FDI inflows to Nigeria fall to $3.4 billion

Investment into SSA also down by 31%

Foreign Direct Investment (FDI) inflows to Nigeria and other Sub Saharan Africa, including South Africa, Kenya, Angola, among others, fell by 31 per cent in 2015 to estimated $38 billion.

This decline, according to report released on Wednesday, by Global Investment Trends Monitor of United Nations Conference on Trade and Development (UNCTAD), was attributed to the plummeting prices of crude oil and other commodities.

Specifically, Nigeria was reported to have been badly hit due to drop in oil prices with FDI into the country declining by 27 per cent to an estimated $3.4 billion in 2015.

Besides, the report showed that flows to North Africa went down but Egypt saw a rebound of investment from $4.3 billion in 2014 to an estimated $6.7 billion in the period under review.

Central Africa and Southern Africa saw the largest declines in FDI with the end of the commodity “super-cycle” having an impact on resource-seeking investment.

Flows into Mozambique were down by 21 per cent but still notable at an estimated $3.8 billion. FDI into South Africa fell dramatically, down by 74 per cent to $1.5 billion.

However, global FDI flows rose in 2015 by 36 per cent to reach an estimated $1.7 trillion, the highest level since 2007. A wave of cross-border mergers and acquisitions (M&As), which rose significantly in value, was largely responsible for the increase in FDI.

Greenfield investment project announcements, in contrast, registered little change in value terms from 2014, with a rise in developed economies roughly compensating a pullback in multinational enterprises’ (MNEs) capital expenditures in developing economies.

Meanwhile, at the regional level, developing Asia remained the largest host region for FDI inflows,
surpassing European Union and North America. Developing economies continue to make up half of the top 10 host economies in the year.

The United States, with an estimated $384 billion in inflows, vaulted back into first position among host economies in 2015, after exceptionally falling to third in 2014. FDI inflows to Hong Kong, China, the second largest recipient in the world reached a record of $163 billion for the first time ever. The rise in both economies, however, was due in part to inversion deals and reconfiguration of corporate structures involving large values in the financial account of the balance of payments but little movement in actual resources.

UNCTAD’s preliminary estimates indicate that FDI flows to developed countries bounced back sharply in 2015, reaching their second highest level ever at $936 billion, and accounting for the majority of the increase in global flows. Buoyant cross-border M&A activities, most notably acquisitions of assets in the United States by foreign MNEs, boosted FDI flows. MNEs seeking growth, rushed to make acquisitions. The low interest environment and strong balance sheets facilitated such moves.

Therefore, the growth of FDI inflows did not translate into an equivalent expansion of productive capacity, as it was due in large part to cross-border M&As and with only a limited contribution from
greenfield investment projects in productive assets. Furthermore, some deals were structured as inversions which usually involve little movement in resources.