In 2021, Nigeria recorded its lowest foreign direct investments (FDIs) which stood at $698.78 million, according to data compiled by Nairalytics from the Central Bank of Nigeria (CBN).
Foreign Direct Investments into Nigeria dipped by 32% in 2021 to $698.8 million compared to the $1.03 billion recorded in the previous year. And this is the fourth time Nigeria has recorded foreign direct investment below $1 billion in the past 15 years.
The first time was in 2010, following the 2008 global financial crisis, which saw Nigeria’s direct investment inflow drop from $3.33 billion recorded in 2009 to $728.9 million in 2010. It also fell below the $1 billion mark in 2017, 2019, and now 2021.
The recent drop in FDIs could be attributed to the ripple effect of the covid-19 pandemic on the Nigerian economy, that led to a contraction of the economy and contingents of downturns on the macro level.
In recent years, the country has been grappling with dwindling foreign inflows, piling significant pressure on the country’s FX liquidity, as surging demand for dollar in the economy ensured recurrent negative balance of payments for 10 quarters.
Foreign Direct investment boosts the creation of jobs in the host country as investors build new companies in the country, which in turn leads to increased income, more purchasing power, and an overall expansion in the economy.
The insecurity across different parts of Nigeria has been said to be the major reason for the decline in the country’s foreign direct inflow despite the Central Bank’s numerous policies formulated towards attracting foreign inflows into the economy.
Also Nigeria’s business environment which is ranked 131st among 190 economies in the ease of doing business, is another reason for declining FDIs, with inflation surging at record highs.
Again, the country’s FDI is negatively affected by the difficulty in getting low-medium risk businesses in the country that will give significant returns in dollar term. The business environment in Nigeria is impeded by the decline in the purchasing power of average Nigerians, making more people poorer on a per capital basis.
The poorer the people, the smaller the revenue market in dollar terms, which results in an even more compressed margin after taking into account the huge cost of operation as a result of inflation. Then the problem of exchange rate makes it even harder for foreigners to repatriate their funds and get a return that is worthwhile.
However, this official FDI data may not have completely captured all monies invested in Nigerian entities. For example, it was reported by Nairametrics that Nigerian startups raised over $1.6 billion in funding in 2021, most of which was invested directly into the companies in form of seed/series funding.
This shows that investors can now invest in local companies without actually moving the funds into the country. A number of Nigerian tech startups such as Opay, Flutterwave, Ventures Platform raised huge amounts in funding in the previous year.