Debt instruments dominate capital importation into Nigeria in the first quarter of 2024, making up 94% of inflows.
Data from the National Bureau of Statistics (NBS) reveal Nigeria attracted $3.38 billion in capital inflows in the first quarter of 2024, up 198% year on year.
The capital inflows include foreign direct investments, foreign portfolio investments and other investments.
Foreign Portfolio Investments (FPIs) lead with $2.08 billion, rising by 220% year on year. While Foreign Direct Investments (FDI) grew by 150% to $119.18 million, other investment inflows rose by 172% to $1.18 billion.
Loans dominate foreign capital inflows
Managers of the Nigerian economy have focused on attracting foreign debts as a centrepiece of its fiscal and monetary policies respectively.
This has been shown in the distribution of capital inflows by type in the first quarter of the year.
According to data from the NBS, loans dominated foreign investor inflows into the country, as investors purchased over $2 billion in bonds and money market instruments.
Nigeria’s central bank has relied on higher interest rates as a cornerstone of its forex policy while also adopting multiple rate hikes to combat inflation. Under CBN Governor Yemi Cardoso, the interest rate has been hiked by about 750 basis points from 18.75% to 26.25%.
The result is a significant surge in short-term instruments such as bonds and money market instruments like treasury bills and OMO bills.
For money market instruments, the NBS reported an 11-fold increase year on year to $1.61 billion from $125.9 million. This is also about 274% higher than the total money market-related inflows of $428.9 recorded for the whole of 2023.
Nigerian bonds attracted $420.81 million in foreign capital, up by about 40% from the previous year’s $301.08 million in the same quarter.
On the fiscal side, Nigeria also recorded a 165.3% rise in loans going from $433 million in the first quarter of 2023 to $1.15 billion in the corresponding period this year.
This means that about a total of $3.18 billion in foreign capital inflows into Nigeria are from debt instruments, which is 94% of the $3.38 billion recorded as total capital importation for Q1 2024.
What you should know
Earlier in February 2024, the Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, announced that foreign portfolio investors (FPIs) are showing renewed interest in the Nigerian market.
Addressing the critical issues surrounding foreign exchange and investment, Cardoso emphasized the importance of leveraging existing resources to attract more foreign direct investment and portfolio inflows. Contrary to the perception of FPIs as “hot money,” the governor views these investments as essential components of a diversified foreign exchange portfolio, whether sovereign or corporate.
By March 2024, the Central Bank of Nigeria (CBN) announced a significant inflow of over $1.5 billion into the Nigerian economy.
Mrs Hakama Sidi Ali, the Bank’s Acting Director of the Corporate Communications Department, noted in a statement that the inflows are a direct result of the CBN’s initiatives aimed at ensuring liquidity and stability within the foreign exchange market.
The apex bank further disclosed that over 75% of bids received during the auctions of government securities held on March 1 and 6, 2024, were from foreign investors, showcasing their growing interest in Nigeria’s debt instruments.
Nairametrics recently reported that the total foreign portfolio inflow for Q1 2024 (N93.37 billion) was more than quintuple that in Q1 2023 (N18.12 billion). However, FPI outflows surged by 237% to N119.81 billion, from N35.59 billion in Q1 2023.
The total net outflow for the quarter was N26.44 billion, highlighting a trend where foreign investors are pulling out more funds than they are bringing into the Nigerian economy.
Speaking at the end of the 294th meeting of the Monetary Policy Committee (MPC), the CBN governor, Yemi Cardoso, said that it is normal for investors to come and go, and vice versa.
