Capital inflows to Nigeria will hit 5-year high – Afrinvest

Afrinvest (West Africa) Limited, an investment management holding company, has projected that capital inflow to Nigeria will hit a five-year high.

The firm stated this in a recent report, where it revealed that National Bureau of Statistics show total capital inflows advanced 198.1 percent year-on-year to $3.4 billion which is the highest since Q1 ‘2020.

“While capital importation is well on course to hitting a five-year high (current run rate should deliver $13.5 billion), it then becomes a bittersweet moment as Nigeria can’t afford to keep relying on expensive loans to boost foreign investment inflows,” the report said.

The NBS report shows that total foreign investments into the country stood at $3.38 billion in the first quarter of 2024, an increase of 210.2 percent from the $1.09 billion reported in the previous quarter.

On year-on-year count, foreign capital inflows rose by 198.1 percent from $1.13 billion recorded in Q1 of 2023.

The NBS report said portfolio investment ranked top with $2.08 billion, accounting for 61.5 percent. This is followed by ‘Other Investment’, which returned $1.18 billion capital, accounting for 34.9 percent. Foreign direct investment recorded the least with $119.2 million (3.53 percent) of total capital importation in Q1.

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“Foreign Portfolio Investment (FPI) – the largest component of the total capital importation with 61.5 percent share – advanced 219.7 percent year-on-year to $2.1 billion, driven by improved inflows into money (up 1,175.2 percent) and bonds (up 39.8 percent) markets,” Afrinvest said.

Afrinvest, while highlighting the distribution of the inflows by sectors, said it observed that banking (61.2 percent) attracted the most of 61.2 percent, followed by trading (14.7 percent) and production (5.7 percent).

It said this is the first time since Q1’2023 that banking would lead other sectors. “We opine that the inflows into the banking sector partly reflects the impact of improved OMO issuances.

“The rise in trading contribution to $494.5 million (surpassing the previous high of $311.2 million in Q4’2021) could be attributed to the attraction of Nigeria’s exports due to weaker Naira,” Afrinvest said while adding that this submission is further validated by upbeat in Q1’2024 foreign trade statistics in which trade surplus rose to N6.5 trillion surpassing 2023 year high of N5.1 trillion.

The weekly update said focus on the Q1 ‘2024 capital importation data published by the National Bureau of Statistics (NBS) highlighting the total foreign investment inflows into Nigeria during the period reveals total capital inflows advanced 198.1 percent to $3.4 billion the highest since Q1:2020.

Afrinvest further said Foreign Currency Loans were up 165.3 percent which contributed 94 percent of inflows in other investments segment of the capital importation data (up 171.1 percent to $1.2 billion).

“This reality does not bode well for the nation’s economy as it implies the lack of confidence by foreign investors to directly invest their assets in Nigeria,” it stated.

“Besides, given the current pricey state of capital in the global market especially for emerging economies with weak credit ratings like Nigeria (Fitch Ratings: B-), we imagine that the Foreign Currency Loans (which were mainly to private businesses) were secured at elevated rates.”

It said the challenging business environment in Nigeria has heightened the risk of loan default for businesses tapping into Foreign Currency loan markets to drive operations.

“Hence, while capital importation is well on course to hitting a five-year high (current run rate should deliver $13.5 billion), it then becomes a bittersweet moment as Nigeria can’t afford to keep relying on expensive loans to boost foreign investment inflows,” Afrinvest stated.