In the first quarter of 2024, 94% of capital inflows into Nigeria were made up of debt securities. According to data from the National Bureau of Statistics (NBS), capital inflows to Nigeria totaled $3.38 billion in the first quarter of 2024, a 198% increase from the previous year. Foreign direct investments, foreign portfolio investments, and other investments are among the capital inflows.
With $2.08 billion, Foreign Portfolio Investments (FPIs) led the way, having increased by 220% annually. Other investment inflows increased by 172% to $1.18 billion, while foreign direct investments (FDI) increased by 150% to $119.18 million.
Loans dominate foreign capital inflows
The primary goal of Nigeria’s monetary and fiscal policies has been to draw in foreign debt, according to the country’s economic managers. The distribution of capital inflows by kind during the first quarter of the year illustrates this.
The NBS reports that loans made up the majority of foreign investment inflows into the nation, with buyers buying more than $2 billion worth of bonds and money market instruments.
The central bank of Nigeria has adopted several rate rises in order to fight inflation, but the mainstay of its foreign exchange strategy has been higher interest rates. The interest rate was increased by almost 750 basis points, from 18.75% to 26.25%, under CBN Governor Yemi Cardoso.
The result is a significant surge in short-term instruments such as bonds and money market instruments like treasury bills and OMO bills.
For money market instruments, the NBS reported an 11-fold increase year on year to $1.61 billion from $125.9 million. This is also about 274% higher than the total money market-related inflows of $428.9 recorded for the whole of 2023.
Nigerian bonds attracted $420.81 million in foreign capital, up by about 40% from the previous year’s $301.08 million in the same quarter.
On the fiscal side, Nigeria also recorded a 165.3% rise in loans going from $433 million in the first quarter of 2023 to $1.15 billion in the corresponding period this year.
This means that about a total of $3.18 billion in foreign capital inflows into Nigeria are from debt instruments, which is 94% of the $3.38 billion recorded as total capital importation for Q1 2024.
What you should know
Foreign portfolio investors (FPIs) are expressing increased interest in the Nigerian market, according to a statement made earlier in February 2024 by Yemi Cardoso, the governor of the Central Bank of Nigeria (CBN).
In his discussion of the crucial problems pertaining to foreign exchange and investment, Cardoso stressed the significance of making the most of current resources in order to increase portfolio inflows and foreign direct investment. Unlike what is commonly believed to be “hot money,” the governor sees foreign portfolio investments (FPIs) as vital parts of any balanced foreign currency portfolio, whether it be corporate or sovereign.
By March 2024, the Central Bank of Nigeria (CBN) announced a significant inflow of over $1.5 billion into the Nigerian economy.
Mrs Hakama Sidi Ali, the Bank’s Acting Director of the Corporate Communications Department, noted in a statement that the inflows are a direct result of the CBN’s initiatives aimed at ensuring liquidity and stability within the foreign exchange market.
The apex bank further disclosed that over 75% of bids received during the auctions of government securities held on March 1 and 6, 2024, were from foreign investors, showcasing their growing interest in Nigeria’s debt instruments.
the total foreign portfolio inflow for Q1 2024 (N93.37 billion) was more than quintuple that in Q1 2023 (N18.12 billion). However, FPI outflows surged by 237% to N119.81 billion, from N35.59 billion in Q1 2023.
The total net outflow for the quarter was N26.44 billion, highlighting a trend where foreign investors are pulling out more funds than they are bringing into the Nigerian economy.
Speaking at the end of the 294th meeting of the Monetary Policy Committee (MPC), the CBN governor, Yemi Cardoso, said that it is normal for investors to come and go, and vice versa.
