Nigeria’s policy reforms are changing global perceptions of Africa, said Renaissance Capital (RenCap) Africa in a recent report.
RenCap said Nigeria is reforming along with other countries like Egypt and Kenya, adding that the monetary policies undertaken by these countries sent a positive message about Africa’s ability to manage global interest rates and attracted foreign investors.
“Governments are showing they will undertake painful reforms, allow currencies to reflect market realities and meet their debt obligations. It is a vital message to send after 2022 painted a more negative picture of the continent’s ability to manage higher global interest rates,” the report said.
The report stated that the Central Bank of Nigeria’s monetary decisions, such as the hiked interest rates, have created a natural flow of US Dollars to Nigeria which makes it easier to repay maturing bonds.
In essence, “investors can now invest with some confidence that sooner or later, inflation will start to fall,” it said.
The report also noted that despite the naira strengthening against the dollar in March, it was still undervalued as at March 28.
“With this month’s REER model update, the average rate is now back at 912/$ – so at the 28 March level of 1,303/$ the Naira is 30 percent undervalued to its long-term average,” it stated.
However, with the naira strengthening from 1,600/$ to around 1,300/$ in March, investors expect higher returns on investments, the report noted.
“An estimated $1.5 billion has been invested in Nigeria’s T-bills, with one rating agency expecting $5-10 billion of portfolio inflows over the course of 2024. This makes sense.”
“Holders of equities have already seen gains of 20% since the end of February, as the naira has strengthened from 1,600/$ to around 1,300/$. We expect a bigger rally to come. In US dollar terms, Nigerian equities are around the cheapest they’ve been in 20 years,” it said.
In early 2024, Kenya and Egypt had given investors the opportunity to make “quick large dollar returns” on investments, the report said.
“Kenya provided a 40 percent return to US Dollar based equity investors since late January. In recent weeks, Egypt has attracted $8-11 billion of portfolio inflows since it devalued, and in recent weeks, it has finally become Nigeria’s turn to join the party.”
