- The UK, USA, RSA, Singapore, and UAE contributed 79% of Nigeria’s capital imports from 2019 to H1 2023, with declining investments.
- Major countries like the UK, USA, RSA, Singapore, and UAE witnessed significant declines in their foreign investments, with Mauritius also declining, posing challenges for Nigeria’s investment retention.
- The decline in foreign investments is linked to the global economic slowdown due to COVID-19, Nigeria’s challenging business environment, capital controls, budget deficits, falling oil prices, insecurity, and corruption. Optimism for increased investments in 2023 hinges on Nigeria addressing these issues.
According to a Nairametrics analysis, based on the NBS report, foreign investment inflows from five countries – the United Kingdom (UK), the United States of America (USA), the Republic of South Africa (RSA), Singapore, and the United Arab Emirates (UAE) accounted for a substantial 79% of Nigeria’s capital importation between 2019 and H1 2023.
However, these major contributors have witnessed significant reductions in their investment values.
The UK experienced the most substantial decline, plunging by a staggering 85.49% from $11 billion in 2019 to an anticipated annualized value of $1.61 billion in 2023.
Similarly, the USA followed suit with an 84.4% drop, from $4.69 billion to an expected annualized amount of $734.6 million in 2023.
RSA, Singapore, and UAE also joined this downward trend, with decreases of 80.6% each, translating to $456.2 million, $494.56 million, and $418.82 million, respectively, based on the H1 2023 annualized figures.
Noteworthy contributors with inflows exceeding $1 billion during this period include the Netherlands, which declined by 78.3% from $607 million to an annualized amount of $131.75 million in 2023, and Mauritius, which dropped by 79.9% from $644.60 million to $129.58 million annualized for 2023.
This concerning trend underscores the challenges faced by Nigeria in attracting and retaining foreign investments from its key partner countries.
Declining Numbers
A comprehensive examination of the data reveals a consistent downward trajectory in foreign investment inflows from the United Kingdom (UK), the United States of America (USA), the Republic of South Africa (RSA), Singapore, and the United Arab Emirates (UAE) over the years.
The UK, as the financial hub of Europe, stands as Nigeria’s top trading partner for foreign investments. In 2019, it recorded a significant $11.01 billion in inflows.
However, this figure has seen a substantial decline over the years. Between 2020 and 2021, inflows decreased by 65.1% and 45.1%, respectively, with a modest uptick of 20.8% in 2022. Current projections indicate a further decline of 41.7% when H1 2023 volumes are annualized.
Similarly, the USA, RSA, Singapore, and UAE have all experienced notable reductions in their investment inflows. The USA saw an 84.2% drop from its 2019 figure of $4.69 billion, while RSA witnessed a 62.8% decrease from $2.35 billion.
Singapore’s inflows dipped by 47% from $1.02 billion, with UAE being the exception, showing a growth of 13.7% from $790.74 million between 2019 and 2020.
The trend continued in 2021 and 2022, with the USA experiencing consecutive declines of 8.7% and 57.7%, Singapore declining by 13.9% and 9.4%, and UAE’s inflows falling by 60.3% and 21.2%. RSA saw a brief increase of 20.4% in 2021 before facing a further decline of 59.3% in 2022.
Despite these overall declines, there is a glimmer of hope on the horizon. Excluding the UK, current H1 2023 data, when annualized for 2023 and compared to 2022’s total inflows, projects increased foreign investment inflows from the other four countries.
The USA is expected to experience a remarkable 156% increase, rising from $286.92 million to approximately $734.55 million, while RSA is projected to grow marginally by 6.4% from $428.73 million to $456.18 million. Singapore anticipates a 17.5% increase from $420.97 million to $494.56 million, and the UAE foresees a 48.6% rise from $281.78 million to $418.82 million.
Notably, Mauritius, known for its tax haven status, contributed a total inflow of $1.98 billion between 2019 and 2022, ranking as the second-highest African country and seventh globally for foreign investment inflows into Nigeria.
However, when looking at H1 2023 annualized inflows, foreign investment is projected to peak at $129.58 million from a peak of $690.91 million in 2021, indicating a shift in investment dynamics by companies into the Nigerian economy.
Reasons for decline
Despite the promises and commitments made by various countries to enhance economic ties with Nigeria, foreign investment inflows from these five nations have experienced a notable decline, influenced by various factors.
A prominent factor is the global economic slowdown stemming from the COVID-19 pandemic, which triggered worldwide lockdowns in 2020.
Nigeria, too, grappled with its second recession in five years during 2020, with a modest 0.11% real GDP growth rate only emerging in Q4 of that year.
Additional challenges encompass the business environment, capital controls, recurring budget deficits, diminishing oil prices, insecurity, and corruption.
This collective set of issues resulted in the previous administration’s worst performance in attracting foreign investments in eight years (2015 to 2022). During this period, $37.97 billion invested hailed from these pivotal countries, between 2019 and 2022 from these nations.
Furthermore, foreign investors encountered difficulties in repatriating their invested funds from Nigeria, underscored by the UAE’s suspension of travel flights to and from Nigeria and outstanding debt repayments amounting to approximately $10 billion.
These challenges present formidable obstacles to Nigeria’s efforts to attract foreign investments and fortify its economic stability. Nevertheless, there appears to be a glimmer of hope on the horizon, as 2023 projects a more optimistic outlook based on H1 2023 annualized inflows from the USA, RSA, Singapore, UAE, and Mauritius.
What you should know
US Deputy Treasury Secretary Mr. Adeyemo reaffirmed the USA’s commitment to invest in Nigeria. A stable currency and a robust macroeconomic framework are crucial for attracting foreign investment.
- He said, “Nigeria lacks a macroeconomic framework that is going to help to bring more foreign direct investments including dollar-based foreign investments into the country.
- “The early steps the government has taken are good in terms of what they have done (fiscal policy), in terms of what they are trying to do with unifying the exchange rates.
- “More needs to be done and they recognize that. The truth is as companies around the world become more comfortable with their approach, you would expect that Nigeria would be a destination for FDI.”
