Foreign portfolio investments in Nigeria drops by 77.4% in Q1 2021

Foreign portfolio investments (FPIs) in Nigeria recorded a 77.4% year-on-year decline in the first quarter of 2021 to stand at $974.1 million. This is according to data obtained from the Central Bank of Nigeria (CBN) on Nigeria’s foreign investments.

Portfolio investments dropped from $4.31 billion recorded in Q1 2020 to $974.1 million in Q1 2021. Quarter on quarter, however, this was a 1,635% increase compared to $56.15 million 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.

Breakdown

• Investments in money market instruments stood at $808.57 million, accounting for 83% of the total foreign portfolio investments in the review period.
• Investments in bonds followed with a total of $138.7 million (14.2%) invested while $26.88 million was directed towards equity.
• In terms of monthly investments, the highest FPI was recorded in February with $503.17 million, while January and March portfolio investments stood at $30.72 million and $440.25 million respectively.

A cursory look at the domestic and foreign portfolio investment report of the Nigerian Exchange (NGX), revealed that a sum of N60.11 billion was recorded as foreign inflows in the first quarter of 2021, representing a 7.9% decline compared to N65.27 billion recorded in the corresponding period of 2020.

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.
• It was previously 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 $4.3 billion in the first quarter to $385 million and $407 million in the second and third quarter of 2020 respectively, before recording $56.15 million in Q4 2020 and $974.1 million 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.