Afrinvest Limited, a wealth advisory firm said Nigeria’s Foreign Portfolio Investment (FPI) and Foreign Direct Investment (FDI) are currently at the lowest level in more than half a decade.
A Foreign Direct Investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. While Foreign Portfolio Investment (FPI) instead refers to investments made in securities and other financial assets issued in another country.
FDI dipped by 5.03 percent to $147.16 billion while FPI dropped by 20.97 percent to $757.32 billion in the second quarter of 2022, compared with the first quarter.
“In our view, the rebate on both policies (RT-200 FX program and Naira-4-dollar) is relatively unattractive to lure exporters and diasporans to the official window given the large spread between the official and parallel market rates.
“Hence, the focus of the CBN should be more tilted to addressing capital control policies and the multiplicity of the forex window which has continued to hinder the inflow of forex into the economy,” Afrinvest said, weekend.
Meanwhile, Nigeria’s foreign reserve has slipped from $37.211b to $35.78b in the last three months, according to the official forex reserves status data report by the Central Bank of Nigeria (CBN).
According to the data, forex reserves fell from $37.211 billion on January 16, 2023, to $35.78 billion at the weekend.
Nigeria’s external reserves, which had peaked at around $37.08 billion in 2022, had risen to $37.211 billion on January 16, 2023.
It has since declined, falling to a lower level every week for the past ten weeks.
Analysts agreed that the CBN’s currency management stance was directly responsible for Nigeria’s shaky forex reserves position.
The apex bank’s fixed-rate, controlled exchange policy has seen the emergence of parallel markets with some 290 basis points between the official rate and the market-driven, unofficial parallel market.
Over the past 10 weeks, the naira had depreciated from N453.58 per dollar to N460.98 per dollar.
Analysts believe that Nigeria’s inability to increase its forex reserves and meet the demand for forex will persist in the short-to-medium term because there is no “positive signal that denotes an improvement in forex supply relative to pre-pandemic levels.”
According to Cordros Capital, low crude oil production and elevated premium motor spirit (PMS), under-recovery costs have continued to undermine the government’s internal forex generation, while foreign portfolio investors (FPIs) who have historically supported supply levels in the official market have remained on the sidelines as a result of the forex management policy.
