Fears around Nigeria’s worsening insecurity, foreign exchange (FX) and other macroeconomic challenges have continued to impact the participation of foreigners in the local economy as total foreign portfolio investments (FPIs) declined by 94.5 per cent in nine years.
An analysis of the Domestic and Foreign Portfolio Investment Report of the Nigerian Exchange Limited (NGX) indicates that total foreign transactions, which rose to N1.4 trillion in 2014, plummeted to N71 billion in 2023. Similarly, total foreign inflow, which stood at 58.5 per cent of the total market activities in 2014, fell to 16 per cent as of November 2023.
However, total domestic transactions soared within the same period, increasing from N1 trillion in 2014 to N2.9 billion in 2023. Foreign investors’ participation in equities accounted for 80.9 per cent as of November 2014 while domestic patronage stood at 19 per cent.
But as of November 2023, total foreign transactions depreciated to 23.7 per cent while domestic patronage constituted 76.3 per cent.To restore foreign investors’ confidence, operators said security must be prioritised, noting that rising insecurity in the country has hampered economic activities, even as increasing naira depreciation has caused FPIs to shun the Nigerian market despite the reforms in the economy.
They also urged the government to ensure that trapped funds currently being released by CBN and the FX market must be transparently organised.Chief Executive Officer of Wyoming Capital and Partners, Tajudeen Olayinka, said the security and FX issues remain major concerns for discerning investors, especially foreigners.
According to him, this is so because the planned exit value of an investment cannot be ascertained with some degree of probability.
“Investors want to see a predictable foreign exchange rate and a secure business environment before taking both short-term and long-term investment decisions.
“We must understand that these two problems came from mismanagement of the economy by the immediate past regime. It could take time for Nigeria to be out of these problems, considering the current low level of foreign reserves and liquidity challenges in the foreign exchange market, coupled with unsustainable mountains of public debts,” he said.
Vice President of Highcap Securities, David Adonri said declining FPI in Nigeria is not surprising.
According to him, Nigeria’s sovereign rating has been negative due to insecurity and trapped foreign investors’ funds or capital control for several years. He added that unless the government becomes more strategic in tackling security and FX issues, foreign investment in Nigeria would continue to wane.
