Foreign Capital Importation Rebounds to $1.82bn in Q3

  •  UK, US, Netherlands account for largest inflows

James Emejo in Abuja

The total value of capital imported into the country grew by 74.84 per cent to $1.82 billion in the third quarter (Q3) of the year, but dropped by 33.70 per cent relative to the third quarter of 2015, the National Bureau of Statistics (NBS) stated monday.

The highest level of capital importation since July 2016 was in August, when $894.00 million was recorded. In September, $649.76 million was imported, which was still more than any month in the first and second quarters, the NBS stated.

The development marked the growing confidence of international investors in the Nigerian economy, following the liberalisation of the foreign exchange market.

According to the Nigerian Capital Importation Third Quarter 2016 report released by the agency, of the 34 countries that actively participated in investing in the country in the period under review, the United Kingdom accounted for the largest capital importation at $1.09 billion or 60.24 per cent of total investment.

The United States was second at $426.98 million, or 23.43 per cent of total capital importation while the Netherlands accounted for $94.44 million, or 5.18 per cent of the total value.
Altogether, the three countries accounted for almost nine-tenths of total capital imported into Nigeria, according to the statistical agency.

However, the NBS added that the quarterly increase in the value of capital importation came largely from debt financing.

Of the total quarterly increase, 85 per cent accounted for increases in portfolio investments in bonds and money market instruments, the latter of which comprised short-term funding securities including treasury bills and commercial bills from the Central Bank of Nigeria (CBN).

Quarterly growth in Foreign Direct Investment (FDI) equity was also strong, although portfolio equity continued to decline. FDI investments have a longer-term interest, and are therefore less likely to reflect short-term challenges than portfolio equity, said the NBS.

In Q3, portfolio investments accounted for the largest component of imported capital at $920.32 million, or 50.51 per cent of total capital imported.

Although portfolio equity declined by 28.12 per cent, relative to the previous quarter, this was outweighed by large increases in other types of portfolio investments.

Bonds increased from zero in Q2 to $369.00 million in Q3 while money market instruments increased by 509.03 per cent from $57.50 million to $350.20 million over the same period.

“This is the first quarter since Q2 2007 in which equity was not the largest contributor to portfolio investment; at $201.12 million this type of portfolio investment remains considerably subdued relative to previous highs of $4,930.55 million in the first quarter of 2013, and $3,875.35 million in the second quarter of 2014,” the NBS stated.

Other investment, which was the second largest component, accounted for $561.61 million, or 30.80 per cent of capital importation.

“As in each quarter in the last year, no capital was imported in the form of currency or trade credits. In addition, other claims decreased further to $0.06 million, which represent only 0.01 per cent of other investment, and a decline of 99.98 per cent relative to the same quarter of the previous year.

“Therefore, this investment type is now dominated by loans, which increased by 7.86 per cent compared to the previous quarter to $561.10 million. Year-on-year this represents a decline of 19.43 per cent,” NBS added.

As usual, FDI accounted for the smallest share of imported capital at $340.64 million, or 18.69 per cent of the total.

According to the NBS, “This was the first quarter on record in which no capital was imported in the form of FDI – other capital, even if in previous quarters the amount was not significant. As a consequence, only equity was recorded within the FDI component.”

The value of share capital imported in Q3 stood at $646.28 million, representing an increase of 85.72 per cent relative to the previous quarter but declined by 65.57 per cent on year-on-year and accounted for 63.47 per cent when compared with Q3 2015.

The banking sector regained its position as the sector to import the largest value of capital of $555.52 million, or 30.49 per cent of total capital imported in the quarter under review.
“In over half of the quarters since 2007, the banking sector has imported the most capital, but in the previous quarter of 2016 it accounted for only the fourth most.

“This changed in the current quarter following an increase of $447.42 million, which accounted for over half of the increase in total capital imported.

“Compared to the same quarter of 2015, the value also increased – in contrast with most sectors – by 127.45 per cent,” the NBS report said.

The telecommunications sector accounted for the second largest capital imported with $244.80 million or 13.34 per cent of the share. This represented an increase of $126.09 million, or 106.21 per cent relative to the previous quarter but declined 33.75 per cent compared to the previous year.

The oil and gas sector accounted for $171.63 million of capital imported, though this represented a decrease by 14.4 per cent relative to the previous quarter.

Nevertheless, four sectors – marketing, hotels, tanning and weaving – failed to record any capital importation in the period under review.

“However, there were a further two sectors to record a value of less than $1 million, which were drilling and IT services. Eight out of 20 sectors recorded a decline in the value of capital importation, the largest of which was in services, which recorded a decline of $83.20 million relative to the previous quarter, or 69.48 per cent,” the NBS stated.

On the UK’s financial commitment in the economy, the NBS noted: “As well as the existence of an historical relationship between the UK and Nigeria, London (the capital of the UK) is also a key financial centre, which could help to explain the high value of capital importation accounted for by the UK.

“Since 2010, the UK has accounted for the highest value of capital importation in all but two quarters (both in the second half of 2015).

“As in the case of the UK, the US retained its position as the second largest investor into Nigeria in most quarters since 2010. The country also has a large financial centre in New York, which may explain its importance as an investor.

“The US and the UK also share an official language with Nigeria which may facilitate investment.”