Nigeria’s Q2 2023: Foreign Oil & Gas Investments Hit Zero

In the second quarter of 2023, the Nigerian oil and gas industry experienced a significant setback, marking an unprecedented occurrence in the nation’s economic history. During this period, the once-thriving sector failed to attract any capital inflow from foreign investors, as revealed by an analysis of data from the National Bureau of Statistics (NBS). This development is indicative of a broader trend in the country’s economic landscape, characterized by dwindling foreign investment.

Nigeria, in the second quarter of 2023, recorded a total of $1.03 billion in capital importation, which was slightly lower than the $1.13 billion recorded in the previous quarter. Furthermore, this figure represented a staggering 32.9% decrease compared to the $1.54 billion recorded in the corresponding period of the previous year, 2022. It’s important to note that the capital importation figure for Q2 2023 is the lowest it has been since the second quarter of 2021.

The data from the NBS provides a more granular insight into the nature of foreign inflows during this period. An overwhelming majority of the capital imported took the form of loans, accounting for 74.9% of the total capital import. Foreign direct investment constituted $86.03 million, representing 8.4% of the total, while foreign portfolio investment accounted for $106.85 million, making up 10.4% of the total.

One of the most alarming trends in recent times has been the persistent reluctance of foreign investors to engage with the Nigerian economy. This is reflected in the repeated declines in capital importation figures, a trend that has had far-reaching implications for the overall economy, particularly in terms of foreign exchange (FX) illiquidity contributing to exchange rate depreciation.

The absence of foreign investment in the Nigerian oil and gas sector is particularly concerning, given its historical significance. This sector is a major contributor to the Nigerian economy, accounting for approximately 6% of the nation’s GDP and serving as a primary source of government revenue. In the review quarter, the sector failed to attract any investment from foreign investors.

In contrast, other sectors managed to secure foreign capital. The manufacturing sector, for instance, received a significant influx of $605.04 million, while the banking sector attracted $194.58 million, and shares drew in $68.63 million in foreign investment. This underscores a clear divergence in investor interest within the Nigerian economy.

The impact of this investment apathy is further amplified by the dwindling participation of foreign investors in the Nigerian stock market. According to data from the Nigerian Exchange, foreign investors’ presence in the market has significantly declined. Year-to-date figures for September 2023 indicate that foreign investors accounted for a mere 9.51% of total market activities, representing a decline from the 16.3% recorded during the same period in 2022.

Efforts to stimulate foreign investments in Nigeria have included recent reforms in the oil and gas sector. In May 2023, President Bola Tinubu announced the full deregulation of the downstream oil sector, aligning it with the provisions of the Petroleum Industry Act signed by former President Buhari. The expectation behind this move was to foster increased competition and attract investment in the local industry. However, these reforms have yet to incentivize foreign investors to engage with the Nigerian oil sector effectively.

On the contrary, foreign investment in the sector has been on a downward trajectory, worsening in recent times. Notably, international oil companies have been divesting from Nigeria, opting to redirect their operations to neighboring countries. For example, the Italian company Eni recently agreed to sell its subsidiary, Nigerian Agip Oil Company (NAOC), to Oando. Research conducted by Wood Mackenzie, a British research and consulting firm, revealed that international oil firms have divested a total of £871 million from Nigeria since 2020.

The deteriorating state of FX liquidity in the country has further discouraged foreign investors from participating in the Nigerian economy. Many foreign investors face challenges repatriating their proceeds due to a lack of foreign exchange availability, resulting in significant hurdles to conducting business and investing in the country.

In conclusion, the absence of foreign capital inflow in the Nigerian oil and gas sector in Q2 2023 signifies a concerning trend in the nation’s economic landscape. This development, along with declining foreign investor participation in the stock market and the broader economy, underscores the urgency of addressing the challenges that hinder foreign investment in Nigeria. While recent regulatory reforms were expected to attract foreign investors, these efforts have not yielded the desired results, necessitating a reevaluation of the country’s investment climate and policies to rekindle investor confidence and drive economic growth.