In Q1-18, capital flow into Nigeria sustained the uptrend catalyzed by the introduction of the Investors and Exporters FX window in Apr-17, to touch its highest level since Q1-13, as total capital imported jumped 594.0% to $6.3bn.
However, the narrative changed by Q2-18 and Q3-18 amid renewed pressure from the global market, as well as local political uncertainties which spooked foreign investors away from risky naira assets. Thus, capital inflow into the country fell deeply in Q3-18 to its lowest since Q1-17, down 31.1%y/y to $2.9bn.
Furthermore, the structure of capital imported remained the same as hot money outweighed the economy-friendly cold money. As at Q3-18, FPI which declined 37.7% to a year low of $1.7bn, still contributed 60.3% to total capital inflows, followed by Other Investment components (comprising of Trade credits, Loans, Currency deposits, and Other claims) which contributed 21.1%. On the contrary, FDI improved significantly to $530.6mn, after advancing 351.2%y/y but its contribution to the total inflow remained underwhelming at 18.6%.
Looking ahead into this year we expect capital flows into the country to remain somewhat quiet, considering the fact that major headwinds that clogged foreign interest in the country still remain on the horizon. However, the recent dovish tone from the Fed should spur renewed offshore interest, especially once election uncertainties clear off.