• Friday, March 29, 2024
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Slow growth, dual FX rates, macro stability top investors’ concern about Nigeria – RenCap

Jobs

Foreign investors seeking to pump dollars into the Nigerian economy are confronted with three major challenges bordering on slow pace of the country’s economic growth, multiple exchange rates and macro-economic stability across board.

These bottlenecks are hurting their investment decisions, exacerbating worries in their hearts on whether Africa’s second-largest economy (supposing the market-determined rate of N360/$1) is a safe haven for investment decisions, global financial and investment banking firm, Renaissance Capital, said on Wednesday at its ongoing 10th Annual Pan-Africa 1:1 Investment Conference in Lagos.

“Whenever we engage with foreign investors who wish to invest in Nigeria, the biggest concern for them is on the pace of growth as they look out for emerging economies growing at about 5-7 percent a year,” Charles Robertson, global chief economist and head of macro strategy,

Renaissance Capital, told BusinessDay on the sidelines of the conference holding May 13-17.
“The issue of dual exchange rates hasn’t helped. The fact that you couldn’t get your money in and out easily due to FX shortages that happened in 2016 is still a problem. They are keen to understand the exchange rate in the country where they can get their money out easily,” Robertson said.

Africa’s biggest oil producer has held on to an exchange rate policy where investors could seek dollars at a market-determined rate of N360/$ or an official window where the rates are held at N305/$. This is despite recommendations from the International Monetary Fund (IMF) urging the government to remove the cap it placed on petrol prices and scrap its multiple exchange rates that have over time deterred growth of businesses.

Since the country introduced the multiple exchange regimes in 2015, direct inflows otherwise known as “sticky money” into the country have headed south. FDI into the country, at $2.1 billion in 2018, touched its lowest levels in 13 years while Ghana, Nigeria’s West African neighbour which economy could be likened to that of Lagos, attracted the largest inflow into West Africa, according to data from the United Nations Conference on Trade and Development (UNCTAD).

Aside from multiple exchange rates, Nigeria has seen weakened growth averaging about 2 percent, despite exiting an economic recession in the second quarter of 2017. But RenCap analysts believe the country could bounce back with some rapid reforms.

“We do believe that further improvement in the business climate and a strong welcome to foreign investors are necessary for Nigeria to lift the investment rate. With some rapid reforms, a better value currency, accelerating growth – Nigeria could become overweight again,” Robertson said.

Robertson explained that foreign direct investments tend to go up when an economy is growing well; hence countries growing at 1-2 percent, like Nigeria, do not get a lot more foreign direct investment.

“Industrialisation is not possible without raising the adult literacy rate from 60 percent in 2015 to 70 percent (perhaps in 2024?). Nigeria needs to more than double electricity consumption from the national grid, and double the investment share of GDP,” he said.

RenCap tasked President Buhari and CBN Governor Godwin Emefiele to put in place conditions that will provide jobs for 4 million Nigerians entering the workforce each year, noting, however, that industrialisation is probably required to achieve this in the long term, by pushing GDP growth up to 7-11 percent annually.

RenCap noted that to raise investment, Nigeria needs to attract rather than deter foreign direct investment, raise taxes to reduce borrowing, improve ease of doing business, and shift spending from consumption (wages, the implicit fuel subsidy) to investment.

“The CBN could unify its official exchange rates, gently cut interest rates and allow the currency to depreciate to offset inflation differentials with trading partners. We think these policies could help lift growth to the upper end of the 2-4 percent GDP growth range noted above,” Robertson said.

“We think other markets in West Africa are likely to industrialise first (Ghana) or see a strong rise in private sector debt/GDP ratios (Ivory Coast, Senegal). We continue to believe Africa will be a $29 trillion economy in 2050, larger than the 2012 combined GDP of the US and Eurozone, with Nigeria a $6 trillion economy in 2050, with a per capita GDP similar to Brazil today – and a football team brilliant enough to win the 2050 World Cup,” he said.

Experts at the event called on the government to expedite action on the unification of the foreign exchange window, which causes confusion in the minds of foreign investors. They also called on the government to put words into action by diversifying the revenue as the dependency on oil is no longer sustainable.

Yewande Sadiku, executive secretary/CEO, Nigerian Investment Promotion Commission (NIPC), said government is working on other initiatives for a friendlier exchange rate that is market-driven.

“The government’s intention is to make the exchange rate more market-driven, which we are working hard to achieve,” Sadiku said at the annual event on Wednesday.

Yvonne Mhango, RenCap’s head of research for sub-Saharan Africa, said the low hanging fruits such as decrepit infrastructure must be the focus of the government.

“Economy grows when infrastructure grows,” Mhango said.
She also emphasised the need for champions in various sectors that can influence and push government policies.

DIPO OLADEHINDE, MICHEAL ANI & OLUFIKAYO OWOEYE