IMF: Concern over FX Scarcity Persists, But Nigeria Remains Investment Destination

Obinna Chima with agency report

Worries over the repatriation funds out of Nigeria following currency controls last year still dominates investor fears, the International Monetary Fund (IMF) said on Wednesday.

But IMF’s senior financial sector expert, Miriam Tamene, who said this, added that the country was still on international investors’ radar.

Tamene said there was interest in Nigeria’s securities market, adding that however, investors were being careful because fears of getting trapped still exist

Nigeria introduced capital controls following dollar shortages triggered by a currency crisis last year. The naira then fell to a record low of N520 to the dollar, prompting the central bank to introduce a raft of measures to boost dollar liquidity.

The naira has appreciated across various segments of the forex market as it currently trades at about N360 to a dollar.

Tamene’s comments came after her team visited Nigeria’s Securities and Exchange Commission (SEC) as part of consultations on developments covering the economy. The report of the consultation would be presented to IMF board in February.

“Investors are interested in Nigeria, but with difficulties they had in getting their money out recently, that confidence is not there yet,” Reuters quoted Tamene to have said in a statement released by the SEC.

“It has improved though, but they are still watching.”
Nigeria’s currency market for investors has traded $22.37 billion since it was launched, according to market operator FMDQ OTC Securities Exchange.

On Wednesday traders said some foreign investors were booking profits from treasury bills and bidding to repatriate funds abroad, creating a liquidity squeeze on the currency market, after debt yields fell.
In April this year, the central bank liberalised the market to allow investors trade the naira at market-determined rates in a bid to attract inflows into debt and stock markets. This led to the introduction of the Investors’ and Exporters’ (I & E).

In fact, most activities now occur on the I&E window, with Fitch Ratings recently acknowledging that the rate on the I&E “should now be considered the relevant exchange rate”.

The CBN Deputy Governor, Financial System Stability, Dr. Joseph Nnanna, recently described the I & E window as “a mighty success”, saying it has “performed beyond our expectations”.

“Within a few months of the window’s introduction, we have seen a volume of over $10 billion. It is a huge success and I believe other countries can copy that from us,” he said.

MSCI last month announced its decision to retain the MSCI Nigeria Indexes on its MSCI Frontier Markets Indexes, after an initial threat to delist Nigeria, and had cited the performance of the I & E window as the major reason for its decision.

The Nigerian Stock Exchange has gained 45 per cent so far, this year, helped by demand for consumer goods and banking shares after the central bank lifted currency restrictions for investors.

Acting SEC Director General, Abdul Zubair, said several initiatives had been launched by the commission to increase investor confidence and grow the capital market.

The Fund called on Nigerian authorities to lower inflation currently at 15.91 percent as of October and increase access to local monies to grow the economy.

The government plans to repay some treasury maturities this month, in a move to lower borrowing cost, which has triggered a debt sell-off by foreign investors and caused treasury bill yields to fall across the board