Nigeria’s Capital Inflow Grows By 176.85% To $6bn In 6 Months

Foreign capital inflow into Nigeria more than doubled to $6 billion in the first half of 2024 from last year, as portfolio investors returned after the country eased currency controls, official data showed on Tuesday.

The National Bureau of Statistics (NBS) reported that inflows rose to $5.98 billion between January and June this year, up from $2.16 billion during the same period in 2023.

The United Kingdom and Netherlands were the biggest sources of capital, with portfolio investors pouring funds into the country’s banking sector. Nigeria’s central bank has allowed the naira to trade freely in a bid to boost foreign exchange inflows as part of President Bola Tinubu’s reforms, which also included slashing petrol and electricity subsidies. The bank plans to automate foreign currency trades from December to enhance transparency and remove market distortions.

The central bank has hiked interest rates five times this year to counter inflation and attract portfolio investors hungry for yields. However, on a quarter-to-quarter basis, capital importation reached $2.60 billion in the second quarter of 2024, representing a robust increase of 152.81% year-on-year compared to $1.03 billion in Q2 2023. Despite this substantial annual growth, the figure marks a decline of 22.85% from the $3.38 billion recorded in the first quarter of 2024.

The decrease in quarterly figures highlights ongoing fluctuations in investor sentiment, reflecting global economic uncertainties and domestic challenges. The report stated, “In Q2 2024, total capital importation into Nigeria stood at US$2,604.50 million, higher than US$1,030.21 million recorded in Q2 2023, indicating an increase of 152.81%. Compared to the preceding quarter, capital importation declined by 22.85% from US$3,376.01 million in Q1 2024.”

Portfolio investments emerged as the primary driver of the capital inflows, contributing $1.40 billion, or 53.93% of the total. These investments often involve foreign investors injecting capital into Nigeria’s stocks, bonds, and other financial instruments, aiming for quick returns. Meanwhile, other investments, which include loans, trade credits, and other forms of debt financing, followed with $1.17 billion, accounting for 44.92% of the total inflows.

Foreign Direct Investment (FDI), however, lagged significantly with just $29.83 million, making up a mere 1.15% of the total. This trend points to a persistent challenge for Nigeria in attracting long-term capital that can drive sustainable economic growth and job creation. The banking sector was the largest beneficiary of capital importation, receiving $1.12 billion, representing 43.15% of total quarterly inflows.

This sector’s dominance highlights the crucial role of banks as conduits for foreign investments, facilitating access to Nigeria’s financial markets.