Nigeria attracted just $67.9 million in Foreign Portfolio Investment (FPI) inflow for the month of April 2020, the lowest inflow recorded this year. This is contained in the latest capital importation data obtained from the Central Bank of Nigeria (CBN).
A cursory look at the Central Bank data shows that FPI sharply reversed from $2.30 billion at the beginning of the year (January) to just $67.9 million inflow in April 2020. Nigeria like most emerging markets relies heavily on foreign portfolio investments to shore up its external reserves and manage its exchange rate position.
Nigeria shut down its economy in the whole of April as part of its measures to contain the spread of the COVID-19 pandemic.
FPI and FDI hit 2016 recession low
The outbreak of the COVID-19 pandemic has affected the global economy with emerging markets like Nigeria feeling the full brunt from a fiscal and monetary perspective.
With the pandemic projected to spread recession across major countries including G20 nations, investors are wary of pumping money into poorer countries like Nigeria. This is despite trillions of dollars in stimulus packages injected by the likes of Japan, the US, Europe, and Canada. Foreign investor apathy is also due to the global lockdown which is still in full force in many sub-Saharan countries like Nigeria.
In total, Nigeria attracted only $316.8 million capital inflow in April, a 113.5% drop representing a significant decline when compared to the $2.30 billion capital inflow received in January 2020. Total capital importation was $2.4 billion and $615 million in February and March respectively. The majority of the inflows recorded in January and February flowed into Money Market Instruments.
The breakdown of capital inflow shows that the main components of capital inflow (FPI and Foreign Direct Investment) plunged significantly.
As at the end of April 2020, Foreign Direct Investment (FDI) received was estimated at $18.5 million, down from $110.9 million received earlier in January 2020. FPI, on the other hand, recorded a 3,297% decline from $2.30 billion in January to $67.9 million inflow in April 2020.
This is the lowest capital inflow received in the Nigerian economy in a single month since the 2016 recession. In 2016 December, Nigeria recorded $76.15 million FPI and $67.9 million in January 2017 respectively.
According to the recent report released by the World Bank on the Nigerian economy, in the first quarter of 2020, the total FPI flows into Nigeria declined by 54%, and this is due to increased risk aversion in global capital markets.
While FPI and FDI both declined, the Central Bank continues to offer high yield to foreign investors, causing the share of FPI in total capital inflows to rise to over 50 percent in 2019. The shift from FDI to FPI represents an increase in Nigeria’s reliance on “hot money” to finance the Balance of payment, which exacerbates the vulnerability of the current account.
Although, the foreign reserves have improved in recent weeks, averaging $36 billion in June 2020. Meanwhile, a sustained reversal in capital flow may further expose the country’s foreign reserves, a situation which may necessitate another round of exchange rate unification (Naira devaluation).
Economic Reopening still a longshot
In the past weeks, major economies of the world have embarked on gradual easing of lockdown, a move targeted at restarting local trade and initiate the recovery process. However, there are new pushbacks on reopening plans as renewed concern about the possibility of a second wave of the COVID-19 pandemic across the globe remains high.
Nigeria has also faced similar pushbacks on reopening the economy further prolonging a restart of full economic activities. Just recently, the federal government approved a N2.3 trillion stimulus package which they will fund from special accounts and a $3 billion loan from the World Bank. This is in addition to the $3.4 billion already drawn from the IMF. Whilst, these are all geared towards stimulating the economy, the economic devastation from COVID-19 remains a huge concern.
Both the IMF and World Bank have predicted the Nigerian economy to contract by 3.4% and 5.4% respectively in 2020. According to the World Bank, in 2020, the current account is expected to hold steady at about -3.1 percent of GDP in 2020, although imports and exports are both projected to contract considerably.
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Also, the World Bank disclosed that Nigeria’s exports are expected to fall by US$40.3 billion, 9% of GDP, because of the drop in global oil prices, and imports are expected to fall by US$50.5 billion, 12% of GDP, due to sluggish demand and disruptions in global supply chains.
Indeed, Nigeria is in a significantly weaker macroeconomic position than it was during the 2015/16 recession, and it has fewer policy instruments to cushion the shocks induced by the pandemic.
Despite billions on agriculture, food inflation up by 108% since 2015
About N2 trillion spent in the last 5 years to achieve food self-sufficiency.
Nigeria’s food inflation has more than doubled since August 2015, exactly 5 years after the Buhari Administration took charge of the Nigerian economy.
This was determined by comparing the composite index for food inflation rate in August 2020 versus same period in 2015. The difference is a whopping 108% increase in inflation rate, in just 5 years. Within this period, Nigeria’s exchange rate has been devalued by 49%.
Whilst the Nigerian economy has been ravaged by a very low oil price environment, since it fell from over $100 per barrel in 2014, most of the reasons for the increase in cost of living are partly attributed to some of the policies of the government.
Since 2015, the government has focused on a ‘grow-what-you-can-eat’ policy, pouring billions of naira into the agricultural sector. Since its inception in 2015, the Anchor Borrowers Programme (ABP), has received about N190billion disbursement from the CBN.
Another N622billion was lent through banks under the Commercial Agriculture Credit Scheme. Add the various grants, tax incentives, and concessions, that’s almost N2 trillion spent in the last 5 years on helping Nigeria to achieve food self-sufficiency.
