Nigera’s foreign portfolio outflows was around $6 billion last year, Yvette Babb, executive director for sub-Saharan Africa research and strategy at J.P Morgan says.
Once considered one of the most promising emerging markets, Nigeria was hammered when it introduced draconian foreign exchange restrictions to counter the effects of the 2014 oil price crash.
These will take years to unwind, some analysts fear, while others are concerned the new trading facility could come under pressure if oil prices were to take another tumble, or trade through it could slow if Nigeria’s currency reserves run low.
The much-criticised move starved the economy of dollars, throttled foreign investment and plunged Africa’s largest economy into recession for the first time in more than 25 years.
But authorities have since tried to normalise the currency market and alleviate dollar shortages, most recently via the “Investors & Exporters FX Window”, which allows investors and traders to swap nairas for dollars at market-determined rates.
The new window adds to a confusing array of exchange rates. But it does seem to be succeeding in luring back some foreign funds, especially as the economy should return to growth soon and inflation is finally slowing.
Depressed equity prices and high local currency yields in combination with the exchange rate adjustment is likely to give rise to further foreign portfolio inflows.”
But Nigeria’s new window has re-opened the doors to the carry trade in naira – one of the few such opportunities on the continent outside South Africa, said Yvette Bab added.Since the window’s launch, foreigners have swapped some $2.2 billion through it, according to the central bank although London-based Exotix Capital said many of the deals were likely small as some people test the new system.
Data from Lagos-based FMDQ OTC Securities Exchange, which hosts the window, shows the naira NAFEX fix at nearly 369 per dollar, well below the official 305 rate the central bank had previously clung to.
Sola David-Borha, Chief Executive Africa Regions at Standard Bank – one of the authorised dealers in the new window – said the window was working “reasonably well” and there was definitely liquidity.
“But the most important thing is that the central bank is willing to engage, and there is constant engagement now with bankers, investors and other stakeholders,” David-Borha said.