Portfolio Investors Will Dump Naira Assets in 2022 Unless…LCCI

January 12, 2022
foreign portfolio investors
Image Credit: Wrison Financial

By Adedapo Adesanya

The Lagos Chamber of Commerce and Industry (LCCI) has projected that Naira assets will become unattractive in 2022 and will result in portfolio investors dumping them.

President of the chamber, Mr Michael Olawale-Cole, while speaking on Tuesday at the organisation’s first press conference for the year in Lagos, stated that investors will have a change of mind if there is an improvement in the yield environment and the issues in the foreign exchange (FX) ecosystem are addressed.

He, therefore, called on the monetary authorities to liberalize the FX market by unifying the multiple forex rates and ensuring they are market-driven, noting that this was critical in the process of enhancing stability, liquidity, and transparency in the FX market.

“The unification is expected to improve the country’s currency management framework given that the multiple exchange rate systems had been creating uncertainty issues and sources of arbitrage,” he said.

Mr Olawale-Cole also stressed the need for a greater investment-friendly disposition of the government towards enhancing the quality of Nigeria’s trade infrastructure and better border management.

As regards the country’s headline inflation, he said it is expected to remain elevated in 2022 amid the forex crisis and increasing debt portfolio, but stressed that better management will improve economical outcomes.

He noted that high prices remained a major concern for businesses and households, especially given the challenges associated with insecurity, infrastructure deficit, and foreign exchange fluctuations.

The LCCI chief projected headline inflation to remain elevated as the combination of food supply shocks, FX policies and illiquidity, higher energy costs, heightened insecurity continue to mount pressure on domestic consumer prices.

“Inflation at 15.4 per cent as of November 2021 remains elevated and portends serious implications for various economic agents, including households, businesses and investors.

“An inflationary environment erodes consumers’ real disposable income, weakens purchasing power, escalates production cost, worsens cost of living, dampens corporate profitability, and undermines investor confidence.

“The collaborative effort of the fiscal and monetary policymakers is required in addressing the structural constraints fuelling inflationary pressure.

“Addressing the security crisis across the country is not only highly imperative but also very urgent,” he said.

The LCCI President also anticipated Nigeria’s debt stock and debt-servicing to revenue ratio to remain elevated in 2022.

He said that the low yield environment was expected to keep domestic borrowings elevated in the short term as it favoured the Federal Government in mobilising funds at lower rates.

“An overview of the recently passed 2022 budget of N17.13 trillion puts the deficit at N6.25 trillion, recurrent and capital expenditure at N6.83 trillion and N5.35 trillion, which represent 41.7 and 32.6 per cent of total expenditure, while 25.7 per cent will be used for debt servicing and repayment of maturing bonds.

“Putting all these into consideration, we see total debt stock within the range of N39 trillion and N40 trillion by year-end 2021.

“With projected borrowings of N4.893 trillion, N4.750 trillion, and N5.356 trillion in 2022, 2023, and 2024 respectively, debt sustainability concerns will remain elevated,” he said.

Adedapo Adesanya

Adedapo Adesanya is a journalist, polymath, and connoisseur of everything art. When he is not writing, he has his nose buried in one of the many books or articles he has bookmarked or simply listening to good music with a bottle of beer or wine. He supports the greatest club in the world, Manchester United F.C.

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