*Insecurity, others threaten foreign inflows — Analysts
*As domestic, FPI equities rise 0.9% to N1.213trn
By Peter Egwuatu
Against the backdrop of Nigeria’s foreign exchange market instability, total Foreign Portfolio Investments, FPI, inflow through the Nigerian stock market has dropped by 44.1 per cent to N262.85 billion Year-on-Year, YoY, as at August 2021, from N470.2 billion in the corresponding period of 2020.
Meanwhile, total transactions for domestic and foreign components of the portfolio investments in the equities market, Year-to-Date, YtD, as at August this year increased marginally by 0.9 per cent to N1.213 trillion as against N1.201trillion in the corresponding period of 2020.
This indicates that FPIs are yielding grounds to their domestic counterparts in the local bourse during the year.
Investment analysts who spoke to Financial Vanguard explained that FPIs commitment in Nigeria will continue to be on a downward trend given the exchange rate volatility and uncertainty of repatriating their capital and earnings to their home countries.
They also said that FPIs inflow will remain constrained following what they see as official foreign exchange (FX) rate controls that are distant from market realities.
“It is very difficult to attract capital when you are dealing with low yields and high inflation and then you still try to control FX pricing.
“So, there is no way we would get the level of foreign capital that the market needs,” Ali Khalpey, CEO, EFG Hermes Frontier, had said.
The latest figures obtained by Vanguard from the Nigerian Exchange Limited, NGX, shows that for YtD, in August 2021, domestic transactions dominated foreign transactions, accounting for 78.4 per cent of total transactions for the period under review while foreign transactions accounted for just 21.6 per cent.
Specifically, domestic transactions, which comprise retail and institutional investors, recorded N950.76 billion for the YtD as at August while foreign investors recorded N262.85 billion.
Meanwhile, for the YtD, August 2020, retail and institutional investors recorded N731.02 billion and accounted for 60.9 per cent of total transactions while foreign transaction stood at N470.2 billion representing 39.1 per cent of the total transactions for Year to August 2020.
Capital market experts and analysts have stated that over the last three years, the market has constantly seen reduction in foreign portfolio investments YoY and it is not likely to change in the near term except government gets things right in the operating environment, especially the forex market.
As a sign of the huge disparity between the official and parallel market, Financial Vanguard findings show that Naira in the parallel market fell by 22.9 per cent to N580 per dollar at the end of September 2021 from N472.40 per dollar in January 2021.
But in the official market, trading results at the Investor and Exporter, I & E, Window, show the value of the naira depreciated by just 5.3 per cent to N414.73 per dollar from N393.67 per dollar in the same period under review.
The figures also show wide parallel market premium which drives unwholesome trade in the forex market ecosystem, a situation analysts believe discourages FPIs.
Experts, analysts speak
Reacting to the decline in FPI, financial market operators expressed the view that decline in foreign participation in the Nigerian financial market could be attributed to the current condition of Nigeria’s economic and business space, as well as the security challenges, structure, and policy problems facing the country.
According to them: “The Nigerian government, as well as business stakeholders, will need to take innovative steps to attract foreign investments (FPI and Foreign Direct Investment, FDI) into the country in order to ensure speedy economic growth.”
Commenting, Analyst/ Head of Research and Investment, Fidelity Securities Limited, Victor Chiazor, said: “Over the last three years, we have constantly seen reduction in foreign portfolio investments YoY and it is not likely to change in the near term except we get things right in the Nigerian economic management system.”
He added: “Issues around security, exchange rate, capital importation and corporate governance amongst others continue to discourage foreign inflow.
”Until foreign investors see concrete policies and effort to correct some of these anomalies, domestic investors will continue to carry the market.”
Reacting as well, analyst, David Adonri said: “There is foreign exchange rate risk attendant to foreign portfolio investments (persistent depreciation of the Naira in recent past is capable of heightening exchange rate risk leading to loss on investments.
”Secondly, foreign portfolio investors’ confidence was eroded by their inability to remit proceeds of their investments recently.
”FPIs normally target short-term public debt due to their extraordinarily high yields and low risk but the sharp decline in yield last year and to date, has been a disincentive to them.
”Finally, FPIs are sensitive to socio-political events. The pervasive insecurity in Nigeria threatens the safety of their investments, hence their low confidence in the economy.”
On the way forward, Adonri said: “The foreign investors need assurance that they can remit their investment proceeds. Higher yield on financial assets, exchange rate stability and socio-political stability can address the deteriorating situation.”
In his own comment, analyst and Managing Director, APT Securities and Funds Limited, Mallam Garba Kurfi, said: “The lack of FX to buy and get out of the country discourages foreign investors and others from coming into Nigeria.
“Many operators have been on queues waiting for their funds to come in, all to no avail. Our returns as a market is poor compared with other frontier markets.”
On way forward, he said: ”Let the government abolish two-tier pricing of the naira by CBN so that it will encourage inflow and availability of the FX.”
Also commenting, an analyst at InvestData Consulting Limited, Ambrose Omorodion, said: “Investors anywhere in the world want to make profit or good returns on their investment with less risk.
“The dwindling foreign players in our market despite rallying oil prices were as a result of unfriendly business environment, rising insecurity challenges, unclear economic policies and crisis in the nation’s foreign exchange market.”
On way forward, he said: “The government and its economic managers should rethink and re-formulate policies that will attract investors and boost economic recovery.
“Also, the issue of weak capital formation with the right policies as we expect from the recent Petroleum Industry Act, PIA to boost business in the oil and gas sector should be addressed.”
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