January 16, (THEWILL) – United Bank for Africa Plc (UBA) and Ecobank Nigeria Plc were among the topmost financial institutions through which foreign investments totaling $1.73 billion were channeled into the Nigerian economy in the third quarter of 2021 (Q3 ’21). The topmost financial institutions, totaling six, received a total of $1.60 billion.
According to a recent report by the National Bureau of Statistics (NBS) entitled ‘Nigerian Capital Importation (Q3 2021)’, the total value of capital importation (investment inflow) into Nigeria during the period (totaling $1.73 billion) exceeds the $875.62 million recorded in the preceding quarter of 2021 with $858 million. This shows an increase of 97.73 percent.
When compared to the corresponding quarter of 2020, the Q3 2021 capital importation figure also shows an increase of 18.47 percent from $1.46 billion in that year. The topmost financial institutions served as conveyors of 92.48 percent of the total capital importation for Q3 2021. A total of 18 banks were involved in the Q3 2021 investment inflow with each of the top six recording $100 million and above. UBA received $200.00 million while Ecobank had $126.02 million channeled through it.
The others are Stanbic IBTC Bank Plc ($537.92 million), Standard Chartered Bank Nigeria Limited ($326.01 million), Citi Bank Nigeria Limited ($248.30 million) and Union Bank of Nigeria Plc ($162.05 million). Providus Bank recorded the least investment inflow of $0.003 million.
By type, Portfolio Investment of $1.21 billion topped the list, accounting for 70.30 percent of total capital importation. This was followed by Other Investment with a total of $406.35 million which accounted for 23.47 percent. Foreign Direct Investment (FDI) of $107.81 million amounted to 6.23 percent of total capital imported in Q3 2021. By Sector, capital importation into Financing had the highest inflow of $469.17 million amounting to 27.10 percent of total capital imported in the third quarter of 2021.
This was closely followed by capital imported into the Banking Sector valued at $460.39 million or 26.59 percent and Production sector $323.83 million representing 18.70 percent.
Capital importation by country of origin revealed that the United Kingdom ranked top as source of investment into Nigeria with a value of $709.8 million accounting for 40.99 percent of total capital importation in the review period. This was followed by capital imports from South Africa and United States of America valued at $389.54 million (22.50 percent) and $257.12 million (14.85 percent) respectively.
Agriculture came a distant 7th by sector, an indication of that sector’s continued decline in recent years. Recent GDP reports revealed a significant decline in Agriculture in recent times.
“The agricultural sector in the third quarter of 2021 grew by 1.22 per cent (year-on-year) in real terms, a decrease of 0.17 per cent points from the corresponding period of 2020, and a decrease of 0.08 per cent points from the preceding quarter which recorded a growth rate of 1.30 per cent. It grew on a quarter-on-quarter basis at 39.83 per cent. However, the sector contributed 29.94 per cent to overall GDP in real terms in Q3 2021, lower than the contribution in the third quarter of 2020 and higher than the second quarter of 2021 which stood at 30.77 per cent and 23.78 percent respectively,” the NBS reported in its Q3 2021 GDP report.
As noted, Financing and Banking topped the investment by sector with $469.17 million and $460.39 million respectively, followed by Production and Trading which recorded $323.83 million and $216.39 respectively. Shares received $160.91 million while Telecoms recorded $50.84 million. Agricultural sector received only $32.93 million investment inflow during the reporting period. By destination, Lagos recorded $1.48 billion while Abuja received $249.49 million. Anambra came third with $0.44 million.
Industry experts believe that the environment must be conducive for investments as no one would be willing to invest in a hostile environment. They maintain that investment drought reduces employment opportunities, ignites illegal revenue collection and kills the economy by instalment.
Furthermore, they attribute the rise in Q3 2021 investment inflow mainly to the traditional practice of investors taking positions in quoted companies, especially in the financial services sector, towards the end of the year ahead of dividend season. UBA has increased its offshore presence in recent times, especially in the African continent which has contributed significantly to its growth in revenue, profit and assets.
