Posted Thu, Jul 4, 2024 5:39 PM

Foreign Investment Inflows into Nigeria Surged to a 4-year High in 2024Q1

Nigeria’s foreign investment inflows rose sharply to US$3.4 billion in 2024Q1 from US$1.1 billion both in 2023Q1 and 2023Q4. The jump in the overall foreign investment inflows reflects improved investor confidence driven by the government's fiscal and monetary reforms. However, the capital importation profile has remained skewed to Foreign Portfolio Investment (FPI), suggesting that the investment climate is anchored on investors’ appetite for short-term instruments. Meanwhile, the surge in FPI is a mere reaction to the recent CBN's foreign exchange (FX) sales to Bureau de Change Operators. Unless there is a structural shift and sustained improvement in overall macroeconomic stability, there are limited chances that short-term investors will reinvest their funds at a time when there are negative returns on investment. Hence, efforts should be geared towards reversing the upward inflationary trend and improving FX liquidity from oil and non-oil exports.  

Data: NBS; Chart: NESG Research

Moreover, while FPI and Other Investment posted a significant increase on a year-on-year and quarter-on-quarter basis, FDI only recorded an increase on a yearly basis. Aside from the country not attracting a substantial portion of global investments, the available inflows are skewed to a few sectors. In 2024Q1, the Production/Manufacturing sector attracted 5.7 percent of the total investment inflows (US$191.9 million), the Trading sector accounted for 14.7 percent (US$494.9 million) whereas the Banking sector attracted 61.2 percent of the total (US$2.1 billion). This showed that sectors, such as Manufacturing, with greater potential to contribute significantly to economic growth and job creation struggle to attract foreign capital (particularly FDI). Lagos, Abuja and Ekiti (albeit infinitesimal) were the only states that attracted investment inflows in 2024Q1. Hence, there is an arduous task before the government at all levels to make the business environment conducive to long-term investments such as FDI. Doing this would also end the exit of multinational firms from the country.

Click to download Capital Importation Alert 2024 Q1