Foreign investment drops despite Buhari’s foreign travels
By Jeph Ajobaju, Chief Copy Editor
Foreign Portfolio Investment (FPI) inflow reduced 34 per cent to $3.39 billion in 2021 versus $5.16 billion in 2020, despite 136 travels to 42 countries by Muhammadu Buhari, who returned from his latest junket to London on March 18.
This is the least FPI in the past five years, according to Central Bank of Nigeria (CBN) data.
FPI has seen two consecutive years of decline, slashing 68.5 per cent from $16.38 billion in 2019 to $5.16 billion in 2020, from where it reduced 34 per cent to $3.39 billion in 2021.
FPI explained
FPI refers to the purchase of securities and other financial assets by investors from another country, which could be held directly by investors themselves or managed by financial professionals.
Examples include stocks, bonds, mutual funds, exchange traded funds.
The reduction in FPI can be attributed to depressed economic activities following Covid lockdown and movement restrictions in 2020. It seems, however, that domestic investors are also taking over the financial market.
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Nigeria attracts $45.1b FDI. Joins South Africa, others to dominate continental investment
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FPI contribution
Data from the Nigerian stock market shows the contribution of FPI to portfolio investment dropped to 22.9 per in 2021 from 33.6 per cent (2020), 48.9 per cent (2019), and 50.7 per cent (2018), per reporting by Nairametrics.
- A total N1.89 trillion was traded in the local bourse in 2021, which was 12.4 per cent less than N2.17 billion in 2020.
- Transactions worth N434.5 billion involved foreign investors, 22.9 per cent of total transactions.
- Local equities printed 6.07 per cent gain in the All-Share index in 2021, far below inflation rate, failing to reach the record 50 per cent gain in 2020.
- Local investors stepped up to federal government securities, oversubscribing FBN bonds multiple times, despite the low-interest rate.
- Low yield in government securities discourages foreign investors from putting funds in the Nigerian market.
Nigeria continues to suffer from a significant dip in foreign investments, both portfolio and direct investments. This affects FX liquidity.
It is compounded by reduction in export earnings, largely due to decline in crude export revenue and diaspora remittance.
Background
Experts blame the drop in foreign investment on the business environment.
They said insecurity and inflationary pressure discourage foreign investors from putting their money in Nigeria as inflation and volatile exchange rate erode returns.
Nigeria ranks 131st among 190 economies in the ease of doing business index, a grim picture of an environment buffeted by surging inflation and plummeting naira exchange rate.
