Kemi Adeosun Minister of Finance

Data from the  Q3 capital importation report  by the National Bureau of Statistics (NBS) shows foreign capital imported in the third quarter of 2017 hit $4.1 billion.  The amount is a 147% increase from the $1.8 billion in the corresponding period last year and a $1.7 billion  or 141% increase from the $1.7 billion recorded in the second quarter of 2017.

Where did the money go to ?

$2.7 billion was spent on portfolio investments comprising $1.9 billion on equities (shares), $115 million bonds  and $791 million on money market instruments. $117 million was spent on Foreign Direct Investments (FDI) and $1.2 billion was brought in as other investments which comprises of trade credits and loans. Lagos State received $3.2 billion of the funds imported, being the financial capital of the country. Abuja was the second largest recipient state, with $800 milllion.

The sectors that were the 3 largest recipient of funds in the 3rd quarter where shares which received $2.7 billion,  closely followed by production which received $586 million, and services which got $442 million.

Whats driving the surge in portfolio investment  ? 

Returns on Nigerian portfolio investments are quite attractive compared to developed markets. The  foreign exchange crisis which led to an exodus on portfolio investors has greatly eased, due to a rebound in crude oil prices and production volumes.

FDI is declining

Foreign Direct Investment (FDI) however declined by 65.5%  from $274 million recorded in the second quarter of 2017 to $117 million in the third quarter of 2017. FDI has also declined over the past two years from $1.4 billion in 2015 to $1 billion in 2016. Year to date, total FDI inflow into the country is about $600 million, suggesting a third consecutive year of decline is likely.

Why this is worrying  

Deal book 300 x 250

Foreign Direct Investments (FDI) creates more jobs compared to portfolio investments also known s hot money.  FDI also involves knowledge transfer as expatriates in industries train Nigerians who eventually take over their positions or establish their own enterprises. Portfolio investors often exit a country at the slightest hint of a crisis, or presence of better returns in another region. Declining FDI figures, means lower employment figures going forward .

Obstacles against FDI

An unpredictable macro economic environment makes running an industry difficult in Nigeria. Poor infrastructure and high operating costs means goods produced in Nigeria  are more expensive compared to those imported. While the government has made some progress in improving the ease of doing business, more needs to be done.

Here is a copy of the report.

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