Foreign investors await currency adjustment

Tumbling oil prices have eroded Nigeria’s lure for foreign investors, but is likely to venture back if authorities will allow what some say is a much-needed currency adjustment.

The price of oil — the source of 70 percent of Nigeria government revenue — has fallen 60 percent since last June, pushing stocks down over the same period.

Nigeria lost its top spot on foreign investment destination list in Africa to Ethiopia early this month in the just concluded World Economic Forum (WEF) held in South Africa.

“For foreign investors the key is that there is a working foreign exchange markets and that they are able to see how demand and supply interact.

Nobody is going to put money into Nigeria, if they think there is a chance of a big devaluation” Razia Khan, regional head of research for Africa, Standard Chartered Bank, at the side line of the World Economic Forum (WEF).

“A lot of foreign investors are waiting on the side lines, and you won’t see the big foreign portfolio flows coming in until we see that adjustment in the currency” he adds.

According to the National Bureau of Statistics, capital imported into the country in Q1 2015 is $2.7 million the lowest value observed over the last two years. A sharp decline of $1.2 million or 31.58 percent was recorded year-on-year. On a quarterly basis, there was an acceleration of the downward trend observed since Q4 2014 with a further drop of $1.8 million or 40.6 percent.

The bureau attributed the decline to high levels of uncertainty in the quarter due to a postponed election and depressed oil price.

Recent attacks by Boko Haram continue to have a negative impact on perceptions of Nigeria. For corporations looking beyond the short-term turmoil, the country’s problems may provide an opportunity to buy into Africa’s biggest economy at a discount. “Nigeria is about to enter a world of hurt but these are the times when you can really make a difference – both from investors’ point of view and corporates’,” says Matt Lasov, FSG’s global head of advisory and analytics.

The central Bank of Nigeria (CBN) adjusted the clearing rate of the naira to N196.90k from N196.95k two weeks ago.

The naira gained over the US dollar by N0.36K or 0.18 percent at the inter-bank market as at the time of writing.

The official exchange rate of the apex bank was adjusted from N196.95k last week to N196.90k this week.

According to a report by Ecobank, the inter-bank foreign exchange market is now somehow stable. Naira short-term outlook is weak due to impact arising from sustained low oil prices, low level of FX reserves and large level of unmet USD demand.

A recent report by Ernst & Young showed that Ethiopia was Africa’s eighth-largest recipient of foreign direct investment last year, up from 14th position in 2013.The number of projects in Ethiopia surged 88 percent, the most of all countries ranked, while those in Nigeria slumped 17 percent.

Josephine Okojie