Latest statistics from the National Bureau of Statistics (NBS), has shown that equities market in the second quarter (Q2) of 2017 recorded its strongest inflows of portfolio investments since the end of 2015.
Specifically, portfolio investments in equity instruments stood at $614 million, representing 80 per cent of Q2 ’17 FPI, compared to $102 million (33 per cent) in Q1’17.
According to Vetiva Research, the return of foreign capital to the Nigerian Stock Exchange (NSE) is consistent with the surge in equity market average daily turnover which doubled from N2 billion in the first quarter to N4 billion in the second quarter.
They stated that mini-recovery in FPI was particularly encouraging given that 2016 FPI of ($1.813 billion) was the weakest since 2009 ($1.540 billion). This made FPI the highest contributor to capital imports for the quarter, a return to historical trend, excluding the blip in 2016.
“As FPI really only picked up in May at $337 million as against $119 million in April – we attribute this improvement to the establishment of the “Investors & Exporter’s” Foreign Exchange Window.
The window, ostensibly targeted at boosting foreign portfolio flows, has significantly improved liquidity, encouraged autonomous dollar inflows, and enhanced price discovery in the foreign exchange market. We believe this development was supported by an improving macroeconomic environment, reflected in above-50 Purchasing Managers’ Index readings in the quarter.
While “Investors & Exporter’s” Foreign Exchange Window played a primary role here, we believe that impressive corporate earnings in Q1 ’17 also enticed players into the market”, they stated.
They argued that notwithstanding a 30 per cent quarter-on-quarter and 49 per cent year-on-year improvement in FDI in Q2’17, foreign direct investment in Nigeria still compares unfavorably to historical levels and regional peers. “Moreover, the historical FDI trend is worryingly negative, indicating that the Nigerian economy has attracted dwindling levels of long-term foreign investment”, said the analysts.
FDI in 2007 was $4,282 million (45 per cent of total capital inflows and 2 per cent of the Nigerian economy. At the end of 2016, it fell to $1,044 million (20 per cent of total capital imports and just 0.2 per cent of the economy).
“We highlight that the Federal Government has indicated a number of industries that it wants encourage foreign investment in; such as the midstream oil & gas industry, mining & solid minerals, and the ICT space.
However, success on this front would largely depend on the effective implementation of the Economic Recovery & Growth Plan which, among others, seeks to tackle constraints to the growth of business in the country, create an enabling environment for markets to work, and develop Nigeria’s human capital.”
Recall, that the NBS stated that foreign investments into Nigeria rose to $1,792 million in the second quarter of the year, a marked improvement on the previous quarter ($908 million), as well as the corresponding period in 2016 ($1,042 million).
The main drivers of this surge were Foreign Portfolio inflows (FPI) and other Investments in the form of loans. These rose from $317 million and $383 million in the first quarter of 2017 to $771 million and $747 million respectively.