•$1.09759 billion from UK, $340.64 million imported as FDI •Portfolio investors bring in $920.32million •Banking sector attracts $555million •Shares account for $646.28 million
Despite the massive devaluation of the Naira, foreign portfolio investors have continued to adopt a wait and see attitude toward Nigeria hoping for further devaluation of the naira. Investigation showed that foreign investors relatively showed more interest in government bonds compared with their interest in shares. Across the economy, interest in direct investment from foreign investors is low, primarily due to foreign exchange volatility and Nigeria’s weak macro-economic outlook.
Data released by the National Bureau of Statistics NBS, on funds inflow as either loans to companies or investment targeted report has shown that Nigeria needed to take its economic diversification more seriously as the one route to increasing foreign exchange inflow into the nation’s reserves. Fears are that with Brexit and the election of Donald Trump in US, the two major sources of investment funding may dry up. The total value of foreign funding into Nigeria businesses, capital imported, in the third quarter of 2016 was estimated at $1.8billion which represents a 33 per cent decline when compared with that of the third quarter of 2015.
NBS data showed that the month of August recorded the highest level of funds brough in from outside the country at $894million. This happens to be the highest level since July 2015. During the period, portfolio investments accounted for the largest component of private sector foreign exchange inflow into the country at $920.32million about 51 per cent of the total inflow. Although portfolio equity declined by 28 per cent relative to the previous quarter, this was outweighed by large increases in other types of portfolio investments.
Just like in each of the past eight quarters, Foreign Direct Investment FDI, accounted for the smallest share of money brought into the country for investment purposes in the third quarter amounting to a total of $340.64million. On a sectorial basis, the banking sector got the largest value of fund of $555million from outside the country. This accounted for 30 per cent of the total, followed by telecommunications at $245million.
The data also captured funds from abroad into the system by country source. Nigeria brought in the most capital from the United Kingdom, which accounted for 60 per cent of the total. The United States was the second largest investor into Nigeria, accounting for 23 per cent of the total. NBS said “In the third quarter of 2016, there were 34 different countries that were active in investing in Nigeria.
This is two more than in the previous quarter, but less than in the same quarter of the previous year when there were 42 countries from which Nigeria received foreign exchange inflow for investment in the economy. The country from which Nigeria imported by far the most capital was the United Kingdom, which accounted for $1.09759 billion, or 60.24 per cent of the total.
As well as the existence of an historical relationship between the UK and Nigeria, London (the capital of the UK) is also a key financial centre, which could help to explain the high value of capital importation accounted for by the UK. Since 2010, the UK has accounted for the highest value of capital importation in all but two quarters, both in the second half of 2015. The country to account for the second largest value was the United States, which accounted for $426.98 million, or 23.43 per cent of the total.
As in the case of the UK, the US retained its position as the second largest investor into Nigeria in most quarters since 2010. The country also has a large financial centre in New York, which may explain its importance as an investor. The US and the UK also share an official language with Nigeria which may facilitate investment. “Netherlands accounted for $94.44 million, or another 5.18 per cent of the total value.
These three countries together therefore accounted for roughly nine tenths of total capital imported into Nigeria.” The NBS flow of foreign exchange from other countries for investment in Nigeria indicated that “The total value of capital imported into Nigeria in the third quarter of 2016 was estimated to be $1.82212 billion, which represents an increase of 74.84 per cent relative to the second quarter, and a fall of 33.70 per cent relative to the third quarter of 2015.
The highest level of capital imported was in August, when $894.00 million was imported, the highest level since July 2015. “In September $649.76 million was imported, which was still more than any month in the first and second quarters. In contrast with the previous quarter, where Other Loans explained the majority of the increase, a number of investment types contributed to the quarterly increase.
Much of the quarterly increase in the value of capital importation came from debt financing. Of the total quarterly increase, 85 per cent was accounted for by increases in Portfolio investment in Bonds and Money Market Instruments; the latter of which comprises short-term funding securities such as treasury bills and commercial bills from CBN. “Quarterly growth in FDI equity was also strong, although Portfolio equity continued to decline.
FDI investments have a longer-term interest, and are therefore less likely to reflect short term challenges than Portfolio Equity. Nevertheless, each type of investment (FDI, Portfolio and Other) recorded quarterly increases, of 84.84 per cent, 172.84 per cent and 7.80 per cent respectively. The relatively strong growth in Portfolio Investment meant it regained its position as the largest investment type, and it accounted for 50.51 per cent in the third quarter, compared to 18.69 per cent and 30.80 per cent for Other Investment and FDI respectively.
