• Saturday, May 25, 2024
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Investors urge bold reforms as status quo seen unsustainable


Investors are rushing to sell their holdings of Nigerian assets from the naira to equities and bonds, a vote of no confidence and a signal to enact broad-based reforms, as the government stalls in unveiling its economic response to the coronavirus pandemic and falling oil prices.

President Muhammadu Buhari’s team set up to provide an adequate response to the coronavirus and oil price war threat to the economy has only hinted at a possible budget revision.

One fund manager, who followed the team’s roundtable in Abuja on Wednesday, said it was a “waste of time” and “failed to make a stab at the heart of the matter”.

“I was expecting to hear what the plans are to calm the market and manage the naira sell-off we have seen and if there were plans for an economic stimulus,” the fund manager who did not want to be quoted said.

The roundtable tagged ‘Going for Growth 2.0’ was boycotted by the Doyin Salami-led Economic Advisory Council which was inaugurated by President Buhari in October last year.

Explaining the rationale behind its decision not to participate in the roundtable, the council noted with displeasure that roundtable would discuss virtually the same issues upon which the council had debated and forwarded its views to the government.

“There would be no good served for any of its members to participate,” the council said in a letter.
At the meeting, Godwin Emefiele, Central Bank governor, restated calls for economic diversification to boost Nigeria’s export and unlock opportunity for its teeming population.

“I’ve been hearing diversification of the economy since only God knows when – forever. It seems to be a cliche to the leaders with no concrete plans,” Femi Abolude, a retail investor reacting to the outcome of the roundtable, said.

Gbolahan Ologunro, an analyst at CSL Securities, said the lack of adequate clarity and guidance from both fiscal and monetary authorities would continue to spook investor interest.

“We would continue to see a weak investor sentiment and broad-based selloff in risky assets,” he said.
According to Gbolahan, the apex bank would have used the roundtable to tell investors what its exchange rate management policy would be like going forward.

The continued silence by Nigerian officials has left investors with a double whammy which has increased speculative activity over fears of naira devaluation after global oil prices plunged this week and fundamental factors causing investor shift to dollar assets.

Omotola Abimbola, a macro & fixed income analyst at Lagos-based advisory firm, Chapel Hill Denham, said the roundtable failed to address the short-term pressure that the economy is currently facing while focusing more on the long-term growth.

“Lack of policy response to address the issues has led to overshooting of the exchange rate as currently witnessed in the black market,” he said.

Around the world, central banks and governments have announced stimulus for their economies, be it emergency rate cuts or higher government spending, to protect their economies.

While Nigeria sorts out a response, the financial market is in a tailspin.

There was a sell-off in Nigerian equities, the naira and Eurobonds for the fourth straight day this week, according to data tracked by BusinessDay.

Big drops in the stocks of blue-chip companies from MTNN to Nigerian Breweries and tier-1 lenders further dampened the market performance. Consequently, the All-Share Index, the gauge used to measure the performance on the exchange, plummeted by 3.72 percent.

The banking index tanked 8.51 percent, oil and gas index shed 0.82 percent, consumer goods declined 2.74 percent, a clear indication of investors’ lack of confidence in the market. Stocks are now down 13 percent this week, the biggest weekly loss in four years.

The country’s debt market is also not shielded from the market turmoil as Nigeria’s Eurobonds due 2047 were trading at a yield of 10 percent, the most on record.

The currency is not faring any better.
The naira weakened to N374 per dollar at the Investors and Exporters window Thursday, the weakest it has ever traded since inception of the window in April 2017, as foreign investors rush for Nigeria’s exit door.

The naira also weakened at the black market Thursday, trading at N410 per dollar from N380 a day before and is now down 13 percent this week.

Banks are now currently offering offshore investors dollar currency between N410 and N415 with one-year non-deliverable forwards (NDF) trading at N480.

With no policy statement from the Nigerian government to calm the nerves of investors in the wake of slumping global oil price and surge in the number of coronavirus cases which has further dashed the hope that the outbreak has been contained, the sell-off may be far from over, analysts say.

While governments in major economies around the world are coming up with a coherent policy statement to douse the tension in the market, the Nigerian government has continued to keep mute, leaving investors in the dark.

The Bank of England announced a slash in interest rates to a record low and launched other emergency measures as part of a coordinated response to limit the double whammy effect of crash in crude oil and coronavirus.

Also, the United States Federal Reserve has lowered interest rates in a bid to support economies. European Central Bank and the Bank of Japan have already rolled out plans to mitigate the impact by cutting rates even into negative territories.