Nigeria’s FPIs Outflows up 97.80% as Analysts seek implementation of IMF’s recommended market friendly policies to boost revenue


In the just concluded week, the International Monetary Fund (IMF) after its discussions with the
Nigerian Government officials on the country’s economic developments and policies said that persisting structural and policy challenges
continued to constrain economic growth to levels below those needed to reduce vulnerabilities, lessen poverty and improve weak human
development outcomes, especially in health and education.

Also, in its 2019 Article IV consultation with Nigeria’s report released on Wednesday, April 3, 2019, IMF mentioned that large infrastructure gap, low revenue mobilization, governance and institutional weakness, continued foreign exchange restrictions,
and banking sector vulnerabilities dampened long-term foreign and domestic investments and kept Nigeria reliant on volatile crude oil prices and production.

The Washington based organisation stated that given Nigeria’s current
policies, the outlook for its economic growth remained muted with risks tilted to the downside and in the medium term, without strong reforms, growth would only hover around 2.5%.

It projected Constant GDP to grow at 2.1% in 2019 and 2.5% in 2020 (Oil & Gas sector was projected to grow by 4.4% and 6.1% in 2019 and 2020 respectively while the Non-Oil sector was projected to grow by 1.9% and 2.0% in 2019 and 2020 respectively too).

The IMF Executive Board’s recommendations, among other things, include; establishing a credible time bound recapitalization plan for weak banks and a timeline to phase out the state-backed Asset Management
Company (AMCON); elimination of exchange restrictions and multiple currency practices in order to remove distortions and facilitate economic diversification; strengthening domestic revenue mobilization, including through additional excise duties, a comprehensive VAT reform, and elimination of tax incentives; as well as phasing out implicit fuel subsidies.

Meanwhile, recently released report by the Nigerian Stock Exchange on
domestic and foreign portfolio participation in equities trading for the month of February 2019, showed that the increased equities market transactions was largely driven by higher foreign investors’ transactions. Given the significant inflows from both foreign and domestic investors which cushioned the negative effect of foreign
investors’ outflows, the local bourse rose month-on-month (m-o-m) by 3.80% to 31,718.70 index points in February 28, 2019 (from 30,557.20 index points in January 31, 2019). Further analysis showed that total transactions at the nation’s bourse rose to N188 billion in February 2019 (from N122 billion in January 2019);
foreign transactions increased to N99 billion (from N67 billion) while domestic transactions increased to N89 billion (from N55 billion).

Foreign portflio outflows rose m-o-m by 97.80% to N55 billion and foreign portfolio inflows increased m-o-m by 91.24% to N44 billion in February 2019. On the domestic front, institutional
transactions rose m-o-m by 88.15% to N48 billion in February 2019.

Also, the retail transactions increased m-o-m by 38.26% to N41 billion in the same period under review.

Despite the favourable corporate earnings, increased dividend payouts as well as moderated yields for most fixed assets maturities, we saw the local equities plunge by 5.77% year-to-date, reversing the 3.80% positive performance printed in February 2019.

Meanwhile analysts at Cowry Assets Management say that the negative performance of local shares was due to political
uncertainty amid the decision of the presidential candidate of the Peoples’ Democratic Partys, Alhaji Atiku Abubakar to challenge the victory of the All Progressives Congress candidate, President Muhammadu Buhari, at the law court and the inconclusive elections which characterized the States’ elections.

Nevertheless, if FG implements more market friendly policies as recommended by IMF Executive Board and strengthens revenue mobilization through increasing the tax base, we should see the local bourse closing in green territory in 2019.

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