An Easing of BoP Pressures in Q3…

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On Wednesday we commented on the current account in the balance of payments (BoP) for Q3 2017. Today it is the turn of the financial account, and the investment flows in particular. These are gross flows (ie those in the reporting economy before investment by Nigerian residents offshore). Direct, portfolio and other investment flows were again positive on this basis.

Portfolio inflows of US$3.32bn were the highest since Q2 2013 (US$4.46bn in the wake of Nigeria’s inclusion the previous year in JP Morgan’s local currency, government debt indices).

Direct investment in 2016 amounted to US$4.5bn, equivalent to 1.1% of GDP. This is pitifully low by any criteria.

The short-term prospects are better for the two other components. Eurobond sales underpin other investment while the early success of the NAFEX experiment explains the improvement in portfolio inflows in Q3, which should be repeated in subsequent quarters.

When we adjust for the assets on the financial account (Nigerian investment offshore) in Q3, all three components remain positive on a net basis: direct investment of US$480m, a portfolio investment of US$3.32bn and other investment of US$2.10bn.

The broader picture for the BoP in Q3 2017 shows a current-account surplus of US$2.29bn and a financial-account surplus including the movement in reserves of US$3.11bn. These are balanced by net errors and omissions (negative) of -US$5.40bn. This is effectively the balancing item and is often

revised: an outflow of -US$5.75bn in Q2 is now shown as -US$4.64bn.

The item is disproportionately large but is not a uniquely Nigeria phenomenon. The BoP for the US shows statistical discrepancies of US$101.5bn in 2015 and US$74.1bn in 2016.

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