Nigeria Losing Foreign Investors As Foreign Portfolio Drops By 41.57% In 2021

According to a report by Vanguard, foreign investors seem to be losing confidence in Nigeria's economy, as Foreign Portfolio Investors (FPI) have seen a major decline of 41.57 percent in the first four months of this year.

Foreign Portfolio Investment is the purchase of securities and other financial assets by investors from another country. These include stocks, bonds, mutual funds, or exchange-traded funds.

According to a report by the World Bank Group published in October 2017, FPIs are important, especially for developing countries, as it generates more wealth for these countries.

The numbers for April 2021 on Domestic and Foreign Portfolio Participation in Equity Trading which was released by the Nigerian Exchange revealed that investors outside the country have lowered their stakes to N178.25 billion at the end of April. This is a major decline compared to the N305.05 billion foreign investors put into the Nigerian economy in April 2020. 

Investment analysts have linked this loss of confidence to all the problems arising in the country which affect productive economic activities and the liquidity of the foreign exchange. 

Stakes by domestic investors have however increased within this same period by 46.11% to N658.21 billion from the N450.48 billion in April 2020. This is a direct result of assets rotation by the locals from fixed income (FI) to equities following low yields in the FI market.

Explaining the problems surrounding the FPI, The Head of Equity Research in a sub-bank of the First Bank of Nigeria, said, “It’s more of a case of apathy by offshore investors rather than increased participation by domestic investors. Concerns around FX liquidity and the deterioration in the macro-environment dampened the appetite of FPIs. The surge in domestic interest in equities towards the fourth quarter of 2020 (Q4’20) was due to investors’ rotation out of fixed income securities as a result of the low yield environment.”

The distribution of foreign and local investors’ participation in the market shows that local investors were responsible for 78.69 percent of the total transactions, which amount to N836.46 billion in the four months of 2021, while their foreign counterparts accounted for 21.31 percent.

There also has been a decline in participation from foreign investors on a monthly basis. While the figure was N40.64 billion in March, it dropped to N20.02 billion in April, a loss of 50.74%. In February, it was N62.07 billion, which shows a decline of 35.5% between February and March.