- Foreign flows into Nigeria have been relatively strong in 2020 so far
- Coronavirus fears risk hampering both oil and non-oil inflows
- The exchange rate should be stable until at least the end of H1-20, but further out, the picture is bleak
The wave of capital repatriation by foreign investors and the resultant drawdown on Nigeria’s foreign reserves has been sustained into early 2020. However, relative to December 2019, the downtrend has been far less steep. For one, for the first time in seven months, the Central Bank of Nigeria (CBN) was a net-buyer at the I&E window, purchasing a total of USD633.27 million in the month of January. This was on the back of relatively healthy capital inflows recorded in the period, as according to data from the CBN (figure 2), total capital importation (+153.7% m/m) grew markedly to USD1.86 billion. Foreign portfolio inflows, which grew by +162.7% m/m, comprised 92.3% of the total inflows.
Turning Our Heads to Oil
Looking ahead, our currency stability concerns have shifted from the sell-offs of naira assets by foreign investors, to crude oil prices. The recent outbreak of the deadly coronavirus continues to send panic through global markets, with oil prices falling to one-year lows. The recent outbreak of the deadly coronavirus continues to send panic through global markets, with oil prices falling to one-year lows. Brent, the global oil benchmark, has slumped 20.2% YTD to USD54.93pb (6 February 2019) as traders reacted to the magnitude of the health crisis.
Covering All Bases
We attribute the sharp FPI inflows witnessed in January to the CBN’s policies around the Treasury Bills market, which effectively guaranteed both attractive rates (see figure 3) and liquidity for foreign investors. We also cannot rule out stronger FPI into the equities market, amidst attractive dividend yields, with the NSE returning 7.5% in the month. Against that backdrop, the CBN’s interventions at the I&E window dropped to its lowest level since September 2019 (12.1% of total inflows).
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