August 9, 2021/Proshare
by FBNQuest Research
Our chart below is drawn from the CBN’s most recent data on the balance of payments (BoP) for Q1 ’21. The chart shows that the financial accounts of the BoP improved to a net surplus (net inflow) of c. USD7.9bn (7.9% of GDP) from a net deficit of USD3.4bn in Q4 ’20 and a comparable deficit of USD3.3bn in the corresponding period of 2020.
The improved financial accounts mostly reflect greater capital inflows into the Nigerian economy from non-resident investors. To our minds, possible explanations for the improvement could be the gradual recovery of global financial flows following the lifting of lockdown measures in many economies, as well as a rise in the execution of investment decisions that were put on hold last year due to the pandemic. The net capital inflow on the financial account financed the current account deficit, which reduced to 1.8% of GDP in Q1.
Net financial liabilities (inflows) increased by more than USD3.0bn q/q to USD5.8bn, its best quarterly performance since Q1 ’19.
The rise was partly attributed to a USD2.1bn foreign direct investment (FDI) into Nigeria (vs. USD439m Q4 ’20), mostly in the form of USD1.9bn in direct equity capital investments.
Portfolio investment inflows (PII) grew to USD2.4bn from a net outflow of -USD476m in Q4 ’20 (-USD5.5bn Q1 ’20). The surge in PII consisted mostly of investment in debt securities, namely short-term money market instruments.
In contrast, investments in equities (shares of publicly quoted companies) saw a repatriation of -USD216m, down from an inflow of USD906m in Q4 ’20, illustrating offshore portfolio investors’ persistent apathy toward equity investments, mostly due to FX liquidity issues.
On the asset side, net financial assets recorded a surplus of USD2.1bn, up from a net outflow of -USD-5.8bn in Q4 ’20.
Moving into H2 ’21, the financial account will receive a significant boost from the federal government’s proposed USD6.2bn Eurobond issuance (aimed at funding the external component of the 2021 budget deficit), and the USD3.35bn Special Drawing Rights (SDR) which has just been recently approved by the IMF.
Trends in the financial accounts (USD ‘bn)
Sources: CBN; FBNQuest Capital Research
