Gloomy outlook for Nigeria’s investment portfolio amid insecurity

Market volatility triggered by growing insecurity on the home front, soaring global interest rate hikes and exchange rate management will soon force a significant number of investors to drop support for initial public offerings in Nigeria , thus leading to a possible decline in stock exchange and foreign market quotations. reserve profit.

Nigeria is already experiencing capital flight as the investment climate turns hostile amid rising interest rates. Foreign direct investment in Nigeria fell 28% to $1.6 billion in the first quarter of 2022.

According to the country’s draft Medium Term Expenditure Framework and Financial Strategy (MTEF and FSP) for 2023-2025, investments in Nigeria are expected to be held back by multiple factors.

Finance, Budget and National Planning Minister Zainab Ahmed said investment, especially from foreign sources, “is expected to be held back by interest rate hikes in advanced economies, and other national challenges, including insecurity”.

The country’s external reserves have declined for most of 2022 as the naira continues to depreciate and the country still operates multiple exchange rates. A further decline in foreign investment will affect reserves.

Medium-term nominal consumption is projected at N121.93 trillion, N123.69 trillion and N125.45 trillion for 2023, 2024 and 2025, respectively.

Based on external events and rising inflation, net portfolio inflows into Nigeria are expected to fall by about 1% of the country’s GDP in 2022. This figure is expected to fall further in 2023 due to the double factor of uncertainties pre-electoral events and worsening insecurity. .

According to the National Bureau of Statistics (NBS), Nigeria has seen an 81.46% or $6.9 billion drop in Foreign Direct Investment (FDI) between 2019 and 2022. Insecurity has created so many uncertainties about the country’s economy, especially in investment opportunities. .

Nigeria is losing a lot of revenue due to growing insecurity at all levels. The impact can be overwhelming. Already, the federal government has shut down rail transport across the country, including Lagos-Kano, Ajaokuta rail services. This is a major drain on public finances.

Last week, the government lost N1.2 billion just from the closure of the Kaduna-Abuja rail service. On the Warri-Itakpe standard gauge line, the Nigerian Railway Corporation (NRC) has stopped picking up passengers at Ajaokuta Station for safety reasons.

Nigeria is seeking to invest in rail services to create employment opportunities and increase incomes. The Nigerian railway system is being built through matching funding between Nigeria and the People’s Republic of China.

Economics professor at the University of Benin, Hassan Ebhozele Oaikhenan said many foreign investors will have nothing to do with Nigeria whose leaders have failed to deal with the insecurity that has sparked the national apprehension. “Insecurity is contrary to economic progress. In fact, insecurity and economic progress are not only contradictions in terms, they are strange companions,” he said in an interview with our correspondent.

As the federal government looks to 2023, investment is collapsing in Nigeria, further reducing productivity, leading to further job losses and pushing more people into poverty.

The board of the Nigerian Economic Summit Group said there was little need to detail the negative impact of insecurity on food prices, productivity, ease/cost of doing business, confidence investors and national pride.

Investment analyst, Maxi Sam Onwadunwa, said that the factors that favor the availability and cost of investment energy, the availability of investable funds, the transportation of goods and services, the safety of lives and the prosperity, access to foreign exchange, inflation, consumer purchasing power – are generally in the negative.

Onwadunwa said this implies that foreign exchange will continue to be scarce and any revenue Nigeria obtains is easily eaten up by servicing debt and paying subsidies for imported PMS. “Because of the elections and the change of government expected in 2023, there will be a lot of capital flight from Nigeria – ‘frightened’ foreign investors,” he said.

Professor Oaikhenan said the hostile nature of investment insecurity, domestic and foreign, has the capacity to generate widespread ripple effects that have the potential to spread its deleterious consequences for the economy, causing and exacerbating unwanted movements out of the country. .

He said that key economic variables such as “unemployment, the exchange rate, inflationary pressures, the collapse of manufacturing and industrial production, high and growing budget deficits, high and growing sovereign debt, domestic and foreign , combine to propagate the Nigerian economy as undesirable for investment.

With many businesses and companies shut down, experts say Nigeria should at least expect foreign investors to respond positively. As things stand, some companies in the oil industry are selling off their onshore assets, preferring to move abroad with better security.

Insecurity: IGP orders tight security around schools and hospitals

The NESG said that despite an increased budget allocation to defense and national security, “the current state of insecurity is indicative of a nation under siege”. Nigerians now live in a permanent state of fear as bandits are able to hijack a train and kidnap dozens of passengers, invade prisons and free hundreds of convicted criminals, and detain hundreds of victims of kidnappings for months at a time.

Moving forward, Mr. Onwadunwa said the government should quickly reverse the deterioration of operational investments by ending insecurity and allowing local investments to start growing; reduce borrowing or renegotiate debt repayment and stop granting subsidies.

In addition, experts also call for the emergence of multiple exchange rates rather than just one, and the reduction of public expenditure on emoluments and overheads, while also introducing a value for capital expenditure audits.

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