Nigeria May Lose Frontier Market Status Over Continuous Dollar Shortage Amidst Economic Slump

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  • Local unit weakens to new low on the parallel market in Lagos
  • MSCI worried about inability of firms to repatriate dollars

By Emele Onu and Hari Govind+Follow

Nigeria is poised to lose its frontier market status because of persistent foreign-exchange shortages in Africa’s largest economy.

MSCI Inc. is considering downgrading the MSCI Nigeria indexes to standalone markets status from frontier market, the New York-based company said in a statement.

“There has been a continual and severe deterioration in the ability to repatriate funds from Nigeria,” Craig Feldman, global head of Index Management Research at MSCI, said in a statement. “Given the prolonged nature of the issues affecting the market’s accessibility, we have put forth the consultation to reclassify the MSCI Nigeria Indexes.”

Africa’s biggest crude producer has been rationing dollars because of lower oil income that accounts for about 90% of foreign exchange earnings. The nation’s foreign-exchange reserves have dropped 4% this year to $38.8 billion, despite the government tapping the overseas bond market twice.

The naira weakened to 614 against the dollar Friday on the parallel market from 610 a week earlier, according to Abubakar Mohammed, a bureau de change operator that tracks the data in Lagos, the commercial capital. That’s the lowest on record in the West African nation, where the central bank maintains a tightly controlled official exchange rate.

More individuals and businesses are finding it difficult to buy dollars at the banks and are resorting to the black market, adding to the pressure, Aminu Gwadabe, president of the Association of Bureau de change Operators of Nigeria, said by phone. “There is no liquidity; the banks are not meeting up,” he said.

The official naira rate declined 0.2% to 417.79 as of 3.49 p.m local time, widening the spread over the parallel market rate to 47%.

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Nigeria’s central bank has devalued the currency three times in the last two years and has a backlog of unmet dollar demand from investors, according to the International Monetary Fund.

More details from MSCI on other markets:

MSCI continues to welcome feedback on the level of market accessibility of the Sri Lankan equity market and will consult with market participants to gather feedback if there are any further developments
MSCI will continue to monitor the developments in the Russian equity market’s accessibility and will consult with market participants if there are any relevant changes in the market’s conditions
MSCI also noted the evolution of clearing and settlement cycles across global markets
Nigeria’s NGX All Share Index has gained 21% this year in local currency terms.

(Updates with value of naira in fifth paragraph)