One year after President Bola Tinubu took office, investor enthusiasm over his initial reforms has waned, with some signalling they may reconsider their positions if Nigeria can stabilize its currency and enact more substantive changes, Bloomberg reports.
Since succeeding Muhammadu Buhari in late May 2023, Tinubu has instituted a series of reforms aimed at wooing investors and boosting dollar liquidity. These include scrapping costly fuel subsidies, replacing the central bank governor, clearing a foreign exchange backlog, and overhauling the country’s exchange-rate policies, effectively devaluing the naira.
While these initial steps were met with optimism, leading to increased dollar inflows and a rally in the naira, the positive momentum has since dissipated. Tellimer Ltd. data shows that investor inflows into the foreign exchange market declined by almost a fifth in April, and the naira has lost nearly 67% of its value against the dollar since June.
“We are likely to add to local currency bonds once FX volatility declines, but the timing of that remains up in the air,” said Kevin Daly, a portfolio manager at London-based Abrdn Investments Ltd. “It will require a combination of factors such as further foreign portfolio flows, and more importantly some de-dollarization as the central bank can’t be the sole provider of FX liquidity for the market.”
Investors are also seeking better returns before committing more funds to the country. Ayo Salami, chief investment officer at Emerging Markets Investment Management Ltd., noted that the local currency bonds are not yet attractive, given that inflation, at around 33.7%, is still above the policy rate of 26.25%.
Another issue investors want to see addressed is the repatriation of funds. While Nigeria offers higher equity valuations and better yields, emerging and frontier market peers like South Africa, Egypt, Kenya, Turkey, and Pakistan offer less repatriation risks and a more advanced policy course correction with higher credibility that policies will be sustained.
“I think as long as we can be consistent and clear about policy direction when it comes to monetary policy and the like, then I think you will see confidence return, then you will see liquidity return,” said Ladi Balogun, chief executive officer of Lagos-based FCMB Group. “That is when you will see international investors come back.”
