The latest capital importation data released by the National Bureau of Statistics (NBS) shows that the total Foreign Direct Investment (FDI) that came into Nigeria in the first quarter (Q1) of 2023 was only $48 million.
Compared to the previous quarter, the FDI inflow to the country experienced a decline, dropping from $84 million in Q4 2022 to $48 million in Q1 2023. This represents a 43% decrease on a quarter-on-quarter basis.
Then on a year-on-year comparison, there was a substantial 69% decrease, as FDI fell from $155 million in Q1 2022 to $48 million in Q1 2023.
This suggests that the country’s economic conditions are perceived as unattractive to foreign investors.
On July 8, 2023, NBS released the 2023 Q1 capital importation. Capital importation is the influx of external resources into the local capital resources for the purposes of investment, trade, and business production.
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Chukwu, et al. noted in their research that capital importation is viewed as an important element in reducing unemployment and poverty, especially as it contributes to economic growth, job creation, and technological advancements in a country.
Capital importation comprises three categories: Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), and Other Investments. Each of them is comprised of various sub-categories.
On FDI, this particular capital inflow has been on the decline in recent years reaching its all-time low in Q1 2023 since 2014.
The Organisation for Economic Cooperation and Development (OECD) online library defines FDI as a category of cross-border investment in which an investor resident in one economy establishes a lasting interest in and a significant degree of influence over an enterprise resident in another economy.
According to Chukwu et al., FDI is made with the intention of acquiring a long-term management interest, such as owning 10% of voting stocks and possessing at least 10% of equity shares in an enterprise operating in a foreign country other than the investor’s home country.
Some of the impacts of FDI in the recipient country, as captured in a report, include the creation of jobs, transfer of technology, and capital inflow. The report further highlighted the enhancement of productivity and promotion of economic development as some of the things FDI can bring to a country.
In the past, FDI inflow to Nigeria was encouraging. However, in recent years, the inflow has been low, falling constantly since Q4 2021 and reaching an all-time low in Q1 2023.
In the fourth quarter of 2014, Nigeria experienced an FDI inflow of $491 million. However, in Q2 of the same year, FDI declined to $473 million. Subsequently, there was an increase in the remaining two quarters, with the fourth quarter recording the highest FDI inflow of $769 million, marking the highest FDI inflow received by Nigeria in the period under review.
Since then, the pattern of FDI inflow has been characterized by fluctuations, resembling a zig-zag pattern.
In particular, since Q4 2021, there has been a steady decline in the FDI inflow to the country, with the Q1 2023 figure being the lowest in 9 years.
Bloomberg, in a report, attributed the decline in Nigeria’s FDI inflow to factors such as multiple exchange rates and the central bank’s rationing of dollars.
The International Monetary Fund (IMF), in its Country Report for Nigeria, also highlighted Nigeria’s complex exchange rate policy and multiple exchange rates as some factors affecting the inflow of FDI to the country.
Yemi Kale shared the same view and harped on the need for clarity on the foreign-exchange policy to attract foreign capital inflow. The IMF also gave similar recommendations in addition to consistent macroeconomic policies and structural reforms.
President Bola Tinubu, who took over on May 29 from Muhammadu Buhari, has taken some policy measures, such as the unification of the country’s multiple exchange rates, which has reportedly generated positive sentiments among investors.
Although this may not be viewed as a policy per se, Tinubu also suspended the former Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, whose monetary policies were perceived as hindering investors and the economy.
While these steps taken so far are still in their early stages, experts believe they may help restore investors’ confidence and create a favourable environment for attracting FDI and other forms of foreign investment to the country.
In addition to these policy measures, the issues around the business environment and insecurity equally need to be addressed as they have been identified as factors hindering FDI inflow to the country.