Nigeria’s Foreign Direct Investment is dipping, as portfolio investment known as hot money dominates the bulk of imported capital.
Of the $5.85bn received in the first quarter of 2020, portfolio investment accounted for 73.61 per cent ($4.31bn) of the total capital importation recorded by the National Bureau of Statistics.
Nigeria received $5.85bn capital importation in Q1 of 2020 against $8.51bn in the same period last year.
According to the NBS, the $5.85bn worth of capital importation in Q1 represents an increase of 53.97 per cent when compared to how much was received in Q4 2019.
However, when compared to the corresponding first quarter of 2019, the figure indicates a 31.19 per cent decline.
Hot money is frequently transferred among financial institutions in an attempt to maximise interest or capital gain and could easily be pulled out by the investor.
Specifically, hot money investments are targeted at bonds and money market instruments. They are major parts 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.
Under the portfolio category, investment in money market instruments remains the largest recipient of capital inflows with $3.44bn, followed by $639.72m in equity, while investment in bonds stood at $231.22m.
FDI constituted only 3.66 per cent to the total capital inflow, a decline of 16.72 per cent compared to $257.25m received in Q4 2019, and 13.39 per cent reduction compared to the corresponding quarter of 2019.
The five countries that accounted for the biggest capital inflows in Nigeria within the quarter included the United Kingdom ($2.91bn), South Africa ($692.63m), United Arab Emirates ($532.89m), Netherlands (441.79m) and United States ($389.1m).
