Banks, Capital Importation and Economic Devt

Goddy Egene writes on how banks facilitate capital importation to support the growth of the Nigerian economy

While Theresa May, the British Prime Minister, was in Nigeria recently, she expressed her country’s desire to enhance economic ties with Nigeria through increased investment inflow and job creation.

“We want to see increased trade between Nigeria and UK, increased investment, bringing jobs here in Nigeria, and jobs in the UK. This will be good for both countries,” May stated.

Her pledge expectedly elicited excitement from the federal government and Nigerians in general, especially for a country that very much craves foreign direct investment (FDI) to stir economic growth.

Beside strengthening bilateral relations between Nigeria and the United Kingdom (UK), there are other strategic indicators that underline the imperative of sustaining economic union between both nations.

According to data from Nigeria’s National Bureau of Statistics (NBS), the UK maintained its top spot as source of capital investment in Nigeria in the second quarter (Q2) of 2018. In its Capital Importation Q2 2018 Report, which it obtained from statistics from the Central Bank of Nigeria (CBN), NBS stated that during the period under review, Britain accounted for an impressive $1.772 billion of the total capital inflow to Nigeria, representing 32 percent of the inflow.

However, the figure was a 21 per cent decline from the first quarter of the year. Nonetheless, since 2010, the UK has been responsible for the highest amount of capital importation into Nigeria, except for just two quarters in 2015.

In the second position came the world’s biggest economy, the United States (US), which recorded $1.224 billion total capital importation into Nigeria during the period under review though it was a decline of 2.9 percent from the amount recorded in the first quarter. Other major investment contributors during the period were the United Arab Emirates ($535.98 million), South Africa ($396.40 million), Belgium ($368.82 million) and Switzerland ($297.32 million)

Another major indicator in the report was the role of banks in facilitating capital importation into Nigeria during the quarter. It showed that Stanbic IBTC Bank, the banking arm of the Stanbic IBTC Group, facilitated the highest share of capital flow, accounting for 54.9 per cent of the total foreign capital inflow, slightly up from the 48.5 per cent share recorded in the previous quarter.

This was followed by Standard Chartered Bank, CitiBank, Access Bank and Zenith Bank, which accounted for 14.82 per cent, 13.11 per cent, 3.61 per cent and 3.52 per cent of the total capital importation respectively. Together, the six banks accounted for nearly 90 per cent of capital importation in Q2 2018.

In terms of figures, Stanbic IBTC facilitated $3.027 billion in capital importation during the quarter, followed by Standard Chartered Bank with $817.231 million and Citibank Nigeria with $722.761 million, while the rest accounted for the balance, though seven banks made no input.

Overall, the total value of capital importation into Nigeria in Q2 of 2018 stood at $ 5.513 billion. This was, however, a decrease of 12.53 per cent compared to Q1 2018, but a 207.62 per cent increase compared to the second quarter of 2017, according to NBS. The decline recorded in Q2, the agency added, was as a result of a decline in Portfolio and Other Investments, which declined by 9.76 per cent and 24.07 per cent respectively. The largest amount of capital importation by type was received through portfolio investment, which accounted for 74.7 per cent ($4.119 billion) of total capital importation, followed by Other Investment, which accounted for 20.5 per cent ($1.132 billion) of total capital, and then foreign direct investment (FDI), which accounted for 4.7 per cent ($261.4 million) of total capital imported in the second quarter.

In its approach, the NBS categorises capital importation into three main investment types, namely FDI, Portfolio Investment and Other Investments, each having various sub-categories. It noted that since 2017 Q2, Portfolio Investment has been expanding faster than the other two categories.

“Although the absolute value of Portfolio Investment declined in Q2 on a quarterly basis, falling from $4,565.09 million in Q1, 2018 to $4,119.46 million in Q2, 2018, it remained the largest component of the total Capital Importation in the quarter under review, followed by Other Investments, and then FDI,” NBS stated.

By sector, NBS indicated, capital could be imported either in the form of shares or directly imported into different economic sectors of the economy.

Capital importation as shares, which is closely related to equity investment (FDI and Portfolio Investment) dominated Q2 of 2018, reaching $4.091 billion, or 74.21 per cent of the total capital importation in the quarter. The contribution of share investment increased marginally by 0.03 per cent in Q2 of 2018.

