Posted Wed, Dec 16, 2020 7:09 AM

NESG Q3’2020 Capital Importation Alert, December 2020

Overall investment inflows into Nigeria plunged by 74% year-on-year in Q3’2020
According to the National Bureau of Statistics (NBS), foreign investment inflows fell sharply by 74.0% (year-on-year) to $1.5 billion in the third quarter of 2020 from $5.6 billion in the same period of 2019. This represents a continuous decline in Nigeria’s foreign investment inflows. This drastic decline in foreign capital inflows could be attributed to Nigeria’s poor economic performance accompanied by the impacts of the COVID-19 pandemic within the period. In Q3’2020, the Nigerian economy also contracted by -3.6% while real return on investments remained in the negative region due to a high inflation rate and single-digit T/bill yield. These events, coupled with the considerable uncertainty in the economic environment, served as a disincentive to foreign investors.

A plunge in FPI drove the overall decline in foreign investment inflows
In the third quarter, the decline in total investment inflows was primarily driven by a sharp drop in foreign portfolio investments (FPI). Total FPI inflows in Q3’2020 dipped by 86.6% to $407.6 million. Correspondingly, the share of FPI in the overall foreign investment inflows plunged to 28% in Q3’2020 from 54% in Q3’2019. The massive decline in FPI relative to other investments could be attributed to poor investors’ confidence caused by amplified FX risks, heightened inflation, among others. Conversely, Foreign Direct Investment (FDI) witnessed a sharp rise in contribution to overall investment inflows. The share of FDI rose by 24.7 percentage points to 28.4% when compared with Q3’2019. The surge in the value of FDI inflows was primarily driven by re-opening of economic activities and significant inflows of capital investments into the production sector. The share of Other foreign investments also rose to 43.8% in Q3’2020 relative to 42.5% in Q3’2019.

FDI strengthens to $415 million in Q3’2020
Foreign Direct Investment (FDI) – which is a source of long term foreign investment flows – became stronger by 101% to $415 million in Q3’2020 when compared with its level in the corresponding period of 2019 ($207 million). “Other” Foreign Investment Inflows drastically fell by 73.3% in Q3’2020 (year-on-year) Other foreign investments covering foreign loans, trade credits, currency deposits and other claims fell to $639 million in the period. This figure represents a 73.3% decline year-on-year relative to its level ($2.4billion) in the corresponding period of 2019.