L-R: President Muhammadu Buhari and Chinese President Xi Jinping
June 22, 2018/FDC
According to the 2018 UNCTAD World in-vestment report, Foreign Direct In-vestment (FDI) into West Africa declined by 11% to $11.3bn in 2017. The decline was underpinned by a drop in FDI flows into Ghana and Africa’s largest economy, Nigeria. FDI into Nigeria declined sharply by 21.3% to $3.5bn, due to the nation’s tepid growth recovery. The country’s fragile growth weighed on business and investor confidence.
Thus, foreign investors were reluctant to invest in the country. On a positive note, Nigeria’s economic growth is forecast to continue to grow (2.1%) in 2018. Stronger and broad based economic growth is likely to drive an increase in FDI inflows.
More importantly, the government recent-ly signed a $2.5bn currency swap with China. This is aimed at easing the pressure on the external reserves that is predominantly in dollars. The agreement will also help to improve the speed and ease of transaction between the two countries. The lower trade barriers would spur the free flow of capital, thereby increasing economic activities. The increased volume of economic activities will help to stimulate growth, strengthen investor confidence and boost investment.
China is Nigeria’s largest supplier. It accounted for 19.8% of Nigeria’s total import and 4.5% of total export in 2016. Addition-ally, Nigeria’s trade volume with China alone accounted for 18% of the total trade with Nigeria’s major trading partners. The rapid growth in bilateral trade between Nigeria and China is expected to be strengthened further by the currency swap with a likely increase in FDI flows in 2018.