Dollar Inflow Drops 54% as Foreign Investors Dump Nigeria
Dollar inflow drops 54% as foreign investors dump Nigeria due to unattractive developments in the local economy including inflation worries and unimpressive yield in the fixed income market among other issues causing a marked rise in greenback shortage.
National Bureau of Statistics (NBS) capital importation data shows that the Nigerian economy attracted a handful sum of $875.62 million in the second quarter over a gross domestic product size above $400 billion.
Some analysts told MarketForces Africa the data signals a long road to solving the dollar shortage issue in the foreign exchange market. In the second-quarter report, foreign inflow dropped to its lowest in five years due to a double whammy of unattractive yield in the financial market and the Central Bank capital control measure.
The foreign investment excludability was also attributed to the heightened level of insecurities in the country.
MarketForces Africa reported that the MSCI index announced a plan to downgrade Nigeria status due to what is considered the difficulty in getting out funds from the local economy.
Analysis of NBS data shows Nigeria recorded a total foreign investment inflow of $875.62 million. This is 54.06% lower when compared with $1.91 billion reported in the first quarter of 2021.
Also, the figure shows that capital inflow from foreign investors tumbled 32.38% from $1.29 billion that flew into the economy exactly one year ago.
The second quarter capital importation figure represents the lowest foreign investment inflows in Nigeria since the first quarter of 2016 when total foreign investment inflows settled at $710.97 million, says Atlass Portfolio Limited.
The investment firm attributed the sharp decline in the size of foreign investment inflow into the country in the second quarter to a high inflation rate leading to a negative return on investment, weak local currency and civil unrest.
By disaggregating the inflows into investment components, the NBS capital importation data for the period revealed reduced inflows into two of the three investment segments.
Specifically, data shows that dollar inflow into foreign direct investment and other Investments space declined while portfolio investment recorded growth.
NBS data shows that inflows into Foreign Direct Investment (FDI) and Other Investment vehicles fell by 47.52% and 67.64% year on year respectively, to $177.97 million and $246.27 million from $148.59 million and $761.03 million in the corresponding period of in the second quarter of 2020.
According to the report, equity investment, which is a sub-component of foreign direct investment, recorded a 47.52% year on year decline, while the other capital sub-component recorded zero investment inflow in the quarter.
Also, two sub-components of Other Investment – Loans and Other Claims contracted by 71.11% and 0.10% year on year respectively, while Trade Credits recorder $1.50 million as against zero records in the second quarter of 2020.
“We believe this was due to the economic uncertainties, low ease of doing business and civil unrest in various parts of the country”, analysts at Atlass Portfolio Limited noted.
Again, equity and money market investment, which a sub-components of the portfolio investment, recorded an expansion of 43.09% and 36.02% year on year of investment inflows in the quarter, respectively, to $85.16 million and $452.67 million in the second quarter of 2021.
“We believe this was due to the adaptation of investors and exporters window exchange rate by the CBN in May, the decline in the inflation rate, and an increased yield rate in the money market instruments”, analysts said.
Recall that the Central Bank of Nigeria adopted the Investors and exporters window for government transactions from ₦379/$1 to ₦411.25/$1 in the second quarter, while the true-yield on 10-years sovereign bond (offer yield minus inflation rate) rose continuously from -7.45%% at the end of Q1 to -5.05% in June 2021.
Although, Atlass Portfolios analysts said they expect the total capital importation figure for third quarter 2021 to usurp that of Q2 -owing to the calm of various protests- nevertheless, they expect total inflows to print below $1.5 billion.
Their expectation is anchored on two key risk factors namely the exchange and the inflation which remained pressured.
Further breakdown of foreign portfolio investment inflow into Nigeria revealed that more funds went into the money market space as it accounted for 81.92%; while investments in shares and bonds accounted for 15.45% and 2.64% respectively.
Banking (33.86%), Financing (23.51%), Shares (22.22%), Production (7.77%) and Trading (5.73%) sectors were the largest recipients of the foreign capital injection from the United Kingdom (US$310.26 million) and South Africa (US$212.39 million).
Cowry Asset notes that insecurity, exchange rate volatility and high costs of doing business in Nigeria have done a major disservice to foreign investment into the country.
Analysts said hence the continuing decline in capital importation and the external reserves.
“Importantly, the bulk of the responsibility to restore investors’ confidence rest on the fiscal authority, more than the monetary authority, given the nature of the challenges.
Read Also: Banks Dump CBN Special Bills to Ease Funding Pressure
“We expect FG to further quicken its efforts at resolving insecurity issues, create a more business-friendly environment, and initiate private partnership arrangement to bridge the infrastructure gap, to boost productivity and better position exporters to reap the benefits of AfCFTA”, Cowry analysts concluded.
Dollar Inflow Drops 54% as Foreign Investors Dump Nigeria
