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Struggling manufacturers attract highest investments in 10 years

Amid the mounting economic woes facing manufacturers in the country, foreign investments in the production sector surged to the highest in at least 10 years in the second quarter of 2023, new data from the National Bureau of Statistics (NBS) have shown.

In recent months, the naira devaluation has dampened the production capacity of many businesses in the manufacturing value chain.

The NBS’ latest capital importation report showed that investments into the sector rose by 136.2 percent to $605.0 million in Q2 from $256.1 million in the previous quarter. It also increased on a year-on-year basis by 158.7 percent from $233.9 million in Q2 last year.

A breakdown of the NBS data showed that out of the total $1 billion capital importation reported in Q2, the production sector recorded the highest inflow, accounting for 58.7 percent of the total capital imported into the country. The banking sector came in second with $194.6 million (18.9 percent) while shares attracted $68.6 million (6.66 percent).

In terms of investment category, other investments ranked top, accounting for 81.3 percent ($837.3 million) of total capital importation, followed by portfolio investment with 10.4 percent ($106.9 million) and foreign direct investment with 8.35 percent ($86.0 million).

“Loans accounted for 92 percent of other investments. They are mostly advancement by a foreign parent company to subsidiaries or foreign investment in Nigerian companies in the form of debt,” Ayodeji Ebo, managing director/chief business officer at Optimus by Afrinvest Limited, said.

He said the surge in investments for the manufacturing sector was not for setting up new businesses as “there is no clear direction on where the government is going”.

“Most manufacturers have been badly affected by the high cost of sourcing foreign exchange. And multinationals that have their subsidiaries in Nigeria had to provide support in terms of investments to them,” he added.

“I suspect that some foreign currency loans were taken and invested in manufacturing driven projects,” according to Israel Odubola, a Lagos-based research economist. “Looking at the classification by type, you will see that the loan under investments was quite huge, which speaks a lot.”

A recent survey by the Manufacturers Association of Nigeria showed that investments into the sector grew by 8.1 percent to N192.9 billion in the six months of this year from N178.4 billion in the same period of 2022.

“The increase in investment in naira value was driven by the currency devaluation, which saw naira depreciate to 901/$ or 65 percent depreciation at the Investor and Export Window from N462/$ before the devaluation policy of the Central Bank of Nigeria was announced,” the association said.

The increase recorded does not indicate physical investment by manufacturers but rather nominal which resulted from the devaluation of currency that has made the manufacturers pay more for plants and machinery importations, MAN said.

The foreign exchange reform, which allows the naira to trade more freely, has led to the currency depreciating to 775 per dollar on Thursday from 463.33/$1 as of May 25 at the official market.

At the parallel market, the naira fell to 1,002/$1 from N762/$ on May 25.

The high cost of FX and the implementation of a 7.5 percent value added tax on diesel imports pushed its pump price to as high as N1,200 per litre last month.

This increased the country’s inflation rate to an 18-year high of 25.08 percent in August from 24.08 percent in the previous month, according to the NBS.

According to the latest Purchasing Managers’ Index, business activity in Africa’s most populous nation improved marginally in September for the first time in five months.

The Stanbic IBTC Bank’s PMI data showed the headline index increased to 51.1 from 50.2 in the previous month, the lowest point over the past five months.

“New orders increased for the sixth month running in September as some firms signalled an improvement in demand. Three of the four monitored sectors saw output expand, the exception being manufacturing,” the index report said.

Gabriel Idahosa, deputy president of Lagos Chamber of Commerce and Industry, said the increase in investments is against the current macroeconomic picture of the economy.

Read also: Manufacturers face toughest time in history – MAN

“The investments might be as a result of a couple of isolated capital imports or projects that have been in the pipeline for a long time. The projects may have been approved which is why investors brought their money,” he added.

Authors of the NBS report highlighted that total foreign investments originated largely from the United States with $271.9 million, accounting for 26.3 percent. It was followed by Singapore and the Republic of South Africa with $177.44 million (17.2 percent) and $136.9 million (13.3 percent) respectively.

In terms of states, Lagos remained the top destination with $778.1 million, accounting for 75.5 percent of total capital, followed by Abuja with $194.3 million (18.86 percent).

“First Bank of Nigeria Limited received the highest capital into Nigeria with $323.1 million (18.23), followed by Citibank Nigeria Limited with $187.8 million (12.2 percent) and Rand Merchant Bank with $126.0 (6.47 percent),” the NBS said.


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