Investment inflows dip the lowest in 9yrs on challenging economic environment

Total foreign investment inflows to Nigeria dipped 54.34 percent to $710.97 million in the first quarter of 2016, the the lowest level since 2007 when the National Bureau of Statistics (NBS) began capturing the level of capital imports into the country.

The latest numbers are a reflection of prevailing tough economic conditions in the country and also represent a year on year decline of 73.79 percent. According to the data office, both the quarterly and year on year declines were also the lowest recorded since the series began.

As a result of these changes, total capital importation has fallen by 89.13 percent  since its peak level in the third quarter of 2014.

This is contained in the executive summary report on capital importation published yesterday by the NBS just ahead of a more detailed report expected soon.

“The scale of the decline in capital importation in the first quarter of 2016 is symptomatic of the challenging period that the Nigerian economy is going through, following the fall in crude oil prices,” the NBS noted in the report.

The federal data office further explained that although there are a number of reasons why the amount of capital imported in recent years may have been higher than usual (such as the inclusion of Nigeria in the JP Morgan Bond Index, and globally low interest rates triggering a search for higher yields over this period) the fact that the amount of capital imported has dropped to a record low, suggests that there are further reasons why Nigeria has attracted less foreign investment in recent quarters.

“Investors may be concerned about whether or not they will be able to repatriate the earnings from their investments, given the current controls on the exchange rate. In addition, as growth has slowed in recent quarters, there may be concerns about the profitability of such investments,” the NBS stated in the executive summary.

The first quarter of 2016 also saw a large change in the composition of capital imported, figures show.

Following a quarterly decline in portfolio investment of 71.55 percent, (also the largest quarterly fall on record) portfolio investment accounted for 38.12 percent of total capital imported, compared to 61.18 percent in the previous quarter.

However, it remained the largest component, as Other Investment also recorded a sharp quarterly decline, of 44.84 percent, which prevented its share from rising higher than that of portfolio investment.

Other investment accounted for 30.91 percent in the final quarter of 2015, but had risen to 37.34 percent in the first quarter of 2016. Foreign Direct Investment remained the smallest component at 24.54 percent, despite being the only component to record a quarterly increase in investment (of 41.65%).

The NBS further explained that in the first quarter of 2016 the largest component of capital importation was Portfolio investment, which accounted for $271.03 million, or 38.12 percent of all capital imported.

The largest subcomponent was Equity, which accounted for $201.69 million, representing 74.41 percent of portfolio investment and 28.37 percent of total capital imported. Equity has been the largest part of portfolio investment in every quarter since 2007.

The second largest subcomponent of Portfolio Investment was Money Market Instruments, which accounted for $67.85 million, or 25.03 percent of portfolio Investment, despite recording a quarterly decline of 57.62 percent.

The second largest component was Other Investment, which accounted for $265.48 million, or 37.34 percent of all capital imported.

In contrast to other investment types, Foreign Direct Investment (FDI) recorded a quarterly increase in the first quarter of 2016, from $123.16 million to $174.46 million.

As a result its share of total capital importation moved up from 7.91 percent to 24.54 percent, although it remained the smallest part of imported capital. FDI is dominated by equity, which accounted for $173.73 million in the first quarter, or 99.58 percent of FDI.

Onyinye Nwachukwu