How Foreign portfolio investors withdrew over N1.87tn under Buhari

Nigeria’s Foreign portfolio investors have withdrawn a total of N1.87tn in four years, starting from June 2015, after President Muhammadu Buhari was sworn into office, TOPNAIJA.NG reports.

The latest data obtained from the Nigerian Stock Exchange showed that the investors withdrew N163.77bn after his re-election in February.

Analysts at the United Capital Plc have described the delayed policy formulation and cabinet formation by President Muhammadu Buhari as a risk to capital inflow to the country.

They noted that in the absence of profound changes in the policy environment, only the FPIs in search of cheap naira assets would dominate capital importation into the county, while Foreign Direct Investments would remain on the sidelines.

An analysis of data obtained at the NSE revealed that the year 2018, the preceding year to the general elections, saw the highest withdrawals of the FPIs in four years, as they withdrew N642.65bn.

The Group Chief Executive Officer, United Capital, Mr Peter Ashade, said the lack of economic policy reforms would continue to scare the FPIs off equities while policy stability and a double-digit interest rate would promote a further appetite for fixed income instruments.

Data from the National Bureau of Statistics revealed that the FPI flows continued to account for the bulk of capital imported into Nigeria.

In the first quarter of 2019, the amount surged by 56.5 per cent year-on-year to $7.1bn, despite the jitters that trailed the February general elections and the eventual conduct in the Q1.

Total capital imported into the country surged by 34.6 per cent year-on-year to settle at $8.5bn, the highest since the third quarter in 2013.

This revealed that across the three components of capital imported, the FPIs accounted for the bulk of expansion observed.

According to him, weaker capital inflows reflect the impact of waning confidence in the Nigerian economy by foreign investors amid concerns about macroeconomic fundamentals of the Nigerian economy.

Analysts at United Capital said, barring any external shocks, they expected the naira to stabilise this second half of the year. They said the stability would be buoyed by a sustained foreign exchange intervention and continued FPI inflows.

However, they expressed concerns, saying the “uninteresting macroeconomic environment is scaring the FPIs.”

The report read in part, “However, in Nigeria, we believe the lack of economic policy reforms will continue to scare the FPIs off equities while policy stability and a double-digit interest rate will promote a further appetite for fixed income instruments.

“Clearly, to boost the FPIs appetite for equities, uncertainties must be out of the way and the Central Bank of Nigeria must reduce the attractiveness of risk-free securities as monetary policy in the global economy becomes easier.”

In the second half of 2015, which was the first six months of President Buhari’s tenure, the FPIs withdrew N277.63bn, the highest being in July, when they withdrew N58.83bn.

In 2016, the FPIs withdrew N261.03bn; N435.31bn in 2017 and N642.65bn in 2018. In the first half of 2019, the foreign investors withdrew N257.81bn, bringing the total withdrawals under the President Buhari regime to N1.87tn.

The Associate Director, Capital Markets, PwC Nigeria, Alice Tomdio, in an interview with The PUNCH recently, said, “Once there is any cause to fear, portfolio investors sell out their shares and they come back when the environment is better; all of these create a lot of volatility in the market and may be one of the reasons we do not have a lot of initial public offerings in the country.”

Between 2011 and 2015, foreign transactions consistently outperformed domestic transactions. However, domestic transactions marginally outperformed foreign transactions in 2016 and 2017, accounting for 52 per cent of the total transaction value in 2017.

Also, foreign transactions, which stood at N1.5tn in 2014, declined to N518bn in 2016 but increased significantly by 133 per cent to N1.2tn in 2017. This accounted for about 48 per cent of total transactions in 2017.

Over an 11-year period, domestic transactions decreased by 62.46 per cent from N3.5tn in 2007 to N1.3tn in 2017, meaning foreign investors were dominating the market.

However, there was a significant increase in domestic transactions between 2016 and 2017 by 111 per cent from N634bn to N1.3tn.

The President, Independent Shareholders Association of Nigeria, Sir Sunny Nwosu, said the economic policies of the country were responsible for the exit of foreign investors.

He noted that when the policies were favourable, investors would come around and if otherwise, they would flee.

Nwosu, who spoke with our correspondent, said it was not advisable for the FPIs to stay ahead of the general elections because there was no assurance given to them when the polls were approaching.

He said, “The FPIs are very careful about their money; these investors have been in this country and have enjoyed a lot. They are not willing to gamble with their money.

“When the situation in Nigeria is showing imminent doom, they will all go away and wait until things stabilise. They will want to make sure that the economic situation does not affect their investment, whereby they will lose money.”

The Head, Economic Research and Policy Management, Securities and Exchange Commission, Mr Afolabi Olowookere, said foreign investors understood the country and could read it well, knowing when to leave and when to stay.

He stated that there were fundamental issues in the economy that needed to be addressed not only to attract but to keep foreign investors.

Olowookere said, “We have some investors that were waiting for the President to appoint his cabinet, while some others do more serious analysis on the interest rates in the country, economic performance, efficiency and liquidity of the market and exchange rate.

“Investors will be interested in what will happen to the exchange rate and how many companies are listed on the Nigerian Stock Exchange. Foreign investors are responsible for over 50 per cent of the transactions on the stock exchange, whether their investments are increasing or reducing.”

He said to attract and retain the FPIs, infrastructure and foreign exchange issues must be addressed.

According to him, looking at the road map of the Central Bank of Nigeria, it can be observed that the apex bank is trying to stabilise the macroeconomic environment, as everybody wants inflation to come down so that interest rate can drop.

Olowookere said, “Investors want to know how much the government is borrowing and the level of debt sustainability. They want to know how much it will weigh in on the country’s capacity to generate revenue.

“They are also interested in the level of liquidity of the market; fortunately, we had two main listings recently, which pushed the market capitalisation from about N10tn to N14tn.

“These companies can also compete with Dangote and the likes; that is if the holders are willing to transact. But investors will always come and go. It’s not just about them bringing in money; it is also about what they can buy with it.”