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Capital Importation Declines by 28% Quarter-on-Quarter

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Naira Exchange Rates - Investors King

The National Bureau of Statistics (NBS) has released its latest report on capital importation for Q1 ’22. The data was obtained from the CBN and compiled using information on banking transactions from all registered financial institutions in Nigeria.

The total value of capital imported in Q1 ‘22 was estimated at USD1.6bn, representing a decline of 28% q/q and 17.5% y/y. The capital importation data is gross, and not adjusted for capital exports.

The category referred to as portfolio investment accounted for the largest share (60.9%) of total capital importation in Q1 ’22. On a q/q basis, portfolio investment increased by 49% in Q1. Money market instruments accounted for 64% of total portfolio investments and increased by 10% q/q.

Coronation Merchant Bank partly attributed the q/q increase to investors seeking safe short-term instruments. Meanwhile, bonds accounted for 32% of total portfolio investments, increasing by 575% q/q and 124% y/y.

Demand for equities was relatively low in Q1 ‘22. This asset class accounted for 3% (USD31.8bn) of total portfolio investments. Data from NGX show the ratio of local to foreign investment participation at 81:19 in Q1 ‘22. We note that the NGX-ASI posted a positive return of 10% in Q1 ’22.

In the quarter under review, foreign direct investment inflow declined by -57% q/q to USD155m. On a y/y basis, there was a marginal increase. There has been a downward trend in greenfield investment projects. Given the direct correlation with investment attractiveness, ease of doing business and FDI flows, reforms that improve national security, reduce the country’s infrastructure deficit, and support a conducive business environment are critical.

China and Singapore were able to boost their respective FDI and facilitate economic transformation by providing value-add via affordable and skilled labour. Through reforms, South Korea deliberately created a motivated and educated populace in addition to spurring their country’s technological boom, these attracted increased FDI.

The FGN’s commitment to improve Nigeria’s ease of doing business ranking from 131 to 100 by 2025, is laudable. However, this requires well-targeted capital expenses as well as proper fiscal discipline. FDI inflow accounted for only 10% of total capital importation in Q1 ’22.

From a sector perspective, the banking sector received the highest inflow (USD819m) in Q1, accounting for52%of total capital importation. The second-largest recipient was production (USD224m), which we assuming falls under the manufacturing sector.

Capital importation by country of origin shows that the United Kingdom was the top source of capital imported in Q1with a value of USD1bn, accounting for 65% of total capital inflow during the period. This was followed by South Africa (USD118m) and the United States (USD82m).

At its last meeting held in May, the MPC/CBN hiked the monetary policy rate by 150bps to 13%. This is in an attempt to provide incentives for foreign capital inflow. In addition to moderating the speed of capital flow reversal, ease inflationary pressure and exchange rate depreciation, among others. This could attract investments into the domestic fixed income market. However, given that central banks across advanced economies are tilting towards tightening this year, a slowdown in capital inflow to emerging markets, notably Nigeria is likely.

Based on trading activities to date this quarter, we expect the Q2 report when published to show a further decline in inflows from portfolio investments.

This projected underperformance can be partly linked to fx repatriation concerns, flight to safety following interests rate hikes by policies makers globally, political uncertainty and the lingering conflict between Russia and Ukraine.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Digital Economy: China Seeks More Partnerships With Nigeria

The Consulate General of the People’s Republic of China in Lagos, Mr. Chu Maoming had advocated for more robust China-Nigeria partnerships in the Digital Economy.

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The Consulate General of the People’s Republic of China in Lagos, Mr. Chu Maoming had advocated for more robust China-Nigeria partnerships in the Digital Economy.

Investors King learnt that the Chinese Consular General has called for enhanced strategic cooperation between Nigeria and China. The diplomat noted that such a corporation on the digital economy will help to address the challenges confronting Nigeria. 

Speaking in Lagos during the 2022 Africa-China Economic Partnership Agenda Conference, (ACEPAC), Mr Chu Maoming noted that China and Nigeria are the largest economies respectively in Asia and Africa, and both countries are actively developing their digital economies with notable success.

Maoming further stated that Nigeria is one of the most important economies in Africa and Lagos is the economic, financial and technological centre of Nigeria. He, therefore, seeks more collaborations in key digital economic areas of 5G Construction, Mobile Payments Systems and E-Commerce Platform. 

Mr Maoming also noted that digital economy potential lies in the number of mobile internet users in Nigeria which has exceeded 150 million as of June 2022, with an internet penetration rate of nearly 70 percent.

On the other hand, the Director General of the Nigerian Institute of International Affairs, (NIIA) Prof Eghosa Osaghae stated that Nigeria will be open to the new possibilities which the digital economy has to offer. 

