Debt instruments dominated capital importation into Nigeria in the first quarter of 2024, comprising 94% of the total inflows.
Data from the National Bureau of Statistics (NBS) reveals that Nigeria attracted $3.38 billion in capital inflows during this period, marking a 198% increase year on year.
The capital inflows were composed of foreign direct investments, foreign portfolio investments, and other investments. Foreign Portfolio Investments (FPIs) led with $2.08 billion, rising by 220% year on year. Foreign Direct Investments (FDI) grew by 150% to $119.18 million, and other investment inflows increased by 172% to $1.18 billion.
Nigeria’s economic managers have focused on attracting foreign debt as a central aspect of its fiscal and monetary policies. This is evident in the distribution of capital inflows by type in the first quarter of 2024.
According to the NBS data, loans dominated foreign investor inflows, with investors purchasing over $2 billion in bonds and money market instruments.
Nigeria’s central bank has relied on higher interest rates as a cornerstone of its forex policy, implementing multiple rate hikes to combat inflation. Under CBN Governor Yemi Cardoso, the interest rate has been increased by about 750 basis points, from 18.75% to 26.25%.
This policy has led to a significant surge in short-term instruments such as bonds and money market instruments like treasury bills and OMO bills. The NBS reported an 11-fold increase in money market instruments year on year, rising to $1.61 billion from $125.9 million. This figure is also about 274% higher than the total money market-related inflows of $428.9 million recorded for the whole of 2023.
Nigerian bonds attracted $420.81 million in foreign capital, up by about 40% from the previous year’s $301.08 million in the same quarter.
On the fiscal side, Nigeria also recorded a 165.3% rise in loans, increasing from $433 million in the first quarter of 2023 to $1.15 billion in the corresponding period of 2024.
Overall, debt instruments accounted for $3.18 billion of the foreign capital inflows into Nigeria, representing 94% of the $3.38 billion total capital importation for Q1 2024.
In February 2024, the Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, announced that foreign portfolio investors (FPIs) were showing renewed interest in the Nigerian market.
Addressing the critical issues surrounding foreign exchange and investment, Cardoso emphasized the importance of leveraging existing resources to attract more foreign direct investment and portfolio inflows. Contrary to the perception of FPIs as “hot money,” the governor views these investments as essential components of a diversified foreign exchange portfolio, whether sovereign or corporate.
By March 2024, the Central Bank of Nigeria (CBN) reported a significant inflow of over $1.5 billion into the Nigerian economy. Mrs. Hakama Sidi Ali, the Bank’s Acting Director of the Corporate Communications Department, noted that these inflows result from the CBN’s initiatives aimed at ensuring liquidity and stability within the foreign exchange market.
The apex bank further disclosed that over 75% of bids received during the auctions of government securities held on March 1 and 6, 2024, were from foreign investors, showcasing their growing interest in Nigeria’s debt instruments.
Nairametrics recently reported that the total foreign portfolio inflow for Q1 2024 (N93.37 billion) was more than quintuple that in Q1 2023 (N18.12 billion). However, FPI outflows surged by 237% to N119.81 billion, from N35.59 billion in Q1 2023. The total net outflow for the quarter was N26.44 billion, highlighting a trend where foreign investors are withdrawing more funds than they are bringing into the Nigerian economy.
Speaking at the end of the 294th meeting of the Monetary Policy Committee (MPC), CBN Governor Yemi Cardoso remarked that it is normal for investors to come and go.