While the nation’s forex market has seen increased liquidity in recent days on the back of the Central Bank of Nigeria’s new policy action, foreign investors are not keen on bringing back capital into the country.
Industry experts, including the Chief Executive Officer, Financial Derivatives Company Limited, Bismarck Rewane, say the issue of investor confidence remains unaddressed.
The CBN had on February 20 said it would provide direct funding to banks to meet the needs of Nigerians for personal and business travels, medical needs and school fees, effective immediately.
Although the weekly sale of forex to banks has helped to narrow the spread between the official and parallel exchange rates, pressure remains on the naira.
The naira, which posted some gains days after the CBN action, plunged to 475 per dollar at the parallel market on Friday from 450 on Thursday. It hit an all-time low of 520 to the dollar on February 20.
The Global Chief Economist, Renaissance Capital, Charles Robertson, described the increase in liquidity in the forex market as helpful, saying, “Foreign investors want to know they can take profits on their investments when they bring money in.
“But investors are deterred by multiple currency rates; so, the interbank rate too needs to align with the parallel rate, and this has not happened yet,” he said in an emailed response to questions from our correspondent.
The interbank rate stood at N305.25 per dollar as of Friday, according to the CBN.
Robertson said investors might be slow to return, noting that in mid-2016, some foreign investors put money into Nigeria when the currency was floated, but then found out that they were stuck again.
“They will be more wary this time. This new policy has been a positive move, but does not yet compare to the greater reforms in Egypt that have reportedly attracted $13bn back into the Egyptian banking system,” he said.
According to Rewane, the policy framework, the implementation and the process have to be consistent.
“Until you actually free up the market and do all the things that are required, you will have exchange rate movement that is not predictable,” he said.
He also described the CBN action as a move in the right direction “but there is a lot of more work to be done.”
“The parallel market has actually started depreciating again. The more forward transactions they do, the less spot transactions they do, the weaker the naira is going to become. And that is what is happening already,” he explained.
According to Rewane, there is a question of liquidity and a question of confidence, and liquidity does not address the question of confidence.
He said, “You have to win the confidence of investors. Investors’ confidence is not won because you put some liquidity into the market for one week.
“We have more work to do. We need to make the market transparent, allow the oil companies to sell into the market, allow the market move and don’t control the price.”
The President, Association of Bureau De Change of Nigeria, Mr. Aminu Gwadabe, said the fall of the naira to 475 per dollar was largely due to the increasing pressure on the transfer segment of the market.
“Also, the slow take off of banks is an impediment to the exercise. Some banks give a 30-day waiting period to consummate school fees transfer. The market is also witnessing a stronger demand from our neighbouring countries,” he added.
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