Government tasked to ease earnings repatriation to boost investment
With the coronavirus pandemic limiting the flow of foreign investments in frontier and emerging markets like Nigeria, investment analysts have advocated a review in policies that would allow investors to have free entry and exit in the financial markets.
According to them, investors are wary of raising their stakes in markets with uncertain policy direction, citing concerns by foreign investors trapped in Nigeria’s debt market owing to low dollar liquidity.
Some bondholders, who sold local-currency securities in March, have been unable to repatriate their proceeds weeks after. Foreign exchange inflows in Nigeria have taken a hit from a plunge in crude oil prices, which account for 90% of such earnings.
Speaking at its virtual annual investor conference media roundtable, CEO of EFG Hermes Frontier, Ali Khalpey, noted that the progress made by Nigeria in the last 15 years needs to be sustained, and policies have to be accelerated to drive growth and investments.
“Liberalisation policies need to be accelerated. You can’t trap people into markets, because once they are able to get out, they won’t get in again. Nigeria needs to be compelling to attract needed capital into the country,” he added.
Nigeria’s ability to attract sustainable foreign direct investments (FDIs) remained weak, as the bulk of imported capital continues to be dominated by portfolio investments, otherwise known as ‘hot money’.
With oil prices remaining unstable, there are concerns about the quality of investment attracted into the economy, especially when investors are becoming jittery about the stability of the Naira, and Nigeria’s capacity to service its debts.
Of the $5.85billion received in the first quarter (Q1) of 2020, portfolio investment accounted for 73.61% ($4.31billion) of the total capital importation recorded by the National Bureau of Statistics (NBS).
Head of Frontier Research, Kato Mukuru, reiterated the need to allow policies to drive investments, noting that investors will make in-roads to sectors that show clarity and growth potential.
On weakened consumption, he said: “There is a lot of uncertainty as regards consumption. There is a huge gap in the exchange rates. What we need to do is go back to the days where there is no gap in the exchange rates. People are not going to spend money when they are not sure about price stability. Foreign exchange is key to the whole thing. We are forecasting N420/$1 by the end of the year.
“We also seek clarity on policies, taxation and intervention affecting consumer spending. Once the market gets clarity, things will change.”
Chief Executive Office, EFG Hermes Holding, Karim Awad, said: “The conference is being held in the middle of significant global economic changes as the COVID-19 pandemic continues to have effects, with special challenges facing Frontier Emerging Markets (FEMs). Lockdowns and the resultant decrease in global trade earnings, coupled with a contraction in portfolio inflows have strained several countries’ financial positions.
“Meanwhile, the rapid fall in oil and commodity prices has put pressure on those countries, which are dependent on natural resource extraction. International credit rating agencies have downgraded significant stocks of FEM debt, while hundreds of countries have approached the IMF for emergency funding.”
Despite current challenges facing FEMs, co-CEO of the Investment Bank at EFG Hermes, Mohamed Ebeid, believes changes in the macro picture might create new opportunities for countries, markets and companies.
He said: “We do see the prospect of some relief from immediate pressures, with an easing of FEM portfolio outflows expected as major central banks continuing to implement large expansionary programs. We could also see a floor put under commodity price drops as major oil producers solidify their commitment to large output cuts.”
“Investors and executives will nevertheless have to navigate a changed landscape, where previously more-or-less hidden structural trends come to the fore and accelerate. A main objective of the Virtual Investor Conference is to provide participants with first-hand insights from key international players, spurring further investment in FEMs.”