Foreign investment into Nigeria slowed 74% year over year to $711 million in the first quarter, further starving a budget paralyzed by low oil revenues.
The Global X MSCI Nigeria exchange-traded fund (NGE) is down 38% this year, and fell 1.7% Thursday, while the iShares MSCI Frontier 100 ETF (FM) down 19% this year, rose 0.6% and the iShares MSCI Emerging Market ETF (EEM), down 5% this year, was flat.
Capital Economics Africa Economist John Ashbourne writes:
“Foreigners invested just $711 million in Nigeria in Q1, 74% less than they did a year ago. … While lower oil prices have battered investor sentiment towards Nigeria, the continued fall in investment is also the result of the government’s own policies. Complex FX restrictions caused Nigeria to be ejected from a widely-tracked JPMorgan EM bond index in Q3 2015 and have deterred potential investors who worry about repatriating earnings.
Many investors are waiting for the naira to be devalued towards something closer to the parallel market rate. … the decline in inflows will exacerbate Nigeria’s balance of payments problems. Low oil prices have caused the current account deficit to widen, leaving Nigeria dependent on foreign borrowing to fund domestic consumption. … If Nigeria cannot fund this, the country will be forced to reduce imports (denting consumption) and/or burn through its already dwindling FX reserves. Neither is an appealing option. FX controls, which are designed to limit import demand, are already strangling growth as industries struggle to import necessarily inputs and consumers face high prices on the black market. Second, the decline in foreign inflows will starve Nigeria of much needed investment.”
End result: GDP growth will slip to just 2% in 2016. Ashbourne says.
By Barron’s
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