Analysts Task FG to Address insecurity, others for improved capital inflows

The Federal Government has been urged to tackle security challenges and implement economic reforms, to be able to attract long-term foreign direct investment (FDI) and encourage capital inflows to the country,

The submission was given by analysts at Cowry Asset Management Limited .The analysts spoke while reacting to the latest data on capital importation recently published by the National Bureau of Statistics (NBS), which showed that Nigeria recorded a 36.45 per cent decline in capital importation in the third quarter of 2023, amounting to $654.65 million, compared with the preceding quarter’s data. Noting that the downward trend also marked a 43.55 per cent reduction compared to the same period in the previous year when capital importation stood at $1.16 billion, the analysts said: “Capital importation inflow into Nigeria’s economy has failed to rebound to the pre-pandemic quarterly average of N5 billion. Although, this decline signals significant fall across the three broad categories in the third quarter, it raises concerns and prompts a closer examination of the factors contributing to this significant downturn in foreign investment into the economy.

“Also, the concerns have continued to hover around policies on foreign exchange liquidity as well as other macroeconomic challenges that can continue to hamper on the sustainable inflow of investments.” In addition, the analysts stated: “The declining trend in capital importation as well as the failure to rebound to the pre-pandemic era paints a picture of concern. While the decline in capital importation is concerning, it is imperative to contextualize it within broader global economic trends and Nigeria’s specific challenges, such as security concerns. …Going forward, addressing security challenges, implementing economic reforms, and actively attracting long-term FDI will be paramount to rejuvenating capital inflows and fostering sustained economic growth in Nigeria.” Further analysing the categories of capital importation in the NBS’ data, the analysts noted that “the majority was attributed to Other Investment, constituting 77.56 per cent or $507.77 million of the total inflow during the quarter, followed by Portfolio Investment at 13.31 per cent or $87.11 million and Foreign Direct Investment (FDI) at 9.13 per cent, which is equivalent to $59.77 million.”

They pointed out that production/ manufacturing sector emerged as the sector that foreign investors found most attractive as it garnered 42.70 percent ($279.51 million) of the total capital, which, according to them, signals a potential for economic diversification. There has been growing concern in recent times about the exit of major manufacturing firms from the country. Early last month, for instance, multinational manufacturing company, Procter & Gamble (P&G) announced that it would be closing part of its operations in Nigeria due to the harsh operating environment. Also, Q3’23 Gross Domestic Product (GDP) data released by the NBS showed that manufacturing sector’s real GDP growth was 0.48 per cent in Q3’23, a 78.12 per cent decrease compared to the 2.20 per cent recorded in Q2’23. Reacting to the development, analysts at CSL Research urged the Federal Government to prioritise forex intervention for manufacturing companies through the official market, as part of measures to curb the problems of players in the sector. They also called on the government to improve critical infrastructure such as power and scrap the multiple taxes levied on manufacturers. The analysts said: “In our view, the government needs to find ways to ameliorate the problems faced by manufacturers such as prioritizing forex intervention for companies in the sector through the official market, improving infrastructure such as power and putting an end to the multiple taxes levied on manufacturers.”

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