The Nigerian oil and gas industry, which has historically been a significant attraction for foreign investors, experienced a surprising downturn in the second quarter of 2023, marking the first time on record that it received no capital inflow. This disheartening trend has been revealed through a comprehensive analysis of data obtained from the National Bureau of Statistics (NBS).
In Q2 2023, Nigeria recorded a total of $1.03 billion in capital importation, a figure slightly lower than the $1.13 billion recorded in the preceding quarter. Furthermore, this number was 32.9% below the $1.54 billion registered during the same period in 2022. Notably, Q2 2023’s capital importation figure is the lowest since the second quarter of 2021.
A closer examination of the NBS data highlights that a substantial portion of the foreign inflows during this period entered the country in the form of loans, constituting 74.9% of the total capital import. Foreign direct investment, amounting to $86.03 million, represented 8.4%, while foreign portfolio investment, with $106.85 million, accounted for 10.4% of the total.
Investment Apathy and Its Implications
Nigeria has been grappling with a consistent decline in capital importation, revealing a significant lack of interest from foreign investors in recent times. This trend has had dire consequences for the overall economy, exacerbating foreign exchange (FX) illiquidity and exerting pressure on exchange rates.
Of particular concern is the complete absence of foreign investment in the Nigerian oil and gas sector, a key contributor to the nation’s economy, accounting for approximately 6% of its GDP and serving as a major source of government revenue. During the review quarter, the sector received no foreign investments, marking a stark contrast to other sectors that attracted substantial capital.
The manufacturing sector led the way, securing $605.04 million, followed by the banking sector with $194.58 million, and shares with $68.63 million in foreign investments.
Data sourced from the Nigerian Exchange reveals a significant decline in foreign participation in the Nigerian stock market. Year-to-date statistics up to September 2023 indicate that foreign investors accounted for a mere 9.51% of total market activities, a stark reduction from the 16.3% recorded during the same period in 2022.
Reforms Fail to Attract Foreign Investments
Despite the government’s efforts to incentivize foreign investments in the oil and gas sector, these initiatives have fallen short of their intended objectives. In May 2023, President Bola Tinubu announced the full deregulation of the downstream oil sector, aligning with the Petroleum Industry Act signed by former President Buhari. The move was expected to stimulate increased competition and investments in the local industry; however, foreign investors have remained reluctant to engage with the Nigerian oil sector.
Rather than attracting new investments, the sector has experienced a steady decline, with international oil companies increasingly divesting their operations from Nigeria and redirecting their focus to neighboring countries. Notably, Italian company Eni agreed to sell its subsidiary, Nigerian Agip Oil Company (NAOC), to Oando. Research conducted by Wood Mackenzie, a British research and consulting firm, revealed that international oil firms’ divestments in Nigeria have amounted to £871 million since 2020.
One of the primary factors deterring foreign investor participation in the Nigerian economy is the deteriorating state of FX liquidity. Many foreign investors are unable to repatriate their proceeds due to the scarcity of foreign exchange, which has further discouraged their engagement with the country.
In light of these challenges, Nigeria faces the critical task of restoring investor confidence and rekindling foreign interest in its oil and gas industry, a sector that has historically played a pivotal role in its economic development.