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Nigeria Needs Short Term Yields at 18% to Attract Foreign Portfolio Investors

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Nigeria is failing to attract foreign portfolio flows in any significant manner due to unattractive yields at the short end of the curve.

“Yields need to be closer to 18% – 20% to attract foreign investors,” said Sami Gadio, Head of the Africa Strategy team in FX, rates and credit research at Standard Chartered Bank.

Gadio was speaking at the launch of the Afrinvest Banking report yesterday in Lagos.

Local rates have been range bound this year in Nigeria as the Central Bank seems comfortable with where yields are amid robust demand from domestic Pension Funds.

One year Nigerian Treasury Bills yield about 6.5 percent, according to data from the CBN.

Nigeria has struggled to attract any major dollar portfolio flows since the first quarter of 2020, when the coronavirus impact led to an exodus of foreign investors and backlogs of FX demands for repatriation.

The trend in 2020 was a “flight-to-safety” by foreign investors as the spill-over effect from the pandemic weakened Nigeria’s macro-fundamentals including the interest and exchange rates.

According to the National Bureau of Statistics (NBS), Nigeria attracted a total sum of $98.2bn between 2014 and 2020 from foreign capital flows, with the highest inflow ($23.9bn) in 2019.

However, foreign capital flows contracted sharply by 59.2% year on year (y/y) in 2020 to $9.7bn. This was driven largely by a 68.6% (y/y) decline in foreign portfolio investments (FPI) to $5.1bn, which over the observed period, accounted for 68.0% of the total foreign capital inflows on average.

Foreign investors’ apathy towards Nigeria continued in the first half of 2021. Total foreign capital flows stood at $2.8bn, which translates to a 61.1% y/y decline compared to the first half of 2020 ($7.1bn).

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