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RECESSION: Foreign investment inflow down by $4.5bn in 2016

By Emeka Anaeto, Michael Eboh  & Nkiruka Nnorom
ABUJA—There were indications that foreign investors largely shunned Nigeria’s economy in 2016 as foreign investment inflow dipped by $4.52 billion to $5.12 billion, the lowest in nine years, according to data released, yesterday, by the National Bureau of Statistics, NBS.

Specifically, the NBS stated that in the year 2016, capital importation into Nigeria fell by 46.86 per cent, from $9.64bn in 2015 to $5.12 bn.

Ag President Osinbajo with Mr Gene Leon and other team members of IMF Team (International Monetary Fund) on 2017 Article IV Consultation during a courtesy visit to the State House, Abuja. 1st Feb 2017

The NBS, in its Nigerian Capital Importation Report for the Fourth Quarter of 2016, disclosed that the amount recorded in 2016 was the lowest since 2007 and was a reflection of the numerous economic challenges that affected Nigeria in 2016.

According to the NBS, the weakening of the Naira may have had an impact, adding that a weaker Naira means more can be purchased with each dollar, and therefore investment projects requiring Naira payments cost less in dollar terms.

It stated that Foreign Portfolio Investment, FPI, declined the most, dropping by 69.81 per cent, explaining that this investment type, whereby investors seek quick returns rather than control of management in companies, is most likely to be affected by current market conditions. FPIs are mainly in the stock market.

The NBS declared that Foreign Direct Investors, FDI, take a longer-term view, and therefore Nigeria’s recession and currency problems may carry less weight in investment decisions.

It added that FDI fell by 27.83 per cent year-on-year, YoY, in 2016, considerably less than portfolio investment, while it stated that by contrast, ‘other investment’ category increased by 3.48 per cent, entirely due to an increase in loans.

In its analysis of the figures, the NBS stated that in the fourth quarter of 2016, Q4’16, the value of share capital imported was $228.24 million, which represented a decrease of 64.68 per cent relative to the third quarter of same year, Q3’16.

The NBS disclosed that the banking sector which imported the largest value of capital in the Q3’16, recorded a decline of $394.22 million, or 70.96 per cent, in Q4’16, going down to the third largest.

NBS stated: “By contrast, the Telecommunications sector recorded an increase of $309.45 million, which more than doubled the amount of capital imported in the previous quarter to reach $554.25 million. This was the largest value of capital imported by any sector in this quarter.

“The Oil and Gas sector recorded a sharp increase of $155.67 million or 90.7 per cent, to reach $327.30 million and became the second largest.”

The NBS disclosed that Lagos state recorded the most capital inflow in Q4’16 as in all previous quarters, and accounted for more than 90 per cent of capital importation in 2016.

This, according to the NBS, was especially as Lagos is the commercial and financial capital of Nigeria, and home to Nigerian Stock Exchange where shares are traded.

Furthermore, the NBS stated that Abuja came second in capital imports destination in 2016.

Continuing, the NBS stated: “The country from which Nigeria imported by far the most capital was the United Kingdom, which accounted for $482.89 million, or 31.18 per cent of the total.

“This was despite a fall of 56 per cent relative to the previous quarter, as well as the existence of an historical relationship between the UK and Nigeria. London 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.”

Foreign Portfolio Investments lost N508bn

The NBS report was coming at same time the data release by the Nigerian Stock Exchange, NSE, yesterday show that total Foreign Portfolio Investment, FPI, in the nation’s capital market had contracted massively year-on-year in January 2016 by N508 billion or 49.5 per cent, bringing down the total FPI inflow to N517.55 billion from N1.025 trillion recorded at the end of 2015.

On a two year basis also, foreign transactions declined by 66.34 per cent to N518 billion in 2016 from N1.539 trillion in 2014.

Also, total FPI outflow outpaced inflow on a year-to-date basis, an indication that foreign investors expatriated more funds out of the country. FPI outflow during the 12 month period stood at N261.03 billion as against N256.52 billion inflow recorded.

Impact on the economy – FSDH Merchant Bank

Commenting on the implication of the declining foreign investment inflow, chief economist at FSDH Merchant Bank Limited, Mr Ayodele Akinwunmi, stated: “The impact of this is already being felt in the weak exchange rate in Nigeria; Negative balance of payment position for the country; Low foreign direct investment in Nigeria; Lower tax revenue for the government because of lower investments being undertaken; and Rising unemployment  and inflation.”

On the way out of the vicious decline, he stated: “The government needs to communicate clearly its economic policy to the private sector so that it can inspire investors’ confidence.

“FGN should also provide incentives, both fiscal and trade, for investors, both local and foreign to attract them to Nigerian economy.”

Major constraints to foreign investments  – Cowry Assets

According to Mr. Johnson Chukwu, Managing Director/CEO, Cowry Assets Management Limited, the major constraint to foreign investment in the country remained lack of confidence exacerbated by disparity in foreign exchange market.

He said: “Nothing has changed about the country’s economic fundamentals to encourage foreign investors to come in. Foreign investors do not have so much confidence; there is lack of confidence in the Nigerian economy as a whole by foreign direct and portfolio investors. That is also not helped by the current disparity in foreign exchange prices between official rate, interbank rate and the parallel market. Added to the fact that access to liquidity in the Fx market is such that investors are not assured that they can just convert their naira asset back to dollar whenever they want. So, market liquidity in Fx market is another constraint.”

Corroborating his views, Mrs. Tonyi Sanni, CEO, United Capital Group Plc, attributed the drop in FPI inflow into the country to foreign investors’ perception of the country’s policy response to dwindling oil revenues in the last two years (caused both by falling price as well as reduced production).

“These led to the reversals witnessed and inability to attract fresh inflows. Consequently, our chances of seeing a turnaround in 2017 and beyond are linked not only to our ability to strengthen our economy but our ability to inspire the confidence of foreign investors in terms of policy direction and policy response to emergent issues. Foreign investors will also be interested in how we tackle our infrastructure and security challenges,” Sanni added.

CBN auctions USD660m

Meanwhile, Central Bank of Nigeria, CBN, has sold USD660 million in three and five month currency forwards contract at an auction aimed at clearing a backlog of dollar demand.

The apex bank had, last week, asked banks to bid in a special currency auction targeted at clearing backlog of dollar obligations of manufacturing, airlines, agriculture and petroleum sector.

Banks’ foreign exchange dealers said the result of the auction was announced late Tuesday while payment for the dollar sales was due yesterday.


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