Foreign direct investors have tripled their asset disposals in Nigeria, reaching a staggering $200 million, according to the Central Bank of Nigeria’s (CBN) economic report for the third quarter of 2023.
This figure underscores a growing trend of foreign subsidiary divestiture, with multinational corporations transferring business activities from Nigeria.
The foreign direct investment (FDI) segment witnessed a divestment of $200 million, a significant increase of 186% from $70 million in Q2 2023, primarily due to divestment in direct investment equities.
However, the CBN report also highlights a substantial influx of $2.86 billion, compared to $2.23 billion in the previous quarter.
This 28.25% increase is attributed to heightened portfolio investment, particularly in debt instruments by non-residents.
The CBN report read:
- “There was an inflow of US$2.86 billion, compared with US$2.23 billion in the preceding quarter. The development was a result of increased portfolio investment, occasioned by higher investments in debt instruments by non-residents.
- “FDI recorded a divestment of US$0.20 billion, relative to US$0.07 billion in Q22023, due to divestment in direct investment equities.”
Divestment in Other Investments hit $310 million
Further analysis reveals that ‘Other investment’ also experienced a divestment of $310 million, contrasting with a $20 million inflow in the preceding quarter.
In an earlier report on capital importation for Q3 2023 by the National Bureau of Statistics (NBS), Other Investment accounted for 77.56% ($507.77 million) of all capital importation, followed by Portfolio Investment ($87.11 million or 13.31%) and Foreign Direct Investment (FDI) with $59.77 million or 9.13%.
Total financial asset disposal hits $870 million in Q3 2023
It was further observed that total financial assets disposed was $870 million in Q3 2023. This contrasts with the $980 million acquisition of Q2 2023.
This shift is attributed to the disposal of direct and other investments, including equity and investment fund shares, alongside a reduction in the holdings of foreign currency and deposits by residents.
On the flip side, portfolio investments recorded a higher net acquisition of $70 million compared to $50 million in Q2 2023.
The CBN report read:
- “There was a disposal of US$0.87 billion in aggregate financial assets, compared with an acquisition of US$0.98 billion in Q22023. The development reflected the disposal of direct and other investments, particularly, equity and investment fund shares and the reduction in the holdings of foreign currency and deposits by residents.
- “In contrast, portfolio investments recorded a higher net acquisition of US$0.07 billion, compared with US$0.05 billion in Q22023.”
More Insights
- Delving deeper into the economic landscape, 2023 proved to be a challenging year for businesses in Nigeria. Election uncertainties and an artificial cash scarcity at the year’s start were compounded by a poorly executed currency note redesign, restraining consumer spending in the first quarter.
- The second quarter witnessed the rebound of the economy, but challenges escalated with fuel subsidy removal and the unification of the foreign exchange market. These reforms pushed inflation upward, causing the naira to lose over 50% of its value. The cumulative impact of these macroeconomic challenges led to a significant number of businesses exiting Nigeria in 2023.
- One notable exit occurred in August 2023 when GSK UK Group announced the cessation of commercialization of its prescription medicines and vaccines in Nigeria. Hindered by challenges in accessing forex, the company pivoted to a third-party distribution model, shocking consumers and spotlighting the nation’s macroeconomic troubles.
- With nearly 10 firms exiting the Nigerian market in 2023, concerns over the ease of doing business in the country have risen, signalling a red flag to potential foreign investors.