“Portfolio Investment remained the most significant component of total capital inflow into Nigeria in the second quarter of 2018, although it contracted by 9.76 percent over the previous quarter. The total value of Portfolio Investment in Q2 recorded was $4,119.46 million, which was a 434.64 per cent growth compared to Q2, 2017 ($770.51 million).

“The 9.76 per cent Q-on-Q decrease was due to a fall in the largest sub-component-- Money Market Instruments. Capital Importation in the form of money market instrument stood at $2.670 billion in Q2, which was a 24.29 per cent decrease over the previous quarter. Investments in both equity and bonds (under Portfolio Investments) reported steady quarter-on-quarter growth, with 49.43 per cent and 19.13 per cent respectively.

“It is worth noting that investments in bonds under this capital importation type has been steadily increasing since Q2, 2017, and in Q2 2018, it accounted for 9.71 per cent of total portfolio investment,” the report said.

For Stanbic IBTC, its performance is in line with what has become traditional, though the performances of Access Bank and Zenith Bank denote the growing role of core local banks in capital importation. Nonetheless, the performances of Stanbic IBTC, Citibank Nigeria and Standard Chartered Bank, all with substantial foreign equity holding, underlines the imperative of having banks with the global network and resources to support Nigeria’s developmental aspirations. However, Stanbic IBTC Bank, accounting for over 50 per cent of capital importation in 2018 Q2, stands out as the only African institution among the trio, being a member of the 155-year-old Standard Bank Group, the largest African financial institution by assets and earnings. It is firmly rooted in Africa with strategic representation in 20 countries on the continent.

The performance of Stanbic IBTC, Citibank Nigeria and Standard Chartered Bank, besides highlighting the global network they bring to bear on their operations in Nigeria, also demonstrates the pivotal role of banks in facilitating capital importation, which is instrumental in providing the funding and foreign exchange needed to drive economic growth and development.

About 18 months ago, the Nigerian economy almost collapsed as foreign exchange scarcity, triggered by plummeting global oil prices and ambiguous policies, brought most businesses and companies to their knees. Capital flight and divestment from the country heightened as investors went to safer destinations. CBN subsequently launched a raft of exchange rate policies until it settled for a flexible regime governed by the interplay of market forces. With this, some measure of stability was restored to the system and helped to bolster investor confidence in the economy.

Analysts said that Nigeria’s fundamental developmental dilemma is that of infrastructure. From power, which is barely existent, to transportation, which is still cumbersome, from mineral refining, which is still at the primary stage, to agricultural expansion, the tale is the same: underdevelopment and underfunding.

This situation, they said, invariably requires the solid intervention of players, both local and international, with the experience, expertise, reach and clout to help nurture economic ties necessary to put the Nigeria on the path of sustainable growth.

According to them, Stanbic IBTC, for instance, provides such a critical link. Its parent company, Standard Bank, is owned 20 per cent by the Industrial and Commercial Bank of China (ICBC), the world’s largest bank, an alliance that yields a strategic partnership with a global reach, immense resources and expertise to help reinvigorate the Nigeria’s economy. ICBC, in the context of China’s growing global economic clout, more so in forging ties with Africa, is striving to proactively make inroads into developing countries with its vast untapped potential. To ICBC, Africa offers huge opportunities and limitless partnerships ready for harnessing. As the Standard Bank Group is development-focused, its combination with ICBC, which is also very focused on trade and infrastructure financing, creates a strategic synergy with enormous capacity to facilitate investment flows and access between Nigeria and the rest of the world.

Besides helping to stabilise the Nigerian currency, it is hoped that in the medium to long term, Stanbic IBTC, which itself has a distinguished pedigree in infrastructure financing, ICBC and Standard Bank will collaborate much further with Nigeria towards a new regime of rapid and massive infrastructure development. The partnership of the trio in implementing Nigeria’s currency swap with China, which came into effect in July 2018, signposts the potential of the partnership and now needs further deepening in order to create a steady momentum for FDI inflow into the country.

For Stanbic IBTC, capital importation flows naturally from its focus on supporting Nigeria’s developmental aspirations through strategic interventions in crucial sectors of the economy that would enable the country take its rightful place as a favourite investment destination in Africa. Hopefully the next quarterly capital importation report would showcase higher inflows into Nigeria.

Portfolio Investment remained the most significant component of total capital inflow into Nigeria in the second quarter of 2018, although it contracted by 9.76 percent over the previous quarter. The total value of Portfolio Investment in Q2 recorded was $ 4,119.46 million, which was a 434.64 per cent growth compared to Q2, 2017 ($ 770.51 million)