The investment market in the country is feeling the effects of aggressive global monetary tightening and rising political and business risks, with capital importation dropping by 20% last year according to data released by the National Bureau of Statistics (NBS). This is according to a report by The Guardian, which further describes the situation as a significant decrease from $6.7 billion in 2021 to $5.33 billion in 2022, just ahead of the country’s general election. The impact of the election on the capital inflow, which is a measure of market attractiveness, was particularly felt in Q4, with a 51.51% decrease in year-on-year changes compared to Q4 2021. In addition, the recent fall in capital importation has been attributed to increasing business risk, insecurity, political risk, foreign exchange market rigidity, and the high arbitrage between official and black markets.
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On a state-by-state analysis, Lagos accounted for the majority of the inflow at 68% or $3.61 billion, while the Federal Capital Territory (FCT) recorded $1.63 billion or 31%. Interestingly, 27 states, including Abia, Bauchi, Bayelsa, Benue, Borno, Cross Rivers, and Delta, did not receive any inflow, and Ogun and Rivers had zero capital importation for the entire year. Production, banking, and telecommunications received the bulk of the capital, accounting for 37.01%, 24.08%, and 15.86%, respectively. Share and trading received over 5% each, while oil and gas, which used to be a major foreign investment attraction, received only 0.21% of the total inflow.
According to economist Eze Onyekpere, the uncertainty surrounding the 2023 elections and the likely policy direction of the new administration were key factors contributing to the poor performance of capital inflow. Onyekpere, who is the Lead Director of the Centre for Social Justice, explained that the fall was a result of investors adopting a wait-and-see approach in the lead-up to the first-quarter general elections.
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“Many investors and stakeholders wanted to see the outcome of the elections, the new policy framework and whether there would be peace in the country before committing in terms of investment,” he said.
According to him, if the new administration follows a policy direction that investors view as favourable and provides a positive economic outlook, there is a high possibility of a rebound.
