As Foreign Investors Sustain Outflow from Nigeria…

Zainab Ahmed

A sizable chunk of investment capital belonging to foreign investors found its way out of the shores of Nigeria through the equities market in 2018 compared to 2017. But the Central Bank of Nigeria has expressed the hope that the trend would soon be reversed with renewed efforts to put the economy in proper shape, reports Bamidele Famoofo

In the last three years, the rate of outflow of foreign portfolio investment from the equities trading segment of the Nigerian Stock Exchange has maintained a sustainable increase. Data churned out by the NSE in January which captured the activities in the market in 2018, showed that outflow of investment capital increased by 48 percent from N435.31 billion in 2017 to N642.65billion in 2018. Outflow rate was higher in 2017 at N435.31billion compared to N261.03billion recorded in 2016.

 Report of activities of both foreign and domestic investors’ participation in the equities market provided by the nation’s bourse suggests that the economy did not only suffer from increasing foreign capital outflow, but a decreasing inflow of money into the economy through equities investment by foreigners. Inflow which gathered momentum in 2017 when N772.25billion flowed into the economy representing an increase of 201 percent compared to N256.52billion inflow in 2016, dropped by 25.4 percent to N576.45billion in 2018.  

The immediate impact of that on the economy was that the All-Share Index (ASI) of the NSE decreased by 17.81 per cent from 38,243.19 at end-December 2017 to 31,430.50 at end December 2018. 

Though All-Share Index (ASI) recorded growth for the fourth straight session as at Wednesday, February 6, 2019, with benchmark index moved up by 0.16 percent to 30,821.80 points, it remained far below the closing figure of 31,430.50 points registered as at end of December 2018.

Against that backdrop, the Month-to-Date gain increased to 0.87percent as at Wednesday, while the Year-to-Date loss dipped to -2.09 percent. The implication is that every investor in the market has lost more than two percent of his capital this year.

Similarly, Market Capitalisation  decreased by 13.87 per cent from N13.61 trillion at end-December 2017 to N11.72 trillion at end-December 2018. Market capitalisation declined by 1.96 per cent to N11.49 trillion as at February 06, 2019. 

But the reasons for the negative impact on the capital market and by extension the economy are not farfetched. According to investment experts and as well as the nation’s monetary policy authority, the development largely reflects the impact of the progressive monetary policy normalisation in some advanced economies and the sustained profit-taking activities of foreign investors arising from perceived political risk in the build-up to the 2019 general elections. 

Notwithstanding the shaky signs in the economy, the Monetary Policy Committee (MPC) of the CBN remained optimistic of the gradual reversal of the current trend in the medium term, given the current stability in the foreign exchange market and the external reserves position, as well as continued improvements in key macroeconomic indicators.  Other reasons on which the MPC who met in January hinged it’s confidence is the relative stability at both the Bureau-de-Change (BDC) and the Investors’ and Exporters’ (I&E) window of the foreign exchange market, supported by the bank’s proactive exchange rate management policies. It also observed with satisfaction, the contribution to stability in the market of the implementation of the Bilateral Currency Swap Agreement (BCSA) with China and the inflow of the US$2.8 billion Euro bond. The committee also noted the marginal increase in the external reserves, from US$42.54 billion at end-December, 2018 to US$43.28 billion as at January 21, 2019, pointing  out that these improvements would further strengthen investor confidence in the Nigerian economy.

Foreign Vs. Domestic

The NSE Domestic and FPI Report for December showed that total transactions at the NSE reduced by 15.93 per cent from N149.72billion in November to N125.86billionn in December.

 NSE Chief Executive Officer, Mr. Oscar Onyema, while presenting the 2018 market  report in January said the cumulative transactions reduced by 5.44 per cent to N2.404trillion in 2018 from N2.542trillion in the preceding year. 

Onyema revealed that, “Domestic investors outperformed foreign investors by 4.54 per cent in December 2018. Total domestic transactions increased marginally by 0.64 per cent from N65.36billion in November to N65.78billion in December 2018.

“In contrast, total foreign transactions reduced by 28.78 per cent from N84.36billion to N60.08billion driven by a reduction in foreign inflows, which reduced by 34.31 per cent from N34.97billion to N22.97billion and foreign outflows, which reduced by 24.86 per cent from N49.39billion to N37.11billion over the same period.

The NSE said between 2011 and 2015, foreign transactions consistently outperformed domestic transactions but domestic transactions marginally outpaced foreign transactions in 2016 and 2017, and remained almost at par in 2018.

“Also, foreign transactions, which were N1.539trillion in 2014, declined to N1.219billion in 2018. Over a 12-year period, domestic transactions have decreased by 66.67 per cent from N3.556trillion in 2007 to N1.185trillion in 2018.The total foreign transactions accounted for about 51 per cent of the total transactions carried out in the financial year 2018 whilst the domestic transactions accounted for about 49 per cent of the total transactions in the same year,” he disclosed.

Onyema described the volatility in capital flows, especially FPI, as one of the downside risks to the nation’s macroeconomic outlook.


Commenting on this development, some domestic investors, who are largely shareholders of companies listed on the nation’s bourse described the foreign investors as casino players, who want to make money at the detriment of the economy while others attribute their action to fears of the outcome of the forthcoming election. 

A shareholder activist, Gbadebo Olatokunbo, said,  “I will describe the foreign investors as casino players. I have been a stock market player for more than five years and l know they are not here for the interest of the market. They are here just to make money and if in the process of making money they harm our economy that is none of their business because we allowed it”.

Olatokunbo alleged that stock brokers are happy with foreign portfolio investors because they enjoy turnover in terms of commission from them. 

“It will continue like that if we don’t change. Now that they are moving out, it is affecting the capital market and I hope steps will be taken to encourage genuine investors (that is domestic investors). We have Nigerians all over the world that have billions of dollars, but they don’t really trust people back home because when they send money to people in Nigeria to help them do something, instead of doing what they are asked to do, they use the money for personal things. So, they are no longer disposed to sending money home for investment”, Olatokunbo lamented.

Coordinator, Greenwich Shareholders Association of Nigeria Mr. Williams Adebayo, said a major reason why foreign portfolio investors were fleeing the nation’s equities market was for uncertainties of the 2019 general elections. “The world is watching Nigeria, and their fear is how the country would conveniently hold the election. Your mind will be where your money is”.

Adebayo is optimistic that a peaceful election will attract the withdrawn capital to Nigeria.  

“If the election is peaceful they will rush back. There is no need for panic as politics and economy are interwoven. Rather, this period offers a very good opportunity for local investors to invest in equities if they have the money,” he said.