Nigerian economic summit group

NESG Alert : Foreign Capital Inflow Fell by 27.83%

Foreign Capital Fell by 27.8%

The poor performance of foreign inflows into the country as depicted in the capital importation report 2016Q4 points to the aftermath of the numerous foreign exchange challenges prevalent in recent times. The challenges, which are associated with foreign exchange supply and wide disparity between the official exchange and parallel market rates, have resulted in higher foreign exchange risks, lowered credit ratings, financial market instability and, of course, diminished investors’ confidence.

By way of illustration, about US$1.5 billion worth of foreign investment flew into Nigeria in 2016Q4. This figure represents a decline of about 15% and 0.5% from 2016Q3 and 2015Q4 values, respectively. On broad aggregate, total foreign investment experienced a drastic decline from US$9.64 billion in 2015 to about US$5.12 in 2016. In the same vein, exchange rate crisis in 2016 affected Portfolio Investment which fell on both quarter-on-quarter (q/q) as well on year-on-year (y/y) by about 69.2% and 70.6%, respectively. FDI, however, rose by 1.2% and 179.8% in same period, in continuation of the resurgence that began in 2016Q2.

Components of Foreign Capital Inflow:  2016Q4

FDI and Made-in-Nigeria

Greenfield project is gradually gaining momentum as reflected in the FDI uptick. Specifically, the Brewing sector which has been without any significant capital inflow since 2013 attracted approximately US$25.67 million while flows to agriculture sector remained constrained. It should be noted that FDI, particularly greenfield project, is required to drive Made-in-Nigeria agenda with a view to realising its objectives. Foreign capital must complement local fund mobilisation to give desired industrialisation that engenders self-sufficiency and export.

Global FDI In Retrospect

Capital flow across the world was constrained in 2016 falling by 13% when compared to 2015. All regions, but the North America, had reduced foreign inflow. However, developing regions: Africa, Asia and Latin America recorded increased physical investment. We expect the focus on Africa to persist in 2017, as sentiments for medium to long term gains are strengthened. Nigeria, therefore, stands a good chance of attracting foreign fund to the productive sectors if the policy response instils confidence, promotes investment climate as well protects value.

Growth of Global Capital Movements in 2016: FDI and Greenfield Investments

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