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Nigeria’s Capital Importation, Trade Data signpost Worsening External ConditionsAfrinvest

Afrinvest a leading investment banking firm, has stated that capital importation and trade data signpost worsening external condition.

The firm stated this in a note as capital importation report revealed a continuous deceleration in foreign capital inflows since second quarter of 2019.

Analysts remarked that the situation was driven by post-election uncertainties, falling yields, currency pressures and weakened investors’ confidence.

In the fourth quarter of 2019, there was sustained decline across the board as foreign capital flows fell by 32.4% year on year to $3.8 billion, the lowest recorded during the year.

Regardless, there was a 42.7% year on year rise in foreign capital inflows to $24.0 billion in financial year 2019, given the traction recorded in the first half of 2019.

Foreign Portfolio Investment (FPI) rose to $16.4 billion in 2019, representing a 38.7% year on year uptick.

Analysts said this was driven by the 58.7% year on year rise in money market inflows as investors remained shy of equities where foreign investments dipped 19.9% year on year to US$1.9 billion.

“We attribute the inflows into money market instruments to the relative calm recorded post-elections which eased political risk.

“Likewise, a 75.3% year on year surge in inflows from other investments to $6.7 billion, buoyed foreign capital flows in 2019.

Foreign direct investments (FDI), on the other hand, remained uninspiring, down 21.8% to $0.9 billion, reflecting the weak macroeconomic environment and lack of reforms to encourage investors, analysts at Afrinvest held.

Elsewhere, Nigeria’s trade balance fell to a deficit of ₦579.1 billion in the fourth quarter of 2019 as imports expanded faster than exports.

Imports accelerated by 37.2% to ₦5.3 billion in the last quarter of 2019, bringing 2019 total imports to ₦17 trillion, which represent a 28.8% rise.

Analysts said this was mainly driven by an expansion in the importation of capital goods and industrial supplies as well as fuel and lubricants import.

Conversely, exports contracted by 9.8% to ₦4.8 billion in the fourth quarter of 2019, driven by the slowdown in the export of manufactured goods and crude oil.

In 2019, exports rose at a slower rate of 3.6% to ₦19.2 trillion, following a 3.1% moderation in crude oil exports to ₦14.7 trillion.

“We attribute this to a 10.0% year on year reduction in crude oil price to $64 barrel per litre despite a 4.7% uptick in oil production at 2 million barrel per day in 2019”, Afrinvest stated.

Afrinvest said going forward, it expects sustained downtrend in capital flows following global risk-off sentiments due to the COVID-19 pandemic.

The firm held that the global decline in oil prices amid oversupply and falling demand for oil raises Nigeria’s risk.

Hence, analysts expect foreign investors to be reluctant to hold Naira assets.

Analysts at Afrinvest noted that for trade, the firm anticipates weaker export growth due to plummeting oil prices which settled at $32.9 per barrel at the weekend.

With the major oil-producing countries engaged in a price war, we are not optimistic that the removal of curbs on Nigeria’s oil output would support more sales, Afrinvest remarked.

“We also expect a slowdown in imports given the disruptions to global supply chains and softening economic activities among trading partners such as US, Europe, China and India.

“The combination of trade deficit, negative current account balance and weak capital flows mean there would be a sustained moderation in external reserves, thus increasing the need for currency devaluation”, analysts held.

Nigeria’s Capital Importation, Trade Data signpost Worsening External ConditionsAfrinvest