Data shows that 2021 has opened well for the emerging markets EM universe in terms of foreign portfolio investment FPI flows but not much of this is finding home in Nigeria, Africa’s largest economy.
According to data from FBN UK and provided by analysts at FBNQuest, net global inflows year-to-date have amounted to USD2.0bn for bonds and USD2.6bn for equities in 2021.
This is quite a good start for the new year and now Nigeria must be wondering what it must do so it does not miss out again this year, given its desperate requirement for FX.
For FPIs, there are obvious parallels to be drawn with Egypt, a peer country which has become a significant beneficiary of the FPI trade. Both countries secured the condition-free IMF credit to tackle external shocks.
Further, Egypt has signed up for an orthodox Fund programme, which for many investors has helped it to develop a better credit story.
There is no payments pipeline and EM investors have returned to the local financial markets of Africa’s third largest market in numbers.
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In 2019/20 (July-June) Egypt posted a services surplus of USD 9.0bn, compared with Nigeria’s deficit of USD28.2bn in the same period.
Analysts say Nigeria can do with growth in its official reserves which should bring some calm to the foreign exchange market and offer solace to manufacturers and other businesses as they look to taking advantage of the continental free trade arrangement.
Data from the CBN shows that Nigeria’s gross official reserves declined by USD40m in December to USD35.37bn.
According to FBNQuest analysts, “since the disbursement of IMF loan proceeds of about USD3.4bn in May to tackle the external shock of the Covid-19 virus, the CBN has almost held the line on reserves, with a decline of USD1.22bn over seven months.
“This achievement has to be qualified with the caveat that a pipeline of delayed external payments has developed since late March, estimated at USD3bn by the IMF. A good proportion of the pipeline consists of the repatriation proceeds of exiting foreign portfolio investors (FPIs). “
The analysts also say fx supply at the Investors’ and Exporters’ (I&E) window has picked up over the past three months thanks to flows from local sources (the CBN and local non-bank corporates, principally).
That said, the level seen in December was less than half that in the ‘normal’ month of February, when fx was available for all end-users.
Total reserves at end-December covered 7.5 months’ merchandise imports per the balance of payments (BoP) for the 12 months to end-June, and 4.8 months when we include imported services.
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