The need to create appropriate policies that will attract Foreign Direct Investment (FDI) into the country has been highlighted by Financial Experts in the Nation’s Capital Market at a virtual workshop organized by the Capital Market Correspondents Association of Nigeria (CAMCAN) in Lagos on Thursday.
Speaking at the event themed, “Addressing Nigeria’s Fiscal Challenges – Exploring Alternative Fund Approach”, Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu, noted that the Nation’s FDI which is what goes to the private sector and infrastructural development has in the last six years (2015-2020) neared flat. According to him, Nigeria recorded $1.44 trillion inflow of FDI in 2015 as against $1.028 trillion reported in 2020.
“It is a far cry compared to countries such as Ghana whose receipts are two times what Nigeria realized and Egypt which is seven times what we received. FDI is an important source of capital funding for a country like Nigeria. Nigeria needs to come out with appropriate policies that will attract FDI especially on foreign exchange,” he said.
He explained that for a less stable economy such as Nigeria’s, assessment of social conflicts by potential investors will be a key consideration.
“Investors gear their foreign direct investments toward economies where they have the highest potential for profit and the least risk. As such, the dent of the social unrest to the image and perceived risk of long-term capital investment would mean that the country will struggle in attracting the much-desired long-term finance needed for accelerated growth and enhanced job opportunities,” he said.
On revenue, Chukwu highlighted Nigeria’s huge revenue shortfall indicating the country has to look for funds outside government budget as total revenue has remained largely flat between 2015 and 2020.
“In 2015, the total revenue realised by the Federal Government stood at N3.24 trillion as against N3.47 trillion reported as of November 2020. There has been a steady growth in expenditure; as of 2015, the total expenditure stood at N4.76 trillion in contrast to N6.24 trillion recorded from January to November 2020. The challenge we have in this country is a revenue challenge, we don’t have the revenue size to support the type of government we run. That’s why our recurrent expenditure has been increasing while our revenue remains flat. The government needs to interrogate issues of recurrent expenditure,” he said.
On the outlook of the financial markets in 2021, Chukwu said: “We sustain our positive outlook for the Nigerian bourse in 2021 as its overall positive performance in 2020, despite the effects of COVID-19 and the accompanying economic recession.
“This is also justified by the strong fundamentals of the several quoted companies on account of their resilience during the pandemic and the likelihood that they will remain resilient in 2020”.
He noted that the real sector is expected to continue to benefit from the current low interest rate environment to refinance the loans more cheaply, thereby reducing financing cost and increasing profitability).
On the flip side, he said rising inflation and foreign exchange rates could restrict consumer spending and squeeze company budgets, both of which could be counterproductive to the real sector.
“Overall, we believe the positives should outweigh the downside risks especially for corporates that adopt sound risk management practices.