The latest data on capital importation from National Bureau of Statistics shows that Nigeria attracted total capital inflow worth $5.98 billion in the first half of the year 2024 (H1 2024), indicating a 177 percent year-on-year (y-o-y) increase from $2.16 billion in H1 2023.
This increase was driven by a 360 percent y-o-y growth in Portfolio investments into Nigeria to $3.48 billion from $756 million last year and 85 percent y-o-y surge in other investments to $2.35 billion while foreign direct investments managed a 12 percent y-o-y increase to $149 million less than six months of 2024.
Analysts have attributed the recorded growth to have been triggered by the elevated interest rates in Nigeria; rousing sentiments of foreign investors who prowl higher return of investments and return of investment. This happened despite incoherent foreign exchange policies and the devaluation of the local currency.
In H1 2024, Nigeria saw significant foreign portfolio participation in money market instruments, with around 77 percent or $2.68 billion of foreign portfolio investments allocated to treasury bills, OMO bills, and commercial papers.
During this period, the Central Bank of Nigeria offered yields as high as 22.5 percent on treasury bills primary market auctions, while OMO bills yielded 22 percent, making these instruments among the most attractive in the market.
Private companies also tapped into the favourable conditions, issuing commercial papers at even higher discount rates of 25 percent, 28 percent, and up to 30 percent.
This high return on debt instruments drew substantial foreign interest. Bonds, however, attracted $599 million in FPIs during H1 2024, with $420.8 million invested in Q1 alone. Compared to the previous year, FPIs into bonds grew by 55 percent, rising from $386 million in H1 2023.
This strong performance in the money market and debt instruments indicates the critical role elevated interest rates played in attracting foreign capital to Nigeria during the period, despite the challenges posed by exchange rate fluctuations and macroeconomic uncertainty.
A further analysis of the data unveils that Banking, Trading and Production sectors in Nigeria have maintained position as top investment sectors, gaining 53.4 percent, 17.8 percent and 13.7 percent shares of total $5.98 billion imported capital during the first six months of 2024. This is particularly hinged on their continued contribution to national growth and expansion with the adoption of innovation.
Quarterly analysis of the data shows that in Q2 2024, Nigeria experienced a significant rise in capital importation, amounting to $2.60 billion, a 152.81 percent increase from $1.03 billion in Q2 2023. However, this represents a 22.85 percent decline from $3.38 billion in Q1 2024.
Over the past four years, capital inflows have struggled to regain the pre-pandemic quarterly average of $5 billion, highlighting ongoing concerns about the factors affecting foreign investment, particularly around foreign exchange liquidity and broader macroeconomic challenges.
Portfolio Investments dominated the inflows, accounting for $1.40 billion translating to 53.93 percent, followed by Other Investments at $1.17 billion or 44.92 percent. In contrast, Foreign Direct Investment (FDI) contributed only $29.83 million or 1.15 percent to the total capital importation in the quarter.
The Banking sector led with the highest inflows at $1.12 billion, representing 43.15 percent of total capital), followed by the Production/Manufacturing sector at $624.71 million or 23.99 percent and the Trading sector with $569.22 million translating to 21.86 percent.
Geographically, the bulk of capital importation came from the United Kingdom with $1.12 billion, representing 43.01 percent, followed by the Netherlands at $577.82 million, which is 22.19 percent and the Republic of South Africa at $255.98 million or 9.83 percent. Lagos State was the top destination for capital importation, receiving $1.37 billion, or 52.52 percent of total), followed by Abuja (FCT) with $1.24 billion, representing 47.48 percent.
In terms of institutional inflows, Citibank Nigeria Limited attracted the highest capital with $818.46 million translating to 31.43 percent, followed by Standard Chartered Bank Nigeria Limited with $654.79 million, representing (25.14 percent and Rand Merchant Bank Plc with $488.59 million or 18.76 percent. This trend underscores the crucial role that banking and financial services play in attracting foreign capital to Nigeria amidst prevailing economic challenges.
Meanwhile, financial analysts have expressed worries over the decline in total capital inflow into the Nigerian economy, insisting that key sectors and regions, traditionally seen as drivers of economic growth, are experiencing an exodus of investors.
For instance, a report by Coronation Research noted that, “While there has been a positive year-on-year increase in total capital imported during the first half of the year—primarily driven by the high-interest-rate environment—this momentum is at risk of reversal.”
It added that, “The persistent foreign exchange challenges remain a significant barrier, obstructing the flow of investments into Nigeria. It is crucial for both monetary and fiscal authorities to implement targeted policies that resolve these foreign exchange issues. Furthermore, addressing the ease of doing business in Nigeria is imperative, as an improved business environment will attract both long-term and short-term investors, positioning Nigeria as a more competitive investment destination.”
