Nigeria’s foreign liabilities stood at $187.36bn while the country’s foreign assets amounted to $102.15bn as of December 2020, the International Monetary Fund (IMF) has said.
From 2016, Nigeria’s foreign liabilities jumped by 42.41 per cent from $131.56bn, while foreign assets rose by 13.67 per cent from $89.87bn.
Foreign assets are the investment securities owned by the Nigerian government, companies, or Nigerians in foreign countries while foreign liabilities are assets owned by foreign governments, corporations and individuals in Nigeria.
This places Nigeria’s Net International Investment Position, which is foreign assets less liabilities at -$85.21bn as of December 2020.
Corporate Finance Institute, a Canadian finance repository, says that a positive NIIP makes a country a net creditor while a negative NIIP implies that the country is a net debtor.
CFI also said the NIIP was a measure of a country’s financial condition and its sustainability to take on more financial credit.
At -$85.21bn, foreigners own more assets in Nigeria than the value of foreign assets owned by FG, the state governments, Nigerian-owned companies and Nigerian individuals.
To understand Nigeria’s creditworthiness, the IMF measures the NIIP as a percentage of a country’s GDP. With a GDP of $432.30bn (World Bank), Nigeria’s NIIP stood at -19.71 per cent as of December 2020.
Alessandro Turrini and Stefan Zeug of the European Commission’s Directorate-General for Economic and Financial Affairs in a 2016 paper titled ‘Benchmarks for Net International Positions’ stated that the median value of NIIP norms which account for balance of payments and consistency with healthy financial position is set at -17 per cent of GDP.
At -19.71 per cent, Nigeria’s current account deficits due to lower earnings from oil revenues in 2020 places the country below the benchmark.
However, the same paper says that when measuring the immunity of a country against the risk of external crises which is measured by a separate metric called NIIP prudential, the median value ‘is about -44 per cent of GDP’.
Prof. Jonathan Aremu, a consultant to the Economic Community of West African States Common Investment Market, told our correspondent that to properly understand Nigeria’s peculiar situation, we need to look at the nature of our foreign investment inflows.
The professor of international economic relations at Covenant University stated, “There are majorly two types of investment – foreign direct investment and foreign portfolio investment.
“FDI is when a direct investor wants to come in, run the company and participate in the economy to make sure it generates returns before repatriation of funds.
“Portfolio investors only want to buy shares and when it no longer yields enough dividends, he sells off. FDI is what the economy is trying to promote.”
Aremu explained that two factors affected investments – investment climate relating to government policies aimed at ease of doing business, and the investment image which is the perception foreigners have of the country.
He said these two factors had contributed to poor level of FDI inflows pushing more foreign investors towards portfolio investments which by nature were short-term.
He said, “Direct investment have about five components; profit generated by companies not repatriated; change in foreign share capital like fresh loans or direct investment funds; change and supply of credit which is when existing foreign investors in Nigeria allow their affiliates in neighbouring countries to attach them to certain suppliers when trading with them. But this is more of money coming in and less going out.
“The third one is under foreign liabilities which existing investors here owe other foreign companies abroad, while the last one is liability to the head office abroad.
“Most companies operating in Nigeria have parent offices abroad and have other affiliates in African neighbours belonging to the parent company.”
Aremu said a cursory look at the components shows that the ones keeping more money than taking out were better for the economy.
He stated, “Foreigners are no longer ready to pump back their profits into the Nigerian economy; they want to take it back home. So unremitted profits are declining.
“Secondly, credit inflows have dropped due to the negative image and climate. With respect to trade and supply of credit, you discover that over time, many foreigners when trading with local affiliates here want to be confident of guaranteed payments.
“Under liabilities, you will discover that the head offices of national corporations in Nigeria are making sure that as much as possible, they move out their money to affiliates, whether in South Africa, Ghana or Morocco where there is relative level of stability, as well as paying their head office for technology and other commitments made when the investor initially came in.”
Economists proffer solution
For Nigeria to solve the challenge of current account deficits and low credit inflows, Chief Economist and partner at PwC Nigeria, Dr Andrew Nevin, said, “If we have a successful economy, it is not a question of repatriating profits. Capital that is in the economy stays in the economy.
“Of course, if there is a foreign institution or individual that owns some assets in Nigeria and they want liquidity, they sell it to another investor who wants to be here.
“With that, we still get 10 times as much capital in the capital market today. We need the capital market to grow 10 times bigger than it is currently.
“The climate has to be attractive enough for you to leave your money in a country. The US or UK economy retains foreign investors because they want to continue reaping returns on investment rather than taking the money back. We need a capital sink in Nigeria.”
Aremu said with the African Continental Free Trade Area Agreement, Nigeria has a great window of opportunity.
He said, “Right now, the investment protocol is being negotiated as I am part of the committee. Nigerian companies should be part of the negotiations.”
He added that AfCFTA would enable local operators to have their investments penetrate other African countries so that they could make more money.