Nigeria’s FDI, FX inflows see ominous clouds hovering

By Our Reporter

A cascade of ominous clouds pointing to an economic downturn is gradually taking centre stage across the globe amidst rising interest rates, house prices, high inflation, moderate PMI numbers and the lingering war in Ukraine.
The likelihood and talk of a recession is not far-fetched either going by the comments earlier made by key CEOs like Jamie Dimon and Elon Musk, as well as the stack realities of recession that’s about to hit major economies of the world, such as the United States of America.

The impending effect of a recession on the markets and dependent economies, including Nigeria, has left many pondering the attendant impact on remittances inflow as well as the ongoing and pending further declines in the total foreign direct investment (FDI) and foreign portfolio investment (FPI) into Africa. In a similar vein, the fear of missing out may not be the worry for most investors at this time but the outcry by some analysts who foresee the fall in the consumption level across the continent and the unabating levels in the debt and deficit levels; and leading to defaults in bond issues by some national and subnational governments.

With the ongoing hullabaloo, which saw central banks around the world engaging in rate hikes in a bid to rein in inflation and ensure policy normalisation, Nigeria was not left out on the train platform when it took its policy tightening apron to raise interest rates by 150 basis points after the United States’ Fed trekked its target rates by 50 basis points (being the highest since 2000) as well as slower than expected decline in inflation numbers. This, in a reawakened thought, is beginning to sprout some renewed concerns about outcomes for these economies, including Nigeria.

Across the Eurozone, investors’ steered surging inflation following subsequent indications of tighter monetary policy. Truly, the European Central Bank (ECB) president, Christine Lagarde, indicated plans to commence interest rate hikes at the ECB’s July meeting, in response to multi-decade high inflation. Furthermore, the Russian-Ukraine crisis saw the ECB’s continued working with EU leaders to push through a deal that aims to ban over 90 percent of Russia’s crude exports, bring about a spike in crude oil prices and raise concerns of weaker consumption spending, a recipe for recession.

With analysts and stakeholders all left on hunches over what could be the next hit on economies, or a probable recession globally, following the stack realities across continents, including Africa, where there is a rising debts level, inflation, declining inflow of foreign exchange currencies, amongst others; the effect may be highly felt on dependent economies.

Nevertheless, regarding foreign exchange, an analysis of FX inflow data from the CBN highlights that total fx inflow into the Nigerian economy declined to $20.6 billion in Q4 of 2021 from $30.2 billion in Q3 of 2021 while on a year on year basis, fx inflow into the economy also decreased by 17 percent. On the other hand, the total fx outflow from the economy increased to $12.4 billion from $10.2 billion in Q3 of 2021 as fx outflow through the CBN dominated the flow way, accounting for 86 percent of all outflows. Meanwhile, the outflow of fx through the CBN’s various intervention windows declined by four percent quarter on quarter to $5.1 billion.

Analysts, commenting on the declining FX inflow, opined that, “Given monetary policy tightening by major central banks around the world, the decline in fx inflow related to OTC purchases is not surprising, as foreign investors shift away from emerging markets to advanced economies.”

Kalu Aja, a financial planner and investment expert, in the course of last week highlighted possible major effects of a possible recession from advanced economies on Nigeria and Africa. The investment expert, via his verified Twitter handle, asked: “What happens if the US slides into a recession? The EU and Asia also slid into a recession. Africans living abroad will send less dollars home. Remittances and FDI/FPI flows to Africa will fall. African consumption falls, debt and deficits rise leading to defaults on bonds.

“Migration from Africa to the West will accelerate: migration means less middle class to tax in Africa. More migrants to the West, create demand in the West; more demand, takes West out of a recession. Africa recovers slower, loses her best,” he said.

Speaking on the possible way forward, Kalu asserted that “Africa must seek a way to “tax” the West for taking her middle class. Does not have to be payments; it can be a continent-wide “AGOA” (African Growth and Opportunity Act), where exports to the EU and North America are locked at two percent or less. Africa must seek a way to “tax” the West for taking her middle class

“In the long term, the ONLY region that will grow is Africa, because of demographics. Technology advances in the West can boost productivity but humans still need to eat burgers and wear Nikes. Africa must start to value its younger population, it’s an asset and a simple task. African nations should negotiate better trade terms with the West or Africa will lose her educated, young middle class. The Visa Lottery is not done because the West wants diversity, it’s to attract a “low cost” educated workforce from the “third world”. Wake up Africa!!” Aja admonished.