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According to the latest capital importation report from the National Bureau of Statistics, this represents a 65.33 percent decrease from the $86.03 million reported during the same period last year. Additionally, it marks a 74.97 percent drop from the $119.18 million recorded in the previous quarter of 2024.
Economists interviewed by The PUNCH attributed this sharp decline in FDI to the devaluation of the naira and an unstable foreign exchange market, noting that the naira lost approximately 40 percent of its value in the first half of 2024.
The NBS data indicates that Nigeria's FDI comprises both equity and other capital, with equity investments in Q2 2024 totaling $29.82 million.
This figure reflects a substantial decrease of 74.98 percent compared to $119.17 million in Q1 2024 and a 65.33 percent decline from $86.02 million in Q2 2023.
The "Other Capital" component of FDI saw a minimal inflow of $0.0085 million in Q2 2024, down 33.33 percent from $0.01275 million in both Q1 2024 and Q2 2023. Although this category typically represents a small portion of FDI, its decline underscores a further reduction in this limited source of capital.
Despite President Bola Tinubu's assertion that his administration has secured $30 billion in FDI commitments, the ongoing decline in FDI underscores the difficulties Nigeria faces in attracting long-term investments amid a challenging global economic landscape and domestic challenges.
It is noteworthy that FDI constituted only about 1.15 percent of the total capital importation of $2.60 billion for the quarter in question, while foreign currency loans, including portfolio investments and direct loans, accounted for $2.55 billion, or 98.08 percent of total inflows.
Investor preference for loans instead of equity investments indicates a cautious approach, with foreign investors favoring safer financial options over long-term commitments.
The trend of relying on foreign currency loans underscores the dominance of short-term investments and debt instruments in Nigeria's capital importation sector.
While these inflows can enhance immediate liquidity within the economy, they lack the stability and growth potential associated with direct investments in physical assets or infrastructure.
In the second quarter of 2024, Nigeria saw a notable decline in both portfolio investments and foreign currency loans. Portfolio investments amounted to $1.40 billion, representing a significant drop of 74.97 percent from $5.60 billion in the previous quarter and a 65.33 percent decrease compared to $4.05 billion in Q2 2023.
Likewise, foreign loans, which play a crucial role in Nigeria's capital importation, totaled $1.15 billion in Q2 2024, reflecting a 74.98 percent decline from $4.60 billion in Q1 2024. Compared to the same period last year, when loans reached $3.32 billion in Q2 2023, this marks a 65.33 percent reduction.
Additionally, Nigeria's total capital importation of $2.60 billion represented a year-on-year increase of 152.81 percent compared to $1.03 billion in Q2 2023.
However, this figure reflects a 22.85 percent decrease from the $3.38 billion recorded in the first quarter of 2024.
The decline in quarterly figures illustrates ongoing fluctuations in investor sentiment, influenced by global economic uncertainties and domestic challenges.
The report stated, "In Q2 2024, total capital importation into Nigeria stood at $2,604.50 million, higher than $1,030.21 million recorded in Q2 2023, indicating an increase of 152.81 percent. In comparison to the preceding quarter, capital importation declined by 22.85 percent from $3,376.01 million in Q1 2024."
Portfolio investments have emerged as the leading source of capital inflows, contributing $1.40 billion, which represents 53.93 percent of the total.
These investments typically involve foreign investors channeling funds into Nigeria’s stocks, bonds, and various financial instruments with the intention of achieving rapid returns. In comparison, other forms of investment, such as loans and trade credits, amounted to $1.17 billion, making up 44.92 percent of the overall inflows.
The banking sector was the primary recipient of these capital imports, securing $1.12 billion, or 43.15 percent of the total inflows for the quarter.
This sector's prominence underscores the vital role banks play as facilitators of foreign investments, providing access to Nigeria’s financial markets. Following the banking sector, the production and manufacturing sector attracted $624.71 million, accounting for 23.99 percent of the total inflows.
