Nigeria’s Foreign Direct Investment (FDI) has plummeted to a record low of $29.8 million in the second quarter of 2024, highlighting investor concerns about the country’s economic and financial landscape. According to data from the National Bureau of Statistics, this figure represents just 1.15% of the total capital importation of $2.60 billion during the period. The drastic drop in FDI underscores ongoing challenges in attracting foreign investment to the country.
Economists have pointed to Nigeria’s volatile foreign exchange (FX) market as a primary deterrent for investors. The naira’s instability makes it difficult for foreign firms to repatriate profits, while high interest rates and inflation further complicate the investment environment. Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, emphasized that foreign investors are opting for safer, short-term financial instruments such as foreign currency loans, which made up 98.08% of the total capital inflow.
The report reveals that loans and portfolio investments, valued at $2.55 billion, dominated Nigeria’s capital importation. These investments, primarily in stocks, bonds, and other financial instruments, allow investors to realize quick returns but do not contribute to long-term economic growth. Foreign loans in Q2 2024 amounted to $1.15 billion, marking a steep 74.98% decline from the $4.60 billion recorded in Q1 2024.
Despite the year-on-year increase of 152.81% in total capital importation, Nigeria’s reliance on short-term capital inflows poses significant risks. Experts like Dr. Aliyu Ilias stress that addressing the FX market’s volatility and the high cost of doing business should be the government’s priority if it aims to attract more substantial foreign investments into productive sectors such as manufacturing and infrastructure.
Lagos State continues to lead as the top destination for foreign capital, attracting 52.52% of the total inflows in Q2 2024. The banking sector was the largest recipient of these investments, with $1.12 billion funneling into the industry. However, other sectors, such as production and manufacturing, saw some promise, drawing $624.71 million, which could indicate a slow but steady recovery in industrial activities.
Economists agree that stabilizing the naira and making the business environment more investor-friendly are key to reversing this worrying trend. Without structural reforms and improved economic conditions, Nigeria risks continued declines in long-term foreign investments, jeopardizing its economic growth potential.
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