In the first quarter (Q1) of 2024, foreign portfolio investment (FPI) outflows from Nigeria skyrocketed by 237% compared to the same period in 2023. Data from the Nigerian Exchange (NGX) research department revealed that foreign portfolio outflows reached N119.81 billion in Q1 2024, a significant increase from the N35.59 billion recorded in Q1 2023. This surge reflects the market's reaction to recent policy changes by the Central Bank of Nigeria (CBN).
Despite the substantial outflows, foreign portfolio inflows also saw a dramatic rise. In Q1 2024, inflows were N93.37 billion, more than five times the N18.12 billion recorded in Q1 2023. However, this increase in inflows did not offset the outflows, resulting in a net outflow of N26.44 billion for the quarter.
The data indicates a significant imbalance in Nigeria’s equity market, with outflows surpassing inflows, raising concerns about investor confidence and market stability. The overall trend shows foreign investors withdrawing more funds than they are investing in the Nigerian market.
Implications of the Huge Capital Outflow from Nigeria
The substantial increase in foreign portfolio outflows from Nigeria has several critical implications:
1. Investor Confidence and Market Stability: The significant outflows suggest a lack of confidence among foreign investors in the Nigerian market, possibly due to recent CBN policy decisions. This lack of confidence can lead to increased market volatility and instability.
2. Economic Impact: A net outflow of capital can strain the economy, as reduced foreign investment may lead to lower liquidity in the financial markets. This can affect the availability of capital for businesses and potentially slow economic growth.
3. Exchange Rate Pressure: Large outflows can put pressure on Nigeria’s foreign exchange reserves, potentially leading to depreciation of the Naira. This is already the case as the local currency continues to lose value in the last 5 weeks. As the Naira weakens, inflation also quickens, with overall negative impacts on the broader economy.
4. Policy Implications: The CBN may need to reassess its policies to address the concerns driving these outflows. This could involve measures to stabilize the currency, improve market conditions, or offer incentives to retain and attract foreign investment.
5. Long-term Investment Climate: Persistent outflows may harm Nigeria’s reputation as an investment destination. Restoring investor confidence will be crucial to attracting long-term investments necessary for sustainable economic development.
Overall, while the rise in inflows shows some positive investor sentiment, the overwhelming outflows highlight significant challenges that need to be addressed to stabilize the market and improve investor confidence.
