Capital imported into Nigeria; what comes after an encouraging 2017?

The National Bureau of Statistics’ (NBS) capital importation report for the fourth quarter of 2017 shows that Nigeria imported total capital of USD5.38 billion (highest since Q3-14) during the period, representing 247.5% y/y and 29.9% q/q increases, from the USD1.55 billion and USD4.15 billion recorded in Q4-16 and Q3-17 respectively.

In terms of contribution, consistent with the previous quarter, Portfolio Investment (25.7% q/q and 1,123.5% y/y to USD3.48 billion) accounted for the most (64.6%; previously 67%) inflows into the country in the review period.

The most cheering part of the recent data is the reported expansion in Foreign Direct Investment (FDI) to USD378.41 million – highest since Q3-15 (USD717.71 million), and USD19.66 million ahead of the total FDI inflow recorded in H1-16 (USD358.75 million).

While we (analysts at Cordros Capital) share the view that downside risks abound with regards Nigeria’s growth potentials, we believe recent efforts to diversify the economy and expand government revenue base – though unfolding too slowly, with weak visibility – are laudable.

Cordros Capital analysts recommend improved visibility and more aggressive implementation of the Economic Recovery and Growth Plan (ERGP), further improvement in the ease of doing business, higher dollar liquidity to manufacturers, particularly the SMEs, increased targeted lending (under an accommodative interest rate environment) to the real sector of the economy, and a broader and inclusive pioneer tax incentive.

Against the run of play, capital inflows into money market instruments accounted for most (62.7%) of the sizable jump in FPI (25.7% q/q and 1,123.5% y/y to USD3.48 billion) during the review period.

Over 2018, analysts believe capital importation will benefit from the expected improvement in macroeconomic conditions.

All said, Cordros Capital analysts note downside risks, both internal and external, to our positive expectation for capital inflows over 2018.

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