The significant drop in capital importation, in the third quarter of the year, stresses among other things, investor apathy as the general election approaches, writes James Emejo
Despite the assurance by authorities of a free and fair 2019 general election, international investors appeared not to be pacified as evidenced by the huge capital outflows witnessed in the third quarter of the year.
The recent capital importation statistics released by the National Bureau of Statistics (NBS) attested to the fact that total value of capital importation into country dropped by 48.21 per cent to $2.85 billion in Q3. This figure further indicated a decrease of 31.12 per cent compared to the corresponding in 2017.
According to the statistics agency, the largest amount of capital importation by type was received through Portfolio investment, which accounted for 60.5 per cent ($1.72 billion) of total capital importation.
This was followed by Other Investment, which accounted for 21.07 per cent ($601.53 million) of total capital as well as Foreign Direct Investment (FDI), which accounted for 18.58 per cent ($530.63 million) of total capital imported in Q3.
Capital importation as shares, which is closely related to equity investment (FDI and Portfolio Investment) dominated the third quarter, reaching $1,667.76 of the total capital Importation in the quarter.
The United States emerged as the top source of capital investment into the country in the period under review with $911.33 million, accounting for 31.91 per cent of the total capital inflow in Q3 2018.
According to sectoral breakdown, shares accounted for $1.66 billion, servicing $20 5.9 million, banking, $20589. 44 million, oil and gas $7.73 million, and production $2058930. 34 million.
The Federal Capital Territory (FCT) Abuja had the largest share of capital importation, accounting for 46.21 per cent of total share in Q3.
This was followed by Lagos with 30.08 per cent and Akwa Ibom with 0.29 percent. Anambra had 0.09 per cent. Abia accounted for 22.99 per cent, Ogun 0.23 percent and Nasarawa 0.01 per cent.
Analysts, however, believed the decline in capital importation which largely affected shares was caused by the exit of portfolio investors who were not too confident about the peaceful conduct of the forthcoming elections.
The high yield incentives in developed countries particularly the United States where the Federal Reserves had hiked interest rate appeared to have also attracted investors from emerging markets to developed countries. Nigeria and other developing countries seemed to be affected by the development.
Moreover, Nigeria’s declining foreign reserves which had made some portfolio investors uncomfortable with the ability of government to honour its obligations were other reasons adduced to the exit of portfolio investors in the country.
But the Central Bank of Nigeria (CBN) had recently renewed its commitment to simplify foreign exchange regulations through reforms and innovation in a bid to further encourage investors.
The apex bank had pointed out that the delegation of the issuance of Certificates of Capital Importation (CCIs) to commercial and merchant banks some years ago was done to instil confidence in the investor community and encourage the flow of foreign direct and portfolio investments into the Nigerian economy.
The CBN noted:“We assure all investors that the integrity of the CCI regime remains sacrosanct and there shall be no retroactive application of foreign exchange rules and regulations. The CBN welcomes all legitimate investors to take advantage of the enormous investment opportunities in Nigeria,” it added.
Statistician General of the Federation and Chief Executive, NBS, Dr. Yemi Kale told THISDAY, however, noted that the drop in capital inflows in Q3 “mostly (affected) shares in the stock market which doesn’t have any strong link with what is going on with GDP”.
He gave clarification against the backdrop of the GDP and foreign trade increases in Q3 when there was decline in capital importation.
Kale said:”Foreign investors are pulling out investments from the stock market due to elections uncertainty and better returns in other markets e.g. the USA higher interest rates recently.
“There is also concerns about the reserves and if they will able to collect their money. So not about growth and has nothing to do with trade.”
Similarly, Professor of Finance and Capital Market at the Nasarawa State University, Keffi, Prof. Uche Uwaleke said:”The drop was more in foreign portfolio investments or what some prefer to call hot money chiefly due to the higher yield environment in developed countries.
“Secondly, the rising interest rates in the US in particular meant that it was becoming increasingly difficult for foreign investors to borrow in the US to invest in Nigeria.”
Also, a reliable source told THISDAY that:”The drop in capital importation may not be unconnected with US Federal reserve rate hike which has negatively affected not only Nigeria but most emerging economies in terms of FDI and FPI inflows.
“ What is important is for government to fully implement the ERGP especially as it relate to export diversification and import reduction to save foreign exchange and build adequate buffer to mitigate any external shock that may negatively impact of price stability especially exchange rate and inflation.
“For example, issue of subsidy needs to be dealt while fast tracking establishment of modular refineries to support foreign exchange savings as well as job creation locally.”