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HomeBusinessThe growing unattractiveness of Nigeria's economy to foreign investors

The growing unattractiveness of Nigeria’s economy to foreign investors

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The National Bureau of Statistics (NBS) recently released Nigeria’s Capital Importation report for FY-2021. On a positive note, total capital imported rose 26.4 percent q/q and 109.3 percent y/y to $2.2 billion in Q4-2021, from $1.7 billion and $1.0 billion in Q3-2021 and Q4-2020, surpassing $875.6 million in Q2-2021 and $1.9 billion in Q1-2021.

However, viewing the numbers from the lens of FY-2021 showed that total capital imported fell 30.6 percent y/y to $6.7 billion, from $9.7 billion in FY-2020.

A deeper dive into the data showed the Foreign Portfolio Investment (FPI) inflows, which accounted for 50.5 percent of total capital imported, declined by 34.1 percent y/y to print at $3.4 billion in FY-2021.

Similarly, Foreign Direct Investment (FDI) inflows declined by 32.0 percent y/y to print at $698.8 million in FY-2021 with inflows from the Other investments category following in tandem, down 25.1 percent y/y to print at $2.6 billion.

FDI inflows remained broadly underwhelming, in what represents a new low since NBS began to record the data.

The country’s hostile business environment evidenced by FX liquidity concerns, insecurity, policy flip-flop, weaker consumer pockets, and lack of infrastructure continue to discourage long-term capital commitments in the country.

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The decline in FPI inflows was largely due to investors’ lack of interest in Nigeria’s artificially low fixed income instruments given the availability of alternatives across emerging markets.

Interesting to highlight, the increase in capital imported in Q4-2021 can be accredited to the increase in FX liquidity in Q4-2021 following the hike in oil prices and FG Eurobond issuance

Looking forward, we expect capital imported into Nigeria to remain broadly underwhelming. Lack of improvement in business conditions will continue to keep long term capital inflows out of the country.

In addition, Nigeria’s extended FX crunch will continue to deter foreign investors’ interest in the Nigerian capital market, raising concerns for FPI inflows.

More importantly, we expect foreign investors to remain broadly cautious with another general election less than a year away.

That said, factors such as higher fixed-income yields, possible policy tightening and further Naira devaluation, most of which are more probable than certain, could serve as tailwinds for capital importation.  ~United Capital Plc

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