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Capital imports hit fresh low of $647m – Vetiva Analysts

Analysts at Vetiva Capital Management have stated that capital imports in the country declined 8.98 per cent Quarter on Quarter, q/q to hit a fresh low of $647 million. This  compares  unfavourably to  $2.66  billion  in  the  second  quarter  of  2015.

The analysts in their report released last week  also stated  that capital flight continued, largely  in  response  to  the  unsustainable  currency  peg  that  was  eventually lifted  in June 2016.The Year-on-Year,  YoY Foreign  Portfolio  Investment  (FPI)  in  financial assets  declined 88 per cent  (vs. 85 per cent decline in first quarter, Q1).

Meanwhile, a 24 per cent Quarter on Quarter, q/q  decline in  Foreign Direct  Investment (FDI) reflected the diminishing economic prospects in the quarter, with GDP growth at -2.06 per cent. Alongside this, higher medium term investment risk led to a  reduction  in  the  channels  of  capital  imports  (only  4  out  of  9  channels recorded any capital importation). Nevertheless, other Investment, mainly in the  form  of  loans,  was  largely  unchanged  during  the  surveyed  period.

According to Vetiva Analysts “We highlight that at $245 million, FPI in Q2’16 is less than 5 per cent of its value in the corresponding quarter of 2014, just before the crash in oil prices.  This resulted in a reversal in international sentiment towards the Nigerian economy, causing investors to flee Nigeria’s capital markets. In particular, inflows into the bond market were precisely zero in the quarter – compared to  $1.5million  in  Q1’16  and  a  high  of  $1billion  in  Q3’14.

Similarly, money market inflows declined this quarter, down 39 per cent and 86 per cent y/y. These abysmal figures were recorded in spite of rising yields on government treasury bills and bonds during the year, with a particularly sharp uptick in Q2. We believe that this demonstrates the significant negative effect of capital controls and monetary policy decisions during the quarter with investors prioritising market stability and safe return of capital over higher returns. Equity inflows experienced a severe 89 per cent  y/y  decline.”

Meanwhile, according  to  the  Nigerian  Stock  Exchange, NSE  transactions  in  the  first  half  of  the  year  slumped  44 per cent   against  the corresponding period in 2015 on the back of cautious domestic sentiment and depressed foreign demand.

The Analusts report stated “Sector trend yields mixed results.  Capital imports into construction recorded strong improvement, mirroring the 5.1 per cent q/q output growth in the sector. In total, capital import into this sector rose  by  330 per cent  in  the  first  half  of  the  year,  perhaps  signifying  resilient international appetite for infrastructure development in Nigeria. In contrast, strong output growth in the Agriculture sector is largely driven by domestic influences  with  capital  imports  down  38 per cent  in  the  first  half  of  the  year.

Meanwhile, the challenges facing the Banking sector are reflected in a sharp drop in capital imports. The sector had recorded the largest capital inflows for two consecutive periods but a 16 per cent q/q decline (75 per cent y/y) reduced inflows to $90 million, the lowest quarterly amount since 2013.”

Vetiva stated that whilst foreign investors remain unconvinced by CBN interference in dollar allocation, the liberalisation of the FX market in June should provide a platform to attract greater capital inflows.

 


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