H2: Nigeria needs to address structural economic vulnerabilities to attract capital inflows ― Analysts

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Employees work on the trading floor at the Nigerian Stock Exchange (NSE) in Lagos, Nigeria, on Tuesday, April 2, 2019. The International Monetary Fund said Nigerias economy was growing too slowly to reduce poverty or joblessness and urged the government to boost revenue and scrap its system of multiple exchange rates. Photographer: Ruth McDowell/Bloomberg via Getty Images

Analysts at United Capital Plc have described the delayed policy formulation and cabinet formation by President Muhammadu Buhari as a risk to capital inflow to the country.

United Capital, in its half-year report, said net funds flow into the Nigerian economy was not expected to improve significantly in the second half of the year in the absence of clarity around measures to address structural vulnerabilities in the economy.

“More specifically, delayed policy formulation and cabinet selection by the President is another downside risk to capital inflow as guided by events following the 2015 inauguration ceremony of President Buhari,” it said.

The analysts said in the absence of profound changes in the policy environment, foreign portfolio investors in search of cheap naira assets would dominate capital importation into the county, while Foreign Direct Investments would remain on the sidelines.

According to the analysts, to boost FDI, Nigeria must review its macroeconomic framework to enable investors to clearly estimate the outlook of the naira and control fiscal deficit to stimulate private sector investment.

The analysts said investors were likely to continue to snub equities due to deeper concerns about the policy framework of the government.

The report read in part, “In our 2019 outlook report, we noted that the market would be on a better balance of risk in 2019, given the general sell-off witnessed in the market in 2018. As such, it was expected to rebound based on cheap market valuation, the possibilities of a post-election repricing of Nigerian assets as well as an anticipated renewed foreign interest in Nigerian assets.

“On a balance of these highlighted factors, the local bourse was expected to revert to fundamentals, as the uncertainties that clogged sentiments in the previous year clear off. Even though election uncertainties were out of the way and monetary policy in the global economy is increasingly looking dovish, investors continued to snub Nigerian equities despite attractive valuation, opting for short-dated money market bills.

“While we had expected the attractive market valuation to be one of the major factors to drive bullish performance this year, poor sentiment for equities extended into H1-19, despite increased stability in the polity, corporate actions and primary market activities in the post-election period.”

They said the current valuation in the market presented an opportunity for discerning investors to position for a medium- to long-term return.

The analysts estimated a –0.1 per cent year-on-year return for equities by the end of 2019, capping market uptrend at 31,399.1 basis points due to the absence of pro-market policy reforms, which they said might continue to constrain momentum despite strong fundamentals.

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Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

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