Investors still wary despite CBN’s move towards currency flexibility

By Odunewu Segun

The Central Bank of Nigeria’s apparent moves to loosen their grip on the Naira is still not enough to drag in foreign investors, who, National Daily gathered will continue to steer clear of the market until they are convinced of currency flexibility.

National Daily gathered that introduction of another exchange rate to Nigeria’s already convoluted currency system, allowing investors to trade naira at market-determined rates is making investors to be wary.

According to experts, the current system of trading naira over the phone raised questions about price discovery and transparency. This week, the naira traded at about 400 to the dollar in the window for investors, similar to its parallel market rate

Since the move, Lagos stock market has surged to a seven-month high in anticipation of foreigners’ return. Local traders say there are more inquiries from abroad about naira-denominated bonds, which yield a juicy 16-18 percent.

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Yet there is no real sign investors are actually venturing back into a market where they once held more than $5 billion of debt and accounted for over half of daily stock market dealings.

While the latest policy moves have indeed narrowed the divergence between parallel and official rates, dollar liquidity constraints are likely to persist because oil receipts will not rise significantly, Moody’s Aurelien Mali wrote in a note.

Yet there are some encouraging signs. Temi Popoola, Renaissance Capital’s Nigeria CEO, said the firm had traded around $50 million in new inflows – 40 percent into equities and 60 percent into bonds – since the new window opened.

However, foreign investors wanted to sell dollars at rates over 400 naira while local traders held out for around 350, he said.

“Internationals want to buy bonds but are not willing to exchange their dollars at the interbank market rate. So only a handful are coming in as of today,” Popoola added.

The new window leaves Nigeria with at least six exchange rates: the official rate around 305 per dollar, the black market, a rate for Muslim pilgrims visiting Saudi Arabia, a retail rate set by licensed exchange bureaus and a rate for funding foreign travel and school fees.