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Capital Importation into Nigeria resumed its decline with a steep drop in the inflow of funds in Foreign Portfolio Investments (FPIs). Data released by the statistics bureau (NBS) showed that total capital inflows into Nigeria declined by 31% to US$5.82 billion in Q2-2019 from US$8.45 billion in Q1-2019. FPIs was the worst hit with a 40% q/q decline, led by a 44% q/q decline in inflows to the bonds market as well as a 41% q/q fall in inflows to the money market. Consequently, inflows into the banking sector – which facilitates fixed income and money market trades- dropped by 34% q/q.

Despite the decline in money market inflows, it still accounted for the bulk of the inflows in the quarter- constituting c.60% of total inflows. Inflows into the equities market also reduced by 24% q/q to US$0.5 billion in Q2 2019 from US$0.67 billion in Q1-2019. On a half year basis, foreign inflows are up 20% y/y in H1-2019 driven by a c.52% y/y increase in inflows to the money market. Inflows to the bonds market are also up by c.20% y/y while inflow into the equities market is lower by c.34% y/y.

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Foreign Direct Investment (FDI) continues to be crimped by the lack of clarity on policies affecting businesses amidst rising insecurity across the country. In the second quarter, FDI inflow to the country fell by c.8% y/y and declined by c.21% y/y on a half-year basis. While inflows to the agriculture and construction sectors were up by 36% q/q and 548% q/q respectively, inflows to the manufacturing sector fell 57% q/q. Of the total inflows in the period, 92% went into services industries including the banking sector (33%), financing (28%) and for the purchase of shares (19%). The fact that investment in these sectors are quite liquid lends credence to our view that capital imported in the period was more transient than fixed.

In the short-term, we expect FDIs to remain moderated as security challenges persist while the sluggish pace of reforms in the ease of doing business will continue to constrain activities in the real sectors of the economy. Portfolio investments – that supported the surge of capital importations in Q1 19 – is likely to improve in the coming months as global uncertainties which had initially reduced investors’ appetite for risky assets in EMs improve. Therefore, we anticipate capital importation to increase slightly in end-2019 and early 2020.

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