Foreign Investors Triple Asset Disposals in Nigeria, CBN Report Reveals
Foreign direct investors have significantly increased their asset disposals in Nigeria, reaching a staggering $200 million, according to the Central Bank of Nigeria’s (CBN) economic report for the third quarter of 2023. This surge in divestment reflects a growing trend of multinational corporations withdrawing their business operations from the country.
The report highlights a notable uptick in foreign direct investment (FDI) divestment, which soared by 186% from $70 million in the second quarter of 2023 to $200 million in the third quarter. This increase is primarily attributed to divestments in direct investment equities.
However, amidst the surge in divestment, the CBN report also notes a substantial influx of $2.86 billion, compared to $2.23 billion in the previous quarter. This 28.25% increase is attributed to heightened portfolio investment, particularly in debt instruments by non-residents.
The report emphasizes that the inflow of $2.86 billion was driven by increased portfolio investment, especially in debt instruments by non-residents. Conversely, FDI recorded a divestment of $0.20 billion, compared to $0.07 billion in the previous quarter, due to divestment in direct investment equities.
Further analysis reveals that ‘Other investment’ experienced a divestment of $310 million, in contrast to a $20 million inflow in the preceding quarter. This shift is attributed to the disposal of direct and other investments, including equity and investment fund shares, alongside a reduction in the holdings of foreign currency and deposits by residents.
Delving deeper into the economic landscape, 2023 proved to be a challenging year for businesses in Nigeria. The year saw election uncertainties and an artificial cash scarcity at its start, followed by challenges from a poorly executed currency note redesign, which restrained consumer spending in the first quarter.
The second quarter witnessed some economic rebound, but challenges escalated with fuel subsidy removal and the unification of the foreign exchange market. These reforms led to upward inflationary pressures, causing the naira to depreciate by over 50%. Consequently, a significant number of businesses exited Nigeria in 2023, with nearly 10 firms leaving the market.
One notable exit was GSK UK Group’s announcement in August 2023 to cease the commercialization of its prescription medicines and vaccines in Nigeria. Hindered by challenges in accessing forex, the company pivoted to a third-party distribution model, highlighting macroeconomic troubles in the country.
These developments have raised concerns over the ease of doing business in Nigeria, signaling potential red flags to foreign investors.
Source: Nairametrics
