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Between October 2022 and March 2023, foreign entities withdrew a total of $5.86 billion from the Nigerian economy, with $5.13 billion being attributed to dividend repatriation by foreign investors, according to the Central Bank of Nigeria (CBN).
The CBN’s ‘Economic Report, First Quarter 2023’ unveiled that the higher dividend payouts to non-residents contributed to the expansion of the deficit in Nigeria’s primary income account, which reached $2.69 billion in Q1, 2023, compared to $2.26 billion in Q4, 2022.
The primary income account encompasses employee compensation and investment income. Investment income includes accrued income on foreign financial assets and liabilities, which may encompass profits, interest, dividends, royalties received by or paid to direct and portfolio investors, as well as interest and commitment charges on loans (Other Investment Income).
Foreign investors received $5.13 billion in dividends during the six months under review.
Breaking down the figures, the CBN detailed, “The deficit in the primary income account widened by 18.7 per cent to $2.69 billion in 2023Q1, primarily due to the 34.9 per cent increase in investment income payments, which amounted to $3.09 billion, up from $2.77 billion in 2022Q4.
“Dividends from direct investments increased by 12.1 per cent to $2.71 billion, compared to $2.42 billion in 2022Q4. Similarly, interest payments on portfolio investments rose to $0.09 billion from $0.05 billion in 2022Q4. Interest earnings on reserve assets increased by 35.7 per cent to $0.20 billion, up from $0.15 billion in 2022Q4. Conversely, interest payments on loans decreased by 0.7 per cent to $0.30 billion.
“The compensation of employees’ account maintained a surplus position, increasing by 6.2 per cent to $0.06 billion compared to the level in 2022Q4.”
A 2019 report obtained from the CBN’s website titled ‘Current Account Balance and Economic Growth in Nigeria: An Empirical Investigation’ highlights that the primary income account has consistently been in deficit due to increased debt service payments and the remittance of dividends, income, and profits by foreign-owned companies.
This trend, according to the report, is hampering the productivity of the real sector, as foreign exchange resources that could be utilized for economic development are diverted to service external debt. Additionally, profits that could be reinvested to stimulate economic activity are being repatriated abroad by foreign-owned companies operating in Nigeria.
The report notes that the net deficit in the income account has somewhat decreased in recent years due to reduced dividend payments and distributed branch profit, along with other interest payments.
A recent report by The PUNCH indicates that foreign airlines have repatriated $4.66 billion from Nigeria through ticket sales over a 15-month period. Despite these sizable repatriations, these airlines have faced challenges accessing their funds due to the scarcity of foreign exchange in the country.
Addressing these issues in his inaugural address, President Bola Tinubu promised to review complaints related to multiple taxation and anti-investment obstacles, ensuring that both local and foreign investors can repatriate their dividends and profits.
The CBN’s Q1 economic report also highlighted a decrease in foreigners’ claims on the Nigerian economy due to the redemption of matured investments in Q1, 2023. A capital reversal of $0.78 billion was recorded during this period, compared to an inflow of $1.94 billion in 2022Q4. Factors contributing to this development included portfolio investment reversals, foreign currency withdrawals, and the withdrawal of deposits from domestic banks. Uncertainties related to the 2023 general elections and investors seeking safer havens were among the reasons cited for this divestment.
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