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Analysis: Nigeria Squanders Opportunities As Policy Muddle Scares Investors


As the price of crude oil on the international market ratchets just under the $70.00 mark, there are indications that Nigeria may lose yet another opportunity to woo investors due to policy missteps.

A series of policy flipflops in recent weeks, sequel to steep surge in oil prices highlight some of the uncertainties investors face, and raise concerns that Nigeria is missing an opportunity to attract much-needed foreign currency.

First, the country allowed fuel subsidies that have been a drainpipe on state coffers in the past to creep back by allowing pump prices to stay low as the price of crude rose. Then the central bank devalued the naira, without providing any guidance on its currency-policy goals. Moreover, last week, the Central Bank reversed a decision to bar foreigners from investing in its short-term bills, leaving them wondering whether it’s worth the risk of putting money into an economy from which it’s notoriously difficult to extract it.

Investors, as well as the International Monetary Fund and the World Bank have clamored for reforms to simplify Nigeria’s multiple exchange rates, curb inflation and remove barriers to capital flows. While higher oil prices and a weaker naira are a welcome windfall to an economy battered by the coronavirus pandemic, the concern is that they reduce pressure to implement structural changes, leaving the country vulnerable to future shocks.

Instead of unifying its exchange regime, the CBN has intervened in the market and introduced several short-term policies to stabilize the naira including import restrictions, targeting exporters and introducing incentives to boost remittances, which has put pressure on reserves while failing to solve persistent dollar shortages, according to Societe Generale SA.

“The narrative on Nigeria continues to be conflicted notwithstanding the recent favorable surge in oil prices,” said Phoenix Kalen, the London-based director of emerging-markets strategy at SocGen. “We currently do not recommend holding Nigerian assets. Unification of the multiple exchange rates and a shift toward a more market-based approach to financial markets are necessary elements to rekindle foreign interest in Nigerian assets.”

Nigeria forex reserves have fallen 4.6% to $34.8 billion from its January peak of $36.5 billion. The official exchange rate, used as a basis for budget preparation and government transactions, differs from a closely controlled exchange rate for investors and exporters known as Nafex.

Inflows from international investors through the Nafex window totaled $117.5 million for the first two months of the year compared with $3.5 billion for the same period in 2020. The dollar scarcity in the country keeps fueling the black market, where the naira trades at around 480 per dollar, compared with the official rate of around 410, according to, a website that collates street rates in Lagos.

The difficulty in repatriating money is deterring investors such as Erik Renander, a portfolio manager at Emerging Markets Investment Management Ltd, known as Duet Group, which has stopped buying Nigerian securities. That’s costing the government, which has to offer a premium to lure investment.

“Foreigners were assured that they would be able to repatriate money invested in Nigeria, but they were not able to do so in 2020,” said Simon Kitchen, head of macro strategy at Cairo-based EFG Hermes Research. “The credibility gap means that investors will be looking for high potential returns — on fixed income and stocks — to favor Nigeria over other markets.”

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