April 5, 2023/United Capital Research
Yesterday, the National Bureau of Statistics (NBS) released the capital importation data for FY-2022. According to the data, capital importation declined by 8.5% q/q to print at $1.1bn in Q4-2022, from $1.2bn in Q3-2022 and 51.5% y/y compared to its $2.2bn print in Q4-2021. The decline can be attributed to sustained Foreign Exchange (FX) pressures amid weakening dollar inflows. Overall, capital imported fell by 20.5% y/y to print at $5.3bn in FY-2022 from $6.7bn in FY-2021. This represents the lowest reading since 2016.
Taking a further dive into the numbers showed that the Foreign Portfolio Investments (FPIs) contribution to the total capital imported accounted for 45.8%, 470bps less than its contribution in 2021. FPI printed at $285.3mn, 55.6% y/y lower than its $642.9mn print in Q4-2021. The reduction is a result of decreased inflows to money market instruments (down 87.2% y/y) and equities (down 75.7% y/y), as higher global interest rates favoured more investments in developed countries. In comparison, Foreign Direct Investments (FDIs) remain underwhelming, contributing only 8.8% to the bulk of the capital imported. FDI fell by 76.5% y/y to $84.2mn in Q4-2022 from $358.2mn the previous year. We note that insecurity challenges and a chronic lack of enabling infrastructures (power and transportation constraints) continue to discourage FDI flows. Lastly, the Other Investments category, which accounts for 45.4% of the total, lost 41.7% y/y in Q4-2022 to settle at $691.2mn from $1.2bn in Q4-2021.
Looking forward, we expect capital importation to remain depressed, given the hawkish monetary stance across major central banks. Despite the increased benchmark interest rate in the Nigerian market, we expect investors to remain drawn towards higher interest rates in developed markets with less risky assets. For FDIs, we expect its contribution to remain underwhelming in the absence of any bold infrastructural reforms. In addition, we expect foreign exchange pressures to remain a headwind and deter capital inflows. Thus, the country’s external reserves will continue to deplete in the near term as FPIs are a source of FX to the nation.
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