$16.8b capital importation: How the banks stand - THE NATION
Data supplied by the Central Bank of Nigeria (CBN) and verified by the National Bureau of Statistics, Nigeria (NBS) showed that the total value of capital importation into the country stood at $16.8 billion last year, compared to $12.2 billion the previous year. The United Kingdom was tops with $6 billion representing 35.74 per cent of the total capital inflow within the period. COLLINS NWEZE x-rays how increased investment among countries can lift the country’s economy.
Global economies are always prone to two realities: periods of boom and bust. Such cycles present opportunities for right-thinking governments to seek external buffers that would address their economic fears through trades and partnerships.
For instance, from 2014 to 2017, the global economy witnessed several adverse shocks, some of which were simultaneous and significant in shaping the trajectory of the Nigerian economy.
The 60 per in oil prices between 2014 and 2016 exposed the structural vulnerabilities of oil-dependent economies like Nigeria.
Also, the normalisation of Monetary Policy by the United States’ Federal Reserve System led to capital flow reversals especially in emerging markets and increased financial fragilities in these countries, including Nigeria.
Part of the turning point for Nigeria was a culmination of several factors, including support from commercial banks in lifting Nigeria’s capital importation figure. The performances of Stanbic IBTC, Citibank Nigeria and Standard Chartered Bank in attracting foreign capital into the country were outstanding.
The three lenders, all with substantial foreign equity holdings and investors, underline the imperative of having banks with the global network and resources to support Nigeria’s developmental aspirations.
Giving more details on the development, Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, explained that Nigeria’s over-dependence on crude oil for over 60 per cent of government revenue and for 90 per cent of its foreign exchange inflows meant that shocks in the oil market were transmitted entirely to the economy via the foreign exchange markets.
Speaking during the at the Special Convocation of the University of Nigeria, Nsukka, at the weekend, Emefiele said the average monthly inflows of foreign exchange into the CBN fell from over $3.4 billion in June 2014 low as $500 million in October 2016.
The decline in foreign exchange earnings was further complicated by the flow reversals from in the U.S.
With the drop in foreign exchange inflows, the exchange rate at the parallel market rose from N200/$ in August 2015 to N525/$ in January 2017. Inflation also rose from nine per cent in January 2016 to over 18 per cent in January 2017. All these were gradually addressed as more capital flew into the country.
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For instance, data supplied by the CBN and verified by the National Bureau of Statistics, Nigeria (NBS) showed that the total value of capital importation into Nigeria stood at $16.8 billion in 2018 compared to $12.2 billion the previous year. The United Kingdom emerged as the top source of capital investment in Nigeria with $6 billion representing 35.74 per cent of the total capital inflow within the period.
Chief Executive, Stanbic IBTC Holdings Plc, Yinka Sanni believes that capital importation flows naturally from the lender’s focus on supporting Nigeria’s developmental aspirations through strategic interventions in crucial sectors of the economy that would enable the country take its rightful place as a progressive emerging economy and a favourite investment destination in Africa.
Stanbic IBTC Holdings under the current leadership was directly involved in the success of the currency swap deal between Nigeria and China, in which the two countries directly exchanged RMB15 billion ($2.4 billion) or N750 billion ($2.1 billion). The CBN had appointed four Nigerian financial institutions as settlement banks for the transaction. Stanbic IBTC made the cut, having met the criteria that reportedly included having an operating office in China. This positioned it to earn a slice of the $30 billion in annual bilateral trade volume between both countries.
Former Executive Director at Keystone Bank, Richard Obire, said that the flow of the capital importation through the three banks could be as a result of where the funds are coming from. He said that Stanbic IBTC parent company, Standard Bank, is owned 20 per cent by the Industrial and Commercial Bank of China (ICBC), the world’s largest bank, an alliance that yields a strategic partnership with a global reach, immense resources and expertise to help reinvigorate Nigeria’s economy.
The ICBC, in the context of China’s growing global economic clout, more so in forging ties with Africa, is striving to proactively make inroads into developing countries with its vast untapped potential. To ICBC, Africa offers huge opportunities and limitless partnerships ready for harnessing. As the Standard Bank Group is development-focused, its combination with ICBC, which is also very focused on power, trade and infrastructure financing, creates a strategic synergy with an enormous capacity to facilitate investment flows and access between Nigeria and the rest of the world.
Besides helping to stabilize the Nigerian currency, it is hoped that in the medium to long term, Stanbic IBTC, which itself has a distinguished pedigree in infrastructure financing, ICBC and Standard Bank will collaborate much further with Nigeria towards a new regime of rapid and massive infrastructure development.
Obire said that Citibank also has operations across all advanced markets, adding that it is expected that the capital first flows to such banks before getting to other players within the economy adding that it is from the top lenders that the capital will now enter smaller banks.
