According to the Central Bank of Nigeria’s (CBN) economic report for the third quarter of 2023, foreign direct investors have significantly increased their asset disposals in Nigeria, reaching a substantial $200 million.
This surge highlights a growing trend of foreign subsidiary divestiture, where multinational corporations are shifting their business activities away from Nigeria.
The foreign direct investment (FDI) segment experienced a remarkable divestment of $200 million, a notable surge of 186% from the $70 million recorded in Q2 2023, primarily due to divestment in direct investment equities.
In contrast, the CBN report also points out a substantial influx of $2.86 billion, a 28.25% increase from $2.23 billion in the previous quarter. This uptick is credited to heightened portfolio investment, particularly in debt instruments by non-residents.
The CBN report stated:
“There was an inflow of US$2.86 billion, compared with US$2.23 billion in the preceding quarter. The development was a result of increased portfolio investment, occasioned by higher investments in debt instruments by non-residents. FDI recorded a divestment of US$0.20 billion, relative to US$0.07 billion in Q2 2023, due to divestment in direct investment equities.”
Divestment in Other Investments Surges to $310 Million
Further examination reveals that ‘Other Investment’ also underwent a divestment of $310 million, in contrast to a $20 million inflow in the previous quarter.
According to an earlier report on capital importation for Q3 2023 by the National Bureau of Statistics (NBS), Other Investment constituted 77.56% ($507.77 million) of all capital importation, followed by Portfolio Investment ($87.11 million or 13.31%) and Foreign Direct Investment (FDI) with $59.77 million or 9.13%.
Total Financial Asset Disposal Reaches $870 Million in Q3 2023
Total financial assets disposed amounted to $870 million in Q3 2023, a shift from the $980 million acquisition in Q2 2023. This change is attributed to the disposal of direct and other investments, including equity and investment fund shares, alongside a reduction in the holdings of foreign currency and deposits by residents.
On the flip side, portfolio investments recorded a higher net acquisition of $70 million compared to $50 million in Q2 2023.
The CBN report detailed:
“There was a disposal of US$0.87 billion in aggregate financial assets, compared with an acquisition of US$0.98 billion in Q2 2023. The development reflected the disposal of direct and other investments, particularly, equity and investment fund shares and the reduction in the holdings of foreign currency and deposits by residents. In contrast, portfolio investments recorded a higher net acquisition of US$0.07 billion, compared with US$0.05 billion in Q2 2023.”
Insights into the Economic Landscape
Delving deeper into the economic landscape of 2023 reveals a challenging year for businesses in Nigeria. Election uncertainties, an artificial cash scarcity, and poorly executed currency note redesign restrained consumer spending in the first quarter.
While the second quarter witnessed an economic rebound, 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% of its value. The cumulative impact of these macroeconomic challenges led to a significant number of businesses exiting Nigeria in 2023.
One notable exit occurred in August 2023 when GSK UK Group announced the cessation of commercialization of its prescription medicines and vaccines in Nigeria. Hindered by challenges in accessing forex, the company pivoted to a third-party distribution model, raising concerns over the ease of doing business in Nigeria and signaling a red flag to potential foreign investors.
