Nigeria Economic Update (Issue 22)

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.