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Portfolio investors gain in Nigeria’s $17b capital inflow

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The record of foreign inflow into the country in 2018 at $16.81 billion has shown that investors targeted portfolio investments also known as “hot money” rather than establishing institutions and staking in existing ones. Hot money, as it is called, is frequently transferred among financial institutions in an attempt to maximise interest or capital gain and could easily be pulled out by the investor depending on his/her perception of the business environment.

Specifically, hot money investments are targeted at bonds and money market instruments. They are major part of foreign investments inflow, which also exerts pressure on the naira and national reserves every time the investor’s perception of the economy is negative. The move leads to capital flight.

The National Bureau of Statistics (NBS) said the total value of capital importation into Nigeria rose to $16.81 billion in 2018 from the $12.23 billion tally of 2017, representing a 37.49 per cent growth.Of the sum, portfolio investment accounted for $11.8 billion, 70.20 per cent of the total.

This was followed by Other Investment, made up of trade credits, loans, currency deposits and other claims, representing 22.69 per cent ($3.82 billion) while Foreign Direct Investment (FDI) only fetched in a paltry 7.11 per cent ($1.19 billion).A further breakdown shows that foreign investors as well as their local counterparts took advantage of the high-yielding government securities and the expanding commercial paper issuing companies to stake more in portfolio investment.

The investor’s perception of the country’s business environment ended in steep descent on a quarterly trend analysis, as Q1 recorded $6.3 billion capital importation, followed by the year’s first decline to $5.51 billion in Q2 and a plunge to $2.85 billion in Q3, while Q4 had $2.14 billion.Top five sectors to attract inflow were shares, with $10.43 billion; banking, $2.02 billion; financing, $1.48 billion; servicing, $1.29 billion; and production, $671 million.

Meanwhile, the European Commission has added Nigeria, Ghana, Saudi Arabia and other jurisdictions to a blacklist of nations that pose a threat owing to lax controls on terrorism financing and money laundering.The move, according to the body yesterday, is part of a crackdown against money laundering after several scandals hit EU banks in recent months.

But the decision has, however, drawn criticisms from several allies about their economic relations with the affected nations, notably Saudi Arabia.Other criterion employed to blacklist countries include insufficient cooperation with the EU as well as lack of transparency over the beneficial owners of companies and trusts.Besides reputational damage, inclusion on the list complicates financial relations with the EU. The bloc’s banks would have to carry out additional checks on payments involving entities from listed jurisdictions.


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