Nigeria’s Foreign Direct Investment (FDI) plunged by 74.01 percent year-on-year in the third quarter of 2021, the lowest level since the National Bureau of Statistics (NBS) started collating the data in 2013.
From $414.79 million reported in the comparable quarter of 2020, the latest capital importation report by the statistics office shows that Nigeria only attracted $107.81 million in the same period of 2021.
On a quarter-on-quarter basis, the figure, however, reports an increase of 38.27 percent from the $74.01 million recorded in the third quarter of 2020.
A lack of reforms, which has culminated in weak economic growth, foreign exchange volatility and a harsh business environment, are some of the reasons Nigeria has struggled to attract sufficient foreign investments since 2015.
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“Significant inflow of FDI of at least 26 or 28 percent for economic recovery is necessary to bridge infrastructure gaps and encourage economic diversification,” Andrew S. Nevin, partner/chief economist, PwC Nigeria, says.
According to Nevin, Nigeria can achieve this through a visible improvement in the business environment as well as an increased and assured level of security.
As a percentage of the total investment inflow into Nigeria, FDI amounted to 6.23 percent in the review period. The largest amount of capital importation by type was received through portfolio investment, which accounted for 70.30 percent ($1,217.21m) of total capital importation. This was followed by Other Investment, which accounted for 23.47 percent ($406.35m).
Analysis of the latest NBS report reveals that the total value of capital importation into Nigeria in the third quarter of 2021 stood at $1.73 billion from $875.62 million in the preceding quarter of 2021, showing an increase of 97.73 percent.
When compared with the corresponding quarter of 2020, capital importation as well increased by 18.47 percent from $1.46 billion.
The Nigerian Investment Promotion Council (NIPC) says Nigeria is attracting an average of $2 billion of FDI annually, which is significantly lower than the $10 billion estimates needed to achieve the desired economic growth.
The trend of declining foreign investment, particularly FDI, is a worry for Nigeria in dire need of private capital to boost economic growth and create jobs.
Since 2017, when oil-dependent Nigeria emerged from its first economic recession in five years (exited its second in 2020), not only has the country’s economic growth been sluggish but only a few sectors triggered the expansion, further undermining the country’s capacity to create enough jobs to meet the growing number of labour market entrants.
A breakdown of the NSB report for the review period shows that by sectors, capital importation into financing had the highest inflow of $469.17 million, amounting to 27.10 percent of total capital imported in the third quarter of 2021. This was closely followed by capital imported into the banking sector valued at $460.39 million (26.59%) and the production sector $323.83 million (18.70%).
Nigeria’s labour-intensive sectors with the potential to reduce the country’s 33.3 percent unemployment rate, like the agriculture and construction sectors, respectively, attracted 1.90 percent and 0.001 percent worth of capital importation in Q3.
Unemployment in Africa’s most populous nation rose to its highest in over a decade at 33.3 percent in the fourth quarter of 2020, a mirror of the fragile state of Nigeria’s economic progress.
The weak per capita income of Africa’s largest economy means that the economy is not creating enough opportunities to accommodate a fast-rising population, a factor that has continued to drive the number of jobless people.
Capital importation by country of origin reveals that the United Kingdom ranked top as the source of capital imported into Nigeria in the third quarter of 2021 with a value of $709.8 million, accounting for 40.99 percent of total capital imported in the period under review. This was followed by capital imports from South Africa and the United States valued at $389.54 million (22.50%) and $257.12 million (14.85%), respectively.
