Analysing capital inflows to Nigeria
Nigeria currently straddles the Emerging Market (EM) and Frontier Market (FM), with its bonds included in the JPMorgan emerging market bond index (GBI-EM) and its equities in various frontier market indexes, including the MSCI, helping to attract global investor interest.
The country attracted $16.6 billion in capital from overseas into diverse asset classes such as Bonds, Equities, Money Market instruments and FDI in 2012, according to data from the National Bureau of Statistics (NBS), and Central Bank of Nigeria (CBN).
The inflow of capital rose by 28.3 percent to $21.3 billion in 2013, as the zero interest rate policy (ZIRP) and quantitative easing embarked upon by central banks in most developed economies led to a flood of money moving into emerging and frontier capital market assets.
International money flows were also drawn to currencies paying the most attractive interest rates as investors played the so called carry trade; borrowing in a low interest rate environment to buy bonds in countries with higher yields.
Yields on the 16.39 percent FGN bonds maturing January 2022, were 12.98 percent, according to April 30 prices published on the FMDQ, which is one of the highest in the GBI-EM index. Some of those flows have begun to ebb however after the United States Federal Reserve hinted in 2013, that it would begin to curb some stimulus.
The effect of suspended CBN governor, Sanusi Lamido Sanusi’s decision in 2011, to attract more funds by removing the minimum one-year holding period restriction on foreign investors in Nigerian debt can clearly be seen in the data.
Portfolio inflows into bonds rose 9200 percent from $5.1 million in January 2012, to $497 million in January 2013, although they fell between January 2013 and 2014. The same trend can be observed for portfolio equity inflows.
Total capital inflows into Nigeria fell to $2.57 billion in the first two months of 2014, down 47.9 percent from $4.94 billion in January and February 2013. Investor’s general pullback from FM and EM are largely responsible for the fall in flows, as well as the disruptive suspension of CBN governor, which spooked the markets.
PATRICK ATUANYA & BALA AUGIE