Nigeria record 0.5% Gross FDI to GDP in 2018 – FBNQuest

By Julius Alagbe
Nigeria’s economy recorded 0.5 percent gross foreign direct investment (FDI) as percentage of gross domestic products (GDP) in 2018, FBNQuest Capital revealed in a note. The firm, however, said than an emerging market in an expansion mode should be posting ratios of at least 5 percent and inch closer to 10 percent. The firm said that best efforts of the presidential enabling business environment council (PEBEC), chaired by the vice-president, notwithstanding, Nigeria has far to go in terms of catching up.
FBNQuest reckons that the striking aspects of the financial account in the balance-of-payments (BoP) for Q4 2018 are the lower, but still respectable inflows from foreign portfolio investors (FPIs), and the paucity of foreign direct investment (FDI).
“The gross inflows from FPIs, that is before investment by Nigerian residents are concentrated on local Federal Government (FGN) markets, and declined from US$4.23 billion in the second quarter of fiscal year 2018 (Q218) and US$1.79 billion in the third quarters of year (Q318) to US$1.38 billion”, FBNQuest remarked.
The firm is of the view that the decline was largely the consequence of monetary tightening by the Federal Reserve (normalization). This process has since stalled. Gross foreign direct investment (FDI) in 2018 amounted to just 0.5% of GDP.
FBNQuest said, “An emerging market (EM) in expansion mode should be posting ratios of at least 5%, and closer to 10%. The best efforts of the presidential enabling business environment council (PEBEC), chaired by the vice-president, notwithstanding, Nigeria has far to go in terms of catching up”.
It recalled that the days following the recent presidential election saw very large inflows from FPIs in fixed income products. FMDQ data show record net inflows at NAFEX of US$3.93 billion in the two weeks to 08 March, of which funds from FPIs accounted for US$3.17 billion.
In addition to the attractive rates and the confidence that they can exit the market at the moment of their choice, investors presumably took Buhari’s re-election as a signal that the CBN’s foreign-exchange policy will not be changed.
“The pivotal role of FPIs is also evident in the CBN’s data on foreign exchange inflows from autonomous sources. When we adjust for the assets on the financial account (Nigerian investment offshore) in Q4, only portfolio investment remains net positive (US$1.38 billion). There was a net outflow of US$3.68 billion on other investment due to assets of US$5.10 billion, predominantly trade credits, currency and deposits”, FBNQuest said.