SAT 31 JULY, 2021-theGBJournal- According to the data released by the National Bureau of Statistics (NBS), capital importation into Nigeria in Q2-21 plummeted by 32.4% y/y to USD875.62 billion (Q1-21: -67.4% y/y to USD1.91 billion)– the lowest since Q1-16 (USD710.97 million).
We believe the continuous decline stems from foreign investors limiting their exposure to the country given weak macro narrative, relatively lower yields on fixed income instruments and OMO bills compared to historical trends, and lingering FX liquidity constraints.
Analysing the breakdown, Foreign Portfolio Investment (FPI) increased by 43.1% y/y to USD551.37 million – we attribute this to the increase in global liquidity conditions, which has made investors search for yields in emerging markets.
On the contrary, Other Investments (USD246.27 million) declined by 67.6% y/y while Foreign Direct Investment (-47.5% y/y to USD77.97 million) declined to the lowest level since at least Q1-13. Over the medium term, we expect foreign investors to remain on the sidelines until there is improved flexibility in the FX framework and structural reforms are implemented to reduce the economy’s vulnerability to external shocks.
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