March 15, 2019

A short-term dip in FPI inflows in Q4

The striking aspects of the financial account in the balance-of-payments (BoP) for Q4 2018 are the lower, but still respectable inflows from foreign portfolio investors (FPIs), and the paucity of foreign direct investment (FDI). The gross inflows from FPIs (ie before investment by Nigerian residents) are concentrated on local FGN markets, and declined from US$4.23bn in Q2 and US$1.79bn in Q3 to US$1.38bn. The decline was largely the consequence of monetary tightening by the Federal Reserve (normalization). This process has since stalled.

  • FDI (gross) in 2018 amounted to just 0.5% of GDP. An EM in expansion mode should be posting ratios of at least 5%, and closer to 10%. The best efforts of the presidential enabling business environment council (PEBEC), chaired by the vice-president, notwithstanding, Nigeria has far to go in terms of catching up.
  • The days following the recent presidential election saw very large inflows from FPIs in fixed income products. FMDQ data show record net inflows at NAFEX of US$3.93bn in the two weeks to 08 March, of which funds from FPIs accounted for US$3.17bn. In addition to the attractive rates and the confidence that they can exit the market at the moment of their choice, investors presumably took Buhari’s re-election as a signal that the CBN’s foreign-exchange policy will not be changed.
  • The pivotal role of FPIs is also evident in the CBN’s data on fx inflows from autonomous sources (Good Morning Nigeria, 12 February 2019).
  • Investment flows (gross; US$ bn)

    A short-term dip in FPI inflows in Q4

    Sources: CBN; FBNQuest Capital Research
  • When we adjust for the assets on the financial account (Nigerian investment offshore) in Q4, only portfolio investment remains net positive (US$1.38bn).
  • There was a net outflow of US$3.68bn on other investment due to assets of US$5.10bn, predominantly trade credits, currency and deposits.