CBN Forex Policy Making Nigeria Unattractive—Foreign Investor

By Dipo Olowookere

The foreign exchange (forex) policy of the Central Bank of Nigeria (CBN) has again come under criticism and this time, from a foreign investor.

Recall that recently, the CBN was hit hard by the Nigerian Economic Summit Group (NESG), saying the current FX policy of the banking sector regulator was making things difficult for the country rather than make them better. And for this, the CBN did not pity the group as it lambasted its leadership, casting aspersions on its credibility.

The NESG was not the first to slam the multiple exchange rates system of the local central bank as the International Monetary Fund (IMF) and the World Bank and others have also criticised the policy.

Even a former Governor of the CBN, Mr Charles Soludo, has advised the central bank under the leadership of Mr Godwin Emefiele, to scrap the multiple exchange rates system though the CBN has explained why it is maintaining the policy despite the criticisms.

At a virtual conference recently, a portfolio manager at Emerging Markets Investment Management Ltd, known as Duet Group/UK, Mr Erik Renander, said the apex bank’s stance on forex was making Nigeria unattractive to foreign investors.

The London-based fund manager, according to Bloomberg, invested in Nigeria in 2017 by purchasing treasury bills after the devaluation of the Naira, when rates jumped to more than 20 per cent.

However, in February 2020, he sold all his holdings of bills and equities and has vowed not to re-enter the local market until the currency situation gets better.

Twice this year, the CBN has devalued the local currency; from N306 per Dollar to N360 per Dollar and again from N360/$1 to N380/$1.

The Naira has not had it good this year because of a shortfall in the crude oil earnings as a result of coronavirus disease, which crashed prices at the global market to below $20 per barrel at a point in the year. Now, the price has been hovering around $40 per barrel.

But with the way things are going, Mr Renander believes the Nigerian currency will remain under pressure and have suggested that to attract foreign investors, local investors must take control of the market, especially the equities segment.

“You could be sitting in front of a great opportunity,” he said, noting that, “Generally, when the currency devalues, the local stock market goes up a lot.

“Maybe the Naira is going to go to N550 per Dollar, and the Nigerian stock market [All-Share Index] could go to 50,000 points; you could easily have a double.”

But for him and other offshore investors, he may not consider returning to the local market because “it’s hard for me to come into Nigeria when I just don’t have an idea when I am going to get my money out again and yields aren’t high enough to compensate for that risk.

“The forex policy of the Central Bank of Nigeria is really hurting the attractiveness of Nigeria in general, both in equity and fixed income,” Mr Renander declared.

In April 2020, Business Post reported that some foreign investors who could not take their funds back in Dollars were forced to re-invest in the local market, which caused more liquidity in the system, making rates and yields to drop to single-digit lows.

At the last treasury bills sale last week, the CBN sold the three-month bill at 1.10 per cent, while the one-year instrument was cut to 3.05 per cent from 3.34 per cent.

Business Post reports that apart from the official exchange rate window known as the interbank, where the Dollar sells for N380, there is the Investors and Exporters (I&E) segment, the Bureaux De Change (BDC) window and the black market.