Given the steady decline in Foreign Direct Investment over the past years, the Managing Director, Cowry Asset Management Limited, Johnson Chukwu, on Thursday said Nigeria needs policies capable of attracting inflows to fund capital projects at a time revenues are declining.
Speaking at a virtual workshop organised by the Capital Market Correspondents Association of Nigeria (CAMCAN), with the theme: “Addressing Nigeria’s Fiscal Challenges – Exploring Alternative Fund Approach,” Chukwu lamented: “Our FDI which is what goes to the private sector and infrastructural development has in the last six years (2015-2020) neared flat.”
Nigeria, he recalled, recorded a $1.44tr inflow of FDI in 2015, from where it dropped to $1.028tr last year, “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,” blaming the situation assessment of the country’s assessment of social conflicts by potential investors.
“Investors gear their foreign direct investments toward economies where they have 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,” he further explained.
Chukwu noted the country’s “huge revenue shortfall, which means we have to look for funds outside government budget. Total revenue has remained largely flat between 2015 and 2020.
The Cowry Assets boss noted the stunted growth in Federal Government revenue from N3.24tr to N3.47tr at the end of November 2020, despite which expenditure has grown steadily within the period to N6.24tr in the 11 months between January and November 2020, compared to N4.76tr in the whole of 2015.
“The challenge we have in this country is revenue, 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,” he said.
On his outlook for the nation’s 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 expects that Nigeria’s real sector would continue to benefit from the current low interest rate environment to refinance the previously more expensive loans, thereby reducing financing cost and in the process, 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 practices,” Chukwu added.
