CBN Governor, Sanusi Lamido Sanusi
By Obinna Chima
Financial market analysts at FSDH Merchant Bank Limited have advised the Central Bank of Nigeria (CBN) to put in place measures that will ensure that foreign investments in Nigeria are channelled more into the real sectors of the economy.
The financial institution gave this advice in its 2013 financial market outlook made available to THISDAY at the weekend.
FSDH expressed concern over the huge composition of short-term funds into the country, saying that exit of portfolio investors whenever there is instability within the economy might hurt the economy.
The CBN had shown that total foreign capital inflow into the country increased to $12.64 billion as at October 2012 from $5.7 billion in 2009. The total investment between 2009 and October 2012 stood at $32.24 billion. Of the total, $17.14 billion representing 53.15 per cent was portfolio investment in equities.
This was followed by foreign direct investments (equities) of $6.79 billion representing 21.07 per cent of total and other investment – loans of $4.59 billion representing 14.24 per cent.
The FSDH report added: “Our analysis of the capital flows during the period shows that about 63.18 per cent of the total capital inflows were channelled into portfolio investment, while only 22.24 per cent was channelled into direct investment in the real economy. The implication of this is that if there is any instability within the economy or the financial sector the foreign investors may sell off and repatriate their funds.
“This may create demand pressure at the foreign exchange market and cause the value of naira to depreciate. We however note that the CBN needs to put in place measures to ensure that foreign investments in Nigeria are channeled more into the real sectors of the economy instead of short term gains in the financial market instruments.”
It however noted that there had been improved confidence from the foreign investors on the prospect of Nigeria’s economy and investment – both real and financial. The increase in the foreign investments into the country in the last few years, according to the firm was a demonstration of improved confidence in the economy.
Continuing, it stated that the policy thrust of the CBN last year caused yields on fixed income securities to remain high in the first nine months of 2012.
“A total of about N3.620 trillion was injected into the money market from the monthly statutory allocation and excess crude account in 2012. Federation Accounts Allocation Committee (FAAC) accounts for N3.443 trillion of the total funds injected.” It added.