PeakNews Online
Abuja, Nigeria – Foreign investments into Nigeria surged to their highest level in four years during the first quarter of 2024, driven by reforms implemented by the Central Bank of Nigeria (CBN).
According to the latest capital importation report by the National Bureau of Statistics (NBS), total foreign investments in the country amounted to $3.38 billion in Q1 2024, marking a 210.2 percent increase from $1.09 billion in the previous quarter. Year-on-year, foreign capital inflows rose by 198.1 percent from $1.13 billion recorded in Q1 2023.
Analysts attribute this growth to several factors, including the harmonization of the foreign exchange rate market, clearance of forex backlogs, naira devaluation, and high interest rates following inflation increases.
Portfolio investment topped the chart with $2.08 billion, accounting for 61.5 percent of the total capital importation. This was followed by ‘Other Investment’, which brought in $1.18 billion, accounting for 34.9 percent. Foreign direct investment (FDI) recorded the least with $119.2 million, representing 3.53 percent of total capital importation in Q1, the NBS report stated.
A deeper analysis revealed that money market instruments, under portfolio investment, saw a significant increase of 592.7 percent to $1.61 billion in Q1, up from $231.8 million in Q4. This figure also represents a 1,175.2 percent rise compared to $125.9 million in Q1 last year.
“On the money market front, open market operations (OMO) are the major contributors. Foreign investors were attracted to the over 25 percent yield for a carry trade in naira while managing the attendant FX risks,” said Temitope Omosuyi, investment strategy manager at Afrinvest Limited.
Omosuyi also mentioned that the CBN is expected to receive an inflow of $1 billion from Afrexim from the commodity swap deal, which is part of a $3.3 billion agreement to be received over an extended period.
In April, PeakNews Online reported a resurgence of foreign investments in Nigerian stocks after a long hiatus due to dollar shortages and the apex’s capital controls. The report highlighted that foreign inflows into stocks jumped fivefold in the first three months of this year to N93.37 billion from N18.12 billion in the same period last year, the highest in any three-month period since 2019.
“The CBN’s reforms have made Nigeria an investable destination again,” said an anonymous foreign portfolio manager who invests in Africa.
Earlier this year, CBN Governor Yemi Cardoso noted in an exclusive interview with Arise TV that foreign portfolio investments (FPIs) were eager to return to Nigeria, acknowledging the positive impact of recent reforms.
The capital importation report also showed that the banking sector recorded the highest inflows with $2.07 billion, representing 61.2 percent of total capital imported in Q1. This was followed by the trading sector with $494.9 million (14.7 percent) and the production/manufacturing sector with $191.9 million (5.68 percent).
The report indicated that the majority of the capital importation during this period originated from the United Kingdom, accounting for $1.81 billion (53.5 percent) of the total. This was followed by the Republic of South Africa with $582.3 million (17.3 percent) and the Cayman Islands with $186.2 million (5.52 percent).
In terms of states, only three out of Nigeria’s 36 states recorded capital importation during the quarter. Lagos was the top destination with $2.78 billion, representing 82.4 percent of the total capital imported, followed by Abuja (FCT) with $593.6 million (17.6 percent) and Ekiti with $0.01 million.
Stanbic IBTC Bank Plc received the highest capital importation into Nigeria with $1.26 million (37.2 percent), followed by Citibank Nigeria Limited with $547.7 million (16.2 percent), and Rand Merchant Bank Plc with $528.7 million (15.7 percent).
“Foreign investors are trying to take advantage of the increase in yields,” said Adeola Adenikinju, president of the Nigerian Economic Society. However, he cautioned that the inflows should ideally translate into FDI to create employment and reduce poverty.
President Bola Tinubu, who assumed office in May 2023, has spurred foreign investor interest with reforms including the removal of petrol subsidies and partial FX reforms. Nonetheless, these measures have exacerbated inflation, currently at a record high and impacting consumer purchasing power and business operating costs.
The NBS data indicated that headline inflation rose for the 17th consecutive month to 33.95 percent in May 2024, up from 33.69 percent in April. Nigeria’s GDP grew by 2.98 percent in real terms in Q1, up from 2.3 percent in the same period in 2023, but down from 3.46 percent in Q4 2023.
In May, the CBN raised its monetary policy rate for the third consecutive time by 150 basis points to 26.25 percent in an effort to curb inflation and support the naira. This brings the total rate hikes since February to 750 basis points.
“The year-on-year growth makes sense given the challenges faced in Q1 last year, including currency replacement uncertainty, fuel queues, and elections,” said Ayo Teriba, CEO of Economist Associates. “However, the CBN’s tightening measures that began in February are likely to impact Q2 and subsequent quarters.”