“In the 90s, multinational companies we tried to market in Nigeria, were not forthcoming because they were advised in their country of origin on which banks to do business with and they always chose banks with a strong history. Banks like Stanbic IBTC, Citibank and Standard Chartered, always come to their minds,” he said.
Obire said that many multinational companies, from advanced economies, sometimes fear that local banks with little or no industry history, may run afoul of regulations.
He said: “For local banks, they have to build a longer history. Aside from FirstBank, other local banks are still relatively new. But the foreign banks have international clout and remain the first choice for multinational companies, whose countries, the funds come from”.
He said that leading in capital importation is a game of age and strong root in the financial sector.
Other analysts and social commentators agreed that Nigeria’s fundamental developmental dilemma is that of infrastructure. From power, which is barely existent, to transportation, which is still cumbersome, from mineral refining, which largely is still untapped and at an undeveloped stage, to agricultural expansion, the tale is the same: underdevelopment and underfunding.
This situation, they say, invariably requires the solid intervention of players, both local and international, with the experience, expertise, reach and clout to help nurture economic ties necessary to put Nigeria on the path of sustainable growth through huge capital inflows and investment opportunities.
Former President/Chairman of Council, Chartered Institute of Bankers of Nigeria (CIBN), Mazi Okechukwu Unegbu, said Stanbic IBTC has foreign affiliation with Standard Bank, and direct link to South African investors; Standard Chartered Bank Nigeria, has link with Standard Chartered Bank Group and UK investors while the Citibank has link with Citigroup and US investors.
He said the lenders attract foreign investors and foreign equity holders, who do business in Nigeria.
Unegbu said the local banks only have representative offices in foreign countries, and the poor liquidity level in the Nigeria capital market is not helping them.
He said: “The state of Nigeria’s capital market works against the local banks. Before now, capital from offshore flew through the capital market to Nigerian banks. But our capital market has suffered in the last few years due to several dislocations in the economy. The foreign investors have therefore pitched their tents mainly with the three top banks,” he said.
Chief Executive, Stannic IBTC Stockbrokers, Mrs Titi Ogungbesan, explained that across the group, the bank has key business units which deal with these international clients and are leaders in the various finance sub-sectors. For example, its custodian business is the largest in the country, Stanbic IBTC Stockbrokers Limited is the leading brokerage firm and its global markets desk is a top participant in the industry also.
“In addition, its investment banking team has facilitated large primary market transactions in the capital and money market spaces. We are therefore able to offer holistic solutions delivered with the high level of efficiency and integrity to clients, which goes a long way in engendering confidence/ trust for repeat business and even referrals,” she said.
The UK ahead of the packs
While Theresa May, the British Prime Minister, was in Nigeria in August last year, she expressed her country’s desire to enhance economic ties with Nigeria through increased investment inflow and job creation. “We want to see increased trade between Nigeria and UK, increased investment, bringing jobs here in Nigeria, and jobs in the UK. This will be good for both countries,” May stated.
Her pledge expectedly elicited broad smiles from the Federal Government and Nigerians in general, especially considering the nation’s aspiration to drive foreign direct investment (FDI) to stir economic growth. Besides strengthening bilateral relations between Nigeria and the United Kingdom, there are other strategic indicators that underline the imperative of sustaining economic ties between both nations.
According to data from Nigeria’s National Bureau of Statistics (NBS), the UK maintained its top spot as a source of capital investment in Nigeria in the 2018 capital importation report.
The total value of capital importation into Nigeria stood at $16.8 billion in the whole of 2018 compared to $12.22 billion capital imported in 2017. This represents 37.49 per cent growth year-on-year.
However, in the fourth quarter of 2018, the total value of capital importation into Nigeria stood at $2.1 billion. This represents a decrease of 25.05 per cent compared to the third quarter of 2018 and 60.24 per cent decrease compared to the fourth quarter of 2017.
The largest amount of capital importation by type was received through Portfolio investment, which accounted for 70.20 per cent ($11.8 billion ) of total capital importation, followed by Other Investment, which accounted for 22.69 per cent ($3.8 billion) of total capital, and then Foreign Direct Investment (FDI) which accounted for 7.11 per cent ($1.19 billion ) of total capital imported in 2018.
By sector, Capital importation by shares, which is closely related to Equity investment (FDI and Portfolio Investment) dominated 2018 reaching $10.42 billion of the total capital Importation within the period.
The United Kingdom emerged as the top source of capital investment in Nigeria in 2018 with $6 billion. This accounted for 35.74 per cent of the total capital inflow in 2018.
US, South Africa, UAE, Belgium follow
In the second position came the world’s biggest economy, the United States (US) with $3.57 billion; South Africa, $1.15 billion; the United Arab Emirates, $937 million and Belgium, $886 million, the NBS data further showed.
