Why investors are rushing to Egypt but tiptoe to Nigeria

For one whole week, leaders of FMDQ OTC exchange met with a good number of the top market movers in London, including representatives of leading fund and asset managers, banks and investors, as part of their 2017 market-making programme.

BusinessDay sat at these meetings. In this first part of our series on ‘Looking in from outside’, Publisher Frank Aigbogun who was in London, provides an overview of what the investors say about Nigeria and the road it should travel in the pursuit of investment capital.

The meetings were preceded by days of unusually hot weather in London but given the significant rebuke Nigeria has suffered of late, we could not even begin to see the good turn in the weather as a sign of a thaw. After all, when you meet the men and women who choose where capital is sent, there is no place for being presumptuous.
The meetings came in very quick succession, sometimes, back to back, and inside halls which seemed deliberately set up to impress. Inevitably, the questions were almost the same once the discussion came to Nigeria.
A lot of money is waiting to come to Nigeria, the investors say, as if to welcome you, and one sign of this can be seen in the data showing that in the last eight weeks, Nigeria has attracted a flow of $1.5bn on the new and favoured investors and exporters window. Stability is returning to the naira exchange rate and liquidity is beginning to improve in relative terms but Nigeria’s is still far from the good days when flows could go as high as $700m in one week.
Virtually everywhere we went in London, the discussion begins with “why did Nigeria not go the route Egypt took?” Soon you are presented with a positive review of how so well Egypt has been doing since its currency floatation on November 3 last year.
Some in Nigeria have drawn parallels with Egypt, where policy makers put the requirement for floatation above the worry over inflation (which is at 30% in Egypt).
From what we learn from the investors, the tide turned rapidly for Egypt once it floated the pound (which fell from 8.8 to the USD to near 19 pounds) on November 3 and secured a $12bn facility from the International Monetary Fund.
Egypt in one fell swoop, eliminated the currency peg, adjusting the value, while Nigeria has perhaps adjusted its currency by almost the same margin but achieved this in several tentative and nervy steps.
However, it was the IMF support Egypt received that changed the country’s liquidity position almost instantly and gave needed assurances to investors that should they come in, the market will be liquid enough to fund their exit.
Nigeria has not and says it does not intend to seek an IMF facility. Egypt did not resort to having a multiplicity of rates as Nigeria does and perhaps more importantly, the FX market in Egypt is adjudged to be exceptionally transparent.
Egypt is also offering a form of guarantee to investors, that should they want to exit, the central bank will provide the support or backstop the transaction, as bankers like to call it. Another thing Egypt is doing, is pursuing a vigorous policy of allowing the private sector into the mainstream of the economy and this is seen helping to attract badly needed private capital with the efficiency that it brings.
After years of near total absence, foreigners have returned to the Egyptian debt market, buying about $4bn of treasuries as at March and this, outside the $4bn Eurobond the country launched earlier. Most of the investors we met are back in Egypt; some almost immediately after the November floatation and others, are back including a leading bank which did its first transaction two weeks ago.
However, Egypt’s success is coming at a hefty price, the investors would readily admit. Apart from the country’s three-decades high inflation at 30%, small and mid size companies with dollar exposure are collapsing, with the banks now beginning to grapple with rising non-performing loans (NPL) as is the case in Nigeria.
“We have been handcuffed and thrown into the sea”, says Moshen al-Gedamy, who has run a successful business for the past seven years, importing beans, a staple of the Egyptians but who now faces bankruptcy, following the floatation.
Fresh pressure is beginning to mount on the country’s military government, after it raised fuel price by 40% last year and again by 50% on July 29, taking petrol price to 27 US cents or about N100 a litre. The government also doubled the price of cooking gas, as it seeks to cut its annual fuel subsidy for 2017 to $6bn in fulfillment of terms for the IMF loan.