NIGERIA CAPITAL IMPORTATION CAPITAL INFLOWS RETURN TO PRE-OIL CRISIS LEVELS

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The National Bureau of Statistics (NBS) released the Q1’18 capital importation report, showing a jump in capital imports to $6,304 million – from $908 million and $5,383 million in Q1’17 and Q4’17 respectively. The uptrend in Nigeria’s capital imports is unsurprising as it comes against the backdrop of a healthier global economy (2018 IMF global GDP growth forecast: 3.9%, 2017: 3.8%) and better than expected rise in oil prices (ytd average: $69/bbl). Moreover, domestic economic conditions have grown more attractive – the currency market remains stable while an easing risk environment complements high available nominal returns to investment.

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On a q/q basis, the rise in capital imports was driven by a 31% increase in foreign portfolio inflows (FPI) as the foreign direct investment (35%) and other investment (2%) dipped during the period. And the jump in FPI could be attributed to larger money market investments – up 62% from $2,179 million to $3,528 million – as equity (29%) inflows came in weaker q/q. But looking at the composition of equity investments, January was the strongest month, accounting for 50% of inflows in the quarter. This tallies with the surge in Nigerian Stock Exchange (NSE) activity and performance during the month – the market rallied 16% in January amid daily average turnover of ₦9 billion (Q1’18 average: ₦7 billion). In fact, the FPI to equity trend is consistent with NSE data on foreign investor participation in the market.

Capital flows to remain stable amid a myriad of factors

Numerous factors would determine capital inflows for the rest of 2018. Firstly, a stable currency environment and sturdy economic growth provide a modest
background for capital inflows. This would be further buoyed by a possible re-inclusion of Nigeria in the JP Morgan Emerging Market Bond Index at some point during the year. However, monetary tightening in the United States and latent concerns around the impact of the 2019 election preparations on security and the economy may discourage capital flows. Finally, it is important to note that supportive government policy remains the most potent way of attracting FDI, whether through special economic zones or similar incentive schemes. All in all, we expect capital flows – which have now reached 2014 levels – to remain stable through the year.

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