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Financial institutions, capital importation and new urgency to diversify economy

by Adebayo Adebola

October 1, 2017 | 12:55 am
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Financial institutions are not letting any opportunity slip by to sell Nigeria’s investment credentials to foreign investors as there is a new urgency to diversify the economy

In recent years, financial institutions have done more than any other industry to ensure constant inflow of developmental capital into the economy, in consonance with government’s desire to attract foreign capital and move Nigeria from a monoproduct economy. Figures released by the National Bureau of Statistics (NBS) for capital importation in Q2 2017 showed that financial institutions were responsible for over 75percent of the estimated $1.79 billion or N653 billion capital invested in the economy. According to NBS, “Capital importation denotes inflow of foreign currency into the country in cash or goods by investors or lenders.”

Giving a further breakdown of the figures, NBS reported that foreign currency inflow in the second quarter was $884.1 million or N322.7 billion higher than the figure achieved in Q1 2017, representing a growth of 95%. “This figure was $884.1 million more than the figure recorded in Q1 2017, a growth of 95.02%. Year-on-year, this was an increase of 43.6 percent from the $1,042.2 million or N380.4 billion recorded in Q2 of 2016,” NBS said. “A month-on-month analysis of capital importation in the second quarter shows that April recorded the highest amount of capital importation ($616.5 million), followed by June with $612.6 million and May with $563.3 million. The main driver of the quarterly growth in capital importation in the second quarter was Portfolio Investments, which increased by 145.7 percent, followed by other Investments, which grew by 95.02 percent, and then FDI, which increased by 29.8 percent over the previous quarter,” it added.

Portfolio Investment was the largest component of imported capital in the second quarter of 2017, and accounted for $770.5 million, or 43 percent of the total. This was closely followed by Other Investments, which accounted for $747.5 million or 41.7 percent and then FDI, which accounted for $274.4 million or 15.3 percent during the quarter. “A year-on-year comparison of the three investment types indicates that portfolio investments increased by 128.4 percent from the $337.3 million recorded in second quarter of 2016. Other investments also increased by 43.6 percent from the $520.6 million reported in the same quarter of 2016, while FDI grew by 48.9 percent, from $184.3 million,” the report added.

The NBS capital importation report showed that the trio of Stanbic IBTC, Citibank Nigeria and Standard Chartered Bank accounted for 70.7percent or $1,267.8 million of the total $1.792 billion capital importation during the quarter, while the other 22 banks generated the rest. The three are multinational banks and it is obvious they are riding on their strong foreign connections to bring in the much needed capital. Of the three financial institutions that led the capital inflow chart, Stanbic IBTC was said to have facilitated a staggering $589.84 million or 33percent capital inflow into the country in the quarter under review, ranking it number one importer of capital into Nigeria among financial institutions.

Indeed, financial institutions have long latched onto government’s determined drive for diversification and the realization that foreign capital will be a major driver of the diversification plan. For far too long, government had relied solely on petrodollar to drive growth and development but with the volatility in oil prices, reliance on the petroleum sector to fund spending has become increasingly untenable, hence the drive for foreign capital.

The insurance sector, for instance, has consistently, over the past three years, attracted fresh foreign capital into the economy. Today, 10 foreign insurers have established strong footholds in Nigeria through acquisitions of local insurance companies. Data from the National Insurance Commission (NAICOM), the insurance industry regulator, showed that “there were three foreign acquisitions into the sector in 2014, two in 2015, five in 2016, and two companies are soon to be acquired.” The industry has managed to attract global heavy weight insurance firms like Swiss Re, AXA, Saham, Prudential, Liberty, SUNU Group, among others.

To further underline the growing appetite by portfolio investors for Nigerian securities, Stanbic IBTC Capital Limited recently assisted Lafarge Africa PLC to successfully raise N60 billion ($190 million) in the Nigerian debt capital markets, the largest bond issuance by a corporate in the country. As well, the Nigerian Stock Exchange (NSE) recorded an impressive performance for the quarter buoyed by a spike in foreign inflows to 45.97percent in six months to June 2017 as against the 44.95percent inflow recorded in the whole of 2016.

