Sunday, April 14, 2024

FBN, Citibank, Rand Merchant top receipt of capital inflow to Nigeria in Q2 2023


The National Bureau of Statistics latest report on Nigeria’s Capital Importation index for second quarter of 2023 says First Bank of Nigeria Limited received the highest capital into country during the period with $323.13 million representing 18.23 percent of the national inflow, followed by Citibank Nigeria Limited with $187.77 million or 12.23 percent and Rand Merchant Bank with $126.03 translating to 6.47 percent.

According to the report, Nigeria’s capital importation for the quarter stood at $1,030.21 million, lower than $1,535.35 million recorded in Q2 2022, indicating a decrease of 32.90 percent. Further compared to the preceding quarter, capital importation fell by 9.04 percent from $1,132.65 million in Q1 2023.

While the report showed a concerning trend in foreign investment within Nigeria, it is even more worrisome as the latest figure represents the lowest level since Q1 of 2016.

This is even as financial experts have attributed the dwindling capital inflow into the country to obstructions induced by systemic issues and a lack of coherent policies.

Capital importation encompasses various financial inflows, including credit, deposits, and physical capital, and is tracked through banking transactions and Customs data.

From an economic perspective, foreign capital, remittances from workers abroad, and domestic savings are pivotal sources of capital essential for long-term economic growth.

Moreover, capital importation serves as an important barometer for assessing how offshore investors perceive the economic landscape of a nation.

“Nigeria’s capital importation for the quarter stood at $1,030.21 million, lower than $1,535.35 million recorded in Q2 2022”

Reviewing the NBS report, financial analysts at Cowry Securities Limited noted that overtime Nigeria has long grappled with macroeconomic challenges such as a weakening local currency, rising unemployment, inflation, and inadequate infrastructure, adding that, “These persistent issues have dampened the enthusiasm of foreign investors and multinational corporations, discouraging them from making substantial investments across various sectors to drive economic growth.”

Notwithstanding, a closer examination of the report reveals that the category of “Other Investment,” which includes loans, trade credits, and other investments, accounted for the lion’s share at 81.28 percent ($837.34 million).

This was largely influenced by a staggering 146,328 percent quarter-on-quarter increase in other claims, amounting to $65.81 million, and a 77.82 percent quarter-on-quarter surge in total loans, reaching $771.53 million. In contrast, trade credits and currency deposits saw minimal investment during this period.

Portfolio Investment, encompassing equity investments and debt securities, comprised 10.37 percent ($106.85 million) of the total, and it faced pressure due to a significant downturn in the money market (-89.6 percent q/q and -96.9 percent y/y) and bonds (-71.6 percent q/q and – 73.5 percent y/y) investments, exacerbating the trend of hot money exiting the market.

The equities market also suffered pessimism (- 96.2 percent q/q and -33.0 percent y/y) and attracted only $8.5 million.

Foreign Direct Investment accounting for 8.35 percent ($86.03 million) of total investments saw an 80.7 percent quarter-on-quarter improvement but remained insufficient to drive positive year-on-year growth.

Consequently, FDI, comprising 8.4 percent of the total, plummeted by 41.5 percent year-on-year, with sub-components such as Equity (-39.5 percent) and Other Capital (-99.7 percent) displaying weakness.

Within sectors, Manufacturing/Production emerged as the top recipient, attracting $605.4 million, which accounted for 58.7 percent of the total investment.

This marked a significant increase compared to $256.1 million and $234.0 million in the first quarter of 2023 and the second quarter of 2022, respectively.

Apart from financial services, other sectors experiencing positive inflows included Agriculture ($10.0 million), trading ($46.6 million), and Telecoms ($25.8 million). Notably, non -financial activities represented 68.3 percent of the overall inflows, a substantial improvement from 54.8 percent in the first quarter and 37.1 percent in 2022.

This indicates that financial flows may have been more severely impacted than physical capital importation amid the ongoing economic challenges.

Geographically, Ogun State witnessed an increase in capital inflows to $24.0 million, up from $2.1 million in the first quarter, and it recorded no inflows throughout 2022.

Similarly, Akwa-Ibom enthralled with a 6.5% growth in capital imports, reaching $33.9 million compared to the first quarter, accounting for 79.6% of its entire 2022 inflow.

In contrast, Abuja experienced a 52.6 percent decline in flows, while Lagos saw a modest 10.4 percent boost.

These two regions accounted for a significant 94.4 percent of the country’s total in flow, underscoring the challenges faced by sub-national economies and emphasizing the need to enhance the appeal of other states.

In the second quarter of 2023, only 5 out of the 36 states and the Federal Capital Territory managed to attract foreign investment flows, a clear indication of the concentration of investments.

Meanwhile, financial experts from Cowry Securities Limited opined that the pipeline for capital flows remains fragmented due to persistent challenges on both the external and internal fronts, pointing out that, “In the broader context of emerging and frontier markets, the tightening of monetary policies is driving risk-averse capital movements from developing regions to more stable ones. Presently, the Nigerian economy confronts several hurdles, including high inflation, a depreciating currency, and rising unemployment, creating a hostile environment for businesses and deterring foreign investors from committing their capital to the country.

“Our analysis at Cowry Research suggests that the deteriorating macroeconomic indicators have eroded the optimism of foreign investors in Nigeria. However, we believe that tangible and concerted efforts by the Federal Government to strengthen bilateral and multilateral business relationships, coupled with market reforms, could inspire confidence if external factors align favourably before reform fatigue sets in.”

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