UNCTAD worried about Nigeria’s recovery as capital importation slumps
According to the National Bureau of Statistics (NBS), capital importation into Nigeria fell 47 percent last year to $5.12 billion, largely because the weak currency meant fewer dollars were required for the same naira investment from $9.64 billion imported in 2015.
Capital Importation comprises of three main investment types, namely Foreign Direct Investment (FDI), Portfolio Investment and other investments. Corroborating this fact, latest report of the Global Investment Trends Monitor of United Nations Conference on Trade and Development (UNCTAD) showed that despite a 13 per cent drop in global foreign direct investments flows in 2016, inflows to Nigeria recorded an uptick closing the year at $4 billion from $3.1 billion.
UNCTAD however warned that there are significant uncertainties that could have a material impact on the scale and contours of any FDI recovery in 2017.
“The “normalization” of monetary policy in the United States after nearly a decade of historically low interest rates could result in a significant shift in composition of capital flows, with implications for exchange rates and financial systems throughout the world and especially for developing economies.
“Rising cost of capital may hinder investment by multinational enterprises which have taken on significant levels of corporate debt in recent years. There is also substantial uncertainty about the shape of economic policies in the near-future, especially in developed economies, which may serve to dampen FDI”, UNCTAD added.
“This was the lowest value since the (data) series started in 2007, which reflects the numerous economic challenges that afflicted Nigeria in 2016,” the statistics office said.
Equity investments from portfolio investors and direct investment rose sharply from 2012 to 2014, at a time when Nigeria was one of the fastest growing economies in the world and a top destination for investment.
But a sharp drop in the price of crude oil, Nigeria’s main export, from mid-2014, slashed government finances, weakened its economy triggering a recession and battered its currency, frustrating business and leading investors to flee its markets.
The NBS said portfolio investments fell the most in 2016, deterred by the recession and the currency, down by 69.8 per cent from 2015, as investors weighed market conditions relative to expected returns.
Nigeria’s stock market fell 6.2 per cent last year while the naira lost a third of its official value against the dollar. In 2017, stocks have continued to fall, down 3.1 per cent so far, while the naira is almost 40 per cent weaker on the black market.
The NBS said Nigeria imported the bulk of its capital from Britain, the U.S. and Netherland, with the telecoms, banking and oil sectors the main beneficiaries.
For UNCTAD however, global FDI flows fell by 13 per cent in 2016, reaching an estimated $1.52 trillion, in a context of weak global economic growth and a lacklustre increase in the volume of world trade.
Equity investments at the global level were boosted by a 13 per cent increase in the value of cross-border mergers and acquisitions (M&As), which rose to their highest level since 2007, reaching $831 billion.
“A key concern for policymakers continues to be how to reactivate productive investment in their economies to generate employment and spur advances in productivity.
Despite the acceleration in economic activity, the ILO estimates that global employment growth will continue to decelerate in 2017, falling to 1.1 per cent. To take full advantage of the improving global economic environment countries must make boosting domestic and foreign investment key policy priorities”, UNCTAD stated.