… as capital importation falls to $1.03bn

In spite of President Bola Tinubu-led Federal Government favouring market reforms, with the naira floated and subsidy on petrol removed, foreign investors, for the second quarter running in 2023, have developed lacklustre attitude towards the Nigerian economy following another decline in capital importation into the country at the end of the second quarter of 2023.

Capital importation is the money brought into a country by foreign investors.

Based on the data published recently by the National Bureau of Statistics (NBS), capital importation declined by 9 percent to $1.03 billion at the end of the second quarter from $1.13 billion as of March 2023.

Compared with the first and second quarters of the previous year, capital importation fell by 28 percent at the end of the first quarter of this year, and by additional 32.9 percent in the second quarter of 2023 compared with a similar period in 2022.

Nigeria floated its national currency, the naira, whose exchange rates to other international currencies, especially the United States dollar, are now determined by market forces. The naira currently exchanges to the US dollar at about N759.21/$ at the I&E window compared with N451.60/$ in January 2023.

Notwithstanding, capital inflows as measured by capital importation, have been on the downward trend since January 2023.

“It is basically a loss of investor confidence. Investors are not willing to bet on Nigeria given the macroeconomic issues such as government reforms which have stalled,” Tunde Abidoye, a senior financial analyst, said.

The Nigerian Observer also found out that the sources of capital importation also reduced in the second quarter in the sense that as against 34 countries where capital importation came from during the first quarter of 2023, the number fell to 27 at the end of the second quarter.

Lagos, Abuja, Ogun and Akwa Ibom states were the destinations of the capital imported into this country as of June 2023, compared to nine states during the first quarter of this year.

Meanwhile, the Nigerian Association of Chambers of Commerce and Industry, Mines and Agriculture (NACCIMA) has assured Nigerians that the current reforms, especially the floating of the naira, will benefit the nation in the medium to long term.

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“We note the current macroeconomic, security and socio-political challenges are bound to create ripples in the market, hence the current instability in the value of the naira. Unlike other industrialised countries with significant non-oil exports where devaluation of currency automatically leads to more foreign exchange income, Nigeria cannot benefit significantly from such devaluation of the naira in the short term, because of our low non-oil exports. Even the gains to be derived from the increase in the price of crude oil are substantially eroded due to the high bill for imported petrol and diesel incurred by the government, because of the poor non-working conditions of our local refineries,” Dele Oye, NACCIMA president, said.

“The government has taken bold steps with the deregulation of the naira and the end of fuel subsidies, which have had a positive impact in creating a stable and predictable economic environment. In the oil and gas sector, the government has shown a commitment to reforming the industry to promote transparency and modernization. The government has also recognized the potential of the creative industry, which could provide significant employment and revenue opportunities for the country. These efforts have created a sense of optimism in the business community, and we are hopeful that they will lead to significant improvements in the economy,” Oye said.

In terms of the financial institutions through which capital was imported during the quarter, 62 percent of the total capital imported during the second quarter of this year came in through Citibank Nigeria, $187.8 million; First Bank of Nigeria, $323.13 million, and Rand Merchant Bank, $126.03 million.

When ranked by capital importation by type, the loan component of investments captured as Other Investment, attracted $771.53 million, amounting to 75 percent of the total capital imported into the country.

As of March 2023, the same item accounted for 38 percent of the capital imported into Nigeria. Other investment types that attracted inflows during the second quarter of 2023 include bonds, $85.3 million; equity, $86.03 million and other claims, $65.8 million.

Unlike in the first quarter when it attracted $256.12 million, representing 22.6 percent of that quarter’s capital importation, production and manufacturing sector got the most attention from investors as the sector recorded an inflow of $605.04 million, representing 58.7 percent of the capital importation into the country as of June 2023.

Other sectors or activities of importance to investors include banking, shares, financing and trading. Banking attracted $194.58 million, representing 18.9 percent of the total capital imported during the second quarter of this year. Financing attracted $63.8 million while trading received $46.6 million, amounting to 6.2 percent and 4.5 percent, respectively.

It should be noted that the floating of the naira is one of the cardinal programmes of the current Federal Government.

“To ensure that exchange rate policy harmonises with our goals of optimal growth and job creation driven by industrial, agricultural and infrastructural expansion, we will work with the Central Bank and the financial sector to carefully review and better optimise the exchange rate regime.

“Our economic policies shall be guided by our desire for a stronger, more stable Naira founded upon a vibrant and productive real economy,” President Tinubu said in his Renewed Hope Agenda.