May 19, 2018/InvestmentOne Report
Latest report from the Nigeria Bureau statistics showed an impressive US$6.30billion capital importation for Q1 2018, a 594% year on year (y/y) and 17% on a quarter on quarter (q/q) basis. We point out that the total capital imported in Q1 2018 was about 51% of total capital imported in 2017.
In our view, the steady increase in foreign capital inflow would likely have been a positive for accretion to reserves, which has spiked to US$47billion in May 2018, improved Central Bank of Nigeria’s FX policy and foreign currency liquidity in the economy.
Foreign Portfolio Investment (FPI) was the main driver of the increase in capital importation, surging to US$4.57billion in Q1 2018, from a low of just US$314million in Q1 2017. It consequently accounted for 72% of total capital imported in Q1 2018. The growth of Portfolio Investment was driven by the increase in investment in Money Market Instruments which recorded a figure of US$3.52billion, accounting for 77% of total portfolio Investments.
Although we may continue to experience a low turnout of FDI due to the present infrastructural deficit in the country and the poor implementation of the 2016 and 2017 budgets, we point to the Economic Recovery and Growth plan and its likely positive effects on FDI by 2020.
However, while we expect FDI inflows to remain uninspiring in the near term, we could also see FPI participation decline given the likely increase in political risk ahead of the coming elections and the significant reduction in yields in the money market, with one-year treasury bill falling as low as 13% so far in Q2 2018.
Lagos State being the most commercialized state and financial hub could also continue to receive a large portion of capital importation due to the developing business environment and potential infrastructural development.