Whilst modest successes have been recorded, the cost of staple food items remain high – galloping in each passing month. Since the border closure was announced in August 2019, the food inflation rate has risen every month, from 13.17% in August of 2019 to 16% last month. It is projected to hit 20% by the first quarter of 2021, when the effects of the increase in petrol and electricity prices are accounted for.
Nigerians have never had it this bad. Despite the good intentions of the government, things have not particularly turned out well. A common challenge in trying to solve a problem is not being able to manage what is outside of your control. In agriculture, a lot seem to be outside of the control of this government.
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Yield per hectare for most farming is well below global standards, driving up the cost of whatever is left to be sold to Nigerians. Farmers also face insecurity, flooding, and sometimes famine affecting their ability to plant and harvest. Even after harvesting, supply chain challenges still persist, leaving farmers to contend with middlemen, transportation, and storage. The result is far less farm produce reaching the final consumer.
For items under its control, it still cannot determine the outcomes, and the causes and effects. Just last week, it announced the banning of maize, only to flip-flop after learning that poultry farmers lacked maize feeds to grow their chickens. It quickly granted licenses to four companies to import maize.
Thus, while the government attempts to manage what it can control such as banning of imports, denying access to forex, and of course border closure, it cannot solve all these problems with CBN funding and banning. They are structural, and require a better approach that is private sector driven, yet pragmatic. The government also needs to tell itself the truth; Nigeria cannot be self-sufficient by banning.
So long as we continue to avoid relying on data and objective reasoning, to balance the need for local agro-processing and imports to meet demand, food inflation will remain high and galloping. Who knows, by the time this administration’s tenure is up, we could be looking at a state of emergency driven by a full blown food crisis.
Nigeria’s inflation rate hits 13.22% in August 2020, highest in 29 months
Highest increases were recorded in prices of Passenger transport by air, Hospital services, Medical services, Pharmaceutical products and others.
Nigeria’s inflation rate rose to 13.22% in August 2020, highest recorded in 29 months, since March 2018 (13.24%). This was contained in the recent Consumer Price Index (CPI) report, released by the National Bureau of Statistics (NBS).
The latest figure is 0.40% points higher than the rate recorded in July 2020 (12.82%). while on a month-on-month basis, the Headline index increased by 1.34% in August 2020.
Food inflation: A closely watched component of the inflation index, stood at 16% in August compared to 15.48% recorded in July 2020. On month-on-month basis, the food sub-index increased by 1.67% in August 2020, up by 0.15% points from 1.52% recorded in July 2020.
This rise in the food index was attributed to increases in prices of Bread and cereals, Potatoes, Yam and other tubers, Meat, Fish, Fruits, Oils and fats, and Vegetables.
Core inflation: This excludes the prices of volatile agricultural produce, also rose to 10.52% in August 2020. It is up by 0.42% points when compared with 10.1% recorded in July 2020. On month-on-month basis, the core sub-index increased by 1.05% in August 2020. This was up by 0.30% points when compared with 0.75% recorded in July 2020.
What drove inflation: Inflation for the month of August was driven by recorded increase in prices of Passenger transport by air, Hospital services, Medical services, Pharmaceutical products, Maintenance, and Repair of personal transport equipment.
Others are Vehicle spare parts, Motor cars, Passenger transport by road, Repair of furniture, and Paramedical services.
Upshot: As Nigerians continue to grapple with the effects of the COVID-19 pandemic, and the reopening of the economy, prices of commodities such as air transport, and medical services seems to have been affected due to policies implemented, with the aim of curbing the spread of COVID-19 in the country.
It is therefore evident that Nigerians are spending more, despite fixed income, contraction of economic activities, and dwindling rate of investment returns.
Demand for credit by household increases in Q2 2020 – CBN
For Q2 2020, households’ demand for all lending types increased.
The request for secured lending of credit by households for House purchase have increased from 0.0 to 3.0 by second quarter of 2020 (Q2). Lenders expect demand for such lending to decrease in Q3 2020.
This was disclosed in the recently published Central Bank of Nigeria’s Credit Conditions Survey Report for Q2. The proportion of secured loan applications approved decreased as lenders tightened the credit scoring criteria.
For Q2 2020, households’ demand for all lending types increased, but in Q3 2020, only prime and other lendings to households were expected to increase while buy to let lending would decrease. Household demand for consumer loans rose in Q2 2020 and it is expected to rise in Q3 2020. However, demand for mortgage/remortgaging from households fell in Q2 2020 and expected to further decline in Q3 2020.
Demand for Unsecured Credit
Demand for unsecured credit card lending from households increased in Q2 2020 from 4.9 recorded in Q1, 2020 to 7.6 in Q2, 2020, and a further increase is expected in Q3 2020. Similarly, demand for unsecured overdraft/personal loans from households increased in Q2 2020 and is expected to further increase in Q3 2020.
Demand for total unsecured lending from households increased in Q2 2020 and is expected to increase in the Q3 2020. Lenders’ resolve to tighten the credit scoring criterion decreased the proportion of approved unsecured loan applications in Q2 2020.
Demand for Corporate Credit
Lenders reported increased demand for corporate credit from all firm sizes in Q2 2020 and expect demand to rise further in Q3 2020.
Demand for corporate lending increased for all business sizes in Q2 2020 and would further increase in Q3 2020. The increase in the demand for corporate credit in Q2, 2020 is attributable to increase in inventory finance. Similarly, inventory finance and capital investment were expected to drive demand in Q3 2020.
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