A leading financial research and consulting firm, Financial Derivates Limited (FDC) has projected that current efforts by the fiscal authorities to boost foreign direct investment (FDI) may be seriously undermined by a combination of negating factors in the country.
The research firm, in its latest Monthly Economic Update report, noted that Nigeria’s inability to attract the desired FDI could be attributed to the country’s prolonged insecurity, a poor investment climate and a significant infrastructure deficit, amongst other factors.
It projected that, unless the fiscal authorities took necessary measures to tackle these fundamental problems, particularly in the face of the possibility of the US Federal Reserve sustaining its monetary policy tightening cycle in the next quarter, the nation’s share in the global portfolio investment inflows may dwindle in the months ahead.
Specifically, the company pointed out that the country’s reliance on hydrocarbons for government revenue and foreign exchange remains a fundamental weakness of the economy, and constituted a major deterrent for investors and partly plays a role in the FDI inflow fluctuations just as the prolonged state of insecurity remained another major factor undermining government’s foreign investment initiatives.

Similarly, it also identified poor investment climate characterized by overly stringent government policies, bureaucratic bottlenecks for securing permits, and a weak legal framework as discouraging to foreign investors, while noting that the nation’s huge infrastructure deficit constituted another major investment deterrent.

The report noted that, if the current administration makes good on its pledge to push up economic growth rates and foster inclusive and broad-based growth, the required capital to boost growth could be mobilized either locally, especially as the local finance sector and capital markets grow, or internationally.

Despite the unimpressive FDI inflow trend, the company believes that all hope is not lost given the current moves by the government to improve the nation’s macro and micro economic environment.

The FDC reported: “The Federal Government has set to work to correct these anomalies. Efforts to expand the tax base, reduce red tape, and strengthen the regulatory framework to investment are being pursued, albeit with varying degrees of success. This should help enhance the lure of Nigeria’s business environment, which in turn would attract FDI.

“The wider business operating environment has improved, and indeed Nigeria jumped 24 places to 145 out of 190 countries surveyed in the 2017 World Bank Doing Business Index. Considerable progress has also been made on the drive to reduce Nigeria’s dependency on oil. A more diversified economy would make FDI more attractive, and result in a more stratified economy. Nonetheless, slow progress on reforming the business environment and political uncertainty surrounding the 2019 general election should keep FDI well below its peak in the next few years.

“A country of Nigeria’s economic and social potential ought to attract more long-term foreign investment. To do so, the government needs to address the underlying structural bottlenecks that make Nigeria such a difficult country for business investment,” it added.

On recent developments in the global oil market and the implications for commodity exporting countries, including Nigeria, the research company predicted that, with the Trump administration leaning towards more protectionist trade policies and a US export boom that has benefitted from a cheaper dollar, OPEC members can only drive down production costs as a proactive strategy of mitigating the impact of a weaker dollar on their export oil earnings and economies.

While reflecting on the recent Central Bank of Nigeria’s Purchasing Managers Index (PMI) reading, which rose to 56.7 points in March up from 56.3 points in the preceding month, the company forecasts an uptick in the PMI for the manufacturing sector in April just as it painted a bright outlook for power generation in April.

Similarly, the company also having critically appraised the money market trends in the two- month period of February to March projected that Treasury Bill rates would maintain their downward trend in April just as it expected to see the interest rates move in tandem with liquidity conditions.

It also reported that, in view of the fact that foreign exchange rate remained relatively stable in all market segments in March, the naira would trade flat in the current month pending adjustments to market fundamentals, including the likely passage of the 2018 budget.

The company stated further: “Nigeria’s gross external reserves increased by 8.57% ($3.63bn) to $46.26bn as at March 29th, from $42.63bn recorded on March 1st. The bullish global oil market and stable production levels were the main drivers of the accretion. The import and payment cover is up to 12.85 months compared to 11.84 months on March 1.

“We expect the rise in external reserves to be sustained, provided the oil market dynamics on the domestic and international fronts remain positive,” FDC projected.