September 2, 2022/CSL Research
Analysis of the recently released data by the National Bureau of Statistics (NBS) on capital importation for Q2 2022 revealed that the total amount of foreign investment inflows into the Nigerian economy increased by 75.3% y/y to US$1.5bn in Q2 2022 from US$875.6m in Q2 2021. However, q/q, foreign inflows declined by 2.4% from US$1.6bn in Q1 2022.
The significant y/y growth was magnified by the low base in the prior period (Q2 2021) as the
Nigerian market still lacks the long-awaited catalysts, such as FX clarity, improved security profile, stable government, and business policies, which typically attract foreign investments.
A breakdown of the Q2 data showed that the contribution from the dominant portfolio investments to the total inflows reduced from 60.9% in Q1 2022 to 49.3% in Q2 2022 and foreign direct investment (from 9.9% in Q1 2022 to 9.6% in Q2 2022), while the contribution
from other investment which increased from 29.3% in Q1 2022 to 41.1% in Q2 2022 plugged
the balance. Notably, the q/q decrease in foreign inflows in Q2 stems from a steep decline in Portfolio Investments (-20.9% q/q) trailed by a 5.0% q/q fall in Foreign Direct Investment while Other Investment increased by 37.0% q/q.
The contribution of Foreign Portfolio Investments (FPIs) remained skewed towards investments in money market instruments (hot money) by foreign investors (55.8% of the FPIs in Q2 2022). This continues to make the economy extremely vulnerable to external factors beyond the control of policymakers. Also, there was a significant decrease in equity investments, declining by 60.0% q/q which lends credence to the paltry foreign participation seen in the local bourse as the ytd foreign investors’ share of the equities market was 14.7% as of June 2022. On the other hand, bond investments increased by 3.9% q/q.
The Nigerian market still lacks the catalysts to boost foreign inflows into the economy,especially as political campaigns intensify, raising political risk in the country. Besides political risk, FX constraints hindering the inability of foreign investors to repatriate funds continue to hinder the free flow of capital despite the continued hike in the Monetary Policy Rate (MPR) (cumulative rate hike of 250bps). Only recently, British Airways (BA) threatened to suspend flight operations in Nigeria following difficulty to repatriate trapped funds in Nigeria.
Again, the perennial inability of over 50% of the 36 states to attract capital inflows cannot be ignored, as it has, over time, hindered inclusive investments across the country.
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