Capital importation deals with inflows that come in the form of portfolio and direct investments. It also includes other investments such as trade credits.
It is, no doubt, one of the major ways of ensuring stability in the economy of any nation, apart from being a major source of foreign exchange, it provides the needed liquidity and jobs in the economy. It also determines the level of economic growth that will be achieved over a period, economists have said. Capital importation is divided into foreign direct investment, foreign portfolio investment and other investments.
A drop in capital importation into any country is simply an indication that the country may likely be passing through tough times or losing the confidence of investors. In global trade, the more capital importation the country has, the more it has access to foreign exchange for international trade. This, experts say, goes a long way in reducing the rate of inflation.
In a recent report by the National Bureau of Statistics titled, ‘Nigerian Capital Importation Q2 2022’, the agency said that the total value of capital importation into Nigeria in the second quarter of 2022 stood at $1.535bn from $875.62m in the corresponding quarter of 2021, showing an increase of 75.34per cent. The report also said that when compared to the preceding quarter, capital importation decreased by 2.40per cent from US$1,573.14m. The largest amount of capital importation was received through portfolio investment, which accounted for 49.33percent (US$757.32m).
There was a 2.40percent decrease in the capital importation when compared with the proceeding year, which is indeed a negative pointer for the precarious situation of the economy. Experts, including economists and bankers, attributed the decrease to a lot of factors, including but not limited to the forthcoming general election, insecurity, and forex scarcity, amongst others.
A former president of the Chattered Institute of Banker of Nigeria, Uche Olowu, told THE PUNCH, that lack of confidence in an economy could also trigger a reduction on capital importation. He also blamed war, energy crisis, inflation and insecurity as major reasons why investors lacked confidence in the nation’s economy.
“What triggers that is the confidence in the economy. Generally, there is a low level of investment because of what is happening as regards the Russia-Ukraine war, energy crisis, and inflation. Above all, the level of insecurity does not create confidence for investors to come into the economy. Cost of doing business is very high; you do not have people coming to bring in level of investment that we expect. So, the problem we have is multifaceted, endogenous and exogenous.”
Explaining further, Olowu said that various central banks were trying to tame inflation, making investors conscious on where to invest.
Generally in the global economy, central banks in various economies are trying to tame inflation so people are being very conscious regarding where to invest. This is also one of the reasons for the low capital importation in the economy.
According to Olowu, “We need to create that confidence. Another factor will also be this coming election. You know investors will like to watch and see the outcome of the election and see the stability. So, if there is some element of stability, we will begin to see people bringing in capital for one investment or the other and for portfolio investment.”
Read more at: https://punchng.com/how-insecurity-forex-scarcity-dim-nigerias-capital-inflows/
