Overall investment inflows into Nigeria succumbed to COVID-19, plunged by 59.7% in 2020
According to National Bureau of Statistics (NBS), foreign investment inflows fell more than double to $9.7 billion in 2020 from $23.9 billion in 2019. This marks a reversal of the yearly increase since 2017. The weak inflow of foreign investments starting from the second quarter of 2020 was fuelled by uncertainty associated with the spread of COVID-19, weak external reserves position and low interest rate environment. The illiquidity of the foreign exchange market (forex) and negative real returns on investment largely served as a disincentive to foreign investment inflows.
Huge decline in FPI drives down the overall foreign investment inflows
On a disaggregated basis, the decline in total investment inflows was largely driven by a sharp fall in foreign portfolio investments (FPI) to $5.1 billion in 2020 from $16.4 billion in 2019. Correspondingly, the share of FPI in the overall foreign investment inflows dropped to 53% in 2020 from 68% in 2019. On the other hand, foreign direct investment (FDI) and other forms of foreign investments witnessed a rise in their contributions to total investment inflows at 11% and 36%, respectively, in 2020. This could be attributed to their relative stability during crisis period (such as, COVID-19) over FPI, which is more vulnerable to sudden capital outflows. The CBN’s FX rationing among end-users in most part of 2020 largely doused investors’ confidence in Nigeria’s market for equities and fixed income assets.
COVID-19 outbreak tested the resilience of FDI inflows in 2020
Unlike other forms of investment inflows, Foreign Direct Investment (FDI) – which is a relatively stable source of investment flows – stood at $1 billion in 2020, 10.1% above its level in 2019 ($934.3 million). It is worthy of note that FDI inflows rose sharply to $414.8 million in the third quarter of 2020 from $148.6 million in the second quarter of 2020. This surge coincides with a jump in the monetary value of investment announcements to $3.9 billion in the third quarter of 2020 from $250 million in the previous quarter. Meanwhile, FDI inflows have stayed below the $1.5 billion mark since 2015. Unless key structural challenges, including: policy inconsistency, foreign exchange controls, as well as, infrastructure and logistic bottlenecks are addressed, Nigeria would not be able attract a sizable amount of global FDI to be at par with its African peers, such as, Egypt, which remained the largest recipient of FDI in Africa with a share of 15% of total inflows into the continent (equivalent to $5.5 billion) in 2020.
Lagos and Abuja remains major investment destinations in Nigeria
Accounting for a share of 86% in overall investment inflows in 2020 (equivalent to $8.3 billion), Nigeria’s commercial epicentre – Lagos - maintained its position as the most attractive investment destination in Nigeria. Similarly, FCT-Abuja remained the second largest investment destination at 26% (equivalent to $1.3 billion).
Foreign affiliated banks largely facilitated foreign investment inflows
In 2020, 20 banks facilitated the inflow of foreign investments into Nigeria. 64% of total foreign investment inflows were facilitated by foreign affiliated commercial and merchant banks. Remarkably, Nigerian-owned commercial banks facilitated 35% of foreign investment inflows in 2020.
Multilateral sources accounted for over 52% of total loan inflows into Nigeria in the third quarter of 2020, whereas commercial (Euro and Diaspora bonds), and bilateral sources accounted for 35.5% and 12.5% in the quarter (see CBN’s Economic Report for Q3’2020, retrievable via: https://www.cbn.gov.ng/Out/2020/).
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