Research Document: NESG Capital Importation Alert 2024 Q1

Posted Thu, Jul 4, 2024 10:22 PM

The quarter-on-quarter decline in FDI is concerning at a time when the country needs FDI to catalyse economic growth and job creation. In 2024Q1, the Production/Manufacturing sector attracted 5.7 percent of the total investment inflows (US$191.92 million), whereas the Banking sector attracted 61.2 percent (US$2.1 billion) of the total foreign inflows. This showed that sectors with significant potential to contribute to economic growth and job creation struggle to attract foreign capital (particularly FDI). Hence, there is an arduous task before the government to make the business environment conducive to long-term investments such as FDI. Doing this would also end the exodus of multinational firms from the country. 

The surge in Foreign Portfolio Investment is likely to be a short-term event. Portfolio investors are only reacting to the CBN’s move to boost liquidity in the FX market. This, however, comes at the expense of the depletion of external reserves. Unless there is sustained improvement in oil export earnings, there are limited chances that the short-term investors would reinvest their funds at a time when there are negative returns on investment. Efforts should, therefore, be geared to improve FX liquidity from oil and non-oil sales.

 The significant portion of foreign loans in Other Investments signals the country’s inclination to external borrowing. While the country is currently seeking an extension to repay the World Bank's US$800 million palliative loan, the government has also gotten approval for another US$2.25 billion loan from the multilateral lender to support its reforms. The government needs to reverse this trend to sustain the country's sovereign credit rating. In May 2024, Fitch revised Nigeria's credit rating from stable to a positive outlook due to the government's recent reforms