Capital Importation in H1-19: A reflection of oscillation in rates

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Capital Importation in H1-19: A reflection of oscillation in rates Recently, the Nigerian Bureau of Statistics (NBS) published data on Capital Importation for Q2-19. Therein, we observed that on a q/q basis, capital imported into Nigeria in Q2-19 lagged the record $8.5 billion seen in Q1-19, falling 31.4% q/q to $5.8 billion.

A deeper dive into the numbers showed FDI inflows declined 8.4% q/q to $0.2bn while FPI inflows which account for over 73.8% of total capital imported, fell sharply by 39.9% q/q to $4.3bn. Notably, the bulk of the FPI inflows remained dominated in money market instruments (59.8% of total capital imported) while the much needed FDIs stayed underwhelming – contributing a paltry 3.8% to gross inflows.

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We think the moderation in yields on money market instruments as proxied by average yield on the sovereign instruments below 1-year maturity (down 79bps q/q to 11.92%), as well a slower OMO and NTB auction stop rates, maybe
responsible.

Looking ahead, with bold reforms necessary to create an enabling environment still at large, we expect to FDIs to continue to remain on the sidelines. On the other hand, if the trends observed so far in Sep-19 is anything to go by, we do not see inflows to money market returning to its Q1-19 high given CBN’s stance at clinging to stop rates, even as events in the global space becomes increasingly volatile.

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However, in Q4-19, with over N5.0tn maturities, we see scope for the CBN bowing to pressure for higher rates which could have a telling impact on FPI flows.

United Capital Research

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