As a result of recent foreign exchange management reforms by the Nigerian government, analysts at Afrinvest have projected a base case for capital importation in fiscal year 2023 to reach $6.2 billion.
The projection is contingent upon the implementation of key reforms, including the unification of foreign exchange rates and a transition towards a managed float system.
According to Afrinvest’s report titled “Q1’2023 Capital Importation Data: Pre-election Jitters and Weak Fundamental Dampen Inflows,” this projection represents an increase of $900 million compared to the $5.32 billion recorded in 2022.
The analysts highlighted the recent policies introduced by the Central Bank of Nigeria (CBN) and the Federal Government aimed at improving the country’s ability to attract foreign capital and diaspora remittances. These include the reintroduction of the naira payout option for diaspora remittances through the Investors’ and Exporters’ (I&E) window, as well as the consolidation of various foreign exchange windows into one and the shift towards a managed float system.
The report stated, “We believe these recent measures can help reverse the ugly trends of low foreign capital and remittance into the country.” However, it also noted that challenges such as weak infrastructure, policy mismatch, insecurity, and increasing poverty pose obstacles to attracting capital inflows, particularly foreign direct investments (FDIs) and remittances.
Addressing these challenges and implementing policies to support business growth, increase crude oil production, and diversify foreign exchange earnings are crucial to improving the attractiveness of Nigeria to foreign investors.
Based on the data provided, total capital importation in Q1 2023 stood at $1.1 billion, reflecting a 6.8% increase compared to the preceding quarter. However, on a yearly basis, inflows declined by 28.0%, marking the worst Q1 performance since 2017.
Foreign portfolio investment (FPI) experienced a significant decline of 32.2% year-on-year, reaching the lowest level in the past six years. This was mainly due to decreased inflows from money market investments and bonds. On the other hand, investments in equities witnessed substantial growth of 559.5% quarter-on-quarter and 4,472.0% year-on-year.
With the Nigerian Naira now exchanging at market-determined rates in the official forex market, a significant distortion has been removed, providing a more transparent and predictable foreign exchange environment for investors.
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