Policy inconsistency, capital control bane of FDI
FINANCIAL analysts have listed policy inconsistency and capital control measures as impediments to capital importation and Foreign Direct Investment ( FDI) inflow into Nigeria.
Analysing Nigerian investment climate in its 2020 full year report, Codros Securities Limited said amidst the global search for high yields in emerging and frontier markets, and given ultra- low yields in advanced economies, capital importation into Nigeria has continued on a downward trend, dropping to its lowest level since first quarter ( Q1), 2017.
In addition, they said such policy summersaults have also made foreigners shun the economy in favour of its peers.
Consequently, the total capital imported into the country declined by 26.8 per cent quarter- on- quarter in Q4, 2020 to $ 1.07 billion. ‘ In our Q2- 20 capital importation report, we expressed that the low capital importation into the country will persist in the near term until foreign investors see policy action that increases their confidence in the stability and liquidity of the naira, and more attractive fixedincome yields, vs. peers. “True to our prognosis, capital importation dipped in 2020FY dipped by 56.7 PER CENT to USD9.68 billion ( 2019FY: USD23.99 billion) according to the data released by the NBS last week. “To underscore the scale of things, we note that the aggregate of capital importation from Q2- 20 to Q4- 20 ( USD3.83 billion) was 34.6 per cent less than the total capital inflows to the country in Q1- 20 ( USD5.85 billion) right before the pandemic ravaged the global economy.”
According to the data released by the Nigeria Bureau of Statistics ( NBS) at the weekend, capital importation dipped by 56.7 per cent in 2020 full year to $ 9.68 billion from $ 23.99 billion achieved in the corresponding period in 2019, and 42.4 per cent reduction compared to $ 16.81 billion recorded in 2018.
Nigeria recorded its lowest capital inflows in the past four years in 2020, since 2016 when it received $ 5.12 billion inflows.
However, the analysts expressed optimism of a marginal pickup in capital importation given the recent uptick in yields as well as expectation of further devaluation of the currency.
However, it expects major downside risk to stem from the conflicting policy actions, which, according to them, have continued to deter confidence in the Nigerian economy. “Looking ahead, we expect a marginal pickup in capital importation given the recent uptick in yields as well as our expectation of further devaluation of the currency which we believe will support improvement in FPI inflows.
“For us, the major downside risk stems from the conflicting policy actions that continue to deter confidence in the Nigerian economy,” they concluded.
THE Nigeria Economic Summit Group ( NESG), has urged the Federal Government to always consider the implications of its economic policy choices, stating that wrong choices cast a strain on an ailing economy.
In its latest Economic Outlook, the Group noted that some policy choices have a lingering impact on the economy even if they are eventually reversed.
The group specifically identified the closure of land borders as one of such policies that ended up exacerbating the country’s economic challenges.
Consequently, the NESG urged the government to always liaise with relevant stakeholders, for a proper assessment of prevailing situations, before taking policy decisions.
Recall that local manufacturers and members of the
Organised Private Sector ( OPS), had kicked against the border closure, citing lack of strategy in the implementation and expected outcome.
“Wrong policy choices cast a strain on an ailing economy. Even before the outbreak of COVID- 19, the implementation of land border closure resulted in a decline in earnings from non- oil exports.
“This policy decision reversed the few gains made in the last couple of years and further exacerbated the challenges facing the economy.
“In addition to a sharp and consecutive increase in prices, inflation rate rose from 11 per cent in August 2019 to 14.9 per cent in November 2020. The economy has recorded consecutive trade deficits since the fourth quarter of 2019.
“The closure was a heavy policy decision that required the input of the private sector, especially given its implications on businesses, both formal and informal players,” it said in the 2021 report.
NESG Chairman, Asue Ighodalo, also urged the Federal Government to take more interest in promoting the country’s non- oil exports to reap maximum benefits from the African Continental Free Trade Area ( AFCFTA) agreement.
Ighodalo said Nigeria needed to create innovative economic ideas that could spur growth and prosperity.
He said the country should encourage non- oil exports to improve export earnings and reduce pressure on the external reserves.
” Nigeria is at a crossroads and cannot afford the businessas- usual approach, which will only lead to further job losses, pull millions of citizens into poverty and worsen an already fragile economy.
“Promoting non- oil exports will become an imperative if Nigeria is to benefit maximally from AFCFTA,” he added.
The Group, however, commended the Federal Government for taking some hard policy decisions that would impact positively on the economy on the long run.
“Nigeria has implemented some tough reforms in 2020, such as removal of fuel and electricity subsidies and a massive programme on harmonisation of citizen’s data.
“These must be consolidated with swift implementation of security reforms and sanitising the business environment, both of which are crucial in attracting investments into critical sectors of the economy.
“In addition, state governments must be given the legislative and policy support to explore the opportunities and resources in their respective states. The urgency of these reforms must be prioritised, going into the next decade,’’ it advised.