EXPERTS EXPLAIN WHY NIGERIA'S FOREIGN INFLOWS MAY CONTINUE TO BE LOW.

A difficult macroeconomic outlook fueled by a drop in government revenue may get worsen as a result of declining foreign investment inflows into Nigeria.

Analysts at Cordros Capital predicted that foreign inflows would stay low and below pre-COVID-19 levels over the medium term, National Bureau of Statistics' (NBS) announcement that capital importation into Nigeria fell in the second quarter of the year.

Three main problems keep driving away international investors and limiting the country's worldwide destination.

Insufficient structural reforms and the rigidity of the foreign currency (forex) management system are the main factors deterring international investors from the market.

As Nigeria steadily approaches the general elections next year, international investors would be apprehensive about the political risk and atmosphere of uncertainty.

According to the NBS, capital imports into Nigeria decreased by 2.4%, from $1.57 billion in the first quarter of 2022 to $1.54 billion in the second quarter. According to the NBS data, the fall in foreign direct investment (down 5% to $147.16 million) and the decline in foreign portfolio investment (down 21% to $757.32 million) overshadowed the rise in other investments (up 37% to $630.87 million).

However, the data showed that, year over year, capital importation increased by 75.3%.

Given the uninspiring macro narrative, relatively lower yields on fixed income instruments and OMO bills compared to historical trends, and continuing forex liquidity constraints, Cordros Capital believes the persistent slowdown in capital importation reflects foreign investors' lackluster interest in the country.

The Federal Government's retained revenue decreased by 7.2% to N387.93 billion in May from N417.96 billion in April, according to data from the Central Bank of Nigeria's (CBN) monthly economic report. This decline was primarily caused by an 11.88% shortfall in federation account inflows because of the lower net oil and gas revenue.

Total expenditure decreased by 14% to N912.18 billion in May of this year from N1.06 trillion decreases in recurrent and capital expenditure of 3.4% and 46.8%, respectively.

The weekend saw a decline in the value of the naira on the official market, speculation continued to profit from the growing difference between official and parallel values.

Central Bank of Nigeria's official Investors and Exporters (I & E) window, the naira dropped by 0.3% to N431.50 per dollar (CBN). The naira reached N700 to the dollar on the black market.

Total turnover at the I & E window increased by 2.9% to $655.74 million, between N417 and N447.48 per dollar.

The naira declined in the majority of forward transactions as well, with one-month, three-month, and six-month forwards falling by 1.3%, 0.9%, and 0.3%, respectively. However, the one-year forward contract saw an increase of 0.2%. Weekend closing prices for the one-month, three-month, six-month, and one-year contracts were N434.44, N440.19, N452.58, and N477.74 respectively.

The anticipated $2.5 billion backlog in estimated foreign exchange demand, as well as increased dollar demand from manufacturing and retail end users.

Nigeria is in a challenging situation, according to Charles Robertson, the global chief economist at Renaissance Capital (RenCap), and has to grow its dollar profits and other revenue to support the economy.

Nigeria should boost taxes and increase income because the situation there is really difficult and hasn't been for thirty years.

Nigeria and other emerging markets are not doing better right now. Nigeria's oil production has drastically decreased over the past few years, and oil prices are expected to continue to decline. Because a recession is imminent, disinflationary actions will soon be implemented, according to Robertson.