Analysts List Measures to Reverse Capital Flight

James Emejo in Abuja

Analysts yesterday urged the federal government to tackle the multiple macroeconomic issues that continue to plague the country’s development particularly insecurity, infrastructure and foreign exchange as well as bureaucratic bottlenecks that discourage foreign investments into the country.

The analysts also urged the government to do more to boost investor confidence especially in the areas of security with strong assurance of the safety of their investments.

The advice came as the total value of capital importation into the country declined by -54.06 per cent to $875.62 million in the second quarter of the year (Q2 2021) from $1.91 billion in the preceding quarter.

According to the National Bureau of Statistics (NBS), this also represented a contraction of 32.38 per cent when compared to Q2 2020.

In separate interviews with THISDAY, the analysts, among other things, urged the federal government to as a matter of urgency lure investors with attractive tax forebearance packages and other incentives to draw more investors into the economy.

According to the Nigerian Capital Importation (Q1 & Q2 2021) report published by the statistical agency, portfolio investment accounted for 62.97 per cent or $551.37 million of total capital importation.

This was followed by other investment, which accounted for 28.13 per cent or $246.27 million of total capital imported while Foreign Direct Investment (FDI) contributed 8.90 per cent or $77.97 million to capital inflows in Q2.

Also, the banking sector dominated in Q2 reaching $296.51 million of the total capital importation.

The United Kingdom (UK) emerged as the top source of capital investments in the country in with $310.26 million, representing 35.43 per cent of the total capital inflow in the review period. Lagos State emerged as the top destination of capital investment in the country in with $780.06 million or 89.09 per cent of the total capital inflow in Q2.

The NBS stated that Stanbic IBTC Bank Plc emerged at the top of capital investment in Q2 with $310.21 million, representing 35.43 per cent of the total capital inflow in
Q2.

Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, said there was huge capital outflows last year due to the COVID-19 pandemic as portfolio investors looked to flee to safer zones amidst the uncertainties of the pandemic.

According to him, some investors were unable to exit due to scarcity of FX in the country and as such may have had to extend their positions until FX liquidity improved.

He added:”As the effects of the pamdemic on economies have plateaued and oil prices have rebounded, it has provided more opportunities for investors to exit the more volatile sub-Saharan markets.

“As the figures show, the capital importation for Q1 and Q2, 2021 have largely been through portfolio investments (62.97 per cent), which tends to be short term “hot” funds that provide liquidity to financial markets but do not necessarily impact the economy in the long run. This is often an indication of investor apathy towards long term investments in Nigeria.”

However, Shelleng pointed out that the reversal of the trend will require the government to address issues around the macroeconomy and insecurity.

He alsi said the utilisation of free trade zones may also encourage FDIs adding that “security issues must be addressed”.

He said though Lagos may have its own security challenges as a state, it is not “tackling issues of banditry, rampaging herdsmen and terrorists, hence is perceived as a safer destination.”

Associate Professor of Agricultural Economics at University of Port Harcourt, Anthony Onoja, said the development was particularly “worrisome even though there could be hope if the data are adjusted for capital exports, that is, if we are doing better in capital exports.”

He said the capital decline could be explained by growing propensity of negative investment climate as evident in the national insecurity situation in the country, a weakening purchasing power of the citizens or low aggregate demand exacerbated by the COVID-19 induced economic stress, as well as “uncertainty in economic policy direction, difficulty in profit repatriation, stagnant and decaying infrastructure especially in the power sector and weak governance.”

He said:”The trend of decline in capital Importation can be reversed by government resolution to address issues of insecurity, weakness in Naira value (strengthening forex management), improving governance to reduce unnecessary bureaucracy at ports, improving domestic investment in infrastructure development and deepening social protection schemes to improve aggregate demand in the face of a lingering pandemic.”

Also commenting on the development, Managing Director/Chief Executive, Dignity Finance and Investmemt Limited, Dr. Chijioke Ekechukwu, expressed worry that Africa’s largest economy is experiencing the magnitude of decline in capital umportation and direct foreign investment into the country.

He said the country has to be seen as a serious minded country with transparency of purpose adding that the “whole world knows that the country needs healing and so we need to seek total economic reforms”.

Ekechukwu said said there are a lot of negative economic indices in the market space.

“Investors watch them every day. Stock market, Capital market and other Financial markets are not looking well, inflation rate is high, exchange rate is out of control, ease of doing business is not motivating and many more.

“No body will invest in a country with this level of insecurity like Nigeria. Access to foreign exchange and repatriation of same are enmeshed with uncertainties,” he added.

Chairman, Chartered Institute of Bankers of Nigeria (CIBN), Abuja Branch, Prof. Uche Uwaleke, however, pointed out that the drop in capital importation was not only due to economic conditions in Nigeria but also in countries from where the bulk of capital importation is recorded.

He said that the outbreak of COVID-19 delta variant in the UK could be partly responsible for the drop.

He said:”Foreign portfolio investments took the lion’s share and it is not surprising that the bulk of it was in Lagos.

“The distribution of capital importation into the country is worrisome given that only Lagos, Abuja and to an extent Ogun keep attracting the bulk of foreign investments in Nigeria.

“The other state governments should work at improving ease of business to attract foreign investments.

“Partly due to colonial ties, the UK has remained the largest source of foreign investments in Nigeria for many years followed by USA.”

On his part, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, said the major chunk of the the capital importation is from portfolio investment in the banking sector which “tells us that investors are restricting themselves to this type of investment because of the high level of insecurity in the country”.

He said other sectors where investment is needed especially in mining, oil and gas and agricultural value chain are lagging behind adding that this seriously affecting the economy negatively.

He said:”From the statistics you would see that Lagos state was the highest beneficiary because the investors are weary of investing in other states due to negative security advisory by their countries as regards the safety of their investment.

“The federal government of Nigeria need to do a lot of confidence boosting especially in the areas of security to investors which strong assurance of the safety of their investment.”

Gbolade, further advised the government to engage career ambassadors to reach out to countries that generate high capital importation to Nigeria with a view of strengthening cooperation and also ensure that other countries in Europe and Africa doing marginal investment with the country be encouraged to increase their investment.

He stressed that existing investors and prospective investors needed to be convinced that adequate measures are been taken to government to secure their investment in various sectors of interest.

“The federal government should also as a matter of urgency lure investors with attractive tax forbearance packages and other incentives to draw more investors to boost our economy,” he said,