Improvement in Nigeria’s capital inflows in Q3

Improvement in Nigeria’s capital inflows in Q3

Analysis of the recently released data by the National Bureau of Statistics (NBS) on capital importation for Q3 2021 revealed that the total amount of foreign investment inflows into the Nigerian economy improved by 97.7% q/q and 18.5% y/y to US$1.73bn in Q3 2021 from US$0.88bn in Q2 2021 and US$1.46bn in Q3 2020.

However, year-to-date (YTD), the total foreign capital inflows as of 9M 2021 amounted to US$4.51bn, underperforming that of 9M 2020 by 47.6% y/y. Though yet to reach pre-pandemic levels, the recovery in foreign inflows has been gradual. Besides, the Nigerian market as a whole still lacks the long-awaited catalysts, such as FX clarity, improved security profile, stable government and business policies, which typically attract foreign investments.

Breakdown of the Q3 data showed that the dominant portfolio investments increased contribution to the total inflows from 63.0% in Q2 2021 to 70.3% in Q3 2021, leaving other investment (23.5%) and foreign direct investment (6.2%) to plug the balance. Interestingly, the increase in foreign inflows in Q3 was broad-based, benefiting majorly from the growth in portfolio investment (+120.8% q/q), trailed by an increase in other investments (+65.0% q/q) and a 38.3% q/q increase in foreign direct investment.

Meanwhile, the contribution of Foreign Portfolio Investments (FPIs) remained skewed to investment in money market instruments (hot money) by foreign investors (65.4% of the FPIs in Q3 2021). This continues to make the economy extremely vulnerable to external factors beyond the control of policymakers. Also, there was a sharp increase in bonds investment, rising by 2410.2% q/q as equity investments dipped by 33.7% q/q.

Looking ahead, we are concerned about the capital importation outlook, especially as political campaigns begin to intensify, raising political risk in the country. Besides political risk, FX repatriation will continue to undermine confidence and prevent the free flow of capital. Beyond that, the perennial inability of over 50% of the 36 states to attract capital inflows cannot be ignored, which has over time hindered inclusive investments across the
country. CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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