October 09, (THEWILL) – The Nigerian economy suffered a setback, as foreign direct investment (FDI) dropped significantly during the second quarter of the year (Q2, 2024).
The National Bureau of Statistics (NBS) in its Capital Importation report released on Tuesday, October 8, 2024, revealed that foreign direct investment recorded the least category of inflow with US$29.83 million, representing a 1.15% of total capital importation in Q2 2024.
Foreign direct investment (FDI) is a category of cross-border investment in which an investor resident in one economy establishes a lasting interest in and a significant degree of influence over an enterprise resident in another economy.
FDI is a key element in international economic integration because it creates stable and long-lasting links between economies. It is also an important channel for the transfer of technology between countries, promotes international trade through access to foreign markets, and can be an important vehicle for economic development.
The coming of telecommunication companies like the MTN, Airtel, 9Mobile, as well as other multinational firms, constitute foreign direct investment.
FDI is opposed to foreign portfolio investment (FPI) which involves investors acquiring financial assets, such as stocks and bonds, in another country to diversify their portfolios. Unlike direct investments, FPIs generally don’t confer management control over the assets and are naturally referred to as ‘hot money’ because the investors are at liberty to pull out their assets when the economy appears less investment-friendly.
Nigeria’s capital importation in the second quarter of 2024 declined by 22.85% from $3.37 billion in the first quarter of the year to $2.60 billion.
However, when compared to the same period of last year, Nigeria’s capital importation rose by 152.8% from $1.03 billion to the current figure.
In terms of capital imports by type, Portfolio investment led with $1.40 billion, representing 53.93% of total capital importation, followed by Other Investment at $1.169 billion, making up 44.92%
The ‘Other Investment’ category was dominated by loans and other claims. Loans as foreign capital in the period stood at $1.15 billion representing 98.6% of ‘other investments’ as foreign capital imports.
FDIs have been low in the past few quarters following an increase in the CBN Monetary Policy Rate, MPR, which drains up cash from the real sector, where FDI concentrates, to money market instruments which make up the FPIs.
According to the report, the banking sector recorded the highest capital inflow in Q2 2024, with US$1.12 billion, accounting for 43.15% of total capital importation.
The banking sector was followed by the Production/Manufacturing sector at US$624.71 million (23.99%) and the Trading sector at US$569.22 million (21.86%).
By origin, the majority of capital importation came from the United Kingdom, contributing US$1,120.15 million (43.01%), followed by the Netherlands with US$577.82 million (22.19%) and the Republic of South Africa with US$255.98 million (9.83%).
Out of the three states that recorded capital importation during the quarter, Lagos state remained the top destination with US$1,367.84 million, accounting for 52.52% of the total capital imported. Abuja (FCT) followed with US$1,236.64 million (47.48%), and Ekiti state with US$0.0003 million.
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
