By Nkiruka Nnorom

Foreign capital inflow into the production sector rose by 83 percent, Year-on-Year (Y-on-Y) to  $457.66 million in the first half year ended June 2022 (H1’22) from $245.22 million in the corresponding period in 2021.

Vanguard analysis of the Nigerian Capital Importation report for Q2’2022 showed that the inflow to the production sector recorded the highest growth H1’22 with the banking and the financing sectors trailing behind, while inflow to shares took a downward turn.

Breakdown showed that capital inflow into the banking sector rose 47 per cent to $1.46 billion in H1’22 from $1.00 billion in H1’21, while inflow into the financing sector rose by 26 percent to $396.67 million from $315.11 million in H1’21.

On the other hand, foreign capital inflow into equities declined massively by 66 percent to $301.89 million from $901.3 million in the corresponding period in 2021, reflecting apathy towards portfolio investment by foreign investors.

Furthermore, the share of inflow to the production sector rose to 14.7 per cent in H1’22 from 8.9 per cent in H1’21, representing a 6.1 percentage point increase.

On a Quarter-Quarter (QoQ) basis, the flow into the production sector rose by 4.6 per cent to $233.99 million in Q2’22 from $223.67 million in Q1’22.

Meanwhile, analysts at Afrinvest have indicated that the total foreign capital inflow into the country would fall further at the end of year following the heightened risk environment occasioned by pre-election activities.

They stated this in a report titled: “Nigerian Banking Sector Report: Brace for Impact” saying that the inflow would decline to $5.9 billion in H1’22 from $6.7 billion 2021, representing an 11.9 percent decrease.

They noted that the unsuccessful attempt by the Central Bank of Nigeria (CBN) to convince the market to accept its exchange rate management strategy has continued to have a negative impact on foreign capital flows.

They said: “Despite the over 30% increase in the average price of crude oil to $104.62/bbl over the 12 months to September 2022, Nigeria’s foreign reserves which peaked at $41.8 billion in October 2021 (supported by proceeds from SDR: $3.5bn and Eurobond: $3.bn) fell to $38.3 billion at the end of Q3:2022. Based on our estimate of unsettled obligations (c.$8.0bn), actual reserves could be below c.$32.0bn.

“While the pressure points on the foreign exchange (FX) reserves cannot be entirely blamed on the CBN, it has not convinced the market to accept its exchange rate management strategy. This has had a negative impact on foreign capital flows. For instance, foreign capital flows that peaked at $24 billion in 2019 fell to $9.7 billion and $6.7 billion in 2020 and 2021, respectively. “Given the disappointing $3.1 billion inflows recorded in H1’22 and the heightened risk environment due to pre-election activities, our base case estimate suggests an annualised inflow of about $5.9bn in 2022.” 

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