By Okafor Joseph Afam
December 2, 2024

Foreign investment in Nigeria has plunged dramatically, with foreign holdings declining by $13 billion between 2022 and 2023, driven by the devaluation of the naira and the exit of key multinational corporations from the country.

According to the World Investment Report 2024, foreign direct investment (FDI) inward stock in Nigeria fell from $86.2 billion in 2022 to $73.4 billion in 2023. Meanwhile, Nigeria’s outward FDI stock—a measure of investments by Nigerians abroad—slightly decreased from $18.3 billion in 2022 to $17.7 billion in 2023.

Foreign Holdings Explained

Foreign holdings or FDI inward stock represents the cumulative value of investments held by foreign entities in the country. These include business ownership, property, and other assets measured through equity capital, reinvested earnings, and intra-company loans. Conversely, outward FDI stock measures Nigerian investments in foreign businesses or assets.

Factors Driving Decline

The substantial drop in Nigeria’s FDI inward stock has been attributed to the exit of major multinational companies and the devaluation of the naira. Between 2022 and 2023, the naira depreciated by 49 percent, undermining the value of foreign-held assets in Nigeria.

During this period, Nigeria experienced a 109 percent rise in FDI inflows, climbing from $895 million in 2022 to $1.87 billion in 2023. However, this influx was insufficient to offset the devaluation’s impact on existing investments.

Mass Corporate Exodus

The past two years have seen a mass exodus of foreign firms from Nigeria, including GlaxoSmithKline, Procter & Gamble, Equinor, and Sanofi-Aventis. This trend continued into 2024, with major companies like Heineken, Diageo, Eni, and Mobil exiting their Nigerian operations. Kimberly-Clark and Microsoft also shut down their Nigerian ventures, with the latter closing its $100 million Africa Development Centre.

Challenges for Investors

The foreign investment landscape in Nigeria has been marred by several challenges, including:

Forex Scarcity: Difficulties accessing foreign exchange have limited operational capacity for many businesses.

Macroeconomic Instability: Fluctuating economic policies have discouraged long-term investment.

Corruption: The US State Department’s 2024 report identified corruption, particularly at ports, as a significant deterrent to investors.

Security Concerns: Persistent insecurity continues to pose a risk to business operations.

Inflation: Rising inflation, which reached 33.88 percent in October 2024, has increased operational costs.

The naira’s steep devaluation since the forex market float in 2023—resulting in a 70 percent depreciation—has also caused negative returns on capital investments for some foreign companies.

Policy Responses and Recommendations

President Bola Tinubu has made efforts to restore investor confidence, with initiatives such as the Presidential Enabling Business Environment Council (PEBEC) and measures to attract foreign portfolio investments. However, critics argue that these efforts focus more on short-term gains than sustainable FDI growth.

Bismarck Rewane, CEO of Financial Derivatives Company, emphasized the need for the Central Bank of Nigeria (CBN) to stabilize the naira and address inflationary pressures. “The CBN needs to continue to prioritize taming money growth and stabilizing the naira. This is the shortest route to moderating inflationary pressure,” Rewane stated during the 2024 Macroeconomic Outlook Forum in Lagos.

Outlook

With foreign holdings already at $73.4 billion and FDI inflows at historic lows, the outlook for Nigeria’s investment climate remains uncertain. Without decisive action to stabilize the naira and create a more investor-friendly environment, foreign holdings are likely to decline further in the coming years.