Debt instruments significantly drove capital importation into Nigeria in the first quarter of 2024, comprising 94 per cent of the total inflows.
According to the National Bureau of Statistics (NBS), Nigeria received $3.38 billion in capital inflows in Q1 2024, a 198 per cent year-on-year increase. These inflows include foreign direct investments (FDIs), foreign portfolio investments (FPIs), and other investments. FPIs led with $2.08 billion, marking a 220 per cent year-on-year rise. FDIs grew by 150 per cent to $119.18 million, while other investments increased by 172 per cent to $1.18 billion.
Nigeria’s economic managers have prioritised attracting foreign debt within their fiscal and monetary policies, reflecting in the composition of capital inflows for the quarter. NBS data shows that loans dominated foreign investor inflows, with over $2 billion in bonds and money market instruments purchased by investors.
The Central Bank of Nigeria (CBN) has utilised higher interest rates as a core element of its forex policy, coupled with multiple rate hikes to combat inflation. Under CBN Governor Yemi Cardoso, the interest rate has increased by about 750 basis points, from 18.75 per cent to 26.25 per cent. This has led to a surge in short-term instruments like bonds and money market instruments, such as treasury bills and OMO bills. Specifically, money market instrument inflows saw an 11-fold year-on-year increase, reaching $1.61 billion from $125.9 million, a 274 per cent increase compared to the $428.9 million recorded for all of 2023.
Nigerian bonds attracted $420.81 million in foreign capital, a 40 per cent rise from $301.08 million in the same quarter the previous year. On the fiscal front, loans increased by 165.3 per cent, from $433 million in Q1 2023 to $1.15 billion in Q1 2024. This means approximately $3.18 billion of Nigeria’s $3.38 billion total capital importation for Q1 2024 originated from debt instruments, making up 94 per cent of the total.
In February 2024, CBN Governor Yemi Cardoso announced renewed interest from foreign portfolio investors (FPIs) in the Nigerian market. Addressing foreign exchange and investment issues, Cardoso emphasised the importance of leveraging existing resources to attract more foreign direct and portfolio investments. Contrary to viewing FPIs as “hot money,” Cardoso sees them as vital components of a diversified forex portfolio.
By March 2024, the CBN reported a significant inflow of over $1.5 billion into Nigeria’s economy. Acting director of the Bank’s corporate communications department,Mrs. Hakama Sidi Ali, stated that these inflows result from CBN initiatives aimed at ensuring liquidity and stability within the foreign exchange market. The apex bank also revealed that over 75 per cent of bids received during government securities auctions on March 1 and 6, 2024, were from foreign investors, indicating growing interest in Nigeria’s debt instruments.
According to statistics, Q1 2024 saw foreign portfolio inflows of N93.37 billion, more than quintuple the N18.12 billion recorded in Q1 2023. However, FPI outflows surged by 237 per cent to N119.81 billion, up from N35.59 billion in Q1 2023, resulting in a net outflow of N26.44 billion for the quarter, indicating a trend of foreign investors withdrawing more funds than they are bringing into Nigeria.
At the conclusion of the 294th Monetary Policy Committee (MPC) meeting, CBN Governor Yemi Cardoso remarked that it is normal for investors to both enter and exit the market.
