Q3-17 Capital Importation into Nigeria: Hot money up, Cold money down

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The NBS recently released Nigerian capital importation data for Q3-17, indicating total capital imported increased 127.5% y/y and 131.3% q/q to $4.1bn. The bulk of these came in form of Foreign Portfolio (FPIs) and Other Investments (comprising of; Trade credits, Loans, Currency deposits and Other claims) which advanced 200.7% and 124.5% y/y respectively in contrast to Foreign Direct Investments (FDIs) which remained significantly low at $117.6mn, after declining 65.5% y/y.

This capital importation mix, which largely favours FPIs, is not sustainable for a mono-economy like Nigeria. This is because while FDI targets long-term investments, FPIs track financial assets (stocks, government bills, and bonds) mostly for short-term return. Hence, portfolio investors are fair-weather friends who would not hesitate to exit at the slightest sign of trouble.

Yet, the sustained influx of FPI into Nigeria at the expense of FDI reflects investor sentiment to the multiple FX regimes currently operational in Nigeria. Given that huge FPIs are highly volatile, speculative and could have a destabilizing effect in the FX market. Nigeria would benefit from a further review of the multiple FX rates to attract cold money-FDI, which are certainly preferred to hot money and guarantee badly needed sustainable economic growth and recovery.

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