The NSE Q2 Fact Sheet showed that the “NSE ASI closed the quarter at 33,117.48 from 29,597.79 as at June 30, 2016, to deliver a year-on-year return of 11.89percent.” The NSE Q2 report further showed “the average daily value traded across all products on the NSE increased by 56.83percent to N4.08 billion ($13.33 million), from N2.60 billion ($9.19 million) in Q2 2016. At the end of the quarter, the average PE ratio of the Exchange’s listed equities stood at 21.07 compared to 29.03 in the previous year.”

Stanbic IBTC Holdings PLC is a financial supermarket with very strong local roots, comprising 178 branches across the country and 561 ATM points, strong internet and mobile banking solutions, among others. It equally has strong foreign connections as a member of the 154-year-old Standard Bank Group, the largest African financial institution by assets and earnings. No doubt this foreign connection, with the ability to draw from the experience and expertise of the Standard Bank Group, as well as a large pool of in-house talent helped Stanbic IBTC achieve such impressive capital importation figure. A subsidiary, Stanbic IBTC Stockbrokers Limited, for instance, has over the past four years been consecutively adjudged the Best Dealing Member firm of the NSE in recognition of its market leadership in capital market transactions, in volume and value terms, to underscore Stanbic IBTC’s drive for foreign investments. The NSE CEO commended the company’s “consistent performance over the years,” at last year’s presentation of the awards.

Beyond portfolio investments, however, it is also important to note that financial institutions like Stanbic IBTC, Citibank and other banks/insurance companies equally helped to grow foreign direct investments (FDIs), which grew by 48.9percent year-on-year, from $184.3 million in Q2 2016, and by 29.8percent over Q1 2017.

The implications of the growth in capital importation cannot be lost on Nigerians. For one, portfolio investments speak to a growing confidence by foreign investors in Nigerian securities. Such confidence will doubly help the expansion drive by businesses as well as government’s infrastructure development plans via deficit financing of the 2017 budget. What this means is that government is not likely to experience difficulties selling its financial instruments like treasury bills and sovereign bonds and corporates will readily get subscribers for corporate bonds, rights issues and other commercial papers.

Job creation is another important effect of capital importation. With businesses expanding or being established and government providing the enabling environment for growth through infrastructure development, job creation is certain to follow, which will in turn impact earnings positively. Early in the year, for instance, Hayat Kimya, a leading global player in FMCG, commissioned a $100 million state-of-the-art factory in Ogun State from where it plans to manufacture 1.3 billion units of diapers and 13,000 tons of tissue paper for local consumption and for export to other West African and Central Africa countries. Hundreds of Nigerians are employed in the factory. A long term effect of job creation is a reduction in crime rate.

Considering these positive impacts of a healthy capital importation, it is not surprising that corporates and government have maintained a single-minded approach to attracting further capital. Yearly, for instance, Stanbic IBTC hosts the Standard Bank West Africa Investors’ Conference, where investors from around the world are brought to Nigeria to gauge the investment climate and exploit opportunities for investments. Also, the government is utilizing every opportunity to position the country for foreign capital. At the recently concluded United Nations General Assembly meeting in New York, United States, the Nigeria Investment Promotion Council (NIPC) organized an Investors Roundtable on the sidelines of the UN meetings, where it hoped to attract about $25 billion in FDI. The marketing pitch at the roundtable by the Minister of Industry, Trade and Investment, Okechukwu Enelamah, was simple: “We are building infrastructure. We are providing the enabling environment, and we are improving on the ease of doing business, to attract more investors into the country.”

Indeed, the deliberateness to the issue of foreign capital inflow into the country by stakeholders is certainly refreshing. Many have expressed the desire to see such efforts sustained and intensified to keep Nigeria top of the mind in investment arenas around the world. There is no reason to believe the country will relent, considering the fact that government’s diversification efforts have taken on a new urgency as Western nations, Japan, and China are working overtime to wean their industries off petroleum, the country’s cash cow.

 

Adebayo Adebola


by Adebayo Adebola

October 1, 2017 | 12:55 am
  |     |     |   Start Conversation

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