Recently released data from the National
Bureau of Statistics (NBS) showed that Nigeria’s capital importation rose by 97.73% quarter-on-quarter (and increased on a yearly basis by 18.47%) to USD1.73 billion in Q3 2021.
Capital inflow into Nigeria in Q3 2021 outweighed what was recorded in Q3 2020 given the sit-at-home order enforced in 2020 by governments of most countries which was meant to curb the spread of COVID-19 virus.
A breakdown of the Q3 2021 capital imports showed that Foreign Portfolio Investments (FPI), which accounted for 70.30% of the total inflow, increased q-o-q by 120.76% to USD1.23 billion (and rose by 198.88% y-o-y).
Similarly, Foreign Direct Investments (FDIs), which constituted 6.23%, registered a q-o-q increase of 38.27% to USD107.81 million (but fell by 74.01% y-o-y amid investor’s apathy due to the worsening insecurity).
Other investments (mainly comprised of Foreign Loans and other claims), which constituted 23.47%, rose q-o-q by 65.00% to USD406.35 million (but plunged by 36.45% y-o-y).
A more detailed analysis of FPIs’ investment in Nigeria revealed that more funds went into the money market space as it accounted for 65.37%; while investments in shares and bonds accounted for 4.64% and 29.98% respectively.
Notably, capital inflows from Equities FPIs decreased by 33.66% q-o-q (and rose y-o-y by 28.09%) to USD56.50 million in Q3 2021.
FPIs investment in Bonds, skyrocketed by 2410.18% q-o-q (but rose y-o-y) to USD364.97 million, while investment inflows by FPIs in Money market instruments rose by 76.18% q-o-q (and increased by 119.13% y-o-y) to USD795.74 million in Q3 2021.
Meanwhile, Foreign Loans (the largest component of other investments) surged by 59.39% q-o-q (but fell by 46.46% y-o-y) to USD334.35 million in Q3 2021.
Notably, Banking (26.59%), Financing (27.10%), Shares (22.22%), Production (18.70%) and Trading (12.17%) sectors were the largest recipients of the foreign capital injection from United Kingdom (USD709.78 million), South Africa (USD389.54 mn) and United States (USD257.12 million).
In another development, the International Monetary Fund (IMF) stated that Nigeria and other emerging economies should allow their local currencies to depreciate against the greenback in order to mellow a disorderly condition, which may arise, in their foreign exchange markets as a result of an imminent policy tightening by the Federal Reserve Bank of the United States.
The Washington-based institution also mentioned that Nigeria should raise its benchmark interest rate and scale back fiscal support to address inflation and rising debt respectively.
It further noted that emerging countries with high levels of foreign- currency denominated debt must do all within their bit to reduce it – Nigeria has within the space of five years astronomically increased its foreign-currency denominated debt.
In what appears to be a difficult time for the emerging economies, especially Nigeria as it navigates through pre-election year, the above action plans as proposed by IMF posed a difficult choice for the oil-rich African country as it trades off supporting a relatively weak domestic economy with safeguarding price and foreign exchange stability.
Cowry Research notes that despite the yearly rise in capital importation in Q3 2021, the USD1.73 billion still appears small relative to the numbers printed in pre-covid years – USD5.63 billion in Q3 2019 and USD2.85 billion in Q3 2018.
Also, insecurity, high costs of doing business and multiple foreign exchange windows have done disservice to foreign investment into the country, hence the meagre capital inflow, especially from the FDIs.
Importantly, we note that bulk of the responsibility to restore investors’ confidence rest on the fiscal authority, more than the monetary authority, given the nature of the challenges which may be aggravated by any rate hike.