Foreign portfolio investments (FPIs) in Nigeria recorded a 77.4% year-on-year decline in the first quarter of 2021 to stand at US$974.1M. This is according to data obtained from the Central Bank of Nigeria (CBN) on Nigeria’s foreign investments.
Portfolio investments dropped from US$4.31B recorded in Q1 2020 to US$974.1M in Q1 2021. Quarter on quarter, however, this was a 1,635% increase compared to US$56.15M recorded in the previous quarter (Q4 2020).
FPIs generally consist of securities and alternative foreign financial assets that are passively held by foreign investors. It involves an investor purchasing foreign financial assets, such as; equities, bonds, derivatives, mutual funds, and guaranteed investment certificates, among other instruments.
- Investments in money market instruments stood at US$808.57M, accounting for 83% of the total foreign portfolio investments in the review period.
- Investments in bonds followed with a total of US$138.7M (14.2%) invested while US$26.88M was directed towards equity.
- In terms of monthly investments, the highest FPI was recorded in February with US$503.17M, while January and March portfolio investments stood at US$30.72M and US$440.25M respectively.
Meanwhile, foreign outflows surpassed inflows in the period, with a total of N90.12 billion recorded as foreign outflows while domestic transactions stood at N526.3 billion.
Why the decline
The Nigerian economy has endured a significant downturn in recent times, ravaged by the covid pandemic, banditry, and insurgency to list a few. Consequently, the economy has been pushed into stagflation, with Nigeria’s unemployment rate at 33.3% as of Q4 2020. Headline inflation was at 18.12% in April 2021 while food inflation stood at 22.72% in the same month.
- According to the 2020 doing business report of the World Bank, Nigeria ranks 131st with a score of 56.9 in terms of ease of doing business.
- Also, the Nigerian Exchange market has witnessed a bearish performance since the beginning of the year, with the All-Share Index recording a year-to-date decline of 4.83% as of 14th May 2021.
- The decline was caused by huge sell-offs recorded in the banking and industrial goods sector.
- Recall that Nairametrics had reported that mutual funds in Nigeria recorded a bearish performance in Q1 2021, as only 25 out of 118 listed funds posted positive growth in the period.
- Since the lockdowns and the crash in oil prices, Nigeria has attracted fewer foreign portfolio investments – going from US$4.3B in the first quarter to US$385M and US$407M in the second and third quarter of 2020 respectively, before recording US$56.15M in Q4 2020 and US$974.1M in Q1 2021.
What this means
The decline in foreign investments could be attributed to the current condition of Nigeria’s economic and business space, as well as the security challenges, structure, and policy problems bedevilling the country. The Nigerian government, as well as business stakeholders, will need to take innovative steps to attract foreign investments (FPI and FDI) into the country in order to ensure speedy economic growth.