Economic and financial analysts have identified a number of reasons for the continuous depletion of foreign portfolio investment inflows into the country.
Last week, the Monetary Policy Committee rose from a two-day meeting and raised concerns over the dwindling portfolio investment into the country, saying the development portended danger for the economy.
The Head, Research and Intelligence, BGL Plc, Mr. Femi Ademola, linked the dwindling inflow to the recent reduction in the United States’ bond-buying programme.
He said the US bond-buying programme called Quantitative Easing or Tapering had led to poor yields in the US.
However, he noted that the commencement of gradual reduction in the bond-buying programme would lead to higher yield in the US, a situation which would attract portfolio investors back to the US.
Ademola also linked the ugly trend in the economy to the depletion in the external reserves and Excess Crude Account.
He said, “Foreign portfolio investors are attracted to positive real return; however they are more attracted to positive risk-adjusted returns. Therefore, their demand for investment is inversely proportional to the inherent risk in their investment destination.
“Risks for Nigeria include fiscal sustainability, which is being threatened by the revenue shortfall and the depletion of the Excess Crude Account and the non-growth of the country’s foreign reserves. These risks may be responsible for the fall in portfolio investment. And since stronger growth opportunities are being forecast for some other African countries (such as Ghana), portfolio investments are bound to chase opportunities in such economies.”
Ademola also said, “The reducing ‘carry trade’ opportunities due to increasing interest rate in advanced economies (the US Fed tapering of quantitative easing) may be another cause of the fall in inflow of portfolio investment.
“Finally, the uncertainty that may be caused by the exit of the current CBN governor and the forthcoming general election may also lead to cautionary investment actions by the foreign portfolio investors.”
The Chief Executive Officer, Lambeth Trust, an investment and consultancy firm, Mr. David Adonri, attributed the falling portfolio investment in the country to the US Quantitative Easing, fiscal recklessness on the part of the government as well as the imminent macroeconomic instability.
He said, “The Excess Crude Account has been consumed amidst dwindling crude oil revenue. Threat from shale gas, oil theft, disappearance of oil revenue at the NNPC and pipeline vandalism are factors that compel tight monetary policy against the backdrop of impending US tapering and excessive public expenditure attendant to general election.
“Portfolio inflow is projected to decline due to reduction in carry over trade as a result of the US tapering of Quantitative Easing and threat of foreign exchange instability caused by dwindling revenue from crude oil.”
Source: Punch (by Oyetunji Abioye)