A recent report by NextMoney magazine revealed that UBA ranked third by Assets and No. of Employees, fifth by Profit and Revenue, seventh by Tax Payment and eleventh by Market Capitalisation among selected top 100 companies listed on the Nigerian Exchange (NGX) in 2020. “The analysis is restricted to publicly-held companies in the country. The reason for this is that accounts of listed companies are easier to access than those of private companies. Moreover, accounts of publicly-held companies are more believable because they are usually subjected to regulatory scrutiny and approval,” the report stated.
A stockbroker and investment analyst, Dr Anthony Omojola said that UBA and Ecobank have strong offshore subsidiaries and maintain strong links with other countries; this helps to attract investment inflow through those channels. He noted that a huge portion of the capital importation represents returns on investments among other sources.
“The banks have links with other countries in term of branches, subsidiaries and products that are accessible to them. The capital importation represents returns on investments, contributions by foreign-based branches or other nationals that invested in their products.
“Part of these could also represent repatriations by our citizens in diaspora to their families. Others are export proceeds routed through these banks. We pray such returns continue to grow as it will affect our economy positively and induce a better exchange rate in future,” Omojola, CEO, Credible Associates Limited told THEWILL in a note.
Stakeholders predict further decline in capital importation as the 2023 general election draws closer when investors take momentary departure from Nigeria citing policy and political uncertainties that constitute a setback to the economy.
Two major economic victims of declining investment inflow are tax revenue and employment. The government had embarked on a huge tax reform in the past five years when it introduced the historic tax amnesty called Voluntary Assets and Income Declaration Scheme (VAIDS) which came into effect in July 2017. The scheme allowed more Nigerians to pay taxes by not punishing them for tax evasion. According to the Federal Inland Revenue Service (FIRS), the government recorded N17 billion through the scheme while the existing 14 million tax payers doubled during the two-year period of the scheme.
It is on record that the reform brought remarkable changes to the tax space with robust gains in revenue, increase in the number of taxpayers and reduction in compliance gap. The initiative was a boost to foreign investment inflow at the time. This was, however, momentary as other harsh environmental factors, especially unfavourable foreign exchange policies, combined to erode the gains of the scheme leading to investors fleeing the economy.
Regarding employment, the slump in investment inflow also explains the concerns of the World Bank which observed that Nigeria’s unemployment crisis in recent times is the worst in the nation’s history. According to the bank’s research paper published in July 2021, Nigeria’s expanding working-age population, combined with scarce domestic employment opportunities, is creating high rates of unemployment, particularly for the youth.
“Between 2010 and 2020, the unemployment rate rose five-fold, from 6.4 percent in 2010 to 33.3 percent in 2020. The rise in unemployment rates has been particularly acute since the 2015-2016 economic recession and has further worsened as COVID-19 led to the worst recession in four decades in 2020,” the bank said in the report.
Industry experts blame unfriendly investment climate, intractable security challenges and acute infrastructure deficit, among other institutional and structural problems as the core factors responsible for the historic nosedive in the flow of FDIs into the economy.
Expressing concerns over the declining FDI inflows, the immediate past director-general of the Lagos Chamber of Commerce and Industry (LCCI), Dr Muda Yusuf, pointed out that diverse institutional, regulatory and structural challenges had eroded investors’ confidence in the Nigerian economy.
“It is investors’ confidence that drives investment, whether domestic or foreign. Investors are generally very cautious and painstaking in taking decisions with respect to Foreign Direct Investment (FDI).
“Universally, FDIs are often long term and invariably more risky, especially in volatile economic and business environments. Uncertainties aggravate investment risk. Investors in the real sector space are grappling with structural problems especially around infrastructure.
“Investors’ confidence has also been adversely affected by the worsening security situation in the country. Meanwhile, our domestic economy is still struggling to recover from the shocks of the COVID-19 pandemic. These are the likely factors affecting investment decisions,” Yusuf had told THEWILL late last year.