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ECONOMY

Nigeria’s Foreign Capital Importation Continues To Decline

However, The Fact That The Amount Of Capital Imported Has Dropped To A Record Low Suggests That There Are Further Reasons Why Nigeria Has Attracted Less Foreign Investment In Recent Quarters

Muhammadu Buhari
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The diversification drive by the Muhammadu Buhari led administration may be yielding some positive results as shown in the latest report by the National Bureau of Statistics.

The release which reports the country’s total capital importation for the Q1 of 2016 shows some significant reduction as much as 54.34 percent to $710.97 million compared to $1.55 billion in Q4 2015.

Year-on-year, capital importation also declined by 73.79 percent.

This of course can be linked to the last year’s ban placed on 41 items by the Central bank of Nigeria to encourage more of local production and exportation.

A careful look at the report clearly shows that total capital importation has fallen by 89.13 per cent since its peak level in the third quarter of 2014.

According to the summary the magnitude of the decline in Q1 attested to the challenging period which the Nigerian economy is currently undergoing following the fall in crude oil prices and the federal government’s efforts to source for alternative revenue generator.

 

One of such theories the statistic body listed was the inclusion of Nigeria in the JP Morgan Bond Index, and globally low interest rates triggering a search for higher yields over this period.

However, the fact that the amount of capital imported has dropped to a record low suggests that there are further reasons why Nigeria has attracted less foreign investment in recent quarters.

Investors may be concerned about whether or not they will be able to repatriate the earnings from their investments, given the current controls on the exchange rate. In addition, as growth has slowed in recent quarters, there may be concerns about the profitability of such investments.

 

Furthermore, In the period under review, Portfolio investment was largest, accounting for $271.03 million, or 38.12 percent of all capital imported, with equity as the largest sub-component which accounted for $201.69 million, representing 74.41 per cent of portfolio investment and 28.37 per cent of total capital imported.

It may be of interest to know that equity has been the largest part of portfolio investment in every quarter since 2007.

 

Although it remains the largest sub-component, this is despite contributing the most to the decline in portfolio investment; Equity recorded a quarterly decline of 74.54 per cent, and a yearly decline of 82.30 per cent.

The second largest sub-component of Portfolio Investment was Money Market Instruments, which accounted for $67.85 million, or 25.03 percent of portfolio Investment, despite recording a quarterly decline of 57.62 per cent.

 

In contrast to the same quarter of 2015, Bonds was relatively unimportant, accounting for only 0.55 per cent of portfolio investment. This followed a year on year decline of 99.79 per cent, from $705.12 million to $1.50 million in the first quarter of 2016.

 

According to the statistical agency, second largest component was Other Investment, which accounted for $265.48 million, or 37.34 per cent of all capital imported.

As in the final quarter of 2015, only two sub-components recorded any investment: loans, which accounted for $241.81 million or 91.09 per cent of other investment, and other claims, which accounted for $23.66 million or 8.91 per cent. Each of these sub-components had seen large quarterly declines, of 42.54 per cent and 60.86%% respectively.

 

In contrast to other investment types, Foreign Direct Investment (FDI) recorded a quarterly increase in the first quarter of 2016, from $123.16 million to $174.46 million.

While this may be signaling efforts to revive the economy, there are also concerns in the business world the reaction of the Central bank of Nigeria as the apex body prepares for its next monetary policy committee meeting.

 

BY: Imoh Edet

 

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