Attracting foreign investments to Nigeria’s capital market

Institutional investors from the United States have shown keen interest in allocating their capital and exploring direct investment opportunities in Nigeria's capital market. Ayodeji Ebo, the Managing Director of Optimus by Afrinvest, joined CNBC Africa to discuss the reforms required to sustain this interest from investors. Ebo highlighted the significance of foreign investors' interest in the Nigerian market, particularly in light of recent data showing a decrease in foreign investment. According to the half-year capital importation data for Q2 2023, only $8.5 million flowed into equities, accounting for approximately 8% of total investments, based on the National Bureau of Statistics report. The Nigerian stock market has predominantly been driven by retail investors, constituting 70% to 75% of market activity in the last three years. However, the participation of foreign investors plays a crucial role in boosting market liquidity and driving primary issuances. Ebo emphasized that while investor interest is a positive sign, several factors need to be addressed to facilitate their entry into the market. One key concern is the foreign exchange (FX) situation, which remains a significant barrier for investors looking to repatriate funds. The recent increase in global interest rates poses additional challenges, potentially deterring capital flows from developed nations to emerging markets like Nigeria. To attract foreign investors, resolving the FX issue and creating a conducive investment environment are essential. Ebo underlined the importance of generating investor confidence by demonstrating progress in FX management and providing clarity on repatriation processes. He mentioned that investors currently trapped in the country are mainly involved in activities like dividend reinvestment but are cautious about making new investments without FX stability. Despite these challenges, domestic institutional investors have shown growing interest in the market, with investments in equities rising by 36% in the first half of the year. Ebo shared insights on sectoral investment prospects, highlighting opportunities in telecom, banking, agriculture, and cement industries. The telecom sector is expected to remain resilient, driven by robust top-line performance, despite challenges related to FX and valuation. In the banking sector, Ebo predicted corrections in the short term but suggested long-term investment potential, supported by anticipated dividend growth and improved FX earnings. He also identified the agriculture sector as offering opportunities for investors, despite recent setbacks caused by FX constraints. Additionally, Ebo discussed the positive outlook for the cement industry, citing the potential benefits of a new policy promoting the use of cement for road construction, which is likely to boost demand in the medium to long term. Overall, Ebo emphasized the importance of addressing key challenges such as FX stability and enhancing investment opportunities to attract both domestic and foreign investors to Nigeria's capital market.