USD 5.2 Bn Lost And Counting – How Nigeria’s Dilly-Dallying Is Drying Up Foreign Investments

Since the beginning of the Muhammadu Buhari-led administration in 2015, foreign portfolio investors have withdrawn a total of NGN 1.87 Tn (about USD 5.2 Bn) from Nigeria.

It is more than five months since Nigeria went to the polls and exactly two months since Nigeria’s President, Muhammadu Buhari, took office for his second term in office.

But in all that time, the country has been forced into a standstill as the returning President continues “to take his time” to form a cabinet, which would’ve been okay if “taking his time” didn’t feel like “taking forever.”

Nigeria has been here before and as crazy it seems, it can actually be worse. When President Buhari first took office in 2015, it took him six months to put his house in order. Yes, six months! The country just drifted through six months without direction. And here we are again.

The result? Well, for starters, investor confidence has taken a serious hit, and the numbers support this. Starting from June 2015, about the same time as when he was sworn into office for his first tenure, foreign portfolio investors (FPIs) have withdrawn a total of NGN 1.87 Tn from Nigeria.

As per data from the Nigerian Stock Exchange, it is on record that investors withdrew NGN 163.77 Bn after his re-election in February. This can only mean one thing; that people aren’t crazy about putting their money on a horse that won’t even get on the track, let alone race.

Critics have pointed to the delayed policy formulation and cabinet formation by President Muhammadu Buhari as hindrances to capital inflow to the country. 

The feeling among experts is that due to the lack of wholesale changes in the policy environment, capital importation into the country has been dominated by FPIs on the lookout for naira assets that come on the cheap. Foreign Direct Investments, the good stuff in many ways, has, thus, been relegated to the sidelines and that has taken its toll on capital importation. And now, even the FPIs are drying up.

Citing NSE data, it can be found that the year 2018, the preceding year to the recent general elections, saw the highest withdrawals of the FPIs in four years, as they funnelled NGN 642.65 Bn out of the country. 

By all accounts, investors have grown wary of Buhari’s dilly-dallying over reforms and the lack of direction is scaring FPIs off equities and will continue to do so if deliberate action is not taken to ensure policy stability and perhaps an attractive interest rate could help spur more appetite for fixed income instruments.

Data from the National Bureau of Statistics suggests that the FPI flows continued to account for the bulk of capital imported into Nigeria.

In the first quarter of 2019, the amount rose by 56.5 per cent year-on-year to USD 7.1 Bn, despite the uncertainties that trailed the general elections which took place in February and the eventual conduct in Q1.

Total capital imported into the country grew by 34.6 per cent year-on-year to settle at USD 8.5 Bn, the highest since the third quarter in 2013. This implies that across the three components of capital imported, the FPIs accounted for the bulk of expansion observed.

But that too has been put under threat in recent times given the country’s economic situation. Weaker capital inflows hint at waning confidence in the Nigerian economy by foreign investors and this is coming at a time when concerns about the macroeconomic fundamentals of the Nigerian economy are rife.

The FPIs have, thus, bolted too. In the second half of 2015, which was the first six months of President Buhari’s tenure, the FPIs withdrew NGN 277.63 Bn, the highest being in July, when they withdrew NGN 58.83 Bn.

In 2016, the FPIs withdrew NGN 261.03 Bn; NGN 435.31 Bn in 2017 and NGN 642.65 Bn in 2018. In the first half of 2019, the foreign investors withdrew NGN 257.81 Bn, bringing the total withdrawals under the President Buhari regime to a staggering NGN 1.87 Tn.

As the Nigerian government continues to drag its feet with respect to economic policy reforms — something that is not helped by the delays in putting a functional team together — it is expected that investors will continue to move their money elsewhere, well, except someone moves a lot quicker to fix things.

Featured Image Courtesy: stearsng.com