‘Social unrest can further weaken foreign investments’

This post was originally published on this site

By Taofik Salako, Deputy Group Business Editor

As Nigeria grapples with declining foreign portfolio and direct investments, social conflicts could further weaken Nigeria’s ability to attract foreign investments.

Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu, said with a less stable economic outlook, assessment of social conflicts by potential investors would be a key consideration for the market.

He pointed out that investors geared their foreign direct investments toward economies where they had the highest potential for profit and the least risk.

“As such, the dent of the social unrest to the image and perceived risk of long-term capital investment would mean that the country will struggle in attracting the much-desired long-term finance needed for accelerated growth and enhanced job opportunities,” Chukwu said.

He said Nigeria needs stable and peaceful economic outlook to attract foreign investments, urging governments to put in place appropriate policies that would attract foreign direct investment (FDI) into the country.

ADVERTISEMENT

Chukwu spoke during a virtual workshop organised by the Capital Market Correspondents Association of Nigeria themed, “Addressing Nigeria’s fiscal challenges – Exploring alternative fund approach”.

He outlined that FDI is what goes to the private sector and infrastructural development but it has in the last six years between 2015 and 2020 almost flat.

He noted that Nigeria recorded $1.44 trillion inflow of FDI in 2015 as against $1.028 trillion reported last year.

“It is a far cry compared to countries like Ghana whose receipts are two times what Nigeria realised and Egypt which is seven times what we received. FDI is an important source of capital funding for a country like Nigeria. Nigeria needs to come out with appropriate policies that will attract FDI, especially on foreign exchange,” Chukwu said.

On revenue, Chukwu said Nigeria has a huge revenue shortfall, which means it we have to look for funds outside the government budget. Total revenue has remained largely flat between 2015 and 2020.

“In 2015, the total revenue realised by the Federal Government stood at N3.24 trillion as against N3.47 trillion reported as of November 2020. There has been a steady growth in expenditure; as of 2015, the total expenditure stood at N4.76 trillion in contrast to N6.24 trillion recorded from January to November 2020.

“The challenge we have in this country is a revenue challenge, we don’t have the revenue size to support the type of government we run. That’s why our recurrent expenditure has been increasing while our revenue remains flat. The government needs to interrogate issues of recurrent expenditure,” Chukwu said.

On the outlook of the financial markets in 2021, Chukwu said: “We sustain our positive outlook for the Nigerian bourse in 2021 as its overall positive performance in 2020, despite the effects of COVID-19 and the accompanying economic recession.

“This is also justified by the strong fundamentals of the several quoted companies on account of their resilience during the pandemic and the likelihood that they will remain resilient in 2020.”

He noted that the real sector is expected to continue to benefit from the current low interest rate environment to refinance the loans more cheaply, thereby reducing financing cost and increasing profitability.

On the flip side, he said rising inflation and foreign exchange rates could restrict consumer spending and squeeze company budgets, both of which could be counterproductive to the real sector.

“Overall, we believe the positives should outweigh the downside risks especially for corporates that adopt sound risk management practice,” Chukwu said.