Rencap predicts lackluster performance in foreseeable quarters

Renaissance Capital (Rencap) Nigeria, a subsidiary of global Initial Public Offer (IPO) investment adviser, Renaissance Capital, may be on slippery grounds as it signals a lackluster performance in foreseeable quarters, as capital controls in the $492 billion economy constitute a scare for investors.

What the company does depend on foreign investors interest in in the country now th at what the foreign investors does is limited the company is hard hit.

Charles Robertson, managing director and global chief economist at Rencap, expressed the company’s growth concerns as foreign investor perception of Africa’s largest economy worsens.
“What we do here depends on foreign investor interest in Nigeria. So while foreign investor interest is limited, we are unlikely to expand at all,” said Robertson in an interview with BusinessDay.

“It’s not like people don’t like Nigeria, rather, they are not allowed to invest. Their compliance department kicks against investing in the country if they are unable to guarantee they can withdraw their money whenever they wish.”

Nigeria’s capital control woes are continuingly deepening. There has been renewed pressure on its foreign exchange reserves following its crude output slide to 20-year lows of 1.4 million barrels per day. Investors are increasingly betting that devaluation will happen. Inspite of these, the country’s 73 year-old head huncho, President Buhari, has continued to resist letting the currency weaken since assuming power on the 29th of May, 2015.

Nigeria has run down its reserves from a peak of $42.8 billion in 2014 to $28.4 billion, the equivalent of 6.7 months of imports, in a failing bid to maintain a hard dollar peg, while oil revenue and foreign investment dwindle.

Foreign Direct Investment (FDI) inflow to Africa in 2015 was an estimated $38 billion, down 31 percent from $54 billion recorded in 2014.

As FDI flows dipped last year, African economies bled. Nigeria-Africa’s largest, hobbled off with $3.4 billion, as inflow dipped 27 percent from $4.7 billion in 2014.

“Equity investors have $2 billion less than the $2.5 they might have if they were tracking the MSCI index and overweight Nigeria.

Not only is Nigeria $2 billion short, the $0.5bn left in the country is under threat too,” Robertson added.

Morgan Stanley Capital International (MSCI) only retains Nigeria on a special status, after it considered ditching the country due to government’s capital controls.

JPMorgan Chase & co and Barclays Plc have already dropped Nigeria’s bonds from their local-currency emerging market indexes, due to the inadequate liquidity in the foreign exchange market, which has made it difficult for foreign investors to buy and sell securities, BusinessDay investigations show.

“From an investment perspective, the next few years may be challenging – this is not because the opportunities are no longer there, but rather because these opportunities are likely to be more uneven than they have been,” says Sugar Palanee, Africa markets leader at Ernst & Young in a note. “It is now more important than ever for organizations and investors, who sometimes place great emphasis on shorter term economic growth trends, to adopt a granular, fact-based approach to assessing investment and business opportunities for the long-term.”

 

LOLADE AKINMURELE