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NIGERIA Q1'18 Capital Importation - Capital inflows return to pre-oil crisis levels

Capital inflows return to pre-oil crisis levels                                                                     

The National Bureau of Statistics (NBS) released the Q1’18 capital importation report, showing a jump in capital imports to $6,304 million – from $908 million and $5,383 million in Q1’17 and Q4’17 respectively. The uptrend in Nigeria’s capital imports is unsurprising as it comes against the backdrop of a healthier global economy (2018 IMF global GDP growth forecast: 3.9%, 2017: 3.8%) and better than expected rise in oil prices (ytd average: $69/bbl). Moreover, domestic economic conditions have grown more attractive – the currency market remains stable while an easing risk environment complements high available nominal returns to investment.                                                                           

Numerous factors would determine capital inflows for the rest of 2018. Firstly, a stable currency environment and sturdy economic growth provide a modest background for capital inflows. This would be further buoyed by a possible re-inclusion of Nigeria in the JP Morgan Emerging Market Bond Index at some point during the year. However, monetary tightening in the United States and latent concerns around the impact of the 2019 election preparations on security and the economy may discourage capital flows. Finally, it is important to note that supportive government policy remains the most potent way of attracting FDI, whether through special economic zones or similar incentive schemes. All in all, we expect capital flows – which have now reached 2014 levels – to remain stable through the year.