Wednesday, February 01, 2017 1:58 PM / NBS
The total value of capital imported into Nigeria in the fourth quarter of 2016 was estimated to be $1,548.88 million, which represents a decrease of 15.00% relative to the third quarter, and a fall of 0.52% relative to the fourth quarter of 2015. The level of capital imported was similar in each month of the quarter, but the highest was in December, of $555.37 million.
The decline relative to the previous quarter was entirely due to a decline in portfolio investment; Foreign Direct Investment (FDI) and Other Investment both increased. The quarterly decline in portfolio investment was mainly due to base effects: there were large investments in money market instruments and bonds in the third quarter, which were not matched in the final quarter.
In the year 2016, capital importation fell by 46.86%, from $9.64 billion in 2015 to $5.12 billion. This was the lowest value since the series started in 2007, which reflects the numerous economic challenges that afflicted Nigeria in 2016. The weakening of the naira may have had an impact: a weaker naira means more can be purchased with each dollar, and therefore investment projects requiring naira payments cost less in dollar terms.
Portfolio investment fell the most, by 69.81%. This investment type, whereby investors seek quick returns rather than control of management in companies, is most likely to be affected by current market conditions. Foreign Direct investors take a longer-term view, and therefore Nigeria’s recession and currency problems may carry less weight in investment decisions.
FDI fell by 27.83% between 2015 and 2016, considerably less than portfolio investment. By contrast, Other investment increased between 2015 and 2016, by 3.48%. This was entirely due to an increase in loans.
Capital Importation by Type
Capital Importation can be divided into three main investment types: Foreign Direct Investment (FDI), Portfolio Investment and Other Investments, each comprising various sub-categories.
In the final quarter of 2016, Other Investment was the largest component of imported capital and accounted for $920.03 million, or 59.40%. This followed a quarterly increase of 63.95%, and a year on year increase of 91.16%.
While this is partly the result volatility in the series, the value of Other Investment was nevertheless strong, and has been surpassed by only four previous quarters since 2007.
All four subcategories within Other Investment recorded positive investment, in contrast with the previous quarter in which investment was recorded for only Loans and Other claims. However, the majority (99.67%) was in the form of loans, in which category there was $917.01m of investment.
The second largest component of capital importation in the final quarter of 2016 was Foreign Direct Investment (FDI). This investment type accounted for $344.63m, or 22.25% of the total.
This represented growth of 1.17% relative to the previous quarter, and of 179.83% relative to the same quarter of the previous year, the first year on year growth rate in 5 quarters. However, the latter growth rate was high in part due to a base effect: the value of FDI in the final quarter of 2015 was one of the lowest on record. Of the two subcategories, both recorded positive investment, but there was less than $0.1m of investment in the form of Other Capital, and so FDI – Equity accounted for 99.98% of the total.
For the first quarter on record, Portfolio Investment was the smallest component of capital importation, and accounted for $284.22m, or 18.35% of the total. This was the lowest share accounted for by this investment type since the beginning of 2009. Whereas the other types increased relative to the previous quarter (albeit slightly in the case of FDI) Portfolio Investment fell by 69.12%.
This was partly due to a spike in Portfolio Investment in the previous quarter, but nevertheless there was also a decline relative to the previous year, of 70.16%. The largest component of Portfolio Investment was – Equity, which accounted for $176.44m, or 62.08% of this investment type.
This was the lowest level recorded for the subcategory; portfolio equity investors tend to be primarily concerned with short term profits, and therefore are most likely to be deterred by the recession, and recent currency controversies. Bonds and money market instruments recorded investment of $25.40m and $82.37m respectively, representing significant declines from the unusually high values both subcategories recorded in the previous quarter.
Capital Importation by Sector
Capital is either imported in the form of shares, or directly imported by different sectors of the economy.
In the final quarter of 2016, the value of share capital imported was $228.24m, which represents a decrease of 64.68% relative to the previous quarter. This led to a large decline in the percentage of capital importation accounted for shares, from 35.47% to 14.74%, the lowest recorded.
Share capital investment, which is closely related to Equity investment (FDI and Portfolio) was responsible for most of the increase in capital importation throughout 2012 – 2014, and accounted for much of fall since. The different profiles of share capital and other investment is given in figure 3. Year on year, share capital imported declined by 72.56%.
There were three sectors that accounted for most of the movement in capital imported into different sectors. Banking was the sector to import the largest value of capital in the previous quarter, but following a quarterly fall of $394.22m, or 70.96%, became only the third largest, and imported $161.30m in the final quarter of 2016.
By contrast, the Telecommunications sector recorded an increase of $309.45m, which more than doubled the amount of capital imported in the previous quarter to reach $554.25m. This was the largest value of capital imported by any sector in this quarter.
The Oil and Gas sector also recorded a large increase, of $155.67m or 90.70%, to reach $327.30m, and became the second largest. Comparing the value of capital imported by these sectors to the value in the final quarter of 2015 reveals even larger increases: Telecommunications and Oil and Gas sectors imported capital worth only $13.22m and $93.37m respectively in this period.
Only three sectors to recorded no capital importation in the final quarter of 2016 (Hotels, Tanning and Weaving), one less than in the previous quarter. However, there were a further four sectors to record a value of less than $1 million, which were Consulting, Drilling, Marketing, and IT Services. There were eight sectors to record a decline in the value of Capital relative to the previous quarter.
Capital Importation by State
The state to import the most capital into Nigeria in the final quarter of 2016 was Lagos, as in all previous quarters. Lagos is the commercial and financial capital of Nigeria, and home to Nigerian Stock Exchange where shares are traded.
As such, it accounts for most of the capital imported into the country. In 2016, it accounted for more than 90% of capital importation in nearly all months, although in May it accounted for only 88.08%. Abuja is generally the state to import the second largest quantity of capital, and this was the case for 2016 as a whole.
Capital Importation by Country of Origin
In the final quarter of 2016 there were 32 different countries that were active in investing in Nigeria. This is two less than in the previous quarter, but less than in the same quarter of the previous year when there were 40 countries from which Nigeria imported capital.
The country from which Nigeria imported by far the most capital was the United Kingdom, which accounted for $482.89 million, or 31.18% of the total. This was despite a fall of 56.00% relative to the previous quarter. As well as the existence of an historical relationship between the UK and Nigeria, London (the capital of the UK) is also a key financial centre, which could help to explain the high value of capital importation accounted for by the UK.
Since 2010, the UK has accounted for the highest value of capital importation in all but two quarters (both in the second half of 2015). In addition, it was the country primarily responsible for the rise in portfolio investment throughout 2012-2014, in which this type of investment was by far the largest component. In 2016 as a whole, the UK also invested the most in Nigeria, with capital worth $2,131.85 million imported from this country, more than twice the value of the next largest investor country.
The country to account for the second largest value was the Netherlands, which accounted for $296.52 million, or 19.14% of the total. Although Netherlands has always been a prominent investor in Nigeria, with numerous large companies active, it has been more consistently among the top investor countries in recent years. In 2016 it was the third largest investor country, and made investments worth $516.89 million, behind only the UK and the US, the latter of which invested $945.59 million in the same period. Nevertheless, capital imported from the US was slightly lower than from the Netherlands in the fourth quarter, at $242.46 million.
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