• Thursday, March 28, 2024
businessday logo

BusinessDay

Investors’ underweight Nigeria assets as capital importation fell 48.2% in Q3

Foreign investors’ six-year equity deals peak at N4.061trn

Investors’ appetite for Nigerian assets fell in the third quarter (Q3) of 2018 as there was less capital inflow into the country in the period, compared to the amount imported in Q2, 2018, according to figures released Tuesday by the National Bureau of Statistics (NBS).
The total value of capital importation into Nigeria stood at $2.86 billion in the third quarter of 2018, which represents a decrease of 48.2 percent compared to $5.51 billion in Q2 2018 and a 31.12 percent drop compared to the $4.15 billion reported in the third quarter of 2017.
Commenting on the report, Rafiq Raji, chief economist at Macroafricaintel said uncertainty around upcoming polls is likely a factor.
“Q4 numbers would likely show a reduction as well, because it is closer to the polls and global portfolio managers would be tidying up their books for the year,” Raji told BusinessDay by phone from Lagos.
Portfolio investors haven’t pumped so much money into Nigeria since 2014, when oil prices were relatively higher and the economy was growing at an average of 6 percent, according to data compiled by BusinessDay.

READ ALSO: Nigeria records largest investment inflows in over two years

Nigeria suffered from a five-quarter contraction from Q1 2016 to Q2 2017 which resulted from the slump in global crude oil prices coupled with the drop in the country’s production level.
Analysts familiar with Nigeria’s capital importation have disclosed that Nigeria largely attracts hot money, and not the more economy-friendly Foreign Direct Investment (FDI) and according to them, it is a worry for fiscal authorities,
The NBS report revealed that the largest amount of capital importation by type was received through Portfolio investment, which accounted for 60.5 percent ($1.72 billion), followed by Other Investment with $601.53million capital inflow representing 21.07 percent of total capital imports.

This left foreign direct investor, bringing in only $530.63 million which accounted for 18.58 percent of total capital imported in the third quarter.
This is despite the fact that FPI in the review period declined by 58.05 percent from $4.1 billion in Q2 2018 to $1.72 billion in Q3. FDI on the other hand was up 103.03 percent, from $261.35 million in Q2 2018 to $530.63 million in Q3.
The dominance paints a picture of external sector vulnerability and reinforces why the central bank has had to keep interest rates at a record-high to get portfolio investors to stay, according to Bismarck Rewane, the Chief Executive Officer at Lagos-based advisory services firm, Financial Derivatives Company.
“Portfolio flows are volatile and less stable compared to FDI,” Rewane told BusinessDay.
The worry with dominant portfolio inflows of hot money is that it is only a trigger away from storming out at the first sign of danger, as was the case for Africa’s largest economy in 2016.
That year capital importation into the country dropped after the CBN pegged the naira, to the chagrin of foreign investors. Their pull out led to a drop in capital importation that year, with Nigeria recording a drop to $5.12 billion in the full year of 2016 as against $12.22 billion in 2017.
Foreign direct investment at $530.63 million was imported only through Equities while Other Capital as a medium of capital importation for foreign direct investor recorded no value in the review period.
Capital importation as shares, which is closely related to Equity investment (FDI and Portfolio Investment) dominated the third quarter of 2018 reaching $1.67 billion of the total capital importation in the quarter.
“Since the naira is likely to remain stable, especially after CBN governor Emefiele recently boasted about ample FX reserves for the task, some foreign portfolio investors may continue to play in the domestic fixed-income market. But in Q4, they are likely to be less,” Raji explained.
Analysis of capital imported by Sector revealed that Shares reported $1.67 billion, Services $205.91 million, Banking $289.44million, Production $230.34 million, Financing $371.60million, Agriculture $23.31million, Trading $10.29million, IT Services $1.21 million, Oil And Gas $7.73 million, while Electrical, Transport, Construction, Telecoms, Consultancy, Brewing, Hotels and Marketing reported capital inflows of $5.67million, $0.40 million, $25.47 million, $11.42 million, $0.92 million,$0.31 million, $0.02 million and $3.43 million respectively.
The United States emerged as the top source of capital investment in Nigeria in during the period, with $911.33 million. This accounted for 31.91 percent of the total capital inflow within the three months.
Abia, Lagos and Abuja were the most attractive states of destination for foreign investment. Lagos attracted 30.08 percent of total capital imported into the country in the review period, while Abia and Abuja got 22.99 percent and 46.21 percent, respectively.