January 11, 2022/United Capital Research

The National Bureau of Statistics (NBS) recently published Nigeria’s Capital Importation report for Q3-2021. Accordingly, we observed that on a q/q basis, the total capital imported grew 97.7% to $1.7bn in Q3-2021, beating $875.6m in Q2-2021, albeit lagging $1.9bn inflows recorded in Q1-2021. Furthermore, on a y/y basis, capital importation during the period exceeded Q3-2020 by 18.5%.

A deeper dive into the numbers showed FPI inflows, which accounted for over 70.3% of total capital imported, increased by 120.8% q/q and 198.9% y/y to $1.2bn. FDI inflows improved 38.3% q/q to $107.8m but declined 74.0% on a y/y basis. Meanwhile, the other investments category rose by 65.0% q/q and declined 36.5% y/y to $406.4m. Notably, the bulk of the FPI inflows remained concentrated in money market instruments (65.4% of inflows), albeit less so than in the preceding quarter (81.9% of inflows). In comparison, the much-needed FDI stayed underwhelming – contributing a paltry 6.2% to gross inflows. We note that foreign exchange liquidity concerns, insecurity and a chronic lack of enabling infrastructures, such as electricity and a good road network, continues to discourage long-term commitments into the country through FDI. However, we attribute the increase in FDI and FPI inflows to increased FX liquidity in Q3-2021 amid higher oil prices, the FG Eurobond issuance and SDR inflows from IMF.

Looking ahead, with bold reforms necessary to create an enabling environment still lacking, we expect to FDIs to remain on the sidelines. For FPIs, despite renewed optimism from higher oil prices and improved FX liquidity, the direction of capital funds will primarily depend on the monetary policy direction of the CBN as major central banks in 2022 are expected to adopt hawkish policies. The return of monetary policy normalisation in advanced economies will reduce the interest spread on domestic fixed-income securities, making fixed income securities less attractive in the absence of a rate hike. Exchange rate risks and uncertainties around the upcoming election year are downside risks that could further deter capital importation in 2022.

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