Total capital imported into Nigeria decreased by 77.88 percent from $5.85 billion to $1.29 billion between first quarter and second quarter of 2020.1 A disaggregation of the data shows that Foreign Direct Investments (FDI) declined by 30.65 percent to $148.59 million, portfolio investment plummeted by 91.06 percent to $385.32m while other investments also decreased by 42.8 percent to $761.03m in the review period. The United Kingdom, South Africa and United Arab Emirate are the top sources of capital investment in Nigeria. By sectors, shares (35.9 percent), finance (23.9 percent) and banking (10.8 percent) accounted for the most capital inflow into the country. The decline was as a result of the uncertainty associated with the COVID-19 pandemic as investors seek safer assets. Considering that the decline in capital is occurring in a context of low oil prices, foreign exchange inflows will be significantly impaired with implications on the exchange rate. While the government has minimal influence over the trends in capital inflow, alternative sources of generating foreign exchange earnings should be developed in order to induce stability into the foreign exchange market.
September 16, 2020
Nigeria Economic Update (Issue 35)
Related
Nigeria Economic Update (Issue 6)
The
nations foreign reserves have been on a steady rise. In the review week,
reserves increased by $415.2 million from $28.3 billion on February 3, 2017 to
$28.8 billion on February 10, 2017. The increase is likely the
reflection of a sustained crude oil revenue complemented by moderating global
crude oil price and increasing domestic production. This should help strengthen
the ability of the CBN to foster forex liquidity, and thus help maintain
stability in the domestic forex market. If sustained, it should also help
improve the value of the naira overtime. Hence, the government should implement
proactive and effective policy strategies to, not only, sustain improvements in
oil revenue but also boost non-oil revenue.