Dollar-based investors pause investments, recycle naira

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April 14, 2016 4:32 PM

CBN Building

Media reports say Exotix Partners LLP has stated that the country’s foreign-exchange controls are undermining political reforms by President Muhammadu Buhari and making Nigeria “uninvestable” for buyers who measure returns in dollars.

The reorganization of the state oil company’s structure, changes to the country’s bureaucracy and Buhari’s efforts to curb corruption all point to “root and branch” changes to the country’s governance structures, Hasnain Malik, head of frontier markets strategy at London-based Exotix, said in an interview in Nairobi, the Kenyan capital, according to Bloomberg.

“All of that is a pretty powerful political and governance reform story,” he said. “It’s undermined from a foreign institutional investor standpoint by a very repressive economic policy and specifically a currency policy,”

“If you’re a dollar-based investor you can’t get over the fact that you could see either a major deterioration in the dollar value of your investment or your investment may be stuck,” he added.

In addition to that, share-trading volumes on the Nigerian stock exchange plunged to a seven-year low in the first quarter, as foreigners shunned the market while they wait for a devaluation of the naira and as the country’s economy grows at its slowest pace in 17 years.

Ali Khalpey, head of equities at Exotix say volumes have recovered in the past two weeks as companies have paid out dividends and those who are prevented by the foreign-exchange policy from repatriating their funds are reinvesting.

“A lot of our clients have got trapped naira sitting in Nigeria, so now we see recycling of that naira back into the equities market,” Khalpey said.

“There is no point sitting in a foreign-currency line not knowing when you are going to get given your FX. You may as well buy the stock that you like over the long-term and hold it.”

Nigeria could be kicked out of the MSCI Frontier Markets Index by the end of the month because of the currency controls.

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