Year on year growth rates remained negative; FDI, “Portfolio and Other Investment declined by 52.54 per cent, 8.80 per cent and 45.05 per cent respectively compared to the third quarter of 2015. In the case of FDI and Other Investment however, this was partly the result of a base effect, as there was a spike in value of FDI Equity in the third quarter of 2015. Nevertheless, it is also possible “Capital Importation can be divided into three main investment types: Foreign Direct Investment (FDI), Portfolio Investment and Other Investments, each comprising various sub-categories.
In the third quarter of 2016, Portfolio Investment was the largest component of imported capital and accounted for $920.32 million, or 50.51 per cent. Although Portfolio Equity declined by 28.12 per cent relative the previous quarter, this is outweighed by large increases in other types of Portfolio Investment. Bonds increased from zero in the second quarter, to $369.00 million in the third, and Money Market Instruments increased from $57.50 million to $350.20 million over the same period, an increase of 509.03 per cent.
“This is the first quarter since 2007 Q2 in which Equity was not the largest part of Portfolio investment; at $201.12 million this type of Portfolio Investment remains considerably subdued relative to previous highs of $4930.55 million in the first quarter of 2013, and $3875.35 million in the second quarter of 2014. “The second largest component was Other Investment, which accounted for $561.61 million, or 30.80 per cent. As in each quarter in the last year, no capital was imported in the form of Currency or Trade Credits.
In addition, other claims decreased further to $0.06 million, which represents only 0.01 per cent of Other Investment, and a decline of 99.98 per cent relative to the same quarter of the previous year. Therefore, this investment type is now dominated by Loans, which increased by 7.86 per cent compared to the previous quarter, to $561.10 million. Year on year this represents a decline of 19.43 per cent. “As in each quarter over the past two years, FDI accounted for the smallest share of imported capital.
A total of $340.64 million was imported within this component, or 18.69 per cent of the total. This was the first quarter on record in which no capital was imported in the form of FDI – Other capital, even if in previous quarters the amount was not significant. As a consequence, only Equity was recorded within the FDI component. Capital is either imported in the form of shares, or directly imported by different sectors of the economy. In the third quarter of 2016 the value of share capital imported was $646.28 million, which represents an increase of 85.72 per cent relative to the previous quarter.
This is slightly larger than for the total value of capital imported, and as a result share capital increased the share it accounted for from 33.39 per cent in the previous quarter to 35.47 per cent in the current, which although less than in previous years, is still more than any individual sector. Year on year however, share capital imported declined by 65.57%, and in the third quarter of 2015 shares accounted for 63.19 per cent of capital imported.
The banking sector regained its position as the sector to import the largest value of capital, and imported $555.52 million, or 30.49 per cent of the total. In over half of the quarters since 2007, the banking sector has imported the most capital, but in the previous quarter of 2016 it accounted for only the fourth most. This changed in the current quarter following an increase of $447.42 million, which accounts for over half of the increase in total capital imported. Compared to the same quarter of 2015, the value also increased – in contrast with most sectors – by 127.45%.
The sector to import the second largest amount was Telecommunications, which is also usually one of the key sectors involved in capital importation. The value of capital imported by Telecommunications was $244.80 million, or 13.34% of the total. This represents an increase of $126.09 million, or 106.21%, relative to the previous quarter. However, compared to the previous year this is still a decline of 33.75%. “The Oil and Gas sector maintained a high level of capital importation; although it decreased by 14.4 per cent relative to the previous quarter, it is still elevated relative to previous periods at $171.63 million.
This sector is characterised by isolated periods of high capital importation, and it is therefore unusual that the level has remained high for two consecutive quarters. This sector accounted for the third highest amount in the third quarter of 2016. There were four sectors to record no capital importation in the third quarter of 2016 (Marketing, Hotels, Tanning and Weaving), one less than in the previous quarter.
However, there were a further two sectors to record a value of less than $1 million, which were Drilling and IT Services. Eight out of 20 sectors recorded a decline in the value of capital importation, the largest of which was in Servicing, which recorded a decline of $83.20 million relative to the previous quarter, or 69.48%.”