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NIGERIA Q2'17 Capital Importation - FPI returns to buoy Q2’17 capital imports

FPI returns to buoy Q2’17 capital imports     
Foreign investments into Nigeria rose to $1,792 million in the second quarter of the year, a marked improvement on the previous quarter ($908 million), as well as the corresponding period in 2016 ($1,042 million). The main drivers of this surge were Foreign Portfolio Inflows (FPI) and Other Investments in the form of loans. These rose from $317 million and $383 million in Q1’17 to $771 million and $747 million respectively. Meanwhile, we highlight that Nigeria raised a $1,500 million Eurobond in March and a $300 million Diaspora Bond in June, but these have not yet been recorded in the capital import figures for the first half of 2017.  
    
We attribute the improvement in capital inflows to the establishment of the “Investors & Exporter’s” Foreign Exchange Window (i.e. the I&E Window). The window, ostensibly targeted at boosting foreign portfolio flows, has significantly improved liquidity, encouraged autonomous dollar inflows, and enhanced price discovery in the foreign exchange market. We note that FPI in the quarter was predominantly for equity investments. Portfolio investments in equity instruments registered at $614 million, 80% of Q2’17 FPI, compared to $102 million (33%) in Q1’17, as equities recorded their strongest inflows since the end of 2015.  
    
"One key determinant of capital imports going forward is the medium-term trajectory of interest rates in the global and domestic environments. We underscore the fact that loosening monetary conditions in Nigeria, when the opposite is taking place in advanced economies, is unlikely to be positive for Nigeria’s capital account. Beyond monetary policy, the health of the currency market will remain key for foreign investors for the foreseeable future."