Europe has overtaken the United States of America (USA) to become the most important source of capital importation into the Nigerian economy, BusinessDay Research and Intelligence Unit (BRIU) can reveal.
This tends to pull Nigeria and the US further apart in trade and investment, as imports of Nigerian crude oil by the US continued on a downward trend in the first quarter (Q1) of this year, with a reduction of 25.1 million barrels valued $2.7 billion.
BusinessDay Research and Intelligence analysed data on capital importation between 2009 and 2012 collated from the publications of the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS) and found that Europe has taken pre-eminence as a source of capital flows into Nigeria.
European Union (EU) members such as the United Kingdom, the Netherlands, Switzerland, Germany, Cyprus, Luxemburg, Sweden and Denmark collectively brought in $19.9 billion or 56 percent of the total capital imported into the country during the period under review.
The EU is closely followed by the USA whose investors brought in $8.6 billion during the period. This was not the case in 2009 when out of the $5.3 billion capital imported into Nigeria, $3.3 billion came in from the USA and we observed that the trend began to change in 2010.
Capital importation can either be equity or loans in cash or equipment brought in by investors through an authorised dealer. The investor is issued a Certificate of Capital Importation (CCI) by banks on behalf of the CBN. This is because the CCI is a CBN certificate issued by banks for importation of cash for investment as equity or loan. The certificate legitimises and facilitates the repatriation of dividends and capital to foreign investors.
“The fact that capital came in through the London or New York financial markets does not mean that the funds originated from the UK or the US. They are the leading two of the three top financial centres in the world, with transactions originating from the Euro and the Far East Area most likely to be routed through London”, said Ayo Teriba, CEO of Economic Associates.
On a country-by-country basis, $17.3 billion of the total capital imported came from the UK, while $8.6 billion was sourced from the USA. Other sources include South Africa, $1.7 billion; the Netherlands, $1.2 billion; Mauritius, $978 million; Switzerland, $532 million, Germany, $326 million and China, $254 million, among others. Consequently, the UK accounted for 48 percent of the total inflows while those that came from the US represented 24 percent.
Through Nigeria’s Dealbook FY 2013, BRIU was able to track some of the capital imported into Nigeria by institutions from Europe in 2013. The Commonwealth Development Corporation (CDC), UK’s equity investor provided $40 million to Indorama Eleme Fertilizers & Chemicals in Rivers State. The Belgian Company for Development, Germany’s DEG and the Netherlands’ FMO also provided $150 million to the same company last year.
Influenced by returns on investments, the Nigerian equity market which has posted better returns among emerging markets was the greatest beneficiary of the capital imported. This is because 57 percent or $20.5 billion was invested in shares while 18 percent or $6.5 billion went into banking. Only 6 percent of the total capital imported went into production and manufacturing.
The sector that received the least attention was hotels, which got just $25m or 0.1 percent of the total inflows during the period.
“Banks and stock markets are not final investment destinations, as both would still channel the bulk of the funds to non-financial companies. Manufacturing accounts for only 6.6 percent of Nigeria’s rebased GDP, with crop production at 21.5 percent, trading at 16. 4 percent, oil at 15.6 percent, information & communication at 11 percent, and real estate at 7 percent, all contributing more than manufacturing to GDP.
Logically, those sectors deserve to attract proportionately more funds than manufacturing as funding should support the size of production taking place in the different sectors”, Teriba added.
The rise of Europe as Nigeria’s highest source of capital importation mirrors the trend in the nation’s crude oil export destinations. As at December 2013, the portion of Nigeria’s crude oil imported by countries in the European Union rose to 47 percent compared with 17 percent in 2009. Whereas the North America’s (USA) portion of crude oil imported from Nigeria stood at 2 percent by December 2013 down from 47 percent it imported in 2009.
Capital importation as a percentage of Nigeria’s GDP averaged 3 percent during the period. What this means is that the nation has to attract $16.3 billion by year end in order to attain the 6.75 percent GDP growth rate projected in the 2014 Appropriation Bill, all other factors being equal. The NBS figure indicates that $3.9 billion capital was imported into the country in Q1 2014, which means a gap of $12.4 billion still exists.
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