Can Nigeria sustain foreign investment flows?

Nigeria experienced a significant increase in foreign investments in the first quarter of 2024, with a total of 3.38 billion dollars flowing into the country, marking a 210% quarter-on-quarter rise. The National Bureau of Statistics' Q1 2024 capital importation report revealed that Portfolio Investment was the top recipient, registering just over 2 billion dollars, while Foreign Direct Investment recorded the lowest inflow at 119.18 million dollars. To discuss Nigeria's efforts to attract more foreign investments and provide insights into the trading outlook for the naira, Johnson Chukwu, the CEO of Cowry Asset Management, joined CNBC Africa for an interview. Chukwu expressed his expectations for an improvement in capital importation due to the Central Bank's increase in treasury bills rates to 21.49% in March. This move attracted foreign portfolio investors to the Nigerian economy, with 6 trillion naira worth of treasury bills and 2.4 trillion naira worth of federal government bonds issued in the first quarter at attractive yields. The appealing effective yields of 26% incentivized foreign investors, especially as the stability in the exchange rate provided confidence against further depreciation. However, despite the surge in Portfolio Investment, the challenges for Foreign Direct Investment persist. Only accounting for 3.5% of total capital imported, direct investment faces obstacles such as existing investors exiting the market, insecurity, liquidity issues, exchange rate stability, and a decline in consumer demand. The departure of major companies like GSK, Proter and Gamble, and Guinness raises concerns among potential investors, questioning the conducive environment for long-term investments. The discussion also delved into the impact of reforms on investor sentiment. While initial optimism surrounded the government's reform agenda, setbacks such as the reintroduction of fuel subsidies and currency devaluation led to a loss of confidence among investors. The economic challenges, including weak purchasing power, high inflation, and unemployment, further dampened the attractiveness of long-term investments in Nigeria. Chukwu emphasized the need for recalibrating reforms to address the concerns of investors and restore stability to the economy. By learning from past mistakes and taking corrective measures, Nigeria aims to reposition itself as an attractive destination for foreign investments. Achieving stability in the exchange rate and revitalizing consumer demand are crucial steps towards rebuilding investor confidence and leveraging the country's large market potential. In conclusion, while Nigeria celebrates the surge in foreign investment inflows in Q1 2024, the journey towards sustainable growth and attracting direct investments remains challenging. With a focus on addressing key impediments and implementing effective reforms, Nigeria aims to create a more conducive environment for both portfolio and direct investors, signaling a renewed commitment to economic stability and growth.