According to recent data from a United Nations agency, Foreign Direct Investment (FDI) inflows into Nigeria turned negative last year for the first time in at least 33 years. This represents a significant challenge for President Bola Tinubu, who recently assumed leadership of Africa’s largest economy. Tinubu’s actions, such as removing petrol subsidies and initiating foreign exchange reforms, have generated interest among foreign investors.
In his efforts to attract investments to the country, Tinubu has hosted several major companies, including Airtel, ExxonMobil, Shell Petroleum Development Company, and Bank of America. However, the 2023 World Investment Report by the United Nations Conferences on Trade and Development (UNCTAD) reveals that Nigeria’s FDI flows in 2022 amounted to -$187 million, compared to $3.31 billion in 2021.
Among African countries, Egypt received the highest FDI inflow at $11.5 billion, followed by South Africa ($9.05 billion), Ethiopia ($3.67 billion), Senegal ($2.59 billion), and Morocco ($2.14 billion).
UNCTAD stated that Nigeria experienced negative inflows due to equity divestments, resulting in a FDI value of -$187 million. However, the report also noted a 24 percent increase in the value of announced greenfield projects.
Astrit Sulstarova, Chief of the Data and Trends section at UNCTAD, explained that negative FDI inflow figures could indicate asset divestments or the discharge of liabilities. This could involve the direct investor selling part or all of their equity in the enterprise to a third party or the enterprise repurchasing its shares from the direct investor, thereby reducing or eliminating associated liabilities.
Abiodun Keripe, Managing Director at Afrinvest Consulting Limited, attributed the weak FDI flows into Nigeria to unorthodox and uncertain monetary policies, the existence of multiple exchange rate systems, a weak fiscal policy framework, security concerns, and difficulties in repatriating capital. He also mentioned that the uncertainties surrounding the 2023 domestic elections and global monetary tightening exacerbated the situation in 2022.
Keripe emphasized that the ultimate consequence of weak capital mobilization capacity is a negative impact on growth and the potential derailment of the economy. Israel Odubola, a Lagos-based research economist, explained that divestment generally indicates pessimism about a country’s investment and business environment. In the case of Nigeria, he believes the divestments occurred in the oil and gas sector, reflecting investor pessimism about its prospects.
