February 8, 2021/Cordros Report

In our Q2-20 capital importation report, we expressed that the low capital importation into the country will persist in the near term until foreign investors see (1) policy action that increases their confidence in the stability and liquidity of the naira, and (2) more attractive fixed-income yields, vs. peers. True to our prognosis, capital importation dipped in 2020FY dipped by 56.7% to USD9.68 billion (2019FY: USD23.99 billion) according to the data released by the NBS last week. In Q4-20 alone, capital importation plunged by 71.9% y/y to USD1.07 billion (Q3-20: -74.0% y/y to USD1.46 billion). Looking ahead, we expect a marginal pickup in capital importation given the recent uptick in yields as well as our expectation of further devaluation of the currency which we believe will support improvement in FPI inflows. For us, the major downside risk stems from the conflicting policy actions that continue to deter confidence in the Nigerian economy.

Amidst the global search for high yields in EM/FMs given ultra-low yields in the advanced economies, capital importation into Nigeria continues to follow the pandemic trend as it dropped to the lowest level since Q1-17. Asides that, policy inconsistencies and capital control measures have also made foreigners shun the economy in favour of peers. Consequently, the total capital imported into the country declined by 26.8% q/q in Q4-20 to USD1.07 billion. To underscore the scale of things, we note that the aggregate of capital importation from Q2-20 to Q4-20 (USD3.83 billion) was 34.6% less than the total capital inflows to the country in Q1-20 (USD5.85 billion) right before the pandemic ravaged the global economy.

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