‘Build-up to 2023 election will keep investors at bay’

Analysts at CardinalStone Partners Limited have stated that the build-up to the 2023 election will keep foreign investors at bay and throw up more financial account-related concerns.

The analysts, while commenting on the state of the nation in their 2022 Mid-Year Outlook themed: ‘Same Challenges, New Shocks’ argued that pre-election year concerns and fears of negative pass-through to inflation will likely limit the magnitude of currency adjustment made at the official market in the current year.

According to them, akin to the trend witnessed in emerging and frontier markets, Nigeria was also mostly unappealing to foreign capital providers in H1’22.

They attributed the sentiment to geopolitical uncertainties and hawkish rendition from global central banks.

In addition to these global factors, they pointed out that lack of market reflective FX rates, illiquidity and a backlog of foreign exchange demand dampened investors’ sentiments.

“Even though it is yet to have any noticeable impact on the market, the recent MSCI proposal to reclassify Nigeria to a stand-alone status was inspired by similar FX concerns.

“In the first quarter of the year, the combined impact of the mentioned drivers (ex MSCI proposal) cascaded to a 17.5 per cent Year on Year (YoY) decline in foreign inflows.”

The analysts pointed out that the ‘other investments’ component of capital importation nosedived by 43.3 per cent YoY, while Foreign Portfolio Investment contracted by 1.7 per cent YoY.

“In our view, the imminent intensification of pre-election activities will likely keep foreign investors at bay and throw up more financial account-related concerns”.

On the modest currency adjustment expected in H2 2022, the analysts said that pre-election year concerns and fears of negative pass-through to inflation will likely limit the magnitude of currency adjustment made at the official market in the current year as currency pressures exist.