FSDH Group has raised the alarm over the current dominance of the country’s foreign capital inflow mix by Foreign Portfolio Investments, otherwise called ‘hot money’ owing to its very volatile nature.
The research arm of the group, in its Monthly Economic and Financial Markets Outlook, themed, ‘Growth Prospect with Rising Uncertainties’, said the country was exposing itself to a Foreign Exchange crisis again in the case of the FPIs being withdrawn abruptly.
The growth in capital importation in 2017 was mainly driven by the increase in the FPIs, which accounted for about 60 per cent. The total capital imported in 2017 was $12.23bn, an increase of 137 per cent from $5.12bn in 2016.
Speaking on the situation, the Head Research, FSDH, Mr. Ayodele Akinwunmi, stated that growth in the capital importation would continue to support the stability in the Foreign Exchange market in the short-term.
But he added, “Government should encourage more Foreign Direct Investments in the economy instead in order to accelerate the growth of the real economy and to avoid the negative impact on the Foreign Exchange market, usually associated with the unexpected withdrawals of the FPIs.”
According to the report, the Nigerian economy requires additional policies to achieve sustainable growth particularly in the non-oil sector, citing the National Bureau of Statistics data, which shows that the real Gross Domestic Product grew by 0.83 per cent in 2017, compared with the contraction of 1.58 per cent in 2016.
“The growth rate was however below our GDP growth forecasts of 1.01 per cent for 2017. Our analysis of the growth pattern in 2017 shows that two sectors – agriculture and, mining and quarrying- were the major drivers of growth. Other leading sectors which are trade, information and communication, manufacturing and real estate contracted,” it added.
Akinwunmi also expressed the company’s worry over the delay in the passage of the 2018 budget and non-constitution of the Central Bank of Nigeria’s Monetary Policy Committee yet.
“Some businesses have expressed concerns over the rising social unrest in some parts of the country and delays in fiscal and monetary policies announcement. We note that policy makers and economic managers in the country need to pay urgent attention to the declining trend in the PMI in order to nip it in the bud.”
The equity market, FSDH Research said, depreciated by 2.28 per cent in February 2018, the first month-on-month depreciation since October 2017 and the highest month-on-month decline since March 2017. It stated, “Based on historical performance, we expect the equity market to appreciate in March 2018 as investors take position in the market ahead on the earning season.
“Investors may take strategic positions in stocks that have good fundamentals to take advantage of the expected capital appreciation on the stocks. Consumer goods, building materials and banking stocks offer attractive returns.”
On the fixed income market, it stated, “We expect investors to take profit on some of their investments in the FGN Euro Bonds and buy some of the corporate Euro Bonds with higher yields. Investors should take advantage of the current yields on the 364-Day Nigerian Treasury Bills.
“Investors should also maintain a balanced portfolio in other fixed income securities, particularly in bonds in order to minimize reinvestment risk. Some of the corporate bonds trading in Nigeria also have attractive yields which investors can take position in. This investment strategy will create liquidity in the Nigerian corporate bond market.”