Money Market

Our policy makers ought, therefore, to worry that 86.2 percent of the capital imported into the country in the first three quarters of 2017 ended up in Lagos State. Not only then was much of the money that we boast of as having come into the economy (indicating investor confidence) of a flighty vintage. But the concentration of this money in one place cannot but be disruptive.


Two weeks ago, I was concerned (on these pages) with how much of a vindication of the incumbent administration’s macroeconomic choices the renewed inflow of foreign portfolio investments (FPI) into the country represents. “Not much” was the verdict; albeit the story told by inflows was always going to be a lot more nuanced.

In the intervening period, the numbers for capital importation into the country for the nine months to end-September 2017 have come in. And they tell a pretty rich tale.

To begin with, capital imported into the country in the first nine months of the year rose by 91 percent over the sum imported over the same period last year — from US$3.58 billion to US$6.85 billion. So, there’s a very strong case for arguing that the Buhari government may be on to a good thing when it points to its efforts at reforming the economy beginning to yield fruit. But that is only before you acknowledge the fact that the capital import numbers have been on a downward trajectory since 2013.

Yes, the global economy tanked about then, dragging down with it our main export earner; and so, there’s a strong case for pointing up external variables as the main culprit for the lower capital import numbers. This conclusion is, however, moderated by the fact that much of the “reforms” that the incumbent government points to as driving the resumption of funds inflow into the economy (especially changes to foreign exchange management, including the introduction in April 2017 of the Nigeria Autonomous Foreign Exchange market) could have been introduced sooner. As indeed, could have the reforms to the rules and regulatory environment, which saw Nigeria recently move up the World Bank’s “Ease of Doing Business” log.

Still, all of this is to cavil. There are more important contexts to this conversation. In the first nine months of 2013, capital imported into Nigeria was US$16.64 billion, a little more than the US$16.25 billion that came in over the same period in 2014. In other words, the total capital that has come in, in the January-September period this year, is tiddling compared with the numbers that the economy was once familiar with. This reinforces the argument that the Buhari government’s reforms (and the positive outcomes associated with them) might be both too late (the reforms ought to have been implemented earlier) and too little (the outcomes pale in comparison with the economy’s historical trend).

Poor policy responses to the last recession have meant that the economy has not been able to adjust competently to changes in domestic terms of trade. Fixed prices have robbed domestic entities of the clarity that would have helped more efficient decision making.


Yet, that is not all. Flighty money made up the bulk of the foreign capital that entered the economy in the end-September period. Comprising investments in equity, money market instruments, and bonds, this category of investment was up 152 percent over the numbers for the same period last year (from US$1.53 billion to US$3.85 billion). The point made in my piece on this page two weeks ago is not just that this money is hot, i.e. given to leave as readily as it has come in. But also, that it does not drive growth or development in any meaningful way.

Better to have factories and businesses planted on the ground. These pay taxes. Employ labour. Transfer technology, and managerial savvy. Unfortunately, in the period covered here, this bucket of investment into the country was down 14 percent on the numbers for last year — from US$699.4 million to US$603.3 million. Interestingly, it ought not to surprise anyone that business investment in the economy is down. Poor policy responses to the last recession have meant that the economy has not been able to adjust competently to changes in domestic terms of trade. Fixed prices have robbed domestic entities of the clarity that would have helped more efficient decision making.

foraminifera

In the end, not many productivity-enhancing decisions have been made by the organised private sector, as lower consumer spending has dis-incentivised the investments of businesses.

On a related note, does it matter that in putting its “ease of doing business” scores together the World Bank takes survey samples for Nigeria off Lagos and Kano States? I have been told that you cannot find locations more representative of business conditions in the “south” and “north” of the country than these two. The difficulty, though, is that the inequalities between these sub-national centres and the rest of the country are as large as those within them. More than particular “local constraints”, these inequalities are a strong let on domestic productivity.
A serious government would do well, therefore, to focus on bridging these gaps, especially through providing better infrastructure, including such as helping to build up social capital more evenly across the country. Our policy makers ought, therefore, to worry that 86.2 percent of the capital imported into the country in the first three quarters of 2017 ended up in Lagos State. Not only then was much of the money that we boast of as having come into the economy (indicating investor confidence) of a flighty vintage. But the concentration of this money in one place cannot but be disruptive.

Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.