Seyi Fadipe, a chief executive officer in one of Nigeria’s leading investment financial advisory firms, was dismayed after receiving a call from one of his foreign clients.
The client gave her a sorry call, informing her to put on hold an ongoing investment deal, as he and his entourage will not be able to fly into Nigeria for proper inspection due to the imposition of restriction measures in his country, which restricted the movement flow of persons, goods and capital.
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The deal was a multi-million-dollar investment in a local agricultural producing firm in the Middle Belt region of Nigeria, which Fadipe had been on since 2019, hoping to bolster her firm’s balance sheet and reward shareholders when it finally fell through in 2020.
“The suspended deal disrupted our business operations last year,” she told BusinessDay.
Whether it was the fear of contracting the virus, or the pandemic-induced global lockdown, business leaders, and fund managers had a fair share of the unprecedented year 2020, not just in Nigeria alone, but across the globe.
Total foreign inflows (direct investments + portfolio investments + other investment) into Nigeria plunged to $9.7 billion in 2020, the lowest in three years, according to data from the National Bureau of Statistics. And the huge collapse is not unconnected with the elevated risk in the global investment environment occasioned by the pandemic.
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“The COVID-19 pandemic had several far-reaching effects on Nigeria’s investment landscape,” according to Toyin Sanni, an investment expert and CEO of Emerging Africa Capital.
Some of these, Sanni noted, include a reduction in disposable income, resulting in reduced demand for investment instruments, and a loss of jobs due to massive layoffs.
“Others include rising food inflation due to supply chain disruptions, among other factors, increased taxes on VAT from 5 percent to 7.5 percent during the year, and the decline in yields following the implementation of expansionary monetary policies by central banks across the world including Nigeria,” Sanni said.
Ijeoma Agboti, managing director/CEO, FBNQuest Fund, told BusinessDay that at the initial stages of COVID-19, investors were generally inclined to avoid aggressive new investment activity and took a wait-and-hold approach. “This, coupled with a dip in interest rates, was followed by a flight to yield and renewed interest in diversification and alternative approaches,” she said.
But it was not just about the coronavirus induced-lockdown alone, a host of factors including Nigeria’s poor FX management made an already bad situation worse.
Africa’s biggest economy resorted to rationing dollar sales after the pandemic and an oil war between Saudi Arabia and Russia, two of the world’s biggest oil exporters, sent prices tanking to as low as $12 per barrel.
Being that oil accounts for a significant share of Nigeria’s dollar revenue, the fall in oil prices squeezed dollar inflows, sending Nigeria’s external reserve to as low as $33 billion, and limited the central bank’s intervention capacity in the currency market.
The naira ran into troubled waters last year, suffering a two-time 19 percent devaluation, with rates weakening to N379/$ at the official window and N383/$ at the I&E window, which further eroded investors’ wealth.
It was undoubtedly a difficult time for foreign investors, importers and manufacturers. A large number of portfolio investors were unable to access the greenback as they sought to repatriate their profit out; while manufacturers found it increasingly difficult to obtain dollars for critical inputs.
The aforementioned scenario alongside negative real interest rates following spiralling commodity prices sent a red flag to the investing public and scared fresh capital from coming, particularly hot money.
NBS data show that not one single foreigner invested in Nigeria’s bond between April and December 2020.
Although Africa’s biggest economy recorded a handful of foreign participation in equities and other money market instruments to the tune of $755.12 million and $4.2 billion in 2020, respectively, the combined amount was the lowest since 2016, and they were funds from maturing bonds, rolled into these assets.
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