Recently released data from the National Bureau of Statistics showed that Nigeria’s capital
importation moderated by 7.78%, quarter-onquarter, to USD5.37 billion in Q3 2019 (but rose
on a yearly basis by 87.99%).
A breakdown of the Q3 2019 capital imports showed that Foreign Portfolio Investments (FPI), which accounted for 55.88% of the total inflow, declined q-o-q by 30.13% to USD2.99 billion (but rose 74.08% y-oy).
Similarly, Foreign Direct Investments (FDIs), which constituted only 3.73%, registered a q-o-q
decrease of 10.23% to USD0.20 billion (and fell by 62.29% y-o-y).
On the flip side, other investments (mainly comprised of Foreign Loans and other claims), which constituted 40.39%, increased q-o-q by 66.20% to USD2.17 billion (and spiked by 260.41% y-o-y).
A more detailed analysis showed that capital inflows from Equities FPIs declined by 27.91% q-o-q (and fell y-o-y by 9.20%) to USD0.36 billion in Q3 2019. Also, inflows by Bonds FPIs contracted by 71.04% q-o-q (but rose yo-y by 144.42%) to USD0.92 billion in Q3 2019.
Similarly, investment inflows by FPIs in Money market instruments nosedived by 26.73% q-o-q (but rose by 97.48% y-o-y) to USD2.55 billion. Meanwhile, Foreign Loans almost doubled as it rose by 99.21% q-o-q (and rose by 216.24% y-o-y) to USD1.77 billion in Q3 2019.
A breakdown of capital imports by sector showed that investments in banking accounted for 32.74% or USD1.76 billion but fell by 7.17% q-o-q (but rose by 506.98% y-o-y). Other sectors which received relatively large inflows include: financing, telecoms and shares which accounted for 27.51% (USD1.48 billion), 16.49% (USD0.88 billion) and 14.44% (USD0.77 billion) of the total capital imports respectively.
Furthermore, largest inflow in Q3 2019 worth USD2.01 billion was from United Kingdom (lower than USD3.13 billion in Q2 2019). Following were inflows from the United States and South Africa worth USD1.23 billion (fell from USD1.15 billion) and USD0.71 billion (rose from USD0.31 billion) respectively.
Major investment destinations in the quarter under review include; Lagos (USD4.98 billion) and Abuja (USD0.38 billion).
In a recent development, the Federal Government finally moved to address the revenue challenge usually associated with budget funding as it, through the legislative arm of government, enacts the 2019 Finance Bill. Most importantly, the Bill was set in motion to chiefly effect some positive changes to Nigeria’s tax laws as taxes form the basic source of government revenue.
According to the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, the Finance Bill has five strategic objectives to achieve, and they include: promoting fiscal equity by mitigating instances of regressive taxation; reforming domestic tax laws to align with global best practices; introducing tax incentives for investments in infrastructure and capital markets; supporting Micro, Small and Medium-sized businesses (MSMEs) in line with Ease of Doing Business Reforms; and raising revenues for government by increasing VAT to 7.5% from 5%.
In order to encourage MSMEs and motivate large corporates, after the Bill has been passed, small businesses with turnover less than N25m would be exempted from Companies Income Tax; a lower company income tax rate of 20% would apply to medium-sized companies with turnover between N25m and N100m; and bonus of 2% and 1% of tax payable would be granted to medium-sized and large companies respectively for early payment of CIT.
The declining trend in FDIs is likely to continue until right policies and infrastructure which will reduce the cost of running business in Nigeria are put in place. We expect the part of the Finance Bill set in motion which gives tax incentives to investments in infrastructure and capital markets to facilitate infrastructural developments through private sector funding and stimulate investors’ interests in the capital market, especially in the equities market as yields on fixed income securities turn sorthward.