Foreign Capital Importation, or FCI, into the nation will continue to decline due to the tight monetary policies of major central banks worldwide, as well as domestic factors like a lack of foreign exchange, general insecurity, and pre-election anxiety, according to Comercio Partners, an investment banking firm based in Lagos.

When discussing the FCI entering the nation in the second quarter of the year, Q2’22, Tosin Osunkoya, Co-Managing Partner and Chief Executive Officer, Comercio Partners Asset Management, made this statement.

According to data from the Central Bank of Nigeria (CBN), foreign direct investment (FCI) into the nation increased by 12% year over year to $3.11 billion in the first half of 2022 from $2.78 billion in the same period last year.

However, FCI dropped 2.5% on a quarter-over-quarter basis, QoQ, from $1.57 billion in Q1 of 22 to $1.54 billion in Q2 of 22.

However, Osunkoya stressed that the attention should be on the QoQ fall, which indicated that foreign investors’ appetite for the Nigerian economy is waning, and characterized the YoY gain in FCI in H1’22 as a statistical phenomena due to a weak base.

“The ravaging trend of inflation across major developed economies has triggered hawkish policy responses such as interest rate hikes, which tend to spur capital repatriation from frontier economies such as Nigeria while discouraging foreign capital inflows into the local economy, particularly through foreign portfolio investments (FPIs).” Osunkoya explained the local and foreign factors that led to this development.

Furthermore, during the review quarter, ongoing tightness in the currency market and uninterrupted insecurity remained a fundamental threat to foreign investors, thus the influence of global headwinds did not completely free the local economy of responsibility.

It was therefore not surprising that FCI decreased somewhat by 2.40% QoQ to $1.54 billion in Q2’22, mostly due to a 20.91% decline in FPIs, which have traditionally been responsible for  over 55% of capital imported into the local economy over the last five years.”
“While we are aware of the 75.34% year-on-year increase in capital importation in the review quarter, we must attribute this increase to the weak base period, as the Q2 2021 base quarter was hampered by lingering Covid-19 concerns due to the prevalence of the virus’s Delta variant,” Osunkoya explained, highlighting the insignificance of the YoY growth in FCI in Q2’22.

Therefore, the YoY growth in foreign capital imported in Q2 2022 is only statistical because there was a startling 74.63% decrease in capital imported in Q2 2022 compared to the amount reported in the equivalent period of the 2019 pre-pandemic year. Comparing Q2 2022 to Q2 2019, FDIs, FPIs, and Other Investments decreased by 34.05%, 82.59%, and 57.39%, respectively.

Regarding FCI’s prospects for the rest of the year, Osunkoya stated: “In essence, foreign investors’ interest in the Nigerian economy is waning, and we expect this trend to continue.”

In addition to other domestic factors like the ongoing currency crisis, pervasive insecurity, and pre-election jitters, our pessimistic assessment of the trajectory of foreign capital importation is predicated on expectations that foreign interests will decline due to the hawkish commitment of major central banks worldwide.