March 15, 2018/InvestmentOne Report
The Nigerian Bureau of Statistics (NBS) released its Capital Importation report for Q4 2017 recently, which showed a 248% year-on-year (y/y) and c.30% quarter-on-quarter (q/q) increase in capital imported in Q4 2017 to US$5.38 billion.
We point out the US5.38billion reported in Q4 2017 was the largest inflow since Q3 2014, the period in which global oil prices began its downward spiral from the highs of US$114/barrel.
The surge in capital importation was largely driven by the 1124% y/y spike in Portfolio Investments in Q4 2017, which expanded faster than the other two sub-categories. The increase in Portfolio Investment was driven by a strong growth in Money Market Instruments, which recorded US$2.18 billion, an increase of c.2545.1% y/y compared to 2016 levels.Â
In the near term we could see capital importation remain strong on the back of the strengthening of the nation’s FX reserves (US$46billion as at 9th of March 2018), which should be supportive of foreign investor confidence.
Additionally, a potential return to the JP Morgan index given the improvements in FX market liquidity and transparency should also add more impetus for the attraction of much-needed foreign capital.
Notably, the I&E FX Window turnover for 2018 hit c.US$9.9 billion as at 28th of February, an indication of foreign investor confidence in the Nigerian market as global oil prices and stability in domestic oil production levels have supported country’s FX market and economic outlook.
However, we highlight the potential impact of rate hikes in the USA and UK, which account for c.56% of the total capital importation in 2017 as well as political risk in H2 2018 as negatives to our outlook which may lead to a consequential capital flight.
Also, we believe the infrastructural deficit estimated at c. US$100billion annually, according to the Nigeria Industrial Revolution Plan, and insecurity in various parts of the country remain barriers to Foreign Direct Investment in Nigeria despite the increase in the nation’s ranking in the World Bank Ease of Doing Business index to 145, from 169 out of the 189 countries rated.