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Nigeria records 3 straight quarters of negative net flows as foreign investors exit

Aggregate dollar inflows through the Central Bank of Nigeria (CBN) in the first quarter of the year fell below outflows, as foreign portfolio investors repatriate capital due to Nigeria’s economic uncertainties caused by the coronavirus pandemic.

The net flows, which show the difference between FX inflows and outflows, in Q1 2020 stood at a negative $2.6 billion, to record its third contraction since Q3 of 2019, the CBN said in its quarterly economic report released, Tuesday.

In Q3 2019, net dollar flows stood at a negative $3.67 billion while in the fourth quarter, the value was put at a negative $2.7 billion, the CBN data shows.

Dollar outflows in the first quarter stood at $17.6 billion, an increase of 9.4 per cent from the $15.6 billion in the preceding quarter and 8.1 percent above the $16.3 billion in the corresponding period of 2019. On the other hand, dollar inflows in Q1 stood at $15 billion result in negative net flows.

The last time Nigeria recorded higher dollar inflows compared to outflows was in the second quarter of 2019 when net flows came to $3.76 billion.

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Since then, dollar inflows into the country has continued to dry up as hot money continues to leave the shores of Nigeria over what analysts say is due to economic and political uncertainties that have bedevilled Africa’s largest economy; and further worsened by the pandemic.

“The reasons for the negative net flows is not far-fetched because when you look at the event in Q1 when we had the outbreak of the global pandemic that led to capital flow reversals from emerging markets particularly those that are vulnerable to a downturn in commodity prices that puts a lot of pressure on the capital accounts, according to Gbolahan Ologunro, an equity researcher at CSL Stockbrokers.

Also in March, we saw a moderation in oil prices that weighed on foreign exchange earnings from sales of crude oil which also affected the current account negatively, Ologunro said.

As a petrodollar economy, Nigeria has been battling with dollar inflows after an oil price war between Saudi Arabia and Russia, the world’s largest producers of the commodities, alongside a fall in crude oil demand that was occasioned by the pandemic, wiped out more than half of its revenue.

Brent crude, at the time, bottomed to as low as $19 a barrel, about less than twice the amount in which Nigeria fixed in its budget.

Nigeria’s current account deficit stood at $4.8 billion at the end of March 2020 as the country continues to import more than its exports. The CBN’s FX reserve at $35 billion would only cater for an import cover of $5 months.

To reduce the impact of falling petrodollars on the reserve, the Central Bank embarked on rationing dollars sales in the FX market to buy some time for the naira from against the dollar.

Some $5 billion FX backlogs are left unmet, as manufactures who wish to import raw inputs are unable to find dollars.

Analysts, who spoke to BusinessDay, said but for the CBN’s model of hoarding dollars, the negative net flows seen in the period could have worsened.

For Ologunro, the negative trend in net flows is expected to continue all through the year. “We expect both the current and capital account to still be pressured thereby resulting in negative net flows”.

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