Foreign capital imported into Nigeria increased by 53.97 percent from US$3.8 billion in the fourth quarter of 2019 to US$5.85 billion in the first quarter of 2020. This rise was largely driven by an increase in portfolio investments which grew 128.78 percent to US$4.3 billion, accounting for 73.61 percent of total capital importation. Other components such as foreign direct investment (-16.7 percent) and other investment (-19.9 percent) declined compared to the previous quarter1. The rise indicates a renewed interest from investors in local money market instruments, which had been on the decline since Q12019. This capital inflow would benefit the limited national foreign reserves. As the government shifts away from foreign debt and seeks to borrow US$4.34 billion from the domestic market, the associated increase in yields will attract foreign investors and is likely to further increase foreign portfolio investment in the coming months. However, caution should be taken as sudden increases in the FPI outflows will have a negative impact on the foreign exchange market and the overall economy.
June 9, 2020
Nigeria Economic Update (Issue 22)
Related
Nigeria Economic Update (Issue 8)
Recent
data from the National Bureau of Statistics (NBS) show that total capital
importation in 2015 fell steeply by 53.5 per cent from $20,750.76 million in
2014 to $9,643.01 million in 20152. This decline was largely driven
by a substantial drop in portfolio investment (the largest component of Capital
Inflows), which fell by 59.74 percent. The exclusion of Nigeria from the JP Morgan
EM Bond index, the slump in crude oil prices, the decision of the US Federal
Reserve to raise interest rates and the capital control measures imposed by the
Central Bank of Nigeria (CBN) are the notable drivers of the reduced inflow of
capital. Going forward, improving the business environment, especially easing
foreign exchange controls, would determine the extent to which the economy can
attract increased capital inflows.