LAGOS  – Increased pressure on Foreign Portfolio Investment (FPI) and Foreign Direct Investment (FDI) in Nigeria, is in the offing on account of th

e depreciation of the Naira and improvement in yield environment for short term play, analysts have said. 

Besides, they warned that despite the fact that the FPI, the largest component of the total capital importation with 61.5% share ,advanced 219.7% y/y to $2.1bn, driven by improved inflows into money , up 1,175.2% and bonds up 39.8% markets, equities declined 77.8% y/y to $49.4m , lowest Q1 inflows since 2022 at $31.8m. 

They further warned that despite the fact that the FDI sub-component rose 150.4% y/y to $119.2m during the period, it declined 35.2% q/q, owing to further exits of multinationals such as Bayer Pharmaceuticals in January 2024. 

Mr. Adewale Oyerinde , Director General of Nigeria Empl0oyers’ Consultative Association (NECA), in a chat with Daily Independent, said the capital importation reality of developed economies, does not bode well for the nation’s economy as it implies the lack of confidence by foreign investors to invest their assets in Nigeria directly because of unforeseen uncertainties” 

According to him, the sharp uptick in capital inflows to fixed income instruments especially, money market as recently published by the National Bureau of Statistics (NBS) is not surprising given that the CBN relaxed the yield repression strategy to lure portfolio investors. 

He said: “We are not surprise that the CBN during the quarter in review, hiked MPR by 600bps to 24.75%, while stop rates on the 90, 180, and 364-day NT-Bills tracked higher to 16.2%, 17.0% and 21.1%, respectively, hence the sharp uptick in capital inflows in the short run, but will not be so at the long run” 

Afrinvest researchers in their Weekly Update “Bittersweet Taste as Capital Inflows is set to Hit a Five-Year High’ stated that the challenging business environment in Nigeria has heightened the risk of loan default for businesses tapping into FCY markets to drive operations. 

According to their report, elsewhere, Foreign Currency Loans (FCY: up 165.3% y/y) contributed 94.0% of inflows in other Investments segment of the capital importation data (up 171.1% y/y to $1.2bn). 

“This reality does not augur well for the nation’s economy as it implies the lack of confidence by foreign investors to directly invest their assets in Nigeria both in the short and long run. 

“Besides, given the current pricey state of capital in the global market especially for emerging economies with weak credit ratings like Nigeria (Fitch Ratings: B-), we imagine that the FCY loans , which were mainly to private businesses, were secured at elevated rates. Hence, while capital importation is well on course to hitting a five-year high , current run rate should deliver $13.5bn, it then becomes a bittersweet moment as Nigeria can’t afford to keep relying on expensive loans to boost foreign investment inflows. 

“Moreover, the challenging business environment in Nigeria has heightened the risk of loan default for businesses tapping into FCY markets to drive operations. 

Anwual Ibrahim Rafsanjani, Executive Director, of Civil Society Legislative Advocacy Centre (CISLAC), advocated the need for the continued intervention in key sectors of the economy by both the fiscal and monetary authorities, suggesting that this will boost economic growth. 

He told Daily Independent that: “It is a fact that the material depreciation of the Naira over the last year have made Naira portfolios attractive to FPIs for short term play, but the FDI declined 35.2% q/q, owing to further exits of multinationals such as Bayer Pharmaceuticals in January 2024, despite its 150.4% y/y to $119.2m rise during the period. 

“We call on Federal Government to ensure that Nigeria steadily move away from the current mono-product economy to increase the country’s foreign exchange earnings and raise the value of Nigeria’s currency” 

An executive director of a new generation bank in Nigeria, who craves anonymity, told Daily Independent that raising the value of the Naira will take a multi-pronged approach, including ensuring there is an increase in earnings, exporting more and driving infrastructural development through local and foreign direct investments. 

“One of the major issues is that Nigeria have to earn more foreign exchange to raise the value of the Naira, and so, have to do more business internally to raise the value of the Naira. So diversifying the economy is an important way to strengthen the value of the Naira”, the banker said.