October 9, 2024/CSL Research
In Q2 2024, Nigeria’s total capital importation reached US$2.60 billion, a significant increase of 152.81% compared to the US$1.03 billion recorded in Q2 2023. However, this was a 22.85% decline from the US$3.38 billion reported in Q1 2024. Portfolio Investment, which includes stocks, bonds, and other financial instruments, led the inflow with US$1.40 billion, accounting for 53.93% of total capital imported. Other Investment followed closely at US$1.17 billion, representing 44.92%. Foreign Direct Investment (FDI) was the smallest contributor, totalling just US$29.83 million, or 1.15% of the overall capital imported during the quarter. The Banking sector attracted the highest inflow, receiving US$1.12 billion (43.15% of the total). This was followed by the Production/Manufacturing sector, which saw inflows of US$624.71 million (23.99%), and the Trading sector with US$569.22 million (21.86%).
Capital importation encompasses the total foreign inflow a country receives and is categorized into three main segments: foreign direct investment (FDI), portfolio investment (FPI), and other investments (FOI). Over recent years, historical data indicates a notable decline in foreign investments flowing into the country. The total capital importation in 2023 was US$3.91 billion, marking a significant 26.7% decrease compared to US$5.33 billion in 2022. This decline is even more pronounced (83.72%) when compared with the pre-COVID level of US$23.99 billion in 2019. Several factors such as poor institutional development, property rights concerns, policy inconsistencies, multiple exchange rates, scarcity of forex, security concerns, and structural challenges have dimmed investor confidence and hampered inflow of foreign investments into the country. To the extent that many of these concerns remain unaddressed, we do not expect to see an increase in FDIs and FPIs in the short to medium term.
In the second quarter of 2024, foreign portfolio investments (FPIs) into Nigeria’s money market instruments reached US$1.076 billion, accounting for 76.7% of the total FPI during the period. Investments in equities, however, were significantly lower, representing only 10.67% of the total, with capital inflows of $149.93 million. Foreign investments in bonds made up 12.6% of the total, amounting to $177.79 million. The ongoing scarcity and volatility of the Naira have been key factors limiting foreign portfolio investments in the equities market.
Initial excitement over the market friendly Tinubu reforms has since subsided. Looking ahead, domestic structural challenges and continued currency volatility are expected to weigh on investor sentiment in the short term, particularly until a clear and sustainable source of foreign exchange inflow becomes evident. Nevertheless, the Nigerian government’s ongoing reforms—focused on improving the ease of doing business, stabilizing the foreign exchange market, streamlining regulations, and addressing infrastructural shortcomings—could gradually help create a more favourable environment for investors.
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