The drop in foreign portfolio investments

Perhaps in a natural reaction to Nigeria’s business and regulatory climate, foreign portfolio investments (FPIs) in the country reportedly dropped to a four-year low in 2020, as macroeconomic risks subdued foreign investors appetite for Nigerian investments. According to the latest FPI report coordinated by the Nigerian Stock Exchange (NSE), foreign transactions in the country’s markets declined by 22.64 per cent to close the year 2020 at N729.20 billion, as against the N942.55 billion recorded in 2019. The decline in FPIs in 2020 counteracted the general increase in momentum of activities at the Nigerian stock market, which saw a 12.45 per cent increase in total turnover value.

Rather disturbingly, the report indicated a wide gap between foreign portfolio inflows and outflows, implying that foreign investors divested more than two kobo for every kobo invested in 2020, the worst deficit in recent years. It will be recalled that total FPIs had increased from N1.208 trillion in 2017 to N1.219 trillion in 2018, before dropping by 22.72 per cent to N942.55 billion in 2019. The report  showed a continuing negative trend in the mix of inflows and outflows, with more outflows than inflows, implying that foreign investors were selling more of their investments than buying more investments. Nigeria recorded an FPI deficit of N234.66 billion in 2020, about 125 per cent increase on N104.3 billion recorded in 2019, as foreign investors divested more than two kobo for every kobo invested during the year.

Again, the report showed that the quantum of transactions by foreign investors relative to total transactions at the Nigerian market decreased from about 49 per cent of total activities in 2019 to about 34 per cent in 2020. It included transactions from nearly all custodians and capital market operators and it is widely regarded as a credible measure of the FPI trend. Foreign portfolio inflows stood at N247.27 billion as against outflows of N481.93 billion in 2020. Inflows and outflows had stood at N419.13 billion and N523.42 billion respectively in 2019.

No doubt, the Covid-19 pandemic continues to be a large disincentive to business in Sub-Saharan Africa and elsewhere, but there is a limit to which Nigerians can hinge the current downturn on it. It is really no surprise that the FPI climate has worsened considerably. Time and again, we have continuously issued alerts and warnings on the consequences of faulty government policies and programmes, including inconsistencies in actions and pronouncements by the government and its agencies on the economy. Faulty government policies and policy inconsistencies inhibit investors’ confidence and consequently the expected economic gains from the purchases of securities and other financial assets. For all its rhetoric, the Muhammadu Buhari-led government is yet to roll out a coherent policy framework  capable of navigating the country out of its current distress.

Then there is of course the constant and vexing question of leadership style. The Buhari administration’s rhetoric on good governance has not been complemented by visionary official action, which is why the standard of living of the majority of Nigerians has continued to deteriorate. The prohibitively high cost of governance, the ugly practice of de-marketing the country because of the so-called war on corruption and, above all, the worsening state of insecurity, are major factors accounting for the decline in FPIs. There are damning reports on the audited accounts of key ministries, departments and agencies (MDAs) but the administration is quite accustomed to looking the other way while officials of these agencies loot the public till to stupor. This continues to portray the country as an irredeemably corrupt and ultimately unproductive business climate. Especially for an administration that thrives on anti-graft rhetoric, this is very bad optics.

The government should not need any reminding that these factors are enough to scare investors and force them to migrate to investment-friendly environments. It should buckle up and do the needful. To be sure, there is a need for a realistic review of the existing system and operation for the purpose of aligning with global best practices and standards. Otherwise, Nigeria will remain the world capital of poverty with receding inflows of critical foreign investments. It is no secret that investment experts attribute the continuing decline in FPIs to Nigeria’s heightened macroeconomic risks amid escalating security challenges and policy uncertainties.

 

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