Posted Wed, Oct 23, 2024 9:06 AM

Foreign Investment Inflows into Nigeria reverse an upward trend in 2024Q2

Nigeria’s foreign investment inflows more than doubled from US$1.0 billion in 2023Q2 to US$2.6 billion in 2024Q2, albeit declining from their level in 2024Q1 (US$3.4 billion). Meanwhile, the year-on-year increase in the overall foreign investment inflows reflects the impact of the CBN’s intensification on monetary tightening since February 2024. The capital importation profile in 2024Q2 was skewed to Foreign Portfolio Investment (FPI), suggesting foreign investors’ appetite is more titled towards money market instruments, which accounted for 41 percent of the overall investment inflows and 77 percent of the total FPI inflows. All the components of foreign investments declined in the quarter, with Foreign Direct Investment (FDI) recording the most significant drop. Hence, the country remains exposed to an influx of hot money capable of igniting instability in the foreign exchange (FX) market.

 Data: NBS; Chart: NESG Research

Moreover, the record low level of FDI inflows in 2024Q2 is not unconnected to the impact of divestments in the oil and gas and manufacturing sectors, investors’ apprehension over FX market illiquidity, insecurity, infrastructure deficit, and regulatory bottlenecks. The oil and gas sector attracting a meagre US$5 million (representing 0.2 percent of the total inflows) in 2024Q2 and no foreign investments in 2024Q1 suggests Nigeria's upstream assets are becoming less competitive globally. Hence, there is a need to create an enabling policy and investment environment to reduce operating inefficiencies emanating from regulatory bottlenecks, high production costs, pipeline vandalism, oil theft, and deteriorating oil and gas infrastructure. A favourable operating environment would ensure that the government secures a final investment decision to develop the proposed Nigeria-Morocco Gas Pipeline Project, which, when completed, is expected to supply natural gas to Spain and the rest of Europe. Meanwhile, the envisaged listing of the Dangote Refinery on the Nigerian Stock Exchange by 2025Q1 is expected to attract more investments into the downstream segment of the oil and gas sector.