In its Capital Importation second quarter of 2018 report, Britain also accounted for an impressive $1.77 billion of the total capital inflow to Nigeria within the period, representing 32 per cent of the inflow. However, the figure was a 21 per cent decline from the first quarter of the year.
Within the period, the US also followed closely with the UK, recording $1.224 billion total capital importation into Nigeria though it was a decline of 2.9 per cent from the amount recorded in the first quarter. Other major investment contributors during the period were the United Arab Emirates ($535.98 million), South Africa ($396.40 million), Belgium ($368.82 million) and Switzerland ($297.32 million).
Nonetheless, since 2010, the United Kingdom has been responsible for the highest amount of capital importation into Nigeria, except for just two quarters in 2015.
How the banks stand
Another major indicator in the report was the role of banks in facilitating capital importation into Nigeria during the quarter. It showed that Stanbic IBTC Bank, the banking arm of Stanbic IBTC Holdings Plc, facilitated the highest share of capital flow, accounting for 54.9 per cent of the total foreign capital inflow in the second quarter of 2018, slightly up from the 48.5 per cent share recorded in the previous quarter.
This was followed by Standard Chartered Bank, Citibank, Access Bank and Zenith Bank, which accounted for 14.82 per cent, 13.11 per cent, 3.61 per cent and 3.52 per cent of the total capital importation respectively. Together, the six banks accounted for nearly 90 per cent of capital importation in the second quarter of 2018.
In terms of actual figures, Stanbic IBTC facilitated $3.027 billion in capital importation during the quarter, followed by Standard Chartered Bank with $817.231 million and Citibank Nigeria with $722.761 million, while the rest accounted for the balance, though seven banks made no input.
Overall, the total value of capital importation into Nigeria in the second quarter of 2018 stood at $ 5.513 billion.
This was, however, a decrease of 12.53 per cent compared to the first quarter of 2018, but a 207.62 per cent increase compared to the second quarter of 2017, according to NBS.
The decline recorded in the second quarter, the agency added, was as a result of a decline in Portfolio and Other Investments, which declined by 9.76 per cent and 24.07 per cent respectively. The largest amount of capital importation by type was received through Portfolio investment, which accounted for 74.7 per cent ($4.119 billion) of total capital importation, followed by Other Investment, which accounted for 20.5 per cent ($1.132 billion) of total capital, and the Foreign Direct Investment FDI, which accounted for 4.7 per cent ($261.4million) of total capital imported in the second quarter.
In its approach, NBS categorizes capital importation into three main investment types, namely FDI, Portfolio Investment and Other Investments, each having various sub-categories. It noted that since 2017 second quarter, Portfolio Investment has been expanding faster than the other two categories.
“Although the absolute value of Portfolio Investment declined in second quarter on a quarterly basis, falling from $4.5 billion in the first quarter, 2018 to $4.1 billion in second quarter, 2018, it remained the largest component of the total Capital Importation in the quarter under review, followed by Other Investments, and then FDI,” NBS stated.
By sector, NBS indicated, capital could be imported either in the form of shares or directly imported into different economic sectors of the economy. Capital importation as shares, which is closely related to Equity investment (FDI and Portfolio Investment) dominated the second quarter of 2018, reaching $4,091.55 million, or 74.21 per cent of the total capital importation in the quarter. The contribution of share investment increased marginally by 0.03 per cent in the second quarter of 2018.
“Portfolio Investment remained the most significant component of total capital inflow into Nigeria in the second quarter of 2018, although it contracted by 9.76 per cent over the previous quarter. The total value of Portfolio Investment in the second record was $4.1 billion, which was a 434.64 per cent growth compared to the second quarter of 2017 ($770.51 million).
Also in the fourth quarter of 2018, foreign direct investment (FDI) accounted for $1.19 billion capital importation into Nigeria; equity, $1.18 billion; portfolio investment, $11.80 billion; bonds, $966.8 million and money market instruments, $8.47 billion.
For Stanbic IBTC, its performance is in line with what has become traditional, though the performances of Access Bank and Zenith Bank denote the growing role of core local banks in capital importation. Nonetheless, the performances of Stanbic IBTC, Citibank Nigeria and Standard Chartered Bank, all with substantial foreign equity holding, underlines the imperative of having banks with the global network and resources to support Nigeria’s developmental aspirations.
However, Stanbic IBTC Bank, accounting for over 50 per cent of capital importation in 2018 second quarter, stands out as the only African institution among the trio, being a member of the 155-year-old Standard Bank Group, the largest African financial institution by assets. It is firmly rooted in Africa with strategic representation in 20 countries on the continent.
The top lenders in the scheme highlight the global network they bring to bear on their operations in Nigeria also demonstrates the pivotal role of banks in facilitating capital importation, which is instrumental in providing the funding and foreign exchange needed to drive economic growth and development.