Nigeria’s frontier allure dulled by oil price, Boko Haram

Plummeting oil prices, increasing Boko Haram Islamist militants’ attacks and rising political tensions before a general election in February are diminishing Nigeria’s status as a prime frontier-market investment destination, reports Bloomberg.

Seven months since the Federal Government rebased the country’s economy making Nigeria Africa’s largest economy at $510 billion, the central bank has devalued the naira and pushed the benchmark interest rate to a record 13 percent, while Ngozi Okonjo-Iweala, finance minister and coordinating minister for the economy, announced austerity measures in next year’s spending plan. Suspected members of the Boko Haram group have carried out a string of attacks, including a triple bombing on November 28 that killed more than 100 people in Kano.

After attracting at least $59 billion in investments in the past five years, according to trade and investment minister, Olusegun Aganga, the perception of Nigeria is changing. Its currency has fallen 11 percent against the dollar this quarter, the most among 24 African currencies tracked by Bloomberg after Malawi’s kwacha, while its stocks have plummeted 17 percent.

“We have been running an underweight position in Nigeria,” John Mackie, head of Johannesburg-based Stanlib Asset Management’s Pan African Investment portfolios, said by phone on Monday. “I think investors would play a wait-and-see game now until after the elections next year and have a look at where the oil price is. If the oil price keeps on dropping, that’s a huge risk.”

With the approach of elections in February, investors seem to be increasingly wary of the weaknesses in Africa’s biggest oil producer. Portfolio flows into the country fell 40 percent year-on-year in the second quarter to $3.9 billion dollars, according to data published on the central bank’s website. The 12-day decline of the Nigerian Stock Exchange All Share Index last month, the longest losing streak since January 2009, was partly due to foreign portfolio investors exiting the market.

The naira rose 0.5 percent to N183.05 per dollar at 12:05 p.m. in Lagos, the commercial capital, snapping a two-day decline.

“A lot of people are concerned about the political situation,” David Wickham, senior investment specialist at HSBC Global Asset Management, said by phone from London. “The team’s made the decision that we will wait and see what happens.”

The price of oil, which accounts for more than 70 percent of government revenue and 95 percent of foreign-exchange income, has fallen 37 percent this year.

“The country is already going through a rough patch with a seemingly intractable Boko Haram insurgency,” said Nnamdi Obasi, senior analyst for Nigeria at Brussels-based International Crisis Group. “The added impact of falling global oil prices will only drive her deeper into troubled waters.”

The rebellion in the north of the country has killed more than 13,000 since 2009, according to President Goodluck Jonathan. Nigerian forces fought off an Islamist attack on Monday in Konduga.