Of Capital Importation and Segmentation among Banks

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Goddy Egene writes on the significant growth in capital importation into the country in the second quarter of 2017 that was mostly facilitated by three banks

It was a positive news when the National Bureau of Statistics (NBS), in its Capital Importation Q2 2017 Report, which it obtained from the Central Bank of Nigeria (CBN), disclosed that a total of $1.792 billion capital was imported into Nigeria in the second quarter of this year through Nigerian banks. This figure showed a jump of 95 per cent when compared to the $884.1 million recorded in the first quarter (Q1) of 2017.
The performance also indicates a growth of 43.6 per cent year-on-year from N1.042 billion recorded in the second quarter (Q2) of 2016.

According to the NBS, the bulk of capital imported into Nigeria in Q2 came from the United Kingdom, which accounted for $696.7 million or 38.87 per cent of the total. The second largest value of capital importation came from the United States with $287.82 million or 16.06 percent. Belgium occupied the third position with $283.6 million, while South Africa came in at the 9th position with $51 million, the only African country among the top 10.

“A month-on-month analysis of capital importation in the second quarter shows that the month of May recorded the highest of amount of capital importation ($616.5 million), followed by June with $612.6 million and July with $563.3 million,” the NBS report stated.

Instructively, only last year, 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 elsewhere. In response, the Central Bank of Nigeria (CBN) 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.

Hence, the rise in the level of capital importation as more investors react positively to the new CBN’s foreign exchange management strategies, which is restoring investor confidence.
However, overall, portfolio investments (PI) was the key mover of capital during the quarter, growing by 145.7 per cent, followed by other investments (OI), which rose by 95.02 per cent, and foreign direct investment (FDI), which grew by 29.8 per cent over the Q1. In figures, PI accounted for $770.5 million, or 43.0 per cent of the total. In second place was Other Investments with $747.5 million, or 41.7 percent, and FDI with $274.4 or 15.3 per cent.

A further analysis of the capital importation during the review period showed that Stanbic IBTC, Citibank Nigeria and Standard Chartered Bank accounted for 70.7 per cent or $1.267.8 billion of the capital importation while the other 22 banks generated the balance. Stanbic IBTC facilitated $589.84 million (N216.47 billion) capital inflow, ranking it first among the financial institutions that imported capital into Nigeria. This amount represents 33 per cent of the total share during the period, an increase of 9.12 per cent over the $536.78 million the bank posted in the Q1 of 2017. This brings to $1.127 billion (N413.62 billion) capital importation by Stanbic IBTC in the first six months of 2017.

The performance of these three banks, though not surprising to industry operators, underlines the imperative of having banks with the global network and resources to support Nigeria’s economic recovery and development.
For instance, Standard Chartered Bank Nigeria is wholly owned by Standard Chartered Bank Plc, a British banking and financial services company with headquarters in London. Citibank Nigeria is a subsidiary of Citigroup Inc, a US-based leading global financial services company. On its part, Stanbic IBTC is majorly owned by Standard Bank. However, Stanbic IBTC stands out as the only African institution among the trio, being a member of the 154 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 development.

Financial analysts and investment commentators agreed 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 a solid intervention of players, both local and intervention, with the experience, expertise, reach and clout to help nourish economic ties necessary to put the economy on its feet. 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.

The resultant partnership is imbued with a global reach, immense resources and expertise to make a huge impact on Nigeria’s economy. ICBC, within the context of a visionary financial organization, is striving to proactively make inroads into developing countries with their vast untapped potential. To the bank, these countries offer 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 local 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 impressive facilitation of capital inflows into the country already signposts the potential of the partnership and now needs further deepening in order to create a steady momentum for FDI inflow into the country.
Some years back, inflow of FDI was low. But the situation has improved significantly as financial institutions used the expertise and international links.

According to Head of Investment Banking at Standard Bank Group, William Blackie, in 2000 not a single African country attracted more than $2 billion year-on-year in FDI inflows, while by the end of 2012 no fewer than eight countries on the continent had attracted more than $2 billion year-on-year in FDI.
He said based on Standard Bank’s experience in the 20 markets in which it operates across the continent, FDI in Africa is likely to continue to surge as the global appetite for Africa’s energy and mineral resources continues unabated.

“FDI is also emerging as an important source of infrastructural investment for the continent with the 2014 Africa Economic Outlook revealing that between 2001 and 2011 FDI accounted for about 16 percent of the continent’s gross fixed capital formation. That compares to a global average of 11 percent, meaning FDI is a major source of investment in infrastructural capital such as roads, bridges, dams and the like in Africa,” Blackie added.
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.