Despite moves by the outgoing administration to attract investors and enhance Foreign Direct Investment (FDI) into the country, the efforts have apparently not yielded the desired results. According to a recent report by the National Bureau of Statistics (NBS), Nigeria’s capital importation has declined sharply for three straight years. Capital importation comprises not only FDI in a country’s economy but also foreign portfolio investment (FPI) and other investments such as trade credits, loans and currency deposits. Sadly, all of them have been on the downward trend in recent years. 

 

The decrease of these three key capital imports in three consecutive years has raised the concern that market supply by foreign investors in Nigerian economy might possibly reduce if the situation is not urgently addressed. This is because foreign capital investment flows help to boost the economy of any country. According to the NBS report, capital importation into Nigeria fell 51.51 per cent to $1.06billion year-on- year(y/y) in the Q4 2022 as against $2.19billion recorded in the same period of 2021. When compared to the preceding quarter, capital imports also declined by 8.53 per cent from $1.1billion in the Q3 2022. Compared to $1.6billion and $1.5billion recorded in in Q1 and Q2 2022. This is the lowest foreign inflow since 2016 when capital importation hit $5.5bn mark.   

Sectoral analysis of the NBS report shows that Foreign Portfolio Investment fell 27.9 per cent to a six-year low of $2.4billion. This is largely due to investors’ aversion to the Nigerian capital and equity market, even though investment in bonds reportedly grew by 73.8 per cent. In real terms, the share of FDI in total inflows dipped to 45.8 per cent. Again, this is the weakest investment inflows in seven years as against 50.5 per cent recorded in 2021. Besides, capital inflows from other investments fell by 7.6 per cent year-on-year to $2.4billion as a result of 2.8 per cent decline in loans.

It is not a surprise that Nigeria’s capital imports experienced such a steep decline in the years under reference. The Nigerian environment remains unattractive to investors from both external and domestic markets. For many years, Nigeria has been at the bottom rung of global economic growth rankings. In 2018, Nigeria ranked 146 out of 190 countries in the World Bank’s Ease of Doing Business (EoDB) Index. Though it moved 10 places up in 2021, it went down again in 2022. While the FDI slumped, capital flight has been on the rise, with investors pulling over $2billion from the Nigerian capital market.  Insecurity, poverty, unemployment, inflation and national debt have been on a steady rise.   

On the global Misery Index, Nigeria is currently rated as the world’s 6th ‘most miserable country’, and world’s ‘poverty capital,’ with 133 million Nigerians declared multi-dimensionally poor, according to the 2022 NBS report. On the World Bank Human Capital Index, Nigeria is ranked 152 out of 157 countries. At 2.9 per cent, Nigeria has world’s 21st highest HIV prevalence level alongside Afghanistan and Pakistan, one of the only three countries that are polio-endemic. These factors weigh heavily on the scale of investors considerations for investment in any country.

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At the subnational level, there are few bright spots to attract investors. According to data from NBS, Debt Management Office(DMO) and Federation Account Allocation Committee (FAAC), most state governments are walking on a financial tightrope, having to depend on federal allocations and huge debts to contend with. According to the United Nations Conference on Trade and Development (UNCTAD), 27 states of the federation attracted zero foreign direct investment in 2022. Capital importation accruing to the states also dropped by 20.47 per cent last year. Only Lagos, Ondo, Kogi, Akwa Ibom, Oyo, Plateau and Federal Capital Territory (FCT) received FDI in 2022.

There is need to make Nigeria attractive to foreign investors and rebuild Nigeria’s image. The outcome of the nation’s controversial election has further worsened the perception of Nigeria’s image abroad. There is need to rebuild confidence in the people. Ease of doing business must be improved. Other socioeconomic challenges such as power supply, poor governance, infrastructure deficit, insecurity, foreign exchange (FX) volatility must be addressed in order to attract foreign investments. A recent World Bank report on Nigeria says that 87 per cent of 130,000km rural roads across the country is in a deplorable condition, and that has hampered business operations.

We urge state governments to improve their business environment and deepen their financial profile rather than depending so much on the federation allocation. To boost foreign investment inflows and facilitate the nation’s industrial growth, there is need for the incoming administration government to invest so much in infrastructure development and make the business environment conducive for investors.