ABCON chief warns of looming election-induced capital flight

Ahead of the 2019 general elections, the President of the Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, has warned of a possible capital flight.

The development, which would be another round of economic shock, according to him, would see foreign investors who invested billions of dollars in the equities market taking their exit.He said the negative implication of the exit of portfolio investors from the local bourse therefore, is a major concern on naira’s continued stability.

Gwadabe said that the current development in the stock market and its closeness to campaign politics raises lots of concerns on the relatively stable foreign exchange market.

Indeed, participants in the nation’s bourse are largely portfolio investors from international markets and at any given time they decide to dump their holdings, they take huge dollar from the economy as they repatriate both capital and their profits to other lucrative destinations.He said that ahead of the election, the portfolio investors are increasing their volume of investment (hot money) in circulation, which would soon lead to naira depreciation as dollar demand rises when they look for exit.

Such funds, he added, can be moved very quickly in and out of markets, potentially leading to market instability.“Close to the elections, demand for dollar is going to rise, with buyers willing to pick it at any rate. This would result to more people, including importers, chasing scarce dollars, thereby weakening the status of the naira.

“The build up to 2019 campaign and politicking is also an albatross to the naira’s continuous sovereignty. Besides, the inaction of regulators and policy makers to address the multiple exchange rates will continue to endanger the achieved stability in the foreign exchange market,” he said.

According to him, the challenge of ineffective linkage between different sectors of the economy- the formal and informal sectors remains a big setback to economic growth.He therefore, called for stakeholders engagements and opening up of other sources of dollar inflows like Diaspora remittances, foreign direct investments and competitive exports base.He said that failure to diversify the dollar earnings’ channels by government could also lead to depletion of the more than $46 billion foreign reserves.

Gwadabe also called on the monetary and fiscal policy makers to intervene in other key sectors of the economy such as services, exports, manufacturing among others, as the continuous mopping up of naira may not be effective when the campaign spending starts.He expressed the hope that Nigeria’s financial market will remain a sweet and attractive spot for both foreign and local investors once the government and regulators take the right steps to sustain its stability.

Although performance in the past year had been hampered by foreign exchange challenges, the improvements that have been witnessed since the introduction of Investors and Exporters forex window suggest that the market still has potential to attain new heights if the right steps are taken.

Gwadabe said ABCON under his leadership will continue to support the CBN and government to ensure that naira remains stable, through selling of foreign exchange to retail-end users at approved rate.