Foreign investments’ inflow declines by 54%
An analysis of the nation’s external sector development in the second half of the year not only showed a marginal decline of 0.2 per cent to $2.7 billion in capital inflow in the period, but also a 54.1 per cent fall year-to-date.
According to the report of the National Bureau of Statistics (NBS) for the second quarter of the year, the sliding profile was in contrast to $2.705 billion capital inflow recorded in the first quarter of 2015 and $5.8 billion in the corresponding period of 2014.
Simply put, capital importation is composed of Foreign Direct Investments (FDI), Foreign Portfolio Investment (FPI) and Other Investments (trade credits, foreign loans and currency deposits).
While FDI is concerned with acquisition of stakes in existing companies in foreign countries, setting up a subsidiary and/or merger/joint venture partnership, FPI is solely about trading in securities like equities and government/corporate bonds, among others.
The assessed decline in total capital importation over the period under review, was attributed mainly to the economic and political uncertainties that shrouded investments initiatives. Consequently, there were 46.5 per cent and 34.7 per cent drops in FDI and other investments to $211.1 million and $272.1 million respectively, with FPI inflow trending upwards by 17.3 per cent to $2.2 billion in the second quarter from $1.82 billion in first quarter.
FPI remained the largest contributor to capital importation in Nigeria, accounting for 81 per cent of total capital imported in the second quarter of 2015, up from 69.6 per cent in the previous quarter.
The Head of Reasearch at Afrinvest Securities Limited, Ayodeji Eboh, in his weekly market update, said the fall in FDI to five-quarter record low during the period under review, was due to the lull in economic activities during the political transition, which stalled gross fixed capital investments into the country.
On the other hand, he noted that the surge in FPI inflow quarter-on-quarter was driven by the increased FPI equity inflow into the country, which rose by 62 per cent in tandem with the improved equity market performance and activity level in the period after the conclusion of the polls.
However, FPI inflow linked to bond investment during the period dropped by a massive 92.8 per cent, an indication that foreign investors were cautious towards government bonds, especially with assessed foreign exchange uncertainties and the lower bond yields in the quarter relative to the first quarter.
Generally, total capital importation recorded a year-on-year decline in in the second quarter, highlighting weak foreign investors’ interests in the economy as fiscal and monetary authorities grapple with lower revenue base aggravated by oil price decline, weaker external reserves and foreign exchange volatility. “We do not expect a deviation in the recent trend in the third quarter of 2015 as portfolio investors’ participation in the domestic market remains weak, while our outlook for FDI in capital expenditure for 2015 remained feeble,” Eboh said.
The cumulative multilateral trade record in the second quarter also showed that merchandise trade- sum of the total imports and exports, fell by 0.5 per cent quarter-on-quarter and 34.2 per cent year-on-year to N4.4 trillion due to the 13.6 per cent decline in the value of imports to N1.5 trillion relative to eight per cent increase in exports to N2.9 trillion.
But Nigeria recorded a 47.9 per cent quarter-on-quarter improvement in trade surplus- the difference between value of exports and imports, to N1.4 trillion on the back of the surged value in export and decline in the value of imports.
However, the figure represented a 48.8 per cent year-on-year decline, as exports were down 38.5 per cent year-on-year.
The country’s merchandise exports’ destination was mainly Europe and Asia, which accounted for N1 trillion or 36.9 per cent and N823.8 billion or 28.6 per cent of the total export value respectively during the period under review.
On the other hand, Nigeria majorly imported from Asia in the period, as China and India accounted for 22.4 per cent and 7.7 per cent of N1.5 trillion imports’ value, while the United States of America accounted for 9.6 per cent.
Despite the improvement in trade balance in the second quarter of 2015, we believe that the currency devaluation in 2014 and first quarter of 2015, masked the real value of Nigeria’s trade relation with the rest of the world as the trade statistics was computed in Naira. “The computation of this data in dollars would have offered a better reflection of the real value of exports, imports and trade balance.
Nonetheless, we expect trade balance to improve further in third quarter of 2015, as the central bank currency control measures are expected to further lead to a decline in value of imports, even as we expect exports growth to be soft on low crude oil prices,” Eboh added.