In the last five years, the flow of foreign capital into the economy of Nigeria has declined. Statistics obtained from the National Bureau of Statistics showed that the total capital importation between 2017 and 2021 dropped by 45.2 percent to $6.7billion at the end of the 2021 fiscal year. Meanwhile, the Central Bank of Nigeria says the way out of Nigeria’s economic quagmire is to embrace its ‘PAVE’ solution. BAMIDELE FAMOOFO reports.
The flow of foreign capital differently put, flow of cash from foreign countries that are Nigeria business partners, have suffered a huge setback in the last five years as the total capital importation into the country dropped to about $6.7billion at the end of the 2021 fiscal year.
A sharp drop in inflow was noticed from 2019 as total capital inflow crashed from $23.99billion to $6.70billion representing a 72.1 percent cut.
There are three major sources of capital inflow into Nigeria, they are, Foreign Direct Investment, Foreign Portfolio Investment and Other Investments.
Foreign investors in the last few years have embraced the portfolio investment channel to invest in Africa’s largest economy as it offers the best opportunity for them to repatriate their capital from the country anytime the need arises.
Foreign Portfolio Investment therefore accounted for 63.43 percent of the total capital inflow into Nigeria in the last five years as it amounts to about $44.03billion.
The more reliable source of capital inflow into any country, which is Foreign Direct Investment, has remained low over the years as challenges like insecurity, poor infrastructure, policy summersault and high cost of doing business among others continue to hinder foreign investors from coming into the country to invest for the long term.
Nigeria has been able to attract only $4.85billion as Foreign Direct Investment since 2017, accounting for 6.99 percent of the nation’s total capital inflow in five years while Other Investments largely buoyed by foreign commercial loans stood at $20.56billion, representing 29.62 percent of the country’s total capital importation in the review period.
The inability of the country to attract sufficient foreign capital notwithstanding, the monetary authorities assure that efforts are in place to address the situation and to help Nigeria to be able to increase its ability to generate sufficient foreign capital to boost the economy.
Godwin Emefiele, Governor of the Central Bank of Nigeria said ‘ PAVE ‘ acronym for Produce, Add Value and Export goods produced locally in Nigeria will soon change the narratives.
The PAVE option
According to Emefiele, PAVE is expected to make Nigerians consume what they produce, add value to it, and even export the surplus.
“It is an initiative akin to South-East Asia’s much referenced export-led industrialization policy which changed the economic fortunes of countries such as South Korea, Taiwan, Malaysia and Singapore. PAVE is designed to be the key for fast-tracking a bucket of substitutes to crude oil export. It encourages backward integration for the local production of select items,” he explained.
Emefiele, who said the need to embrace PAVE as a clarion call to patriotism, argued that the most populous nation in Africa can no longer afford to put all its eggs in a basket. He noted that crude oil being Nigeria’s biggest source of revenue has continued to suffer from price instability over the years especially during the Covid-19 pandemic.
His words, “Covid-19 pandemic is one of the biggest crises that has faced mankind in recent history. The pandemic impacted economies, and disrupted business activities globally. Expectedly, Nigeria like most commodity-dependent countries was not spared the deleterious impact of the pandemic, given our dependence on crude oil export as a major source of revenue and foreign exchange. It is to mitigate against future severe consequences of shocks beyond our control that we must all join hands to ensure the success of PAVE. It is a clarion call to patriotism.”
Despite the headwinds associated with the pandemic, the Central Bank has worked very hard to ensure that Nigeria remains a vibrant economy with a diversified mix of opportunities across sectors such as ICT, Manufacturing, Solid Minerals, Trade and Agriculture.
Emefiele pointed out that the CBN ‘PAVE’ policy is one of the several initiatives he has introduced for the Bank to continue to act as a financial catalyst by targeting strategic sectors that could create jobs on a mass scale and reduce the country’s import bills.
“To solve the immediate and long-term economic challenges of the country, we needed to create an enabling environment with appropriate incentives to empower innovative entrepreneurs to drive growth and development,” Emefiele further stated.
The apex bank boss explained that in the desire to create jobs and diversify the economy away from crude oil, the CBN has established numerous intervention programmes, such as Anchor Borrowers Programmes (ABP), Commercial Agricultural Credit Scheme (CACS), Creative Industry Financing Initiative (CIFI), MSMEDF, CBN Agribusiness, Small and Medium Enterprises Investment Scheme (AgSMEIS) and the Real Sector Support Facility (RSSF), among others with remarkable success in accelerating growth of the economy and reducing poverty across the country.
