• Thursday, March 28, 2024
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Investors seek alternatives as FX challenges dampen appetite

Investors seek alternatives as FX challenges dampen appetite

The foreign exchange (FX) challenges in Nigeria is costing the country the much needed foreign investment as investors’ appetite for Africa’s largest economy is being dampened by weak naira and the country’s multiple exchange rate.

Phone calls from foreign investors to stockbrokers and investment bankers in Nigeria only entail enquiring if the FX challenges in the country have been resolved.

This is despite the fact that Nigeria’s equities market closed last year on a green note, a performance that added the bourse to the list of world’s best performers in 2020.

Recent investment conversations are not about how to invest in Nigeria, instead, it is about finding ways to repatriate their funds that have been stuck in the country, according to wealth advisors.

According to Akinbamidele Akintola, head, SSA Equity Sales, Stanbic IBTC, with a market that moved with that kind of margin, it would have led to some form of excitement where people are wondering and asking what they are missing in Nigeria.

“The truth is I didn’t get any phone call from any international investor asking me if they are missing anything in Nigeria. If anything, investors are asking me what is happening in the I&E window, who is getting FX and who is not getting,” Akintola said.

Investors are now either staying on the queue to get their monies out or are exploring other avenues, he said.

As dollar inflows into Africa’s largest oil-producing nation took a hit from a plunge in crude, a commodity that accounts for 90 percent of FX earnings, the central bank’s capacity to meet the dollar demands of foreign investors was crippled.

Thus, foreign investors became trapped in Nigeria’s debt market as dollar liquidity dries up due to a lack of fresh inflows. Some investors in local-currency securities in March have been unable to repatriate their proceeds almost one year after.

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“What is required today is for the CBN to adjust the rate to cover the gap, maybe that N390/$ will become N410/$. They did it before and went back. Accept the flexibility of the rate; where it moves upwards and down,” Bismarck Rewane, CEO, Financial Derivatives Company, said.

According to Rewane, once the CBN can achieve the aforementioned and the market is aware of it, everyone will build into accepting that the rates are not fixed. “Stop rationing foreign exchange,” he said at the ‘Naira in 20201: Optimising Choices of Growth’ virtual event on Tuesday.

Nigeria devalued its currency a record three times against the dollar last year, and it is expected that there will be another of such adjustment in 2021.

“We think emerging market currency is cheap, sadly Nigeria is not one of them. While currency of oil-exporting country like Angola is 20-30% cheap that of Nigeria is expensive by the same percentage,” Charles Robertson, global chief economist, Renaissance Capital, said.

Nigeria, unlike its African peers, has continued to operate multiple exchange rate windows, an issue the World Bank and the IMF have frowned at, saying it creates room for arbitrage and deters foreign investment from coming into the country.

Following Nigeria’s exchange rate challenges, Abiola Adekoya, lead wealth advisor, Artios Capital, said for most foreign investors, it is about wealth preservation at the moment, especially for those that have already gotten their fingers burnt. They are trying to shift some of their assets in naira to foreign currency, she said.

According to Adekoya, the move is “to try and hedge and diversify their portfolio, but then there is also the cost of conversion which keeps them wary and makes a lot of them want to sit on the fence.”

While this year is expected to be better than last year as the Nigerian naira ran into troubled waters in 2020, some of last year’s issues may still befall the local currency this year considering crude price has been projected by Renaissance Capital to remain around $50/barrel.

“It is sad to hear from industry players that the foreign inflows that we are all expecting are likely not going to come,” Aminu Gwadabe President, Association of Bureau De Change Operators said.

According to Gwadabe, the fixed exchange rate in Nigeria is allowing some people “to divert the official wing and take the inflow into the market.”

Meanwhile, the recent monetary policy move by the Central bank has helped in shifting the demand from the official market to the parallel market. A move that broadened the gap between the official exchange rate and the black market rate.

While dollar shortage pushed the CBN to weaken the naira to N390 on the official window in December 2020, the local currency plunged to as low as N500 against a dollar on the black market, leaving a spread of N85/$ between parallel and the official rate.

On how to go about resolving Nigeria’s exchange rate challenges and thus, boost investors’ appetite, Rewane advised the CBN to cease from rationing the local currency.

“It is false to think that a strong naira means a strong economy, as a matter fact, a competitive devaluation helps you put yourself stronger. The first thing, therefore, is the acceptance that a strong economy will lead to a strong naira and if that happens then there will be a shift to a more market-determined naira,” he said.