*He says the country’s huge infrastructure gap requires an annual investment of $14.2 billion over 10 years
Emmanuel Adeh in Abuja
The world-famous audit, tax and consulting services firm, KPMG, said yesterday that the exit of major companies that have operated in Nigeria for years has contributed to the decline in investor confidence in the country. The company mentioned this in its “explanatory notes” on the latest capital import report issued by the National Bureau of Statistics, which it described as “There is no light yet at the end of the foreign capital tunnel?”
She attributed the decline in capital imports to Nigeria in the third quarter of 2023, after an initial rise in the second quarter of 2023, to the continued negative market sentiment in the country, despite the initial reforms being viewed positively.
The global company said the need for macroeconomic stability, negative interest rate environment, and wide foreign exchange gap with low and declining foreign exchange reserves were also partly responsible for the decline in investor confidence in the Nigerian economy.
Others were included such as the need for greater clarity regarding monetary and financial direction as well as various negative news, including the exit of multinational companies, such as GlaxoSmithKline and Procter & Gambles (P&G) from the country.
These companies have now ceased their on-ground operations and adopted importer and distributor-led business models, KPMG stated.
According to the company, the recent reclassifications of Nigeria from frontier markets to independent and lower markets by two offshore investment bodies, FTSE Russell and MSCI, respectively, have also dampened offshore sentiment.
KPMG also stated that Nigeria will need to invest at least $14.2 billion annually, over the next 10 years, to bridge the country’s massive infrastructure gap, currently estimated at 40 percent of GDP.
“Nigeria’s massive infrastructure gap, estimated at 40 percent of GDP, requires sustained spending of $14.2 billion annually or 12 percent of its annual GDP on a steady basis over the next 10 years,” KPMG added in the note. .
He explained that the fact that trade credit, loans and related forms of capital inflows now overly dominate capital imports is worrying, given their short-term nature.
In addition, portfolio investments, which include investments in financial assets, such as stocks, bonds and other securities, have also been on the decline since the first quarter of 2023, from $649.28 million to $87.11 million in the third quarter of 2023, the report said. Which puts the economy at risk. The risks of foreign exchange illiquidity and currency depreciation.
According to the company, this also leads to mounting pressure on consumer price inflation, which reduces purchasing power, leading to slower economic growth of the 3.75 percent target for 2024, and lower job creation, especially due to the continuing decline in foreign direct investment (FDI). and general macroeconomics. Instability.
“It also makes the economy more vulnerable to global economic shocks, which is particularly worrying in light of the current global crisis. Moreover, reduced foreign capital inflows limit access to much-needed external financing for infrastructure projects.
He said foreign investment often brought advanced technologies, expertise and knowledge that could be shared with local industries, leading to improved productivity, competitiveness and other development initiatives.
Without it, the audit firm noted, the cost of doing business and the attractiveness of investment opportunities would worsen and further hinder the country’s ability to compete globally.
“Despite the well-recognized potential of the Nigerian environment, investors are reluctant to invest or remain in a country where they expect challenges with infrastructure, logistics, connectivity and operational efficiency,” the report said.
“Investors seek stability and predictability in the business environment, and the lack of that hinders capital flows.
“There is therefore an urgent need to reverse this trend and restore investor confidence in the Nigerian economy by intensifying ongoing efforts to create a stable and enabling macroeconomic environment.
“(There is also a need) to implement consistent and investor-friendly policies, improve infrastructure, enhance competitiveness of macroeconomic fundamentals, and eliminate structural and regulatory bottlenecks that impede capital inflow and outflow.”
KPMG stated that restoring investor confidence in the Nigerian economy requires concerted efforts from the Nigerian government and relevant stakeholders.
But on the positive side, the report said lower foreign inflows could promote self-sufficiency by reducing dependence on foreign capital and encouraging the development of Nigeria’s own resources.
It may also lead to the exploration of alternative sources of financing, such as local savings and capital markets, and promote local entrepreneurship, she said.
“However, it is important for Nigeria to strike a balance between attracting foreign capital and promoting local development through policies that encourage foreign investment while promoting an enabling environment for local businesses to flourish,” the company stated.
According to the report published earlier by the National Bureau of Statistics, total capital incoming into Nigeria in the third quarter of 2023 was $654.65 million, which represents a quarter-on-quarter decline of 36.45 percent from the $1.03 billion recorded in the second quarter of 2023. 2023, by 43.55 percent. Down year over year from the $1.16 billion recorded the previous year.
Further breakdown revealed that other investments, which included trade credits, loans and currency deposits that dominated inflows, accounted for 77.56 percent of the total imported capital in the third quarter of 2023.
Portfolio investments, which have been the largest contributor to capital import over the past six years with an average contribution of 62.18 percent annually, accounted for 13.31 percent of capital import in the third quarter of 2023 and 29.93 percent in 2023.
On the other hand, foreign direct investment remained the least contributor to capital imports, accounting for 9.13% of total capital imports worth $59.77 million in the third quarter of 2023, a decrease of 30.52% from $86.03 million in the second quarter of 2023. .