“To solve the immediate and long-term economic challenges of the country, we needed to create an enabling environment with appropriate incentives to empower innovative entrepreneurs to drive growth and development
“
Boosting productivity with PPP
The latest of all the interventions is the 100 for 100 Policy on Production and Productivity (PPP), which was introduced to stimulate the flow of finance and investments to enterprises and projects with potential to kick-start a sustainable economic growth trajectory, accelerate structural transformation, promote diversification, and improve productivity.
Emefiele, during the launch of the programme in January in Abuja, said the Bank has received 224 applications valued at N294.91 billion for real sector projects in agriculture, energy, healthcare, manufacturing and services.
At the launch of the new intervention programme, Emefiele, made a presentation of commemorative cheques worth N23.2billion to 28 beneficiaries, through seven Participating Financial Institutions (PFIs).
Emefiele disclosed that the 100 for 100 PPP was designed by the CBN to stimulate investments in Nigeria’s priority sectors with the core objective of boosting production and productivity. He added that it will aid Nigeria’s efforts to stimulate greater growth of the economy and create employment opportunities.
According to him, the formal launch of the 100 for 100 policy for the Scheme’s developmental component underscored the critical roles in building new blocks for economic growth, improving production expansion, reducing reliance on imports and fostering growth on non-oil export, particularly as the country’s national growth was highly dependent on a strong and competitive businesses.
He explained that, “under the initiative, every hundred days, manufacturers in critical sectors that seek to engage in greenfield projects or in expanding their existing facilities will have access to cheaper forms of credit at single digit rates, as well as foreign exchange to procure plants and machineries.”
While noting that the programme had the potential to significantly accelerate manufacturing output, promote further diversification of the economy and enable faster growth of Nigeria’s non-oil exports, Emefiele expressed confidence that the PPP will help to reduce the country’s over-reliance on imports, and stimulate productivity in agriculture, healthcare, manufacturing, extractive industries, logistics services, trade-related infrastructure, and renewable energy.
Specifically, he said the scheme aimed at creating more than 20,000 jobs and expected to generate over $125.80 million in foreign exchange earnings.
The Minister of Labour and Employment, Chris Ngige lauded the CBN Governor for what he described as laudable initiatives, which he said aligned with the Federal Government’s goal of creating jobs and lifting people out of poverty.
While noting that the Nigerian economy was yet to be fully diversified, Ngige sued for greater collaboration between the fiscal and monetary authorities, noting that such partnership was vital to ensuring economic growth.
Other ways out
Johnson Chukwu, Group Managing Director, Cowry Asset Management Limited, disclosed that Nigeria must develop a strong industrial sector to be able to attract the much desired capital importation the economy needs to flourish.
Chukwu who made the disclosure while speaking to journalists on “Impact of a Vibrant Industrial Sector in a Country’s External Sector,” at a seminar organized by the CBN in Akure, recently noted that a strong industrial sector will lead to an increase in value of exportable produce, increase value of imports, increase in Foreign Direct Investments and increase the level of employment in the country among other benefits.
“The more reliable source of capital inflow into any country, which is Foreign Direct Investment, has remained low over the years as challenges like insecurity, poor infrastructure, policy summersault and high cost of doing business among others continue to hinder foreign investors from coming into the country to invest for the long term
“
Chukwu said investment in education and infrastructure will speedily drive the attainment of a strong industrial sector for the country which consequently will help it to achieve exchange rate stability; build a robust foreign exchange reserve.
“For Nigeria to achieve exchange rate stability; we must have a robust foreign exchange reserve, to have a robust foreign exchange reserve; we must have a strong external sector. To have a strong external sector, we must have a vibrant industrial sector,” he said.
Professor of Economics and Statistics, University of Benin, Mike Obadan, called on the government to employ the tool of moral suasion to encourage Nigerians to patronize home-made goods and reduce their high propensity for importation of all kinds of goods and services.
He said import should be done when it is absolutely necessary.
“They should also eschew unhealthy speculation in foreign exchange as well as rent-seeking behaviour and adopt positive attitudes towards ensuring a stable exchange rate for the naira,” he said.
In addition, Obadan noted that creating an enabling environment for productive capital inflows, especially foreign direct investment; actively promote restoration of confidence in the economy to check capital flight and a good handle on the current insecurity challenges along with macroeconomic stability will be very helpful in getting Nigeria out of the woods of economy
doldrums.
