There are indications that foreign investors are not yet comfortable with Nigeria’s external sector position as well as the political environment as Foreign Portfolio Investments, FPIs, declined by a significant 48.7 percent in the first two months of this year when compared to the corresponding period of 2022.
The foreign investors had renewed their divestment measures some months before the general elections, a development which signaled lack of confidence.
Vanguard findings from the latest data released by the Nigerian Exchange Limited, NGX, revealed that the value of FP1s for the two months of the year stood at N44.52 billion as against N86.74 billion in the corresponding period of 2022.
In January 2023, the FPIs declined by 39.7 % to N24.9 billion as against N41.31 billion in the corresponding period of 2022. In February 2023 it dropped by a whopping 56.8 % to N19.62 billion as against N45.43 billion in the corresponding period of 2022.
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Economy experts and analysts have attributed the decline on FPIs to foreign exchange volatility, inconsistent government policies, and market regulations among others.
In the absence of the foreign investors, the domestic counterparts have filled the gap and in February 2022 they accounted for 88.41 percent of the total value of transactions recorded in the bourse.
The total value of transactions recorded by the Exchange for the two months period stood at N384.01 billion.
Analysis from the latest figure released by the Exchange showed that foreign investors accounted for only 11.59 percent of the total value of transactions.
A review of the transactions showed that in January 2023 domestic investors outperformed the foreign investors accounting for 87.24 percent or N170.20 billion of the total transaction valued at N195.10 billion.
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In the month of February 2023 the domestic investors also outperformed foreign investors accounting for 89.61 percent of the total value of transactions worth N188.91 billion.
Findings revealed that institutional investors dominated the domestic investments in the two months period representing 79.2 percent of the domestic investments worth N339.49 billion.
Experts’ comment
Many financial analysts believe FPIs commitment in Nigeria is on downward trend because of the exchange rate volatility and the political situation in the country.
Commenting, analyst and Executive Vice Chairman, David Adonri, said: “There is a foreign exchange rate risk attendant to foreign portfolio investment. Persistent depreciation of the Naira in recent past is capable of heightening exchange rate risk leading to loss on investments.
“Secondly, foreign portfolio investors’ confidence was eroded by their inability to remit proceeds of their investments.
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“Finally, FPIs are sensitive to socio-political events. Few of the investors who have taken the risk arising for the political tension are investing in Fixed Income, FI.
“The political tension in Nigeria even with the conclusion of the general election is still not over and it continued to threaten the safety of their investments, hence their low confidence in the economy.
“If the new administration is able to make the market attractive we would begin to see foreign investors back to the market.”
Tajudeen Olayinka, CEO of Wyoming Capital and Partners, said: “The Foreign Portfolio Investment in equity is declining because of the exchange rate management.
“A situation of multiple exchange rate regime cannot give room for proper allocation of resources in the economy. This is one of the macroeconomic factors that have made it difficult for Nigeria’s economy to adjust to full employment output and external balance over the years.
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“This situation may improve in the coming years with an administration that has preference for private sector dominance.”
Also commenting, Prof. Uche Uwaleke, Economy expert and President Association of Capital Market Academic of Nigeria, said: “Until we begin to see changes in the monetary policies such as exchange rate, improved market regulations the FPIs will continue to fall.”
Reacting to the decline in FPI, analyst/ Head of Research and Investment, Fidelity Securities Limited, Victor Chiazor, said: “We have constantly seen reduction in foreign portfolio investments year-on-year, YoY, and it is likely that the situation may change once the new administration get things right in the Nigerian economic management system.”
He added, “Issues around exchange rate, capital importation and corporate governance amongst others continue to discourage foreign inflow.
“Until foreign investors see concrete policies and effort to correct some of these anomalies, domestic investors will continue to carry the market.
“Moreso, over the years we have seen investors confidence reduce which has led to the drop in Foreign Portfolio Investment.
“Issues around unavailability of foreign exchange, corporate governance, weak market regulation and oversight function and inconsistent government policies have weakened foreign participation in the equities market and until all of these issues are addressed the market will continue to be dominated by domestic participants.”
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