Nigeria’s Foreign Investment Plunges 74% In Q1 Over FX Restrictions
Foreign investment in Nigeria plunged 74 percent in the first three months of this year mainly due to foreign exchange restrictions that have made it difficult for investors to repatriate their earnings from the West African nation.
Capital Economics Africa said in a report quoted by BARRON’S that investment into Africa’s largest oil producer dropped to just $711 million in the first quarter, 74 percent less than they did in the same period in 2015.
“Complex FX restrictions caused Nigeria to be ejected from a widely-tracked JPMorgan EM bond index in Q3 2015 and have deterred potential investors who worry about repatriating earnings,” John Ashbourne, an economist at Capital Economics Africa, said in the report.
“Many investors are waiting for the naira to be devalued towards something closer to the parallel market rate,” he added.
Nigeria has been facing tough financial times since last year after oil prices, its main export commodity, dropped on the international market and has not yet recovered.
Oil exports account for over 70 percent of the country’s budget and a drop in revenue from the commodity has starved the West African nation of finances.
Ashbourne said a fall in foreign direct investment (FDI) “will exacerbate Nigeria’s balance of payment problems”.
“Low oil prices have caused the current account deficit to widen, leaving Nigeria dependent on foreign borrowing to fund domestic consumption,” he said. “If Nigeria cannot fund this, the country will be forced to reduce imports (denting consumption) and/or burn through its already dwindling FX reserves.”
This is likely to cut growth in Africa’s largest economy to less than two percent, the worst in more than a decade.
Ifeanyi Uddin, of the Strategy and Corporate Development Department of First Bank, told Daily Trust the country’s FDI flow had declined between 2011 and 2014.
Nigeria was dislodged from being the top destination for investors in 2013 and foreign exchange management challenges could adversely affect its FDI dlow in 2016, Uddin said.
Nigeria is also struggling with a deteriorating security situation with frequent attacks on civilians by Islamic group Boko Haram and recently there has been a flare up of attacks in the South Eastern state of Enugu, carried out by Fulani Pastoralists (who mainly come from the north).
Source: Kevin Nwanza – http://afkinsider.com/125141/foreign-investment-in-nigeria-plunges/
