According to new data released by the Nigerian Bureau of Statistics in its recent Capital Importation report on Q3 2024, total capital importation into Nigeria stood at $1,252.66m.
While Nigeria’s capital importation showed substantial growth when compared to the same period in 2023, there was a notable decline in inflows compared to Q2 2024.
Foreign capital importation declined by 51.90% on a Quarter-on-Quarter QoQ basis.
The numbers further showed that only five states out of the 36 states plus the Federal Capital were able to attract Foreign Direct Investment FDIs in Q3 2024. Only Ekiti($100k), Enugu($180k), and Lagos($650.41m) were able to attract FDIs in the South. In the North, Only the FCT($600.02m) and Kaduna($1.95m) were able to attract Foreign investment.
The Naira began to regain strength in the early days of December coinciding with the directive from the country’s apex bank CBN that all banks switch to the Electronic Foreign Exchange Matching System (EFEMS). A platform with the Bloomberg B-Match system under the hood. According to the Central Bank, the platform is expected to enhance market integrity and facilitate better price discovery.
The EFEMS news drove speculation as the Naira gained ground against the US Dollar rising to around N1450/$ on Friday 6th December. However, was the speculative appreciation short-lived? The Naira continued its fall.
As of December 11th, the Naira had fallen back to around $1720/$. What speculators failed to understand was that the EFEMS is basically a price matching and price discovery system. That price is left for the forces of supply and demand to determine.
A timeline of the Naira decline in 2024 so far
The year began with the Naira trading at around N900/$. This was a recovery following the sharp plummet of the legal tender the preceding year. While optimists predicted the Tinubu banking policies and reforms had started working, staunch pessimists claimed the Naira will fall to N2000 in the coming months.
Both camps haven’t really seen their predictions come to fruition as the Naira is stuck trading at around N1720/N.
In reality, though, the Naira has defied all policies and measures from the Central Bank. From the removal of items from the banned Fx list to the waiver on Bureau de Change BDC, and now the EFEMS, the Naira had refused to bulge.
Q3 foreign capital import vs overseas remittances
In Q3 2024, the CBN reported $433m total remittances, a 52% decline from the $903.03m reported in Q3 2023. On a QoQ basis, overseas remittances dropped by 47.8% from $829m recorded in Q2 to $433m.
When you compare foreign capital importation with overseas remittances, you discover that a lot of attention is being paid on remittances and wrongly so. In Q3, foreign capital importation in Lagos alone($650m) was roughly 150% times the total overseas remittances($433m).
The total capital importation in Q3 was $1252.66m roughly 400% more than the remittances in that same period. This shows that in a bid to create the much-needed dollar supply, we need to focus more on increasing foreign capital rather than streamlining remittance channels.
Boosting FDIs as 32 states attract zero FDIs in Q3
It is rather unfortunate that only five states were able to attract FDIs in the third quarter of 2024. This underscores the economic viability and productivity of the majority of states in Nigeria.
- Despite the opportunities that are abundant, they are still not attractive to foreign investors.
- While some states are facing security issues like those in the North East, what excuse do the others with relatively peaceful situations have?
States must begin to position themselves for FDIs by fixing transportation networks, giving incentives and tax cuts to foreign investors, and creating an overall welcoming business environment for foreign investors to thrive.
Making Nigerian bonds and securities attractive to foreign investors
The banking sector was the highest recipient of foreign capital importation in Q3 2024 but there is room for further upside.
- One of the most cost-effective ways of having foreign currency flow into the country is through investment in Nigerian instruments like equities, commercial papers, and government bonds. We are seeing a decline in that.
- QoQ we saw a decline in foreign portfolio investment by 35.98%. Foreign investment in the equities market dipped by 43.51% and investments in the bond market plummeted by 60.7%
Efforts must be made to encourage foreign investors to invest in these assets. These may involve making the process more accessible and easy, creating easy tracking and portfolio management tools, etc.
Will the Naira continue on its path to recovery?
The million-dollar question is if the Naira will rise again. In Q3 of 2024, we saw a 91.35% increase in the total capital importation in comparison with the corresponding quarter of the previous year. If these numbers are anything to go by, then we may expect more of the same in coming years. As a major contributor in the Nigerian foreign exchange supply chain, such a parabolic rise in just one year is significant.
With the foreign inflow poised to rise, the Dangote refinery predicted to cut dollar demand, and sound government policies like the EFEMS, it is difficult to see a situation where the Naira continues its downward spiral. But as with anything economics and in life generally; never say die.