Improving Foreign Capital Flow to Economy

Isaac Okorafor
Isaac Okorafor


Economic managers would need to do more to raise the current levels of capital inflows into the country, write Kunle Aderinokun and James Emejo

Apparently signifying a rare demonstration of the increasing confidence of international investors in the country, the Central Bank of Nigeria (CBN) last week disclosed that total foreign capital flows into the country stood at $14.2 billion between January and May 2019.

It further explained that Foreign Direct Investment (FDI) accounted for $2.87 billion, representing 20.18 per cent of the total amount.

According to CBN Director, Corporate Communications, Mr. Isaac Okorafor, in a statement, the increased capital importation for the period was contrary to a Reuters report which had indicated that the country’s FDIs slumped last year.

But Reuters had quoted the World Investment Report, 2019, recently released by UNCTAD on Foreign Direct Investment (FDI) to African countries.

“The attention of the Central Bank of Nigeria ( CBN) has been drawn to the news item on Reuters quoting World Investment Report, 2019, recently released by UNCTAD on FDIs to African countries,” the statement said.

The UNCTAD report had alleged a decrease of over 40 per cent in FDI inflows to Nigeria in 2018.

According to the apex bank, while the CBN is not privy to the methodology used in arriving at the figures, we wish to state that available records show a significant increase in FDI in Nigeria during the period 2018, contrary to the Reuters’ report.

“For instance, in 2018, the total capital inflows to the country stood at $19.07 billion out of which FDI accounted for $7.78 billion.

“Furthermore, total capital flows to Nigeria, from January to May 2019 stood at $14.2 billion of which FDI accounted for $2.87 billion, representing a 20.18 per cent of the total amount.

“The country continues to enjoy steady capital flows due to the prevailing stable macroeconomic environment and sustained investors’ confidence in the economy.

“Against this background, we wish to urge the public to take advantage of several publications by the CBN and the National Bureau of Statistics (NBS), which give adequate and accurate statistics on the subject matter.”

Although, the CBN announcement was positive for the economy, not many analysts expected an improved inflows in the period under review.

This is partly because of the general election which was conducted within the quarter as investors had pulled out their funds for fears of uncertainty as well as the investment appetite created the US Federal Reserves which had raised lending rates.

Billions of naira had reportedly lost in the nation’s capital market in the build-up to the elections as well as post elections, particularly as investors await the economic direction of President Muhammadu Buhari following his re-election for a second term.

The capital importation report for the first quarter of the year is yet to be released by the National Bureau of Statistics (NBS).

However, compared to inflows in 2018, the results appeared to be significant going by the CBN disclosure.

According to the NBS, the total value of capital importation into the country in 2018 stood at $16.81 billion compared to $12.22 billion 2017, representing 37.49 per cent growth year on year.

Portfolio investment, which accounted

for 70.20 per cent ($11. 80 billion of total capital importation for 2018 followed by Other Investment, which accounted for

22.69 per cent ($3.81 billion of total capital, while Foreign Direct Investment (FDI), accounted for 7.11 per cent ($1.19 billion of total capital imported last year.

Earlier in May, the Executive Secretary/Chief Executive, Nigerian Investment Promotion Commission (NIPC), Ms. Yewande Sadiku had disclosed that about $90.9 billion worth of investments were recorded in the country last year, adding that there were 92 existing projects covering 23 states and the FCT.

She, however, cautioned that the investment announcements were not actual investments, but nevertheless “give us direction and a sense of investor interest in Nigeria”.

According to her, 33 per cent of the investments came from Nigerian investors, which according to her was consistent with government’s efforts to get Nigerians to invest in their own county.

Other investment sources according to her included the UAE, France and UK.

She said: “We actually track it so that at the end of the quarter, half year, month or full year, we can say this is the total value of investment announcements that were made. We look at where the investments are supposed to be coming from.

“Remember they are announcements and not investments. The announcements related to mining and quarrying and oil and gas, manufacturing, construction, transportation and storage.”

Interestingly, Sadiku had joined other top government officials to draw attention to the fact that investor interest in the first quarter of 2019 could be less than the same period in 2018 because of election concerns.

This same concern was re-echoed by the former Minister of Budget and National Planning, Senator Udoma Udo Udoma, who also warned that first quarter growth estimates could be disappointing as it is often a difficult period for the economy.

Nonetheless, some analysts who spoke with THISDAY found the news that foreign capital inflows picked up in the first quarter difficult to digest while others played down the figures.

Commenting on the development, Founder/Chief Executive Officer, Global Analytics Consulting Limited, Mr. Tope Fasua, said:”The CBN claim is untenable because if we all agree that the period of politics in any country is a period for investor caution, then it’s unlikely that investor confidence returned even as the elections went on.

“The elections are even still in contention so the explanation for increased capital inflow is political and not economic. The macroeconomic environment is certainly not yet stable except we ignore our low GDP growth rate and rising inflation in the face of a healthy population growth. The government is only now just speaking about our out of school children.

He said:”However, I am not doubting that capital flow may have spiked in the period. A singular transaction may have skewed the statistics in that manner. The inflows could also have gone into portfolio investments which are fleeting in nature. “The CBN should try and be more intellectual in theory pronouncements and not be drawn into the politics of the day as we all work together to find an economy that truly works.”

Also, economist and former Director General, Abuja Chamber of Commerce and Industry (ACCI), Mr. Chijioke Ekechukwu, said: “The Cash inflow was not as a result of increase in Direct Foreign Investments but inflow of funds for the purpose of funding and executing the elections.

“Recall that 2018 ended with Nigeria having up to 36 per cent decline in DFIs. This was as a result of uncertainty of the economic and political space of the country.

“Having a total capital inflow of $14.2 billion in the first five months of 2019 is not anything to celebrate. Our contemporaries in West Africa, Ghana, did more than that in investments, as against mere inflow.”

Also, speaking to THISDAY, Director, Union Capital Market Limited, Egie Akpata said: “The capital inflows quoted by CBN on the surface look very impressive. Particularly in the context of the pre-election uncertainly in Q1.

“However, the CBN would need to disclose the amount that was long-term FDI and short term FPI. 1 year treasury bills were yielding over 17 per cent until the March elections so it is easy to see why FPI would rush into this market to earn such rates.

“When coupled with the drop in US interest rates driven by the Federal Reserve change in outlook, it is not surprising that FPI would flow into Nigeria where rates are over 10 per cent higher than similar tenor in USA.

“The real test is to see what the inflows look like in the current lower interest rate environment. Judging by the trend of CBN foreign reserve movements, it is unlikely that the data of the first 5 months of 2019 would be repeated.”

However, Professor of Economics and Public Policy at the University of Uyo, Akwa Ibom State, Prof. Akpan Ekpo said while the accretion was positive for the country, efforts should be intensified to boost domestic production.

He said:”I suspect that for a while now the exchange rate has been quite stable and the CBN opened another window for importers and exporters and there has been a lot of activities in the foreign exchange and that must have been responsible for the increased capital inflow.”