Gross Capital Inflows to Nigeria Decline by $1.82bn

(This Day) - Following fears about the possible outcome of the just concluded general elections and reversed economic growth due to dwindling oil prices, aggregate capital inflow into Nigeria fell considerably by $1.82 billion in 2014.
 

The Central Bank of Nigeria (CBN) External Sector Development Report for Q4 2014 showed that aggregate capital inflows (gross) stood at $2.64 billion, a sharp decline from $6.79 billion in the previous quarter and $4.46 billion in the corresponding period in 2013.
 

The External Sector Development Report also revealed that direct investment amounted to $1.03 billion while there were outflows of $770 million from portfolio investment. Other investment inflows (i.e. loans) totalled $840 million.
 

Reacting to the report, analysts at FBN Capital said the reversal of portfolio inflows in Q4 2014 can be linked to domestic macro challenges created by the slide in the oil price and the conclusion of the quantitative easing programme by the US Federal Reserve.
 

“While sentiment has been boosted by the result and successful conduct of the national elections, liquidity in the foreign exchange market remains poor as a consequence of the CBN’s monetary policy. However, since the elections a few offshore investors have returned to the equities and debt markets.
 

“In Nigeria, as elsewhere, direct investment inflows follow a more stable trend. Marked fluctuations are unusual, and the flows have ranged between $1.03 billion and $1.38 billion over the past four quarters. The “Africa is rising” narrative is firmly the majority view, and has been reinforced by the Nigerian elections, “they said.
 

The analysts added: “The net inflow positions for 2014 (full year) were $3.08 billion and $1.85 billion for direct and portfolio investment respectively. They are adjusted for assets on the capital and financial account (ie the movements of Nigerian residents).
 

“The European Central Bank (ECB) expanded programme of asset purchases began last month with a ceiling of €60bn per month. Similar to the Fed’s QE programme, we see the flow of some funds from the sellers of the bonds (banks and pension funds, mostly) to high yielding assets in frontier and emerging markets.”
 

The analysts had in their response to the recent surge in FGN bond auction, said in the absence of a sustained recovery in the oil price to underpin the public finances, investors are buying into talk of much tighter fiscal management under a Buhari administration.
 

“We can all identify areas where the management could be tightened: tax exemptions, duty waivers, inflows from the oil industry, allowances for officials, and ineffective ministries, departments and agencies (MDAs), to name but five. If there is to be fiscal transformation, it will come in stages. Members of the circle around the president-elect have sought to manage expectations and indicated that Nigerians may not see sizeable changes until October. The 2015 budget process, almost concluded, limits their room for manoeuvre," they said.