Operators fume as foreign patronage in capital market dips by 66%

Sustained capital flight spurred by foreign exchange (Forex) crisis, insecurity and other macroeconomic challenges, exacerbated by inability of foreigners to repatriate their funds has triggered unprecedented capital flight in the nation’s bourse as total foreign transactions executed on the equities market declined by 66 per cent in seven years.

Data obtained from the Domestic Foreign Portfolio Investment Report of the Nigerian Exchange Limited (NGX) showed that total foreign transactions, which rose to N110.40 billion in August 2014, plummeted to N37.16 billion as of August 2023.

Also, total foreign inflow declined steadily from N53.87 billion in 2014 to N13.79 billion this year. Similarly, Foreign Portfolio (FP) investment transactions, which stood at 81.43 per cent of the total market activities in 2014, fell to 14.15 per cent as of August 2023.

However, total domestic transactions soared within the same period, increasing from N28.18 billion to N225.40 billion. Indeed, Nigeria is currently battling to meet forex obligations despite the floating of Naira, which has further widened the disparity between the official and the parallel market.

On the other hand, the Naira has continued on a free fall since the Federal Government announced the floating of the currency. Source close to The Guardian said forex gaps, arrears and obligations not cleared and unmet backlog are huge, stating that it would take two to three years to build the reserves and clear the backlog.

“There is panic in the forex market and the collapse of confidence is huge and it will take a while to rebuild the confidence in Nigeria. It will take two to three years to build the reserves and clear the backlog.”

Similarly, data from the National Bureau of Statistics (NBS) showed that total capital importation plummeted from $1.5 billion in second quarter (Q2), 2022 to $1.3 billion during the same period in 2023 representing a 32.9 per cent decline.

Apparently irked by steady depreciation in foreign investors participation in the capital market within the period, operators have stressed the need for government at all levels to adopt policies that would help tackle fundamental problems constituting disincentive, especially the issue of forex to investment in Nigeria and liberalise the economy.

They noted that the country is currently in dire need of huge foreign investment to drive development, reduce poverty and create jobs for the people.

Head of Research, FSL Securities, Victor Chiazor, said issues around inconsistent fiscal policies and lack of forex liquidity have weakened sentiments and hampered foreign inflows into the market, which triggered the reduction in capital inflow from N110 billion in 2014 to N37 billion in 2023.

According to him, until foreign investors can confidently invest and repatriate their forex earnings, in addition to deliberate efforts by economic manager to ensure consistency in policies, activity level of foreign investors will remain low in the market

“Foreign investments in the market have always been driven by liquidity, easy entry and exit of capital, consistent fiscal policies and impressive corporate earnings amongst other parameters,” he stated.

To the Chief Executive Officer of Wyoming Capital and Partners, Tajudeen, Olayinka, Nigerian market has become an ‘Abandonment Option’ to foreign portfolio investors.

According to him, for foreign portfolio transactions dropping from N110.40 billion in 2014 is an unpleasant development and a sign of another bad time in history.

He said the way forward is to restore confidence to the foreign exchange market and bring back dollar liquidity. Further, Olayinka urged the Federal Government to step up their current efforts at restoring confidence in the market.

President of NewDimension Shareholders Association of Nigeria, Patrick Ajudua, said the drop in foreign transactions is due to the effect of economic global headwinds, which have seen consistent rise in inflationary trend, accessibility to foreign exchange, policy inconsistency, instability in foreign exchange rate.