According to the latest data from the National Bureau of Statistics (NBS), Nigeria’s capital importation witnessed a significant decline of 22.9% quarter-on-quarter, totaling USD 2.60 billion in Q2-24, down from USD 3.38 billion in Q1-24. This downturn reflects a concerning trend in foreign investor confidence, primarily driven by unfavorable macroeconomic conditions and ongoing foreign exchange (FX) liquidity constraints.
A detailed breakdown of the capital importation reveals a widespread contraction across key investment categories: foreign direct investment plummeted by 75.0% to USD 29.83 million, while foreign portfolio investment decreased by 32.3% to USD 1.40 billion. Other investments also saw a slight decline of 1.0%, landing at USD 1.17 billion. Despite these quarterly setbacks, capital importation exhibited substantial year-on-year growth of 152.8%, attributed largely to a low statistical base from the corresponding period in 2023.
Looking ahead, analysts predict that foreign investors will remain cautious in the near term, closely monitoring the actions of the apex authorities to enhance FX liquidity and ensure sustainability in the investment landscape. If improvements in local FX liquidity and carry trade conditions occur, and if capital repatriation becomes more straightforward, there may be a potential uptick in foreign capital inflows over the short to medium term.
In a related development, the Domestic and Foreign Portfolio Report from the Nigerian Exchange (NGX) highlights a 22.8% month-on-month decline in total transactions in the domestic equities market, which amounted to NGN 379.52 billion in August, down from NGN 491.61 billion in July. This drop reflects the dual impact of higher yields in the fixed-income market and ongoing FX liquidity challenges.
The breakdown of transactions indicates that domestic activities, which accounted for 84.9% of total transactions, fell by 25.8% month-on-month to NGN 322.05 billion. This decline was primarily driven by a 33.5% reduction in inflows from retail investors and a 12.9% decrease from institutional investors. Conversely, foreign transactions edged lower by a marginal 0.1% month-on-month to NGN 57.47 billion, marking the third consecutive month of contraction.
As domestic investors continue to dominate transaction volumes, their buying activities are expected to be hindered by elevated yields in the fixed-income market, a result of the Monetary Policy Committee’s (MPC) tight stance. Additionally, ongoing FX liquidity issues and naira volatility are likely to restrict foreign investor participation in the equities market.
