One year after President Bola Tinubu came to office, investors excitement over his reforms has faded, with some saying they will reconsider their positions if Nigeria stabilizes its currency and enacts more change.
Since succeeding Muhammadu Buhari in late May 2023, Tinubu has instituted reforms to woo investors and boost dollar liquidity. They include scrapping costly fuel subsidies, replacing central bank governor Godwin Emefiele with ex-Citibank executive Olayemi Cardoso, who has pledged a return to orthodox central banking, clearing a foreign exchange backlog, and overhauling the country’s exchange-rate policies—effectively devaluing the naira.
While Tinubu’s initial steps enthused investors, increased dollar flows, and led to a rally in the naira, that’s since dissipated.
According to Bloomberg report on Wednesday, Kevin Daly, London-based Abrdn Investments Ltd. portfolio manager, said, “We are likely to add to local currency bonds once FX volatility declines, but the timing of that remains up in the air. “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,” he said.
Tellimer Ltd. data shows investor inflows into the foreign exchange market declined by almost a fifth in April to a daily average of $200 million from a month earlier and were at $180 million in the first three weeks of May.
Since June, the naira has lost nearly 67% of its value against the dollar, and a public backlash over rising food and fuel costs led to the reintroduction of fuel subsidies.
Inflation in Nigeria surged
Since 2020, the policy rate has lagged behind price growth.
Other measures investors would like to see before they boost their investments include better returns.
“We have invested in Nigerian eurobonds, but not yet in the local currency bonds,” said Ayo Salami, chief investment officer at Emerging Markets Investment Management Ltd. “The local currency bonds are not yet attractive, given that inflation at about 33.7% is still above the policy rate at 26.25%,” Salami said.
The repatriation of funds is another issue that Tinubu needs to address.
Tellimer stated that while Nigeria provides superior equity valuations and yields, its emerging and frontier market counterparts such as South Africa, Egypt, Kenya, Turkey, and Pakistan present less risk of repatriation, a more sophisticated policy course correction, and increased assurance of policy sustainability.
“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, and 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.”
