The fact that Foreign Portfolio Investments, or FPIs, fell significantly by 48.7 percent in the first two months of this year compared to the same period in 2022 suggests that foreign investors are not yet confident in Nigeria’s external sector situation and the political environment.
Several months before the general elections, the foreign investors had renewed their divestment actions, which was an indication of mistrust.
According to Financial Vanguard analysis of the most recent statistics provided by the Nigerian Exchange Limited, NGX, the value of FP1s for the first two months of the year was N44.52 billion, compared to N86.74 billion in the same period of 2022.
FPIs fell by 39.7% to N24.9 billion in January 2023 from N41.31 billion in a similar period in 2022. It fell dramatically by 56.8% in February 2023, from N45.43 billion in the same month of 2022 to N19.62 billion.
The drop in FPIs has been linked by economists and analysts to several factors, including market rules, fluctuating foreign exchange rates, and contradictory government policies.
The local equivalents have filled the void left by the absence of international investors, and in February 2022, they were responsible for 88.41% of the total amount of transactions recorded in the exchange.
The Exchange’s records for the past two months show a total transaction value of N384.01 billion.
According to a Vanguard review of the most recent data provided by the Exchange, overseas investors only made up 11.59 percent of the total value of transactions.
According to an analysis of the transactions, local investors did better than international investors in January 2023, accounting for 87.24 percent of the total transactions, or N170.20 billion, of the transaction’s N195.10 billion value. Domestic investors did better than international investors in the month of February 2023, accounting for 89.61 percent of the total value of transactions totaling N188.91 billion.
Results showed that institutional investors dominated domestic investments during the two-month period, accounting for 79.2% of the N339.49 billion in domestic investments.
Many financial analysts think that FPI commitment in Nigeria is declining as a result of the country’s political unrest and fluctuating exchange rates.
Analyst and Executive Vice Chairman David Adonri made the following statement in response: “There is a foreign exchange rate risk associated with overseas portfolio investment. The Naira’s recent sustained devaluation has the potential to increase exchange rate risk and cause investment losses. Second, the inability of international portfolio investors to transfer the proceeds of their investments weakened their confidence.
Finally, FPIs are aware of social and political developments. Few investors who are willing to assume the risk brought on by political unrest are investing in fixed income, or FI. Their lack of confidence in the economy is a result of the political unrest in Nigeria, which persisted even after the general election and continued to endanger the security of their investments. “If the new administration is able to make the market attractive we would begin to see foreign investors back to the market.”
According to Tajudeen Olayinka, CEO of Wyoming Capital & Partners, “Exchange rate management is causing a decline in foreign portfolio investment in equity. Several exchange rate regimes do not allow for efficient resource allocation in the economy.
Finally, FPIs are aware of social and political developments. Few investors who are willing to assume the risk brought on by political unrest are investing in fixed income, or FI. Their lack of confidence in the economy is a result of the political unrest in Nigeria, which persisted even after the general election and continued to endanger the security of their investments. “If the new administration can make the market attractive we would begin to see foreign investors back in the market.”
Analyst/Head of Research and Investment at Fidelity Securities Limited Victor Chiazor responded to the decline in FPI by saying: “We have continuously seen a reduction in foreign portfolio investments year over year, YoY, and it is likely that the situation may change once the new administration get things right in the Nigerian economic management system.
Problems with the exchange rate, capital importation, and corporate governance, among others, continue to deter international entry, the speaker continued.
Domestic investors will continue to dominate the market unless international investors see concrete policies and efforts to remedy some of these oddities.
More specifically, we have observed a decline in investor confidence over the years, which has contributed to the decline in foreign portfolio investment.