Mr. Jimi Ogbobine, the head of Consulting and research in Agusto & Co, has explained why the Nigerian economy continues to witness decline in her Foreign Direct Investment and Foreign Portfolio Investments over the years despite being the most populous African country.
He disclosed this during a question and answer session at the 2022 National Budget Roundtable and Panel Discussion on Thursday, 31st March 2022.
Covenant University’s Centre for Economic Policy and Development Research hosted this roundtable themed, “National Budgeting for Economic Recovery and Sustainable Development in Nigeria.”
He mentioned that, “Nigeria operates a statist economy which lies in between the capitalist and the socialist economic system, exhibiting less faith and confidence in the private sector and doubtedness in the ability of market forces to attain equilibrium in the private sector.”
He went further to mention that the foreign investors are not attracted due to the volatility of the exchange rate. Citing the fact that, when foreign investors bring in their funds to the economy at the official rate ranging between N410/$1 to N420/$1 but when they wish to exit the country, they leave at the prevalent exchange rate of about N580/$1 to N600/$1.
Mr. Jimi also noted that the country’s budgeted revenue is based on the official exchange rate at the I&E window but when contractors are to embark on a project, they have to deal with the parallel market rate in the country.
However, he mentioned that the country has to intensify its effort to ensure that the budget base of the country is market reflective rather than the unrealistic official exchange rate used as a basis for the budget formation.
In addition to this, the Director General of the Debt Management Office, Patience Oniha, during the panel discussion included that the insecurity and infrastructural deficit in the economy is an addition to the unattractiveness of foreign direct investment to the economy.
She also noted that for the country to become more pro-active in attracting foreign investment, it would have no choice than to undertake the capitalist economic system.
What you should know
Foreign direct investment has declined marginally since 2016 from $3.4billion to $698.8million in 2021.
Foreign investment inflow (foreign portfolio investment) dipped from $5.12 billion in 2016 to $3.39billion in 2021.
On Thursday, the naira depreciated marginally against the US dollar, trading at a low of N587/$1 down from N588/$1 in the previous trading session, representing a 0.17% loss.
At the official Investors and Exporters (I&E) window, the exchange rate closed at N417/$1, despite increased dollar availability in the market, the exchange rate in the I&E official forex market remained unchanged at N417/$1. After the FX turnover surged by 50.56% to $147.41 million on Wednesday from $97.9 million on Tuesday.
