In early June, Nigeria’s statistical agency, the National Bureau of Statistics (NBS) released the Nigerian Capital Importation report, which detailed a decline in capital importation into the country in the first quarter of 2022.
The report shows that the total value of capital importation into Nigeria in the first quarter of the year was only $1.57bn, slumping from $2.18bn in the preceding quarter, a decrease of 28%. The decline is not limited to the first quarter of 2022; when compared to the corresponding quarter of 2021, capital importation was found to have decreased by 17.46% from $1.9bn.
Further analysis of the data shows that there has been a consistent year-on-year decline in the past few years. Capital importation dropped from $23.99bn in 2019 to $9.66bn in 2020 and $6.7bn last year.
Capital importation consists of three baskets: foreign direct investment (FDI), foreign portfolio investment (FPI) and other investments. All of them bring in the necessary capital to create jobs and enhance liquidity, but experts say increasing FDI, which involves investing in long-term assets like creating or acquiring a manufacturing facility, is the most important to Nigeria.
FDI is the most important factor
In the Q1 report, just 9.85% ($154.97m) came in from FDI. By contrast, FPI, which targets financial assets such as stocks or bonds, accounted for 60.87% ($957.5m). This was followed by other investment with 29.2% ($460.6m).
Sector-wise, capital importation into the banking sector accounted for 52% of the total capital imported in the first quarter of 2022.
The dominant performance of FPI and increased capital importation into the banking sector account for the positive performance of the capital market, says Anthony Orji, who lectures in finance and development economics at the University of Nigeria, Nsukka.
However, talking on TVC News, Tajudeen Ibrahim, director of research and strategy at Chapel Hill Denham, an investment banking, securities trading and investment management firm in Lagos, described FPI as “hot money” which flies in and out quickly, and insisted that FDI is the most important factor for boosting Nigeria’s lagging economic growth, which this year is estimated at just 3.4% by the IMF.
