Capital Imported into Nigeria Rebounds in Q2-2017; Higher 97.3% q/q and 71.9% y/y

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August 25, 2017/Cordros Research

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Earlier this week, the National Bureau of Statistics (NBS) released its Q2-2017 Capital Importation Report, showing that capital inflows into the domestic economy recorded a notable improvement during the review period, expanding by 97.34% q/q and 71.98% y/y to USD1.79 billion, from USD908.27 million and USD1.04 billion respectively. In terms of contribution, Portfolio Investment (145.69% q/q and 128.43% y/y to USD770.51 million) accounted for the most inflows into the country in the three months to June, followed by Other Investments in the form of loans (95.02% q/q and 43.59% y/y to USD747.47 million), and Foreign Direct Investment (29.80% q/q and 48.88% y/y to USD274.37 million).

H2-2017: FX Stability Remains Fundamental to Capital Imports

Clearly, the relative stability in the currency market was key to the level of capital imported into the country in the second quarter of the year. We think developments in the FX space will further dictate the direction of foreign investments over H2-2017. Our theme on the NGN exchange rate is stability, hinged on continued healthy accretion to the foreign reserves (currently at a 2-year high of USD31.60 billion) amid relatively stable oil earnings (on the back of less disruptive output and higher prices) – allowing the apex bank ample legroom to sustain its interventions in the various segments of the FX market in support of the LCY. We expect that to combine with continuously improving macroeconomic indicators (output growth and inflation rates), sustained rally in the equities market – as Nigerian equities remain cheap relative to comparable peers – and an attractive interest rate environment to sustain capital importation for the second half of the year.   

While we note the possibility of the CBN’s Monetary Policy Committee changing the gear of its policy stance towards the end of the year by cutting the MPR by 100 bps to 13.00%, we think a more applicable risk to capital inflows, FDI in particular, into the country will be the international community’s outlook of Nigeria’s near term political stability as focus shifts to the domestic polity ahead of the 2019 general elections. Also worthy of mention is the possible resurgence of militants attack on oil and gas installations, given particularly that the motives behind the unpredictable demands of the agitated groups in the Niger Delta region cannot be ascertained, as shown by recent threats issued by the groups.

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