According to the International Monetary Fund, Nigeria’s foreign liabilities were $187.36 billion in December 2020, while its foreign assets were $102.15 billion, showing a deficit of $85.21bn.
This points Nigeria’s Net International Investment Position (foreign assets less liabilities) at -$85.21bn as of December 2020.
Foreign assets are invested securities owned by the Nigerian government, companies, or Nigerians in foreign nations, whereas foreign liabilities are assets held in Nigeria but owned by foreign governments, organizations, and individuals.
The NIIP, according to the Corporate finance Institute, is a measure of a country’s financial situation and its ability to take on more financial credit.
According to the CFI, a Canadian finance repository, states that a positive NIIP indicates that a country is a net creditor, whereas a negative NIIP indicates that it is a net debtor.
The IMF calculates the NIIP as a percentage of GDP to determine Nigeria’s creditworthiness. Nigeria’s NIIP was -19.71% in December 2020, with a GDP of $432.30 billion dollars (World Bank).
Nigeria’s current account deficits in 2020, was due to decreasing oil income profits, at -19.71 percent, putting the country below the standard.
However, according to the same report, NIIP prudential is used to access the risk of external crises against the immunity of the government, when a country’s immunity to external crises is examined using a second statistic termed NIIP prudential, the median value is -44 percent of GDP.
In a 2016 paper titled ‘Benchmarks for Net International Positions,’ Alessandro Turrini and Stefan Zeug of the European Commission’s Directorate-General for Economic and Financial Affairs stated that the median value of NIIP norms, which account for balance of payments and consistency with a good financial position, is set at -17 percent of GDP.
A consultant for the Economic Community of West African, Prof. Jonathan Aremu States that Common Investment Market reported that to understand the nature of Nigeria’s foreign investment inflows is important to fully understand the country’s unique circumstances.
According to professor of International Economic Relations at Covenant University, two main types of investments are foreign direct investments (FDI) which occurs when a direct investor is eager to generate profit and convert currencies by participating in the Economy and controlling the company. Foreign portfolio investment (FPI) is the second type of investment which occurs when a portfolio investor is interested in shares, and when not yielding investment can sell it off.
Aremu stated that direct investments have 5 components, which are profit generated by companies, changes in foreign share capital, changes and supply of credit which happens when existing foreign investors in Nigeria allow their affiliates in other near countries to attach them to certain supplier when trading with them.
He also identified two factors affecting FDI inflows and investment which are investment images, the opinion foreigners have of the country and investment climate. The impact of negative image and climate has resulted to a decrease in credit inflows.
Solutions to Current Account Deficit
According to Dr.Andrew Nevin, chief Economist and partner at PWC Nigeria, Nigeria can only solve the problem of current account deficits and low credit returns if we learn to grow our capital markets here, that is any individual that owns some assets in Nigeria and wants liquidity should sell it to another investors who wants to be here, with that, we will grow 10 times better than we are today.
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