January 19, 2022/Proshare
By FBNQuest Research
Today’s chart is based on the NBS’s report on Nigerian Capital Importation for Q3 ’21. The data were obtained from the CBN and compiled using information on banking transactions from all registered financial institutions in Nigeria. The total value of capital imported in Q3 was estimated at USD1.7bn, representing increases of 97.7% q/q and 18.5% y/y. The data are gross, and not adjusted for capital exports.
Portfolio investments accounted for the largest share (70.3%) of total capital inflows. It recorded q/q and y/y increases of 120.8% and 198.9% y/y respectively in Q3.
The primary drivers of portfolio inflows were money market instruments which accounted for 65.4% of inflows of total portfolio investment. Inflow into the money market represented q/q and y/y increases of 76.2% and 119.1% respectively as foreign portfolio investors (FPIs) cautiously re-enter the market after the pandemic-induced lull. FPIs’ apathy towards money market instruments and fixed income is based on ongoing fx liquidity issues and negative real interest rates on investments due to double-digit headline inflation. Investments in money market instruments remain significantly below pre-pandemic levels.
Bonds and equities accounted for 30% and 4.6% of total portfolio investment respectively. Inflows into equities declined by -33.7% q/q. In 2021 and 2020, the NSEASI returned 6.1% and 50% respectively. The recovery is largely due to a revived domestic market, supported by low interest rates in the fixed income market.
By sector, financing attracted the most investments in the reference quarter, representing 27% of total capital inflows. Banking, production, and trading accounted for 27%, 19% and 12% respectively.
As expected, Lagos state emerged as the most preferred (USD1.5bn) investment destination, accounting for 86% of the total. Abuja received capital investments worth USD249m.
Foreign direct investment (FDI) inflows rose by 38.3% q/q to USD108m. They represented 6.2% of total capital importation, compared with 8.9% in the previous quarter.
Interest rate hikes in the US are widely expected this year as the Federal Reserves tightens its monetary policy to rein in soaring inflation. This could exert more pressure on capital imports and lead to capital flight.
