Lower but Still Healthy Capital Inflows in Q2

By FBNQuest Capital

The National Bureau of Statistics (NBS) recently released its latest report on Nigerian Capital Importation, which covers Q2 2018.

The data was obtained from the CBN and compiled using information on banking transactions from all registered financial institutions in Nigeria.

The total value of capital imported in Q2 was estimated at $5.5 billion, representing an increase of 208 percent y/y but a decrease of 13 percent q/q.

The decrease was driven by declines in inflows from the portfolio and other investment categories. The data are gross, and not adjusted for capital exports.

Portfolio investment decreased by 10 percent q/q. However, it still accounted for the largest share (75 percent) of total capital importation.

We did notice a larger 24 percent q/q decline in investments geared towards money market instruments (including NTBs), which still represented 65 percent of total portfolio investment. Meanwhile, equities accounted for 15 percent of this total.

Foreign direct investment (FDI) inflows grew by 6 percent q/q to $261 million but posted a y/y decline of 5 percent.

FDI accounted for just 5 percent of total capital importation in Q2.

The FGN could boost both greenfield and brownfield direct investment inflows by achieving relevant milestones in structural development. The reduction of power shortages would be the first step.

Abuja saw inflows of $2.5 billion in Q2 and Lagos $1.7 billion while Abia State reported $1.3 billion.

Inflows recorded in the latter may be due to healthy investment appetite towards the Enyimba Industrial City, an export free processing zone.

Our channel checks confirm that foreign investments have been made towards this project.

We do not see significant growth in the total value of capital imports in Q3. That is when the report is published. This is mainly because we expect increased risk aversion from both local and foreign investors due to the upcoming national elections.

Additionally, we have noticed an increased sell-off on the back of US rate tightening by the FOMC.