At $377.37m, FDI in Equities Market Hits 10-year Low
Kayode Tokede
Following foreign exchange scarcity, among other factors, Foreign Direct Investment (FDI) investment in Nigeria’s equity market dropped to $ 377.37 million in 2023, over 10-year low, THISDAY analysis of number released by the National Bureau of Statistics (NBS) has revealed.
The NBS in its latest Nigeria’s capital importation 2023 revealed that the reported $377.38million is 18.48 per cent drop from $462.91 million reported in 2022.
The uncertainty leading to the 2023 general elections orchestrated foreign investors exiting the Nigeria’s market but confidence was restored towards June 2023 ending when President Bola Tinubu announced unification of foreign exchange and fuel subsidy removal.
The FDI’s investment in equity market reached a peak of $1.44billion in 2015 as the bureau declared $1.45billion total FDI in 2015.
The report by the bureau showed that total foreign direct Investment in capital market 2023 stood at $377.37 million, dropping 19.4per cent from $468.08 million in 2022.
On a flipside, portfolio investment in equity rose significantly to $250.03million in 2023, representing an increase of 341.98 per cent from $56.57million in 2022.
Portfolio Investment in equity, bonds, and Money market instruments dropped by 53 per cent to $1.15billion in 2023 from $2.44billion reported by the bureau in 2022.
Further findings by THISDAY revealed that the $1.15billion Portfolio Investment in equity, others is the lowest in over 10-year.
In 2023, FTSE Russell, the subsidiary of London Stock Exchange Group (LSEG) had downgraded the Nigeria market on the backdrop of foreign exchange FX challenges which is a new source of negative sentiment that is capable of triggering stock sell off at the Exchange.
Also, MSCI Nigeria Indexes had announced plans to reclassify the Nigerian market from frontier markets to standalone markets status in one step coinciding with the February 2024 index review.
MSCI in a report stated that it concluded feedback received from market participants from its recent extended Consultation on a Market Reclassification Proposal for the MSCI Nigeria Indexes.
According to the American finance company, “Since March 2020, liquidity challenges in the Nigerian foreign exchange (FX) market have consistently affected the accessibility of its equity market, leading to ongoing capital repatriation concerns and a significant gap between the official and parallel exchange rates for the Nigerian Naira. This has caused international institutional investors to face recurring challenges with index replicability and investability of the MSCI Nigeria Indexes and other indexes they are part of.
“On June 22, 2023, MSCI announced that feedback from market participants obtained as part of the initial consultation conducted from June 2022 to June 2023 suggested that the limited accessibility of the Nigerian equity market would warrant the removal of the MSCI Nigeria Indexes from the MSCI Frontier Markets Indexes. However, MSCI extended the consultation period to September 29, 2023 to allow more time for the liquidity situation in the Nigerian FX market to stabilise following measures announced by the Central Bank of Nigeria on June 14, 2023.
“No significant improvements in FX liquidity were observed by market participants during the extended consultation period, confirming that the ease of capital inflows and outflows in the MSCI Nigeria Indexes is not to the standards expected from Frontier Markets. This has led to MSCI’s decision to reclassify the MSCI Nigeria Indexes.”
Despite weak FDI and Portfolio Investment in equity market last year, the stock market of the Nigerian Exchange Limited (NGX) gained N13trillion and 46.6 per cent in market capitalistion and All-Share index, respectively.
The equity market growth in 2023 was driven mostly by domestic high-network investors such as the Pension Fund Administrators (PFAs).
Also, the new listing on the Exchange played a significant role on the NGX ASI all-time high record as the stock market continued on a positive trajectory.
The likes of MeCure Industries Plc, VFD Group, Nigeria Infrastructure Debt Fund (NIDF) and Africa Plus Partners added to the stock market positive trajectory in the period under review.
Major equity market indices reacted to the stock market trend in 2023, as the reforms impacted across key sectors on the Exchange
Reacting, the CEO, Wyoming Capital and Partners, Mr Tajudeen Olayinka said, “The only explanation for that is the disappointing exchange rate misalignment in Nigeria and the need to limit possible exposure to foreign exchange risk.”
He added that the solution to the problem lies in unifying the exchange rate regime and allowing the foreign exchange market to function.
On his part, the Chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion also highlighted that foreign exchange market challenges, 2023 election fear and rising interest rates weaken foreign portfolio investments in the Nigerian stock market.
Also speaking, the Vice President of Highcap Securities, Mr. David Adnori attributed the foreign investors’ decline in the equity market and bond market to foreign exchange scarcity, stating that domestic investors have increased their holding in some listed fundamental stocks on the Exchange.
According to him, “Those in the portfolio investment were not investing in Nigeria’s equity and bond markets during the period but confidence restored amid Naira unification.
“If you consider the debt area, a lot of foreign investors usually invest in Nigeria’s public debt. As it is now, a lot of them have stayed away over looming fear that the government may not be able to service those debts,” he explained.
He added, “With more foreign investors, you will have more foreign currencies in an economy. What is happening now is that our macro economy has been mismanaged by the debt crisis. The federal government needs new debts to service existing debts. It is a worrisome situation for portfolio investors and it is contributing to their exit from both markets.”
