Nigeria’s ongoing foreign exchange (FX) liquidity crisis has driven investors away, resulting in a sharp decline in investment inflows into Africa’s most populous nation. The country, once the largest economy on the continent, is struggling to attract both portfolio investors and long-term foreign direct investments amid various macroeconomic challenges.
Data from the National Bureau of Statistics (NBS) reveals a staggering 75% drop in foreign direct investment, which fell to just $29.8 million in the second quarter from $119 million in the first quarter. Additionally, foreign portfolio investment (FPI), which significantly contributes to total capital importation, decreased by 32% quarter-on-quarter, totaling $1.4 billion during the same period.
Analysts at FBNQuest Capital attribute this decline to a combination of factors, including the FX liquidity crisis, rising inflation, and increasing 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 noted in a report.
Under President Bola Tinubu’s administration, the naira has lost about 70% of its value, averaging N1,511.34 to the dollar at the Investors and Exporters window this year. Although it appreciated 4% on Wednesday, reaching N1,625.15, concerns remain high.
The Central Bank of Nigeria (CBN), led by Governor Olayemi Cardoso, is implementing policies to stabilize the market. In September, the CBN sold a record $543 million to Bureau de Change operators at a rate of 1,590/$ with a 1% margin. Furthermore, to combat rising inflation, the monetary policy committee raised the benchmark interest rate by 50 basis points to 27.25%. Despite these efforts, investment levels have not improved significantly.
Analysts at Nigeria Faces Low Record Foreign Investment Amid Ongoing FX Liquidity CrisisCapital warn that while there are carry-trade opportunities for FPIs due to the CBN’s strict monetary policies, direct investment remains bleak due to FX liquidity concerns, security issues, and an unfavorable business environment. A market source highlighted that investors have become hesitant, observing that previous investments seemed to yield diminishing returns, with the naira approaching N1,700.
Compounding these challenges is the delay in issuing the Certificate of Capital Importation (CCI), now handled by the CBN instead of commercial banks. The CCI is crucial for foreign investors, as it confirms the inflow of foreign capital and ensures they can repatriate dividends and capital gains. Current backlogs in issuing CCIs are causing uncertainty among potential investors.
“There are backlogs of CCI issuances for some offshore investors. They’ve brought in money, but they don’t have their CCI,” the source explained, describing the situation as akin to “shooting ourselves or scoring an own goal.”
Tobi Ehinmosan, a macroeconomic and fixed-income analyst at FBNQuest Capital, emphasized that investors seek higher returns and reliable avenues for repatriating their gains. “No one wants to invest in a struggling economy because every investor aims to earn a certain kind of revenue. However, a struggling economy like Nigeria doesn’t guarantee that,” he stated.
As Nigeria grapples with these challenges, the outlook for attracting foreign investment remains uncertain, posing significant risks to the nation’s economic recovery and growth.
