Nigeria’s recent tentative steps to free up its naira currency, particularly via a new trading window, have gone down well with some adventurous stock and bond investors who are cautiously returning to the markets they fled two years ago.
Once considered one of the most promising emerging markets, Nigeria was hammered when it introduced draconian foreign exchange restrictions to counter the effects of the 2014 oil price crash.
These will take years to unwind, some analysts fear, while others are concerned the new trading facility could come under pressure if oil prices were to take another tumble, or trade through it could slow if Nigeria’s currency reserves run low.
The much-criticised move starved the economy of dollars, throttled foreign investment and plunged Africa’s largest economy into recession for the first time in more than 25 years.
But authorities have since tried to normalise the currency market and alleviate dollar shortages, most recently via the “Investors & Exporters FX Window”, which allows investors and traders to swap nairas for dollars at market-determined rates.
The new window adds to a confusing array of exchange rates. But it does seem to be succeeding in luring back some foreign funds, especially as the economy should return to growth soon and inflation is finally slowing.
“It is a very good thing. Obviously having multiple exchange rates is not an optimum situation yet, but it is moving towards a more realistic exchange rate,” said Oliver Weeks, economist at hedge fund Emso Asset Management. “This certainly makes the country more interesting.”
Under the new system, in place since April, the opening and closing naira/dollar rates are determined by a poll of authorised bank dealers. The NAFEX or Nigerian Autonomous Foreign Exchange Rate Fixing is set around noon and serves as a benchmark for derivatives such as forwards and futures.
—Yahoo NewsTags: business nigeria