Economic analysts have attributed the country’s low manufacturing capital importation to insecurity and foreign exchange volatility, which have eroded investors’ confidence in the sector.
They claimed that the manufacturing sector would see an uptick once current insecurity and forex crises were tackled.
Nigeria’s capital importation grew by 210 per cent in the first quarter of 2024, according to the National Bureau of Statistics.
According to the report, the banking sector recorded the highest inflow with $2.07bn, representing 61.24 per cent of total capital imported in the quarter.
The trading sector followed at $494.93m (14.66 per cent), while the production/manufacturing sector brought in $191.92m, amounting to 5.68 per cent, making it the least performing of the major categories.
A former Director of Research and Advocacy at the Lagos Chamber of Commerce and Industry, Dr Vincent Nwani, noted that multinationals leaving the country had not helped the image of the manufacturing sector before investors would release their monies.
He said it was harder for the manufacturing sector to get capital as opposed to other sectors of the economy during unstable periods, as manufacturing required total commitment, and machinery was not easily sold off.
“Your boots must be on the ground,” the economist said, “You cannot just wind down, sell-off, and go, and most times these investments are sunk costs as you cannot make even up to the initial amount invested.”
Nwani stated that a deeper look at the data would reveal a negative flow of capital, as the NBS data carried out a year-on-year and quarter-on-quarter analysis, that did not match inflow against outflow.
The economist noted that the country’s economy did not need a quick solution but a deliberate act to clear issues around foreign exchange volatility and insecurity.
He declared, “Investors want to see what the government is doing. They want the FX rate to stop fluctuating and second, fix security.”
He noted that although insecurity cannot be reversed within a short period, investors want to see an example made by a known criminal to send a message to lesser-known criminal elements.
A stockbroker and board member of Highcap Securities, David Adonri, said it was not surprising that the manufacturing sector received lower imported capital in Q1 2024.
Adonri declared, “Many negative factors are working against production in Nigeria, which serves as a disincentive to foreign direct investment.”
He remarked that the major challenge was that Nigeria’s economy remained structured for short-term trading, which orchestrated a dominance of the banking sector.
He added that insecurity and the absence of world-class production infrastructure discouraged foreign investors from supplying capital to manufacturing and agriculture.
Adonri pointed to the Federal Government’s approach to manufacturing as a major screw in the wheel that had resulted in the low flow of capital into the sector.
“The national industrial plan is hollow as far as the development of heavy industries is concerned. Without heavy industries, the productive momentum of light industries cannot be sustained,” he said.
Another economist, Prof. Leo Ukpong of the American University of Nigeria, Yola, explained that Nigeria’s capital importation increase on an annual level was good but only temporarily, as the investors bringing in money to the banking sector rely on the country’s fluctuating exchange rates by selling to make a profit.
“It is borrowing disguised as investment,” Ukpong said, criticising how insufficient money was brought into manufacturing to translate into real investment.
He recommended that the Federal Government take steps to help the manufacturing sector, by subsidising industrial loans to manufacturers.
“The government will take a little loss, but it is using tax money to subsidise industrial loans to increase production,” he elucidated.
https://punchng.com/insecurity-fx-crisis-hamper-manufacturing-capital-inflows-say-analysts/