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NIGERIA Q1'17 Capital Importation - Bright outlook for capital imports despite Q1 slump

Flattered by a low base in Q1’16 ($711 million), capital imports rose 28% year-on-year (y/y) to $908 million in Q1’17 as all three major categories rose on an annual basis. However, capital imports dipped from the previous quarter ($1,549 million), pressured by 58% and 39% declines in Other Investment ($383 million) and Foreign Direct Investment ($211 million) respectively. Foreign Portfolio Inflows rose from $284 million in Q4’16 to $314 million in Q1’17. Surprisingly, Q1’17 figures do not capture Nigeria’s $1,500 million Eurobond sale during the period – we believe this could possibly be as a result of the lag between subscription and the actual payment of the funds to government’s coffers.

Q1’17 capital import figures are disappointing in comparison to recent quarters but the outlook is much brighter. Efforts by the Central Bank of Nigeria (CBN) to boost liquidity in the foreign exchange (FX) market through regular dollar sales have begun to bear fruit in terms of greater investor confidence and stronger macroeconomic conditions. In particular, the introduction of an “Investors & Exports” window that targets foreign investors provides a clear entry & exit point for prospective investors. We expect FPI especially to grow in line with liquidity and price discovery at this window. Meanwhile, a modestly positive economic outlook (Q2’17 GDP forecast: 2.1%) and greater activity on the fiscal front should encourage additional flows. Overall, confidence in the CBN’s FX management remains the key determinant of capital imports to Nigeria.