Foreign Currency Loans (FCY) went up 165.3 per cent year-on-year, thus contributing 94.0 per cent of inflows in ‘other Investments segment’ of the capital importation data between the first quarter of 2023 and that of 2024.

But inflows year-on-year equities declined 77.8 per cent year-on-year to $49.4 million (lowest in Q1 inflows since 2022 at $31.8m). 

“The sharp uptick in inflows to fixed income instruments (especially, money market) is not surprising given that the new CBN leadership has relaxed the yield repression strategy of the previous leadership to lure portfolio investors”, said analysts at Afrinvest. 

During the quarter in review, the Central Bank of Nigeria (CBN) hiked Money Policy Rate (MPR( by 600bps to 24.75 per cent, while stop rates on the 90, 180, and 364-day NT-Bills tracked higher to 16.2 per cent, 17.0 per cent and 21.1% per cent respectively. 

Analysts at Afrinvest said, “This reality does not bode well for the nation’s economy as it implies the lack of confidence by foreign investors to directly invest their assets in Nigeria. 

“Besides, given the current pricey state of capital in the global market especially for emerging economies with weak credit ratings like Nigeria (Fitch Ratings: B-), we imagine that the FCY loans (which were mainly to private businesses) were secured at elevated rates.

“Hence, while capital importation is well on course to hitting a five-year high (current run rate should deliver $13.5 billion), it then becomes a bittersweet moment as Nigeria can’t afford to keep relying on expensive loans to boost foreign investment inflows”.

Besides, the challenging business environment in Nigeria has heightened the risk of loan default for businesses tapping into FCY markets to drive operations.

Shifting attention to the distribution of the inflows by sectors, it was observed that banking (61.2%) attracted the most, followed by Trading (14.7 per cent) and Production (5.7%). 

This is the first time since the first quarter of 2023 that Banking would lead other sectors. 

“We opine that inflows into the banking sector partly reflect the impact of improved Open Market Operation (OMO) issuances. The rise in trading contribution to $494.5 million (surpassing previous high of $311.2 million in the fourth quarter of 2021) could be attributed to the attraction of Nigeria’s exports due to weaker naira. 

“This submission is further validated in the first quarter of 2024 Foreign Trade Statistics in which the trade surplus rose to N6.5 trillion surpassing the 2023 year high of N5.1 trillion”, said Afrinvest.

In terms of distribution, capital inflows were limited to three states – Lagos ($2.8bn), Abuja ($593.6n) and Ekiti ($1,275). 

This underscores the amount of reforms sub-national governments need to implement (in support of efforts by the FG) to make their state investment friendly if they ever intend to be fiscally independent.

Last week, the first quarter of 2024 capital importation data published by the National Bureau of Statistics (NBS) highlighting the total foreign investment inflows into Nigeria during the period shows total capital inflows advanced 198.1 per cent year-on-year (y/y) to $3.4 billion – the highest since the first quarter of :2020. 

Foreign Portfolio Investment (FPI) – the largest component of the total capital importation with 61.5% share – advanced 219.7% y/y to $2.1bn, driven by improved inflows into money (up 1,175.2%) and bonds (up 39.8%) markets.