A CLOUD of uncertainty hangs over foreign investment inflow into Nigeria in 2020 following the 78 percentage point decline, year-on-year, YoY, in growth rates recorded in the nine months ending September 2019.

This is compounded by the increased dominance of investment in treasury bills (TBs), which accounted for 61 percent of foreign investment during the period from 51 percent in the corresponding period of 2018. This uncertainty is reflected in the divergence in analysts’ outlook on foreign investment growth in 2020, with some analysts projecting that growth in foreign investment could be positive or negative in 2020, while others assert that the sharp slowdown in growth will continue in 2020, citing the Central Bank of Nigeria (CBN) exclusion of local investors from the Open Market Operations (OMO) TBs, and Moody’s downgrade of Nigeria’s outlook to ‘negative’ from ‘stable’.

Others are the recent warning by the World Bank on the possibility of Nigeria sliding back into recession, as well as the unfavorable global macroeconomic conditions, as factors that will aggravate the decline in foreign investment inflow in 2020.

Foreign investment in 2019 Financial Vanguard analysis of the quarterly Foreign Capital Importation (foreign investment) reports by the Nigeria Bureau of Statistics (NBS) show that foreign investment inflow into the country from January to September 2019 rose by 34 percent, YoY, to $19.6 billion, from $14.67 billion in the corresponding period of 2018.

However, the 34 percent growth in 2019 represents a 78 percentage point under performance when compared to the 114 percent growth achieved in 2018 against the corresponding period of 2017. This is even as the report shows that Foreign Direct Investment (FDI) component fell by 36 percent, YoY to $666.4 million in the first nine months of 2019, from $1.04 billion in the same period of 2018. But, Foreign Portfolio Investment (FPI) and Other Investment (OI) rose by 38 percent and 43 percent, YoY, respectively to $14.4 billion and $4.6 billion in 2019 from $10.4 billion and $3.23 billion in 2018.

Dominance of TBs The NBS data also showed increased dominance of Money Market instruments (treasury bills, TBs) in the foreign investments. In the first nine months of 2019, foreign investors bought $11.95 billion worth of the nation’s TBs, representing 59 percent, YoY, increase when compared to $7.5 billion worth of TBs bought in the same period of 2019.

As a result, the share of foreign investment in TBs in the total foreign investment inflow rose to 61 percent in 2019 from 51 percent in 2018 and 14 percent in 2017. Financial Vanguard analysis shows that the huge growth in foreign investment through TBs was driven by high yield on TBs especially in the first quarter of 2019 (Q1’19), when yields on one year TB averaged 13.9 percent.

Naira to depreciate further in I&E as CBN intervenes with $540m(Opens in a new browser tab) Consequently foreign investors bought $5.9 billion worth of TBs in Q1’19, representing over 500 percent, quarter-on-quarter, increase when compared with the $983 million worth of TBs purchased in the preceding quarter, Q4’18. As a result, total foreign investment into the country jumped by 252 percent, quarter-on-quarter, QoQ, to $8.48 billion in Q1’19, from $2.14 billion in Q4’18.

This trend was however reversed in Q2’19, following 190 basis points decline in one year TBs to 12 percent, prompting amount of TBs purchased by foreign investors to fall by 40 percent, QoQ to $3.5 billion in Q2’19. Consequently, total foreign investment into the country fell by 32 percent, QoQ to $5.8 billion in Q2’19. The decline persisted in Q3’19 with another 6.8 percent, QoQ, decline to $5.4 billion.

SOURCE : https://chiomablog.com/uncertainty-over-foreign-investment-inflow-in-2020/