There are raging concerns that the overall economic condition of Nigeria may not be favourable for foreign investors who want to do business as data obtained from the Central Bank of Nigeria (CBN) revealed that foreign direct investors’ (FDIs) disposed a total of $0.87 billion in aggregate financial assets during the third quarter (Q3) of 2023.
According to the apex bank’s Q3 2023 economic report, the figure represents an 11 per cent decline from $0.98 billion recorded in the second quarter (Q2) of 2023.
The FDIs’ decision to dispose of financial assets is occurring amid weak macroeconomic indices in Nigeria. Furthermore, the report revealed that the country’s financial account, driven by portfolio investment debt securities, recorded a higher net incurrence of liabilities of $3.74 billion or 4.6 per cent of GDP, compared with $1.25 billion or 1.2 per cent of GDP in Q2 2023.
There was an inflow of $2.86 billion in the third quarter, driven by increased portfolio investment. Similarly, non-residents invested more in debt instruments, leading to higher portfolio investment. However, FDIs experienced a divestment of $0.20 billion, particularly in direct investment equities, relative to $0.07 billion in Q2 2023. The report also revealed that ‘Other investment’ also recorded a divestment of $0.31 billion, in contrast to an inflow of $0.02 billion in the preceding quarter.
Despite the overall decline in financial assets, portfolio investments recorded a higher net acquisition of $0.07 billion, compared to $0.05 billion in Q2 2023.
The disposal in financial assets is attributed to divestment in direct and other investments, especially in equity and investment fund shares. There was also a reduction in the holdings of foreign currency and deposits by residents.
It will be recalled that the year 2023 proved to be a challenging year for businesses in Nigeria. Election uncertainties and an artificial cash scarcity at the year’s start were compounded by a poorly executed currency note redesign, restraining consumer spending in the first quarter.
Furthermore, the second quarter witnessed the rebound of the economy, but challenges escalated with fuel subsidy removal and the unification of the foreign exchange market. These reforms pushed inflation upward, causing the naira to lose over 50 per cent of its value. The cumulative impact of these macroeconomic challenges led to a significant number of businesses exiting Nigeria in 2023.
Amid this development, economic analysts have expressed their concerns over the ease of doing business in the country while adding that this signals a red flag to potential foreign investors.
Head, Research at FSL Securities, Victor Chiazor, noted that most households and businesses were rocked due to the policy reforms taken by the new administration.
“The businesses had not even recovered from the former President’s policies and when FX supply became limited coupled with the harsh operating environment led to a lot of companies exiting Nigeria. This for me does not bode well for an economy that is still very much recovering from the recession in 2016. It is now left for this administration to seek ways to change the status-quo because of more companies continue exiting, then our FDIs are at risk”. He said.
SOURCE: THESUN
