Report: Nigeria Is Africa’s Third Most Attractive Destination for Foreign Investment

The Absa Africa Financial Markets Index 2021 (AAFMI) has ranked Nigeria as the third most attractive country in Africa for foreign investment.

The AAFMI surveyed 23 countries in Africa and used six pillars to rank their openness and attractiveness to foreign investment. It stated that Nigeria scored 63 points to occupy the third position while the first and second position went to South Africa and Mauritius, which scored 86 and 70 points respectively.

The six pillars were market depth; access to foreign exchange; market transparency, tax and regulatory environment; capacity of local investors; macroeconomic opportunity; and enforceability of financial contracts.

Nigeria’s performance across the six pillars were: market depth, 62; access to foreign exchange, 20; market transparency, tax and regulatory environment, 86; capacity of local investors, 44; macroeconomic opportunities, 69 and enforceability of standard master agreement, 100.

The report stated that nine countries in the index, including Nigeria, have introduced products that could be classified as green or sustainable and emphasised that, “green bonds are the most popular instrument, being at investors’ disposal in seven countries.”

The AAFMI evaluated financial market development in 23 countries and highlighted economies with the most supportive environment for effective markets. The aim was to show present positions, as well as how economies could improve market frameworks to bolster investor access and sustainable growth.

The 2021index was produced by the Official Monetary and Financial Institutions Forum (OMFIF) and sponsored by Absa Group Limited. It showed that only seven countries scored up to 50 basis points against 14 countries that reached 50 points last year. ABSA is a South African-based financial services group,

The report noted that Nigeria was also among countries that are using technology in their stock exchanges to boost retail participation.

It noted that Nigeria’s Securities and Exchange Commission (SEC) launched FinPort, a fintech and innovation portal to assist fintech businesses to understand the regulatory requirements for the Nigerian capital market.

It added that the SEC would be rolling out a regulatory incubator for fintech seeking to conduct capital market activities.

However, the AAFMI stated that Nigeria has continued to perform poorly in access to FX and has imposed administrative controls that expanded the number of goods subject to import restrictions, enforcing existing export repatriation rules and restricting FX supply to certain windows.

“While these measures restricted capital outflows and helped keep reserves stable, market liquidity remained below pre-pandemic levels. The volatile FX market and the delays in the repatriation of foreign currency out of Nigeria caused further problems. Despite a rebound in oil prices and remittances, the FX shortage persists as imports recover faster than exports. All these factors contributed to Nigeria’s poor performance in Pillar 2,” the report said.

Nevertheless, the report stated that Nigeria had kept its official borrowing relatively low.

“At 8.4 per cent of GDP, it has the best debt profile, boosting its ranking by five places to fifth. However, with oil prices expected to remain relatively low, the debt ratio is expected to go up,” it stated.

Nigeria, according to the report, has continued to make strides in creating an enabling investment environment for foreign investors, with the necessary regulatory developments and policy initiatives. Further to enacting enforceable netting-off provisions in the country’s Companies and Allied Matters Act of 2020, ISDA has published a legal opinion on Nigeria’s insolvency regime, elevating it to an acceptable level of international best practice in netting-off and insolvency.

The Interim Chief Executive Officer, Absa Group, Mr. Jason Quinn, while commenting on the aims of the index said: “The index has become a benchmark for the investment community and Africa generally to gauge countries’ performance across a host of indicators important for financial market development.

“We are extremely proud of the annual report, which has become a critical toolkit for countries seeking to strengthen their financial markets infrastructure. Now in its fifth year, the index records countries’ openness to foreign investment and is an objective indicator of the attractiveness of Africa’s capital markets, intended for use by policy-makers, investors and asset managers around the world.”

The 2021 index also stated that digital developments such as digitalisation, fintech innovation and exploration into central bank digital currencies increased and spurred financial market transformation through the automation and digitalisation of trading platforms and regulatory processes.

It added: “Digital technologies are reshaping financial markets in many countries. Beyond improving accessibility, digital innovations can make capital markets more efficient and competitive, attracting investors and issuers.”

Dike Onwuamaeze

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