security and specific policy direction aimed at deepening industrialisation to drive investments into the country’s production sector.
Nigeria had in June 2023 eliminated a costly petrol subsidy and floated the naira to restore investors’ confidence and improve the country’s business environment.
The fallout of the reforms has caused further spikes in the prices of goods and amplified the cost-of-living crisis in Africa’s most populous country.
Also, the naira since June after the devaluation has lost more than 40 percent of its value against the dollar, the biggest loss over that period among currencies tracked by Bloomberg.
“Currency devaluation cascaded to FX losses for exposed businesses, higher import duties for companies reliant on imported raw material and consequently weaker manufacturing growth,” analysts at Cardinal Stone said in its 2024 economic outlook report.
The manufacturers association, in its 2024 economic outlook, said the impact of the reforms on investments will be more pronounced in the fourth quarter of 2023 and the full year of 2024 as the policy direction of the government becomes clearer to investors.
The MAN statement is evident in the recent Purchasing Managers Index as business activity expanded by 52.7 points in December, the highest in the last six months of 2023.
Growth in the manufacturing sector slowed to 0.48 percent in Q3 2023 from 2.2 percent in the preceding quarter.