Capital importation shrinks despite rise in FDIs

THE value of capital imported into the country declined by 31.1 per cent year-on-year (YoY) and 48.2 per cent quarter-on-quarter (QoQ) in Q3’18 to $2.9 billion, the lowest since Q2’2017.

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The value of Foreign Portfolio Investments (FPIs) inflow into the economy decreased significantly to $1.790 billion in Q3 2018 from $4.233 billion and $3.320 billion in the preceding quarter and the corresponding period of 2017, respectively. This represents a decrease of 58.2 per cent compared to Q2’18 and a 37.7 per cent decrease compared to the third quarter of 2017.

However, Foreign Direct Investments (FDIs) rose to record $530.6 million at the end of third quarter (Q3) ended September 2018, the highest in three years since Q3’15.

Notwithstanding, FPIs accounted for the bulk of capital imported into the country (60.3 per cent), while foreign direct investments (FDIs) and other investments made up 18.6 per cent and 21.1 per cent respectively.

Data obtained from the Nigerian Stock Exchange and National Bureau of Statistics (NBS) indicated that Shares (58.4 per cent), which comprise both FDI and Portfolio Investment in equity, represented the bulk of capital importation.

Analysis by sector showed that the banking sector and financing were the most popular destinations for investors as financing accounted 13.0 per cent), banking 10.1 per cent, production (8.1 per cent) and servicing (7.21 per cent).

So far this year, foreign investments have been concentrated in the money markets ($7.5 billion), with the equity space playing second fiddle at $2.1 billion while the bond market has recorded relatively muted interest with inflows of $773 million.

In Q3’18 alone, capital inflows into the money market amounted to $1.3 billion, while equity and bonds inflows amounted to, $394.5 million and $37.5 million respectively. This pattern is in line with the foreign investor preference for money market instruments in the last two quarters, contrasting with a five-year (2013-2017) lasting preference for the equity market.

Relatively, a higher inflow into money market follows several increases in money market rates in the third quarter. OMO yields in the quarter rose by 2.5 per cent to 15.6 per cent in the third quarter.

Foreign investor preference for money market instruments over equity and bond investments signals investor skepticism over long term prospects for the country, as election uncertainty continues to loom over investment decisions.

In the review period, the US overtook the UK as the main source of capital imports in Q3’18 to record at $911.3 million and $871.1 million apiece, although both countries recorded significant declines in capital imports by 25.6 per cent and 50.9 per cent respectively. The decline was largely expected as investors reallocate their portfolios to adjust for political risk, as the general elections in February 2019 draws closer.

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