Furthermore, the Executive Director of Afri-China Media, Ikenna Emewu described the conference as an important event that will further drive Nigeria towards the digital economy. 

The Executive Director said that Nigeria and Africa cannot afford to lag in adopting digital possibilities to improve their economies.

Meanwhile, Nigerian Minister of Communications and Digital Economy Professor Isa Pantami says the Ministry has completed over 2000 projects within three years to enhance the digital economy across the country. The minister disclosed this during an inspection tour of the National Shared Service Centre in Abuja.

Pantami noted that Nigeria is making progress in the digital economy while the numerous projects which are spread across the country will help to improve the productivity of many Nigerians. 

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Economy

MSMEs Critical to Nigeria’s Economic Development- President Buhari

President Muhammadu Buhari has said Small and Medium Enterprises (MSMEs) are critical to Nigeria’s economic growth as they contribute about 48 percent to the nation’s Gross Domestic Product.

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President Muhammadu Buhari has said Small and Medium Enterprises (MSMEs) are critical to Nigeria’s economic growth as they contribute about 48 percent to the nation’s Gross Domestic Product.

President Buhari, who was represented by the Minister of Industry, Trade and Investment, Otunba Richard Adebayo, at the 17th International Trade Fair organised by the Abuja Chamber of Commerce and Industry (ACCI), stated that trade is key to ending poverty and also plays a significant role in the economic growth of any nation.

In his words, “It helps to build wealth and improve foreign reserves. Trade is key to ending poverty across countries, raising standards of living and improving productivity. No economy can thrive without robust trade

“The MSME segment is critical to the stimulation of economic development. Nigeria is estimated to be home to over 40 million MSMEs who, together, contribute about 48 per cent of our GDP. Many of us just see MSMEs as the mamas that fries Akara or the friendly Malam that owns the kiosk on our street.

“That is not the case; some of the fastest growing Fintech start-ups in Africa are in fact MSMEs. This trade fair provides an opportunity to change the narrative of what MSMEs are and demonstrates how innovative they can be.”

“I see enterprises that employ large cross-sections of our youth population. I see enterprises with the capacity to export. I do not see small businesses here, I see future mighty business.”

“The Federal Government is keen to help MSMEs achieve their full potential and has developed strategic policy interventions, enshrined laws and established institutions to create a supportive business environment for entrepreneurs and MSMEs.

“In line with this, the Federal Ministry of Trade and Investment (FMITI) has developed a programme that will enhance access to credit for over 10 million MSMEs at single digit rate.

“Aside from the provision of finance, this project will address key ecosystem issues such as the development of MSME clusters to lower operating costs as well as capacity-building initiatives.

“The Ministry has also commenced the process of adopting a centralised automated platform for the registration of Trademarks, Patents and Designs. The overall objective is to fully digitise existing records and automate the registration process to enable ownership and commercialisation of innovation,” he stated.

It would be recalled that Investors King on October 2, 2022 reported that the federal government has directed the Development Bank of Nigeria (DBN) to step up its efforts to increase its funding for MSMEs.

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Economy

High Interest Rate Will Hurt New Job Creation, Exacerbate Unemployment – Manufacturers Tells FG

The Manufacturers Association of Nigeria (MAN) has said the recently increased interest rate would drag on new job creation and subsequently lead to job loss amid Nigeria’s already worrisome unemployment rate.

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The Manufacturers Association of Nigeria (MAN) has said the recently increased interest rate would drag on new job creation and subsequently lead to job loss amid Nigeria’s already worrisome unemployment rate.

In a statement signed by the Director-General of MAN Segun Ajayi-Kadir, manufacturers disclosed that the increase in the Monetary Policy Rate and the Cash Reserve Ratio portended worrisome negative consequences for the manufacturing sector.

MAN noted that the increase in MPR from 14 percent to 15.5 percent would rub off negatively on other rates and dash the hope for a single-digit lending rate for the productive sector of the economy.

It further said that the recent development would lead to an increase in the cost of borrowing by manufacturers, further beyond the double-digit rate, which would disincentivize new investments in the sector.

The statement read in part, “The observed continuous contractionary monetary policy posture without complementary fiscal support may not effectively reduce the prevailing inflationary pressure on the economy.

“This is not unconnected with the fact that the current increase in consumer price index as reported by NBS is not largely driven by the monetary phenomenon, as self-inflicted weak foreign exchange rate management can be linked to the pressure.”

MAN disclosed that the rate hike would cause increased factor costs which will inflate the price of  products, stating that it was hopeful that the CBN would creatively go beyond the conventional monetary management system because global economic dynamics were changing and conventional measures might no longer be effective.

The statement further read, “It is important that the monetary authority strategically set in motion mechanism for holistic balancing of the real interest rate, which is critical to investment and not just following leading economies to adjust Interest rate without considering domestic peculiarities.”

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