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Nigeria Needs $14.2bn Annual Investment Over 10 Years To Close Infrastructure Gap, Says KPMG

It said the exit of GSK, P&G and others has reduced Investors’ confidence in Nigeria’s economy.

World renowned audit, tax and advisory services firm, KPMG, on Thursday said the exit of major companies that had operated in Nigeria for years was contributing to the waning investors’ confidence in the country. 

The firm stated this in its “flashnotes” on the recent capital importation report by the National Bureau of Statistics (NBS), which it tagged, “Light Not Yet at the End of the Tunnel for Foreign Capital?”

It attributed the drop in capital importation to Nigeria in Q3, 2023, after an initial rise in Q2, 2023, to continuing negative market sentiments on the country, despite initial reforms being viewed positively.

KPMG further stated that Nigeria would require to invest at least $14.2 billion annually, spanning the next 10 years, to close the country’s huge infrastructure gap, which is currently estimated at 40 per cent of Gross Domestic Product (GDP).

“Nigeria’s huge infrastructure gap estimated at 40 per cent of GDP requires a sustained expenditure of $14.2 billion annually or 12 per cent of its annual GDP consistently over the next 10 years,” KPMG added in the note.

It explained that the fact that trade credit, loans and related forms of capital inflows now overly dominated capital importation was a concern, given their short-term nature.

Additionally, the report stated that portfolio investment, which includes investments in financial assets, such as stocks, bonds, and other securities, had also been on the decline since Q1 , 2023, from $649.28 million to $87.11 million in Q3 2023, exposing  the economy to risks of foreign exchange illiquidity and currency depreciation.

According to the firm, it is also mounting pressure on consumer price inflation, reducing purchasing power, resulting in slower economic growth of 3.75 per cent target for 2024, lower job creation, especially from persistent reduction in Foreign Direct Investment (FDI) and overall macroeconomic instability.

“It also makes the economy more vulnerable to global economic shocks which is especially concerning given the current global poly-crisis. 

Furthermore, reduced foreign capital inflows limits access to much needed external funding for infrastructure projects,” KPMG added.

The need for macroeconomic stability, the negative interest rate environment, wide FX gap with low and declining forex reserves, the global firm said, were also partly responsible for the waning investors’ confidence in the Nigerian economy.

It listed others as the need for greater clarity with respect to monetary and fiscal direction as well as various negative news, including the exit of multinational companies, like GlaxoSmithKline and Procter & Gambles (P&G) from the country.

KPMG stated these companies had now discontinued on-ground operations and adopted import and distributor-led business models.

According to the firm, the recent reclassifications of Nigeria from frontier markets to standalone and lower markets by two external investment bodies, FTSE Russell and MSCI, respectively, have also dampened external sentiments.

It said foreign investment often brought advanced technologies, expertise and knowledge that could be shared with local industries, leading to improved productivity and competitiveness and other development initiatives.

Without this, the audit firm noted that the cost of doing business, and attractiveness of investment opportunities would worsen and further hinder the country’s ability to compete globally.

It stated, “Despite the well-recognised potential of the Nigerian environment, investors are, nevertheless, reluctant to invest or remain in a country where they anticipate challenges related to infrastructure, logistics, connectivity, and operational efficiency.

“Investors seek stability and predictability in the business environment, and the lack thereof hampers capital inflows.

“Therefore, there is an urgent need to reverse this trend and restore investors’ confidence in the Nigerian economy by intensifying ongoing efforts to create a stable and enabling macroeconomic environment.

“(Also there’s the need for) implementing consistent and investor-friendly policies, improving infrastructure, strengthening the competitiveness of macroeconomic fundamentals, and eliminating structural and regulatory bottlenecks impeding the inflow and outflow of capital.”

KPMG stated that restoration of investors’ confidence in the Nigerian economy required concerted efforts from the Nigerian government and relevant stakeholders.

But on the positive side, it stated that declining foreign inflow might promote self-sufficiency by reducing the reliance on foreign capital and encouraging the development of Nigeria’s own resources.

It said it might also lead to exploring alternative sources of financing, such as domestic savings and capital markets, and foster local entrepreneurship.

The firm stated, “It is nevertheless important for Nigeria to strike a balance between attracting foreign capital and promoting domestic development through policies that encourage foreign investment while also fostering a conducive environment for local businesses to thrive.”

According to the report published by the NBS earlier, total capital imported into Nigeria in Q3,2023 stood at $654.65 million, representing a  quarter-on-quarter decrease of 36.45 per cent from the $1.03  billion recorded in Q2, 2023 and a 43.55 per cent year-on-year decline from $1.16 billion recorded in the previous year.

Further disaggregation revealed that other investments, which included trade credits, loans, currency deposits dominated inflows accounted for 77.56 per cent of the total capital imported in Q3, 2023.

Portfolio investments, which had been the largest contributor to capital importation for the past six years with an average contribution of 62.18 per cent annually, accounted for 13.31 per cent of capital importation in Q3, 2023 and 29.93 per cent in 2023.

On the other hand, FDI remained the least contributor to capital importation, accounting for 9.13 per cent of total capital importation valued at $59.77 million in Q3, 2023, representing a decrease of 30.52 per cent from $86.03 million in Q2, 2023.

Emmanuel Addeh 

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