Foreign investors were not impressed with the frequent rate hikes implemented by Nigeria’s apex bank as capital importation fell by 20.5 percent to $5. 33 billion in 2022. This compares to $6.7 billion in 2021 and $9.66 billion in 2020, a trend that showed capital importation declined for the third consecutive year.
The Central Bank of Nigeria (CBN) hiked the benchmark interest rate four times in 2022 from 11.5 percent at the end of the first quarter to 16.5 percent by year end, in order to make the nation more attractive to investors.
However, the amount of capital imported has shown that Nigeria is yet to get the magic wand to address the volatile exchange rate regime and make the country more attractive to foreign investors.
The decline has been attributed to the elevated risks emanating from the Russia-Ukraine conflict, inflationary pressures and the fear of recession, which forced central banks to hike their benchmark interest rates across the world, especially in Europe, the United States of America, and other developed economies.
“There were a lot of elevated risks that came with the Russia-Ukraine conflict, which contributed to global inflation. Investors took off from emerging and frontier markets, which was not peculiar to Nigeria alone, to dollar denominated investments, gold and other safe havens,” says Boboye Olaolu, a senior analyst with CardinalStone.
Olaolu added that the rate hike in Nigeria was not enough to address the elevated risk attributed to the country.
The CBN alluded to the above scenario at the end of its Monetary Policy Committee (MPC) meeting last November.
“The resulting macroeconomic uncertainties and associated shock spillovers remain heightened, thus increasing the risk of a global recession which would severely retard the recovery of several fragile economies.
“Those to be most affected would be Emerging Markets and Developing Economies (EMDEs) still confronted with the lag impact of the 2020 recession. The ongoing capital flow reversal from perceived higher risk emerging market securities to US dollar denominated securities with improved yields, is also further hindering orderly global recovery to pre-COVID-19 pandemic levels,’’ Godwin Emefiele, CBN governor said in November 2022 justifying the rate hike.
On a quarterly basis in 2022, a total of $1.57 billion capital was imported in Q1; $1.535 billion in Q2; $1.159 billion in Q3, and $1.06 billion during the last quarter of 2022.
By investment types, portfolio investments took the largest chunk of the capital imported, as investors brought in $2.44 billion under this investment category, representing 46 percent of the inflows in 2022. It was followed other investments which attracted $2.42 billion, amounting to 45 percent of the inflows last year. The bulk of other investments, specifically loans, represented 96 percent of other investment inflows into the country.
“In Q4 2022, the total capital importation into Nigeria stood at US$1,060.73 million, lower than US$2,187.63 million recorded in Q4 2021, indicating a decrease of 51.51%. When compared to the preceding quarter, capital importation also fell by 8.53% from US$1,159.67 million in Q3 2022. The largest capital importation during the period was received from Other Investment, which accounted for 65.17% (US$691.23 million) of total capital imported in Q4 2022.
“This was followed by Portfolio Investment with 26.89% (US$285.26 million) and Foreign Direct Investment (FDI) with 7.94% (US$84.23 million). Disaggregated by Sectors, capital importation into the production sector recorded the highest inflow of US$392.54 million, representing 37.01% of total capital imported in Q4 2022. This was followed by capital imported into the banking sector, valued at US$255.45 million (24.08%), and Telecoms with US$168.27 million (15.86%),” NBS stated.
By destinations, Lagos and Abuja, remain investors’ delight in 2022, as both attracted 98.4 percent of the total capital importation. Lagos State received $3.61 billion, representing 67.8 percent, while Abuja got $1.63 billion, representing 30.6 percent.
Other states are Akwa Ibom, which received $42.52 million; Anambra, $36.97 billion; Kogi, $2 million; Katsina, $70,000, and Ekiti, $51,000.
Others are Oyo, $3 million; Ondo, $20,000 and Plateau. $4,000.
By economic sectors, the production industry received $948.43 million, followed by financing, $791.16 million, and telecoms, $456.83 million. Others are trading, which attracted $265.35 million; servicing, $150.54 million; electrical, $22.96 million where other sectors got $28.55 million.
By country of origin, the highest capital importation came from the United Kingdom, where $2.76 billion was imported last year, followed by South Africa, $428.73 million; Singapore, $420.97 million; United States, $286.92 million; Mauritius, $208.66 million; the Netherlands, $171.27 million, and Togo, $104.55 million, among others.
In terms of financial institutions, foreign investors revealed their preference for Citibank Nigeria and the Standard Chartered Bank Nigeria, with both financial institutions responsible for $2.805 billion, representing 52.6 percent of the total capital importation into Nigeria.
