Portfolio investments in stellar recovery in Q317 as financial inflows up 156% y-o-y to $4.1bn

Foreign investment inflows into the country more than doubled in Q317 to $4.1billion as against $1.6 billion a year earlier, according to an economic note by Renaissance Capital seen by Businessamlive.

The resurgence in inflows, according to available data was largely due to portfolio investment, which tripled to $2.8 billion with about 70 percent of the inflows going into the equity market.

Other forms of investments, which mainly comprise loans, also saw strong growth of 125 percent year on year to $1.3 billion in the review quarter.

However, foreign direct investment (FDI) dropped by two-thirds compared to a year earlier, to $118 million

The recovery in foreign investment inflows began in 1Q17 after falling for nine consecutive quarters. Thereafter, foreign investment’s year on year growth accelerated in subsequent quarters, rising 127 percent in Q317 to reach $4.1billion, the highest quarterly foreign investment since Q414.

“We largely attribute this to the introduction of the Investors and Exporters FX window in April 2017, which at the time was the only window (outside the black market) to allow participants to transact at market-determined rates.

“FX liquidity improved, as a result, enabling foreign investors to repatriate their income, which improved investor confidence. This partly explains the tripling of portfolio inflows to $2.8bn in 3Q17, in our view,” RenCap analysts said.

They noted that of the total inflow for the quarter, 70 percent went into the equity market, which according to them explains why the Nigeria Stock Exchange was up 25 percent year on year as of September 2017 as against a decline of 9 percent year on year a year earlier.

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Equally investments into money market instruments more than doubled in the review period to $720 million on the back of high yields.

Conversely, FDI, which has been the smallest source of foreign investment in recent years dropped to its lowest level in Q3 2017 since the capital importation series began in 2014. It declined by two-thirds against a year earlier to $118 million.

A sectoral breakdown of FDI and other investments shows that production and servicing were the largest recipients in 9M17.

Historically, the oil and gas sector has been the largest FDI recipient. However, the stalling of the petroleum industry bill earlier this decade (an amended version was passed this year) saw investment fall, and the oil price collapse in late 2014 compounded the downturn.

Specifically, investment in the sector picked up in 2016, making it the third-largest recipient of FDI and other investment. Flows slowed in 9M17.

The third constituent of foreign investment, other investment, largely made up of loans, saw a strong 125 percent year on year increase in Q317 to $1.3 billion., which could be traced to a resurgence in Eurobond issuance by a couple of local banks.

The Rencap analysts, however, see an improved FDI outlook in 2018 outlook.

“We expect portfolio investment to continue to pick up in 2018 on the back of a more stable economy. However, its growth is likely to be slow in H218 owing to a high base effect and a likely increase in uncertainty ahead of the February 2019 elections,” they noted.

Specifically, Temi Aduroja, Rencap’s SSA oil and gas analyst, expects FDI into the oil and gas sector to increase moderately in 2018 and more strongly in 2019.

The assumptions for the positive outlook on the oil industry are on the Nigerian National Petroleum Company (NNPC) securing $3.8 billion in FDI for four oil projects and the picking up of rig count beginning 1Q17, implying more drilling projects.

However, the downside risks to their outlook include a fall in the oil price and attacks on oil facilities that may deter investment.

“Outside the oil and gas sector we do not foresee a significant pick up in FDI, mainly because we do not expect non-oil GDP growth to be compelling over the next couple of years,” he opined.