Liquidity Crisis Cuts Nigeria’s FDI by 75%, $89.2m Lost Over FX

Samuel Mobolaji

Foreign Direct Investments (FDIs) into Nigeria have plummeted by 75 per cent, resulting in a loss of $89.2 million in the second quarter of 2024, as the country’s ongoing foreign exchange and liquidity crises deter multinational and foreign investors.

Economic analysts express concern over the sharp reduction in both portfolio and direct investments, which are critical to Nigeria’s economic growth.

Recent data from the National Bureau of Statistics (NBS) show a staggering 75 per cent drop in FDIs, which fell to $29.8 million in the second quarter of 2024 from $119 million in the first quarter.

Foreign portfolio investment (FPI), another key component of capital inflows, also plummeted by 32 per cent, totaling $1.4 billion over the same period.

Experts attribute the downturn to multiple macroeconomic challenges. Analysts from FBNQuest Capital highlight foreign exchange (FX) liquidity constraints, rising inflation, and increasing insecurity as key factors eroding investor confidence.

These issues have severely impacted investor sentiment, leaving Africa’s most populous nation struggling to attract both short-term and long-term foreign capital.

Under President Bola Tinubu’s administration, the naira has lost nearly 70 per cent of its value, exacerbating the economic downturn. While the Central Bank of Nigeria (CBN), led by Governor Olayemi Cardoso, has taken measures to stabilize the currency—such as selling $543 million to Bureau de Change operators in September—the market remains volatile.

The naira recently appreciated by 4 per cent but still trades at over N1,600 per dollar at the Investors and Exporters window, with concerns mounting as it approaches N1,700.

To curb rising inflation, the CBN’s monetary policy committee raised the benchmark interest rate to 27.25 per cent. However, this measure has yet to significantly boost foreign investments.

Analysts from CrisisCapital warn that while there may be opportunities for short-term portfolio investors, long-term FDI remains bleak due to persistent FX liquidity issues and an unfavorable business climate.

Compounding these challenges is the delay in issuing Certificates of Capital Importation (CCI), which are now handled by the CBN instead of commercial banks. The CCI is vital for foreign investors as it confirms the inflow of foreign capital and facilitates the repatriation of profits. Backlogs in CCI issuance have only deepened the uncertainty surrounding investment prospects in the country.

“Investors are hesitant, and with the naira nearing N1,700, many fear diminishing returns,” one market insider noted. “The delays in CCI issuance are only making matters worse, creating uncertainty and discouraging future investment inflows.”

With the ongoing FX crisis and growing economic instability, Nigeria’s ability to attract foreign capital continues to weaken, creating a pressing need for policy reforms and effective strategies to restore investor confidence.