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Investment inflows to Nigeria decline 42% to $2.86bn

By BusinessNews Staff on August 19, 2014

Apparently worried by the outcome of the 2015 election foreign investors are beginning to scale down their level of investment in Nigeria as witnessed by marked slowdown in investment inflows in first quarter of this year.

THISDAY investigation revealed that the failure by the national assembly to pass the Petroleum Industry Bill has also played a major role in the slowdown of foreign investment into the country.

Meanwhile, the Central Bank of Nigeria (CBN) External Sector Development Report (ESDR) for Q1 2014 revealed a reduced contribution of portfolio transactions to total investment inflows.

The ESDR revealed that portfolio investors provided 80 per cent of total investment flows in Q4 2013, dropping to 63 per cent in the first quarter of this year.

The ESDR also showed that a combined portfolio and direct inflows declined by 42 per cent to $2.86 billion in first quarter of 2014.

These, analysts told THISDAY, are gross flows, which are not adjusted for outflows captured as assets in the balance of payments.

“Adjusted, the recent trend has been a net inflow for both direct and portfolio transactions. Q1 2014 proved an exception with a net outflow of $980 million on the portfolio side. Happily, we can reconcile the figure with turbulence in emerging and frontier markets. There was a sell-off on the NSE, FGN bond yields picked up and the CBN struggled to hold the line on the exchange rate,” said analysts at FBN Capital.

This, according to the analysts, was a period of negative global market thinking on the impact of tapering by the US Federal Reserve and on the end of cheap money generally.

“Sentiment has since calmed, and we would expect a net portfolio inflow in Q2 2014. We track this data series because of the scale of oil production losses/leakages. The US Federal Open Market Committee (FOMC), has now trimmed the Fed’s monthly asset purchases to $25 billion (from a peak of $85 billion) and we expect the completion of tapering by October.

“Thereafter the committee will at some point increase the Fed Funds rate. This could come as soon as Q1 2015. We expect the financial impact of this tightening to be greater in economies with liquid markets and current-account deficits such as South Africa and Brazil than those with strong external balance sheets like Nigeria,” they stated.

[This Day]

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