Capital Importation Q3’18: FPIs Move To Money Market


Thursday, December 13, 2018 02:30 PM / CardinalStone Research


Capital importation shrinks in Q3’18

The value of capital imported into Nigeria declined by 31.1% YoY and 48.2% QoQ in Q3’18 to $2.9 billion, to record at its lowest level since Q2’2017. Correspondingly, the value of foreign portfolio investments (FPIs) recorded at $1.7 billion, which represents a decrease of 58.2% compared to Q2’18 and a 37.7% decrease compared to the third quarter of 2017. 

Notwithstanding, FPIs accounted for the bulk of capital imported into the country (60.3%), while foreign direct investments (FDIs) and other investments made up 18.6% and 21.1% respectively. 


Figure 1: Total capital importation US$ ‘billions (Q1’14 – Q3’18)

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Foreign Investments settle in money market; FDI records growth 

So far this year, foreign investments have been concentrated in the money markets ($7.5 billion), with the equity space playing second fiddle at $2.1 billion while the bond market has recorded relatively muted interest with inflows of $773 million. 

In Q3’18 alone, capital inflows into the money market amounted to $1.3 billion, while equity and bonds inflows amounted to, $394.5 million and $37.5 million respectively. This pattern is in line with the foreign investor preference for money market instruments in the last two quarters, contrasting with a 5-year (2013-2017) lasting preference for the equity market. 

Relatively higher inflows into money market follows several increases in money market rates in the third quarter. OMO yields in the quarter rose by c. 2.5% to 15.6% in the third quarter. 

Foreign investor preference for money market instruments over equity and bond investments signals investor skepticism over long term prospects for the country, as election uncertainty continues to loom over investment decisions. Surprisingly, however, FDIs rose to its highest level in three years since Q3’15 to record at $530.6 million.

Shares (58.4%), which comprise both FDI and Portfolio Investment in equity, represented the bulk of capital importation by sector, banking (10.1%), financing (13.0%), production (8.1%) and servicing (7.21%) were other popular destinations.


US ousts UK to become the biggest source of capital imports

The US overtook the UK as the main source of capital imports in Q3’18 to record at $911.3 million and $871.1 million apiece, although both countries recorded significant declines in capital imports by 25.6% and 50.9% respectively. The decline was largely expected as investors reallocate their portfolios to adjust for political risk, as the general elections in February 2019 draws closer. 

However, the case for investments in Nigeria has become slightly more balanced in recent times. On the one hand, lower oil prices and political risk, gives reason to hold off on investments in the nation in the near term. But on the other hand, a more dovish stance by the US FED, concerns over an overvalued US stock market, uncertainties over Brexit and Italy’s proposed budget make a case for prospecting on emerging and frontier nations.

Moreover, consecutive rate hike on domestic money market instruments and a relatively stable exchange rate in Q4’18, may appeal to some FPIs chasing ‘hot’ money.

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