According to the capital importation data for Q1-2020 published by the NBS, the total capital imported into the Nigerian economy declined by 31.2% y/y to $5.85bn in Q1-2020.
The breakdown of the data revealed that inflows from portfolio investments continued to dominate the gross investment inflows (accounting for 73.6%) followed by other investment (22.7%) and foreign direct investment (3.7%).
Notably, the reduction in foreign inflows was largely driven by a 39.4% y/y decline in inflows from FPIs owing to lower inflows to bonds (-59.2% y/y), money market (-41.6% y/y) and equity instruments (-2.5% y/y).
In our view, the decline in portfolio investment was due to investors risk-off sentiment which was sparked by the outbreak of COVID-19, plunge in crude oil prices and fears as well as the eventual devaluation of the naira in March-2020.
We note that the underwhelming nature of FDI inflows continues to reflect the inability of the country to attract the much-needed capital amid long-term uncertainties.
Looking ahead, we believe that the current issues around FX illiquidity, fears of a further naira devaluation, the low-interest-rate environment in the OMO market, are likely to discourage large-sized FPI and FDI inflows for the rest of the year.
Accordingly, we expect the overall capital imported in 2020 to underperform that of 2019.
United Capital Plc Research