Capital importation to slow in Q4’18 amidst offshore sell-off, political jitters

ANALYSTS AT UNITED CAPITAL and FBNQuest have opined that increased risk aversion from local and foreign investors due to the upcoming national elections and increased sell- off due to US rate tightening would see the total value of capital importation decrease in the remaining part of the year.

The Nigerian Bureau of Statistics recently released its Q2 2018 report on Nigerian capital importation, which showed the total value of capital imported decreased by 13 percent quarter-on-quarter to $5.5 billion.

As reported by United Capital, the 13 percent decrease in capital import was as a result of the decline in foreign portfolio investment in money market instruments and foreign loans which were aggravated by a stronger US dollar, higher US interest rates and higher Treasury yields have frightened foreign investors during the period and will continue in weeks to come.

“The picture looks even bleaker for the remainder of 2018 considering the marked offshore sell-off that has transpired amid political jitters, and a stronger US dollar, higher US interest rates and higher Treasury yields will spook foreign investors even more in the coming weeks,” they said.

In a similar view, analysts at FBNQuest stated that the federal government can boost capital inflow by looking towards both greenfield and brownfield direct investment inflow by achieving structural development but must first reduce power shortages.

They said, “we do not see significant growth in the total value of capital imports in Q3. This is mainly because we expect increased risk aversion from both local and foreign investors due to the upcoming national elections. Additionally, we have noticed an increased selloff on the back of US rate tightening by the FOMC.”

In navigating the turbulence, analysts at United capital said, “we remain selective on bond investments; average bond yields are currently at a year- todate high of 14.8 percent which are greater than our base case of 4.6 percent for the equity market and may likely inch higher as the federal government seeks to fund its 2018 budget, even as its intended $ 2.8 billion euro bond sale looks unlikely to be fully bided given the current investment climate.”

They also were in conformity with FBNQuest regarding structural reforms, adding that, “looking ahead, the structural reform followthrough that can put Nigeria on the path to a more sustainable, long-term growth is missing. Until then, fundamentals would continue to be driven by the trajectory of oil prices.”

In the recently released NBS capital inflow statistics, portfolio investment decreased by 10 percent quarter- on- quarter. However, it still accounted for the largest share ( 75%) of total capital importation. A larger 24 percent quarteron- quarter decline in investments geared towards money market instruments.

Foreign direct investment (FDI) inflows grew by 6 percent quarter-on-quarter to $261 million but posted a year-on-year decline of 5 percent. FDI accounted for just 5 percent of total capital importation in Q2.

Abuja saw inflows of $2.5 billion in Q2 and Lagos $1.7 billion while Abia State reported $1.3 million. Inflows recorded in Abia may be due to healthy investment appetite towards the Enyimba industrial city, an export free processing zone.