Global Economic Outlook (G.E.O)
Second Quarter Capital Importation Fails to Boost Nigeria’s FX Needs. Vol. 105. September 5, 2022.
Dear readers, welcome to another edition of the Global Economic Outlook (G.E.O) - our weekly newsletter providing insights on finance, investment and the economy. In today’s edition, we will be discussing Nigeria’s Capital Importation for the second quarter of 2022.
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Second Quarter Capital Importation Fails to Boost Nigeria’s FX Needs
Nigeria’s capital importation for the second quarter of 2022 declined by 2.40% to $1.53 billion from $1.57 billion in the first quarter of the year. This is according to the Nigerian Capital Importation Report for the second quarter released by the National Bureau of Statistics (NBS). Capital Importation refers to the inflow of Foreign Capital into the country through the official market, and is typically backed up by a certificate called the Certificate of Capital Importation (CCI).
The decline in value of the capital importation into Nigeria in the second quarter is marginal but given the current state of the economy and the acute shortage of Foreign Exchange (FX), it is a serious cause for concern.
A further assessment of the Capital importation into Nigeria in the second quarter shows the short-term nature of the funds brought into the country which probably reflects the level of confidence foreign investors have in the Nigerian economy, especially as it concerns the ability to repatriate their proceeds back to their home country. Portfolio investment, which consists of investment in Bonds, Equities and Money market Instruments, accounted for about 49.33% of all the capital importation into Nigeria in the second quarter while Foreign Direct Investment (FDI) only accounted for about 9.58% of all inflows into the country. The remaining 41.09% is made up of other investments.
A country like Nigeria must do better when it comes to attracting FDI but many issues including security, poor FX Management, and political risks among others seem to be hindering the flow of FDI into the country. The implication of this is that FX scarcity will likely continue as other sources of FX into the country most especially Oil Exports are unable to provide the needed respite.
If we take a deeper look at the Portfolio Investments which dominate Nigeria’s capital importation, we will discover a bigger challenge: Most of the investments are in money market instruments which typically have a maturity of between 3 months to 1 year. While Money Market Instruments ($422.06 million) made up 55.73% of all portfolio investments, Bonds ($322.04 million) accounted for 42.52% while Equity ($12.72 million) represents a mere 1.68%. What Nigeria needs are long term investments in critical sectors but how many investors can take the risk in a country filled with uncertainties?
The United Kingdom (UK) is by far the biggest investor in the Nigerian Economy as they accounted for more than 50% of the capital importation into Nigeria in the second quarter of 2022. The value of UK investment into Nigeria in the second quarter stands at $781.05 million. Singapore ($138.58 million), South Africa ($122.26 million), United Arab Emirates ($103.96 million) and the United States ($80.20 million) complete the top five.
South Africa’s continued investment in the Nigerian economy is particularly noteworthy, not because they are the only African country on the list but because they have consistently shown confidence in Nigeria over the years with remarkable investments.
The Banking sector is the sector that attracted the most investments at 42.10% while Production (15.24%), Financing (12.85%), Telecoms (10%), Agriculture (3.74%) are other notable mentions.
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The 8th Live Edition of the Global Economic Outlook (G.E.O) was held on Tuesday, 28th June 2022 with experts discussing the state of the Nigerian economy and how Small and Medium Scale Enterprises (SMEs) can navigate the difficult business environment. It is a must watch!
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