Published October 9, 2024
By Chinwendu Eugene.
The Federal Government’s revenue from Foreign Direct Investment into Nigeria in the second quarter of 2024 dropped to $29.83m.
An analysis of data from the latest capital importation report by the National Bureau of Statistics shows that the FDI dropped by 65.33 per cent compared to the $86.03m recorded in the same period last year.
It also dropped by 74.97 per cent from the $119.18m reported in the preceding quarter of 2024.
Economists who spoke with KBN reporters on Tuesday blamed the significant drop in FDI on naira devaluation and unstable foreign exchange market, as the naira lost about 40 per cent of its value in the first six months of 2024.
Data from the NBS shows that Nigeria’s FDI includes equity and other capital. Most of the FDI in Q2 2024 came from equity investment, amounting to $29.82m.
This represents a sharp decrease of 74.98 per cent compared to $119.17m in Q1 2024. On a year-on-year basis, equity investment declined by 65.33 per cent from $86.02m in Q2 2023.
The other component of FDI, classified as “Other Capital,” recorded a minimal inflow of $0.0085m in Q2 2024, which is down by 33.33 per cent from $0.01275m in both Q1 2024 and Q2 2023.
Although this category traditionally accounts for a very small fraction of FDI, the decline indicates a further reduction in this already limited source of capital.
Despite the claim by President Bola Tinubu that his administration has successfully drawn $30bn in FDI commitments, the decline in FDI highlights the challenges Nigeria faces in attracting long-term investment amid a challenging global economic environment and domestic issues.
KBN further observed that FDI made up only about 1.15 per cent of the total capital importation of $2.60bn in the quarter under review.
Also, foreign currency loans, which include portfolio investments and direct loans, contributed $2.55bn, representing 98.08 per cent of the total inflows.
This preference for loans over equity investments reflects investor caution, with foreign investors opting for safer financial instruments rather than committing to long-term projects.
The reliance on foreign currency loans highlights the ongoing trend where short-term investments and debt instruments dominate Nigeria’s capital importation landscape.
While these inflows can provide immediate liquidity to the economy, they do not offer the same level of stability or growth potential as direct investments into physical assets or infrastructure.
Also, KBN observed that in Q2 2024, Nigeria experienced a significant decrease in both portfolio investments and foreign currency loans.
Portfolio investments for Q2 2024 stood at $1.40bn, marking a sharp decline of 74.97 per cent from $5.60bn recorded in the preceding quarter, and a 65.33 per cent drop compared to the $4.05bn reported in Q2 2023.
Similarly, foreign loans, which constitute a substantial portion of Nigeria’s capital importation, recorded an inflow of $1.15bn in Q2 2024, reflecting a 74.98 per cent decrease from $4.60bn in Q1 2024.
When compared to the same period in the previous year, where loans amounted to $3.32bn in Q2 2023, the decline was 65.33 per cent.
KBN further observed that Nigeria’s capital importation of $2.60bn represented an increase of 152.81 per cent year-on-year compared to $1.03bn in Q2 2023.
Despite this annual growth, the figure marks a decline of 22.85 per cent from the $3.38bn recorded in the first quarter of 2024.
The decrease in quarterly figures highlights ongoing fluctuations in investor sentiment, reflecting global economic uncertainties and domestic challenges.
The report read. “In Q2 2024, total capital importation into Nigeria stood at $2,604.50m, higher than $1,030.21m recorded in Q2 2023, indicating an increase of 152.81 per cent. In comparison to the preceding quarter, capital importation declined by 22.85 per cent from $3,376.01m in Q1 2024.”
Portfolio investments emerged as the primary driver of the capital inflows, contributing $1.40bn, or 53.93 per cent of the total.
These investments often involve foreign investors injecting capital into Nigeria’s stocks, bonds, and other financial instruments, aiming for quick returns.
Meanwhile, other investments, which include loans and trade credits, followed with $1.17bn, accounting for 44.92 per cent of the total inflows.
The banking sector was the largest beneficiary of capital importation, receiving $1.12bn, representing 43.15 per cent of total inflows in the quarter.
This sector’s dominance highlights the crucial role of banks as conduits for foreign investments, facilitating access to Nigeria’s financial markets.
Following the banking sector, the production/manufacturing sector attracted $624.71m, which constituted 23.99 per cent of the total.
