The nation’s stock exchange has seen unprecedented capital flight as a result of
sustained capital flight sparked by the foreign exchange (Forex) crisis, insecurity, and
other macroeconomic issues, made worse by foreigners’ inability to repatriate their
funds. In just seven years, the total number of foreign transactions completed on the
equities market has decreased by 66%.
The Nigerian Exchange Limited (NGX) provided data from its Domestic Foreign Portfolio
Investment Report, which revealed that as of August 2023, the total amount of foreign
transactions had fallen to N37.16 billion from N110.40 billion in August 2014.
Additionally, from N53.87 billion in 2014 to N13.79 billion this year, the total amount of
foreign input decreased substantially. In a similar vein, as of August 2023, Foreign Portfolio
(FP) investment transactions accounted for 14.15% of all market activity, down from 81.43
percent in 2014.
But within that same time frame, overall domestic transactions skyrocketed, rising from
N28.18 billion to N225.40 billion. In fact, the Naira’s floating has made it harder for Nigeria to
fulfill its foreign exchange obligations, thus widening the gap between the official and black
markets.
However, since the Federal Government declared that the Naira would be floating, the
currency has continued to plummet. According to a source close to The Guardian, there is a
significant backlog of unmet obligations, forex deficits, and arrears. The source estimated
that it would take two to three years to clear the backlog and create reserves.
It would take some time to restore confidence in Nigeria as there is panic in the currency
market and a significant decline in confidence. Building the reserves and reducing the
backlog will take two to three years.
In a similar vein, data from the National Bureau of Statistics (NBS) revealed that the total
amount of capital imported fell by 32.9%, from $1.5 billion in the second quarter (Q2) of 2022
to $1.3 billion in the same period in 2023.
Operators have emphasized the need for government at all levels to adopt policies that
would help tackle fundamental issues constituting disincentives, especially the issue of forex
investment in Nigeria, and liberalize the economy. These operators appear irritated by the
steady decline in foreign investors’ participation in the capital market over the period.
They pointed out that in order to promote development, combat poverty, and generate jobs
for the populace, the nation urgently needs significant foreign investment.
According to Victor Chiazor, Head of Research at FSL Securities, concerns over uneven
fiscal policies and a lack of FX liquidity have damaged investor confidence and hindered
foreign money from entering the market, which has caused capital inflows to drop from N110
billion in 2014 to N37 billion in 2023.
He states that the level of activity of foreign investors in the market will stay low until they
can invest with confidence and repatriate their currency earnings, along with intentional
efforts by the economic management to maintain consistency in policy.
“Among other factors, liquidity, ease of capital entry and exit, stable fiscal policies, and
strong corporate earnings have always been the driving forces behind foreign investments in
the market,” he said.
According to Tajudeen Olayinka, CEO of Wyoming Capital and Partners, foreign portfolio
investors are now viewing the Nigerian market as an “Abandonment Option.”
The decline in foreign portfolio transactions from N110.40 billion in 2014, in his opinion, is an
unfortunate development and a portent of more terrible times to come.
Restoring trust in the foreign currency market and reintroducing dollar liquidity, he argued, is
the best course of action. Olayinka also asked the Federal Government to intensify its
existing efforts to boost market confidence.
Patrick Ajudua, president of the New Dimension Shareholders Association of Nigeria,
attributed the decline in international transactions to the impact of global economic
headwinds, which have included a persistent upward trend in inflation, easy access to
foreign currency, inconsistent policy, and fluctuating foreign exchange rates.”
