Analysts have said that post-election issues and tremor and reform jitters led to a reduction in capital importation as it fell nine per cent to $1 billion.
Capital importation measures offshore financial inflows (credit and deposits) and physical capital by tracking banking transactions and customs data.
From economic theory, the trio of foreign capital, workers’ remittances, and domestic savings are key sources of capital to drive long-term economic growth. At the same time, capital importation serves as a litmus test for gauging offshore investors’ perception of an economy.
Based on the National Bureau for Statistics (NBS) data, total capital importation fell 9.0 per cent quarter-on-quarter (q/q) to $1.0 billion in the second quarter of 2023 marking the least for the period on record since 2014.
According to analysts at Afrinvest, the underperformance also translated to a 32.9 year-on- year (y/y) decline, terminating the 2022 recovery of 75.3 per cent.
“The main culprit was Foreign Portfolio Investment (FPI) which plunged 83.5 per cent q/q and 85.9 per cent y/y to $106.9 million – a mere 2.5per cent of the pre-Covid level (2019′ second quarter: $4.3 billion).
In turn, FPI was pressured by a sharp downturn in the money market (-89.6 per cent q/q and -96.9 per cent y/y) and Bonds (-71.6 per cent q/q and -73.5 per cent y/y) investments extending the hot money tantrum”, said Afrinvest.
Meanwhile, the equities market pessimism (-96.2 per cent q/q and -33.0 per cent y/y) had a negligible impact (growth contribution: -0.6 per cent) as the market attracted only $8.5 million. Overall FPI accounted for 10.4 per cent of total capital, against 49.3 per cent in the comparable 2022 period.
Elsewhere, Foreign Direct Investment (FDI) improved 80.7 per cent q/q but it was insufficient to drive a positive y/y growth. As a result, FDI (8.4% of total) tanked 41.5 per cent y/y with sub-components weaker; Equity (-39.5%) and Other Capital (-99.7 per cent).
The sole gain
in the second quarter story was from ‘Other Investments’ (up 92.2 per cent q/q and 32.7 per cent y/y) to add 13.4 per cent in growth contribution. The positive advancement pushed the size of Other Investments twofold to 81.3 per cent of total importation. Loans (92.1 per cent of sub-total) were the main driver of Other Investments.
Across sectors, Manufacturing/Production stood out, outspacing Banking as the sector with the highest inflow ($605.4 million or 58.7 per cent of the total) – a jump compared to $256.1 million and $234.0 million in first quarter of 2023 and the second quarter of 2022.
Outside the financial services, the other top sectors that recorded positive inflows were Agriculture ($10.0m), Trading ($46.6 million), and Telecoms ($25.8 million). In all, non-financial activities accounted for 68.3 per cent of the overall inflows, improving from 54.8 per cent in the first quarter and 37.1 per cent in 2022. This suggests that financial flows may have been affected more than physical capital importation amidst the enduring economic quagmire.“On a positive note, efforts by the Federal Government (FG) to strengthen bi-lateral and multi-lateral business relationships and attempts to affect some market reforms could inspire confidence should external factors align favourably before reform fatigue sets in. As part of short-term measures, media reports suggest that $3.0 billion sought from Afrexim Bank by NNPCL in an emergency loan-for-crude deal could be channeled to improve foreign exchange liquidity,” analysts at Afrinvest said.