Data from the Nigeria Bureau of Statistics (NBS) data on capital importation into Nigeria, amounted to $1.57 billion, declining by 28.09% quarter on quarter ($2.19 billion Q4’2021) and 17.46% year on year ($1.91 billion Q1’2021). Decoupling the data, foreign portfolio investment (FPI) amounted to $957.58 million, contributing significantly (60.87%) to the aggregate foreign inflow. Other investment and foreign direct investment (FDI) followed suit, amounting to $460.59 million (29.28%) and $154.97 million (9.85%), respectively.
Notably, Foreign portfolio Investment inflows and other Investment categories declined by 1.70% and 40.70% y/y to print at $957.6mn and $460.6mn, respectively in Q1-2022. On the bright side, Foreign Direct Investment (FDI) inflows increased by a marginal 13bps y/y to print at $155.0mn in Q1-2022.
We opine that the decline in FPI inflows was primarily due to investors’ apathy in Nigeria’s fixed income market, which is characterized by low yields. Recall that the CBN MPC has maintained the interest rate since 2020 until its recent 150bps hike in May. A further breakdown of the foreign portfolio investment revealed that foreign investors continue to favour investment in money market instruments as it accounted for 64.30% ($615.74mn) of total FPI funds, with bonds and equities contributing 32.38% ($310.06mn) and 3.32% ($31.78mn) respectively.
Analyses by Sectors revealed that capital importation into banking had the highest inflow of $818.84 million, which accounted for 52.05% of total capital imported in the first quarter of 2022- followed by capital imported into the production and finance sector, valued at $223.67 million (14.22%) and $199.37 million (12.67%), respectively. Most worrisome, the agriculture sector declined from $237.83 million in the fourth quarter of 2021 to a paltry $1.76 million in the first quarter of 2022. Despite the various interventions by the CBN and federal government towards the agricultural sector to spur growth, foreign investment has dwindled, attributable to the rising insecurity in different parts of the country.
Noteworthy, only six states attracted foreign investment in Q1’2022, with Lagos accounting for the bulk ($1.12 billion 71.16%) of total capital imported. The inability of thirty other states to attract foreign inflows has the potential to hinder inclusive investments across the country, a prerequisite for national prosperity.
In our opinion, the decline in capital importation is driven by various factors, ranging from FX constraint, rising insecurity, poor infrastructure, conflicting economic policies, and a hostile business environment. However, having a steady and robust inflow of capital into the economy cannot be overemphasized, as it contributes significantly to strengthening our currency while stimulating development. In the short term, we do not foresee a respite in our dwindling foreign inflows as the prevalent issues persist.