December 14, 2018/InvestmentOne report
Please click to download the Q3 2018 Capital Importation Report
· According to data from the National Bureau of Statistics, Capital Importation declined for the second consecutive quarter in Q3 2018 by 48.21% q/q to US$2.85billion, following an uninterrupted rise in capital imported into the nation from Q2 2017 to Q1 2018.
· In the same vein, we saw a 31.12% y/y contraction in capital imported owing to a combination of international and local factors. We opine that y/y growth in capital importation in H2 2018 may be slower than H1 2018, as the benefit of the IEFX window introduced in April 2017 started to wane off in Q3 2018.
· Capital Importation narrowed in Q3 2018 majorly on account of the decline in Foreign Portfolio Investment (FPI) and Other Investment. FPI, which usually contributes the most to capital importation (60.35% in Q3 2018), shed 58.17% q/q and 37.74% y/y to US$1.72billion.
· The decline in FPI inflow was due to both global and domestic factors that may have turned off foreign investors from the nation’s capital and money market. On the global side of things, policy normalization in the United States and concerns on global growth on the back of escalated trade tensions may have seen investors stay away from emerging and frontier markets. Furthermore, in the domestic arena, election jitters have been another reason that may have cautioned FPI inflows into the economy.
· Consequently, dissecting the components that make up FPI inflow, we observed a 62.37%, 90.63% and 51.66% decline in inflow for Equity, Bonds and Money market instruments on a quarterly basis. On a y/y basis, inflow for Equity and Bonds declined by 79.58% and 67.54% to US$394.47million and US$37.48million respectively while inflow for Money market instruments increased by 79.34% to US$1.29million.
· Similarly, Other Investment fell by 46.90% q/q and 52.26% y/y to US$601.53million. The decline in Other Investment was driven by the 49.96% q/q and 52.26% y/y reduction in loans to US$561.24million which accounts for about 93% of Other Investment. Other claims reversed on its decline in the previous quarter, growing by 206.74% in Q3 2018 to US$34million, although still below its Q1 2018 levels of US$223.49million. We point out the US$6.29million inflow of Trade Credit during the quarter, the first since the start of the year.
· We highlight that although there was a 103.03% q/q jump in foreign direct investment (FDI) to US$531million, which we suspect may have been driven by the on-going recovery in the nation’s economy, this abysmal levels of FDI continues to remain uninspiring hinged on the bane of infrastructural deficit.
· While we do not envisage significant improvement in FDI inflow as infrastructural inadequacies persist, we may continue to see a decline in FPI participation in the near term as the US FED is signalling further rate hikes in 2019. Furthermore, the uncertainty that encompasses the forthcoming elections may also continue to discourage FPI participation in the nation’s domestic market. This may be negative for inflow at the Investors’ & Exporters’ FX window which may pressure the nation’s FX reserves.