This investment surge in production and manufacturing indicates a favorable outlook for industrial activities, potentially signaling a gradual recovery in Nigeria’s manufacturing capabilities.
The trading sector also experienced notable capital inflows, totaling $569.22 million, which represents 21.86 percent of the total, highlighting the resilience of trade activities within the country.
Regarding foreign capital distribution among states, only Lagos, Ekiti, and Abuja recorded inflows in the second quarter of 2024. Geographically, Lagos State continued to be the top destination for capital importation, attracting $1.37 billion, or 52.52 percent of total inflows.
Lagos remains Nigeria's commercial center, providing a strategic entry point for foreign investors due to its strong infrastructure and vibrant business environment. Abuja (FCT) closely followed, receiving $1.24 billion, which accounted for 47.48 percent of the total.
In contrast, Ekiti State saw minimal capital inflows, with only $0.0003 million during the quarter, reflecting the concentration of investments in more established economic hubs.
The report also identified the origins of these capital inflows. The United Kingdom stood out as the primary contributor, with investments amounting to $1.12 billion, representing 43.01 percent of the total capital imported, thereby solidifying its role as a significant partner in Nigeria’s financial sector.
The Netherlands followed as the second-largest contributor, with $577.82 million, accounting for 22.19 percent, while the Republic of South Africa secured the third position with $255.98 million, or 9.83 percent.
In terms of banking institutions, Citibank Nigeria Limited took the lead, attracting $818.46 million, which is 31.43 percent of the total inflows. Standard Chartered Bank Nigeria Limited came next with $654.79 million, representing 25.14 percent, and Rand Merchant Bank Plc received $488.59 million, or 18.76 percent.
In an interview with The PUNCH on Tuesday, development economist Dr. Aliyu Ilias remarked that Nigeria’s unstable foreign exchange market poses a significant challenge to attracting foreign investment. He noted that the unpredictability of the FX market often deters potential investors, making Nigeria a less appealing investment destination.
Dr. Ilias also highlighted the high cost of doing business, which is partly influenced by the elevated Monetary Policy Rate. He stated, “The forex situation is a critical issue because any investor will assess the volatility of the forex market. Additionally, the cost of operating a business in Nigeria is quite high, particularly due to the MPR.
“When considering these factors collectively, it becomes challenging for Nigerians to invest in their own country, let alone for foreign investors.” He pointed out that the instability in the FX market has resulted in the withdrawal of several multinational companies, urging the government to prioritize market stabilization.
He cautioned that while managing inflation is crucial, it should not hinder growth, advocating for a more balanced approach to the Monetary Policy Rate.
Dr. Muda Yusuf, an economist and CEO of the Centre for the Promotion of Private Enterprise, discussed with The PUNCH the challenging macroeconomic conditions as a significant factor contributing to the decline in foreign direct investment (FDI). He pointed out that Nigeria's foreign exchange (FX) difficulties adversely affect the investment landscape, particularly noting that a weakened naira complicates profit repatriation for foreign companies.
“The macroeconomic environment, especially the FX situation, is not conducive to FDI,” he remarked, indicating that this situation has prompted many multinationals to exit, further diminishing investment inflows. Yusuf emphasized that in addition to FX challenges, structural issues such as energy shortages and logistical obstacles continue to undermine investor confidence. He recommended that the government focus on stabilizing the naira to enhance investment in productive sectors.
Professor Sheriffdeen Tella, an Economics professor at Olabisi Onabanjo University in Ogun State, also linked the decline in FDI to the depreciation of the naira, stating, “the fall in naira is one of the reasons for the drop in FDI.” He noted that elevated interest rates have eroded the purchasing power of Nigerians, leading to decreased demand for goods and reduced business profitability.
Tella further explained that when local producers face difficulties, it sends negative signals to potential foreign investors, citing the challenges encountered by companies like Dangote Refinery.
He argued that addressing the FX crisis, expanding the economy, and fostering a more business-friendly environment are essential for revitalizing Nigeria’s FDI.