The coronavirus pandemic has had a devastating impact on the global economy and businesses. In Sub-Saharan Africa, oil and other resource-intensive countries will be significantly affected given their over-dependence on these commodities for their foreign exchange earnings and revenue.
Nigeria, Africa’s leading oil producer has been badly hit by the crash in crude oil prices. Following the coronavirus outbreak, the foreign exchange inflows into the Investors and Exporters (I&E) window dropped on the back of lower foreign portfolio inflows.
According to a report from FSDH research, the foreign portfolio investors (FPI) declined from $2.04 billion in January 2020 to $57.7 million in May 2020. The CBN intervention increased from $3.9 billion in January 2020 to $2.48 billion and $2.89 billion in February and March respectively.
The attendant effect of COVID-19 on oil price constrained the CBN’s capacity to intervene further as dollar inflow dwindled in April. Following the lockdown and restriction of economic activities in April and May, total inflows to the I&E window dropped from $3.19 billion in January to $459.2 million in April and $381.2 million in May 2020.
The exchange rate faced significant pressure in the I&E window due to declining external reserves and falling crude oil prices. The Naira fell from 367/$1 in early March to 401.6/$1 in mid-April. As oil prices increased in May following OPEC cuts and higher crude oil demand, external reserve situation also improved.
In addition, The Nigerian government’s ability to secure $3.4 billion loan from IMF also contributed to the improvement in the reserves position. The reserves stood at $36.6 billion as of June 1, 2020.
In the first quarter of 2020, foreign capital inflows into Nigeria amounted to $5.85 billion. This is an increase of 54% from $3.8 billion in 2019 fourth quarter but a 31.2% decrease from $8.5 billion recorded in the first quarter of 2019.
Foreign portfolio investment continued to dominate capital inflows with a share of 73.6%. This represents a 9.9% points decrease from 83.5% in first-quarter 2019.
Due to the negative impact of the COVID-19 pandemic, the foreign direct investment inflow in the first quarter 2020 fell to $214 million, a 13.4% decrease relative to the $247 million recorded in the first quarter of 2019. The FDI accounted for 3.7% of total inflows, just as Lagos and FCT accounted for 87.7% and 12.1% respectively of the inflows in the first quarter of 2020.
Foreign investment inflow is expected to decline in 2020 when compared with the $24 billion inflow recorded in 2019. The highest decline in inflows will be recorded in the second quarter following the lockdown and movement restrictions.