People & Money

Capital Importation into Nigeria Drops in Q1 2023

As reported by the National Bureau of Statistics (NBS), foreign investment inflows in the first quarter of 2023 decreased year-on-year to $1.1 billion compared to $1.6 billion during the corresponding period in 2022. Nevertheless, the total investment inflows remained unchanged on a quarterly basis.

Capital importation typically comprises Foreign Portfolio Investment, Foreign Direct Investment, and Other Investments. The “Other” investments category encompasses foreign loans, trade credits, currency deposits, and other claims. The drop in foreign investment inflows during Q1 2023 is attributed to a drop in the value of all three components.

Also Read: Nigeria’s Capital Inflow Drops to $5.33bn in 2022

The decrease in foreign investment inflows during the first quarter of 2023 was caused by a drop in the values of all three components of capital importation. The Foreign Portfolio Investment dropped 32% year-on-year in Q1 2023 from the $957.6 million recorded in Q1 2022 to $649.3 million. In Q1 2023, Foreign Direct Investment (FDI), which is typically the most consistent source of investment, amounted to $47.6 million. Representing a significant decline of 69.3% compared to the $155 million recorded in Q1 2022. “Other” investments experienced a 5.4% year-on-year decline, decreasing from $460.6 million in Q1 2022 to $435.8 million in Q1 2023. Notably, foreign loans constituted almost 100% of Nigeria’s other categories of foreign investment in the first quarter of 2023.

The breakdown of capital importation continues to favour Foreign Portfolio Investment (FPI), comprising 57% of total inflows in the first quarter of 2023. This marks a decrease from the 61% share observed in the first quarter of 2022. Conversely, the share of Foreign Direct Investment (FDI) declined to 4% in 2023Q1 from 10% in 2022Q1. On the other hand, the share of “Other” investment increased to 38% in the first quarter of 2023.

The Nigerian Stock Exchange (NGX) reported a significant decline in the participation of foreign investors in the equities market, dropping to 4% in Q1 2023 compared to 23% in Q1 2022. However, there was a remarkable surge from Q4 2022 which can be attributed to the political risks associated with the 2023 Elections.

The United Kingdom remains the top contributor of foreign investments to Nigeria. In Q1 2023, the United Kingdom accounted for 59.5% of the total inflows, equivalent to $673.6 million. The United Arab Emirates, the United States, South Africa, and Singapore completed the list of the top five capital importation sources into Nigeria, all accounting for a combined share of 32.2% during the quarter.

With a substantial share of 62% in the overall investment inflows during the first quarter of 2023, Lagos continues to be the country’s most appealing investment destination. Following closely behind, the Federal Capital Territory, Abuja, maintained its position as the second-largest investment hub, capturing 36% of the total investment inflows (amounting to $410.3 million). Additionally, seven other states, spearheaded by Akwa Ibom, collectively accounted for a modest 1% share (US$17.5 million) of the investment inflows in Q1 2023.

Also Read: Nigeria’s GDP Growth Rate Declines to 2.31% in Q1 2023

Economists have asserted the recent moves by the new administration such as the elimination of fuel subsidies and the liberalization of the foreign exchange (FX) market are fostering an environment that attracts foreign investment inflows. Especially as some of the challenges faced by businesses under the last administration include the obstacles in repatriating funds abroad and FX scarcity.

David Olujinmi

David Olujinmi studies Engineering but his true passion is research and analysis. He writes about finance, particularly the capital market, investment banking, and asset management. More »

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