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NIGERIA FY'17 Capital Importation - Q4 completes 2017 capital import recovery

 

Q4 completes 2017 capital import recovery
Capital imported into Nigeria rose 30% q/q to $5,383 million in Q4’17, much higher than $1,549 million reported in Q4’16. This made Q4’17 the best quarter since the oil price crash (Q3’14 – $6,543 million). Total capital imports for the full-year period came to $12,229 million, more than double 2016 inflow of $5,149 million, though still some way off the $20,751 million recorded in 2014. We attribute this mini-recovery in capital imports to a number of factors. Chief among them is the partial liberalization of the Nigerian foreign exchange (FX) market through the enactment of the “Investors & Exporters” (I&E) window in April 2017 which allowed foreign investors to circumvent prior capital controls in the economy. We believe that attractive capital market conditions also encouraged greater capital flows. In particular, high interest rates as well as relatively cheap equity market valuation must have enticed foreign portfolio inflows (FPI). Finally, we point to Nigeria’s exit from recession in Q2’17 and improving oil market dynamics – 2017 oil price average of $55/bbl vs. $45/bbl in 2016 and production average of 1.88 mmbd vs. 1.81 mmbd in 2016.

Evolving global dynamics make 2018 an interesting year for foreign capital. Whilst a bullish oil market buoys investor interest in Nigeria’s economy, monetary tightening by the U.S. Federal Reserve is likely to exert pressure on Emerging Market capital flows. Nevertheless, domestic conditions may prove more important. Our positive expectation for GDP growth (2018F: 2.4% y/y) and forecast of a stable and liquid exchange rate market should provide a decent base for capital imports. However, imminent 2019 elections are likely to be the swing factor as the level of uncertainty in the latter stages of the year would drive foreign sentiment towards the country.