Another Large Injection of Portfolio Monies

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We said yesterday that we were comfortable with a current-account surplus/GDP ratio in the low single digits because of the ability of the FGN to tap the Eurobond market and of Nigeria to attract offshore portfolio monies.

Our second point is highlighted by the financial account in the balance-of-payments (BoP) for Q4 2017, above all by the gross investment inflows (ie those in the reporting economy before investment by Nigerian residents offshore). Gross direct, portfolio and other flows together totaled US$4.77bn, compared with US$4.94bn in Q3.

  • Direct investment in 2017 amounted to US$3.5bn, equivalent to 0.9% of GDP. This is poor by any criteria. Notwithstanding some welcome steps up the league table in the World Bank Group’s Ease of Doing Business 2018, the FGN has far to go in selling the Nigeria story to long-term investors.
  • The short-term prospects are far better for portfolio flows, which have responded well to the NAFEX experiment. Many offshore players have returned to local markets under the experiment because they are comfortable that they will be able to exit when they choose. They know well that conditions could change dramatically with a sharp fall in the oil price or another external shock. Such is not our current expectation.
  • When we adjust for the assets on the financial account (Nigerian investment offshore) in Q4, two of the three components remain positive on a net basis: direct investment of US$640m and portfolio investment of US$3.78bn. There was a net outflow of US$2.10bn on other investment.

Sources: CBN; FBNQuest Capital Research
  • The broader picture for the BoP in Q4 2017 shows a current-account surplus of US$3.66bn and a financial-account deficit including the movement in reserves of US$3.86bn. These are balanced by net errors and omissions of just US$200m.