Foreign investment in equities market declines by 90.6% in 10yrs

Prolonged forex illiquidity, inflation, high-interest rate regime and other macroeconomic headwinds have sustained lackluster interest in domestic equities as the total foreign inflow (TFI) to equities declined by 90.6 per cent in the last 10 years.

An analysis of the Domestic and Foreign Portfolio Investment Report of the Nigerian Exchange Limited (NGX) indicated that total foreign inflow, which rose to N43 billion in 2013 declined steadily to N4.6 billion as at March 2023, representing a 90.6 per cent drop.

However, total domestic transactions rose from N71 billion in 2013 to N137 billion as at March 2023, representing a 93.7 per cent increase.

The sustained foreigners’ apathy in equities has become a source of worry to stakeholders. They said the government must begin to apply the principles of all-inclusive growth and that policy choices must align with monetary, fiscal, trade and investment to spur activities in all the sectors of the economy, including the stock market.

According to the operators, the increasing naira depreciation has compelled foreign portfolio investors (FPIs) to shun the Nigerian market despite the reforms in the economy.

An independent investor, Amaechi Egbo, said because the economic policies are not clear, foreign investors have decided to stay at the sideline.

He pointed out that if there are appropriate policies, foreign investors will come back to the market.

Egbo also added that one of the key challenges that are holding back the nation’s economic prosperity is the issue of forex illiquidity, which the new government needs to tackle to restore investors’ confidence in Nigeria.

Director/Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, stressed the need for the monetary authorities to evolve a sustainable intervention framework to ensure the moderation of current volatility in the foreign exchange market.

The CPPE Director said despite the limitations in forex supply, the system needs to be managed in a way that would not undermine investors’ confidence as erosion of confidence triggers speculation and influences expectations, which in turn triggers diverse responses among economic players.

“Over the last few years, there had been a cumulative backlog of unmet foreign exchange demand, running into billions of dollars as a result of acute illiquidity in the foreign exchange market

“With a more liberalised forex market, the pressure of the backlog of unmet demands and other maturing forex related obligations have been unleashed on the investors and exporters window.

“It is evident that the frequency and scope of CBN intervention in the forex market had decelerated compared to the first five months of the year. Recent reports from the CBN indicate a total of $17 billion in intervention by the CBN in the forex market in 2022.

“This is an average of N1.4 billion per month. Since the inception of the present administration, it is doubtful whether we had seen an intervention of up to $1 billion in total. It is expected that as the scale of intervention improves, the volatile will be subdued.”

He urged the CBN to exercise better oversight on forex demands to ensure the protection of the market from speculative assault and illicit capital outflows.