Some experts have said that foreign investors may continue to avoid Nigeria into 2024 due to currency instability and other economic concerns, both internally and globally.
This projection was shared at the 2023 African Economic and Capital Markets Conference themed ‘From geopolitics to geoeconomics: Navigating uncertainties across Africa’ organised by Vetiva Capital Management Limited on Wednesday.
At the virtual conference, the Head of Research, at Vetiva Capital, Luke Ofojebe, did a review of the capital markets in the West African sub-region, during which he stated that the dominance of local investors may persist into the new year.
He said, “So far this year, the markets have been dominated by local investors as foreign investors are not looking at coming in due to currency instability. Looking at the performance of the market, we have seen declining margins as a result of high operating costs due to the removal of the fuel subsidy and high energy costs due to the hike in electricity tariffs leading to inflationary pressure.
“However, the hawkish stance of the Central Bank of Nigeria has resulted in higher interest income for banks. We expect this trend to continue into 2024 as the CBN is expected to sustain the fight against inflation.”
He added, “Also, we are now seeing that the US Federal Reserve will continue its rate hike into the first half of 2024, so we will see capital flight. Currency weakness is still a major concern. We will see a downward trend till the first half of 2024, until a dovish move from the US Fed in the second half of 2024, and then we may begin to see an appreciation.”
On ways to shore up the value of the naira, Ofojebe said, “If the government wants foreign investors to come into the market, it needs to solidify the source of forex receipts which is oil in this case. The government needs to ramp up oil production to about 1.8mbpd to strengthen the Naira.”
Ofojebe went on to project that a positive performance of the banking stocks which drives the market can cancel out the impact of the poor performance of real sector stocks on the local bourse.
In his comments, an economist also at Vetiva Capital, Ibukun Omoyeni, stated that apart from forex challenges, the Naira is also being bashed by the high volume of it in circulation.
He said, “I do not think that the problems we have will be solved by tightening rates alone. Oil production should rise significantly. Measures should be put in place to stem money supply; essentially we have plenty of Naira chasing a few dollars in the market.”
Figures obtained by from the Central Bank of Nigeria’s data on Currency in circulation on its latest figure revealed that the currency in circulation hit N2.7tn as of the end of August.
Other speakers at the conference include the Assistant Vice President, Sovereign Risk Group, Moody’s Investor Service, David Rogovic, who spoke on the East Africa market; SSA Country Risk Analyst, BMI, Lara Wolfe, who talked on the Southern African markets and Market Strategist, Rand Merchant Bank, Samantha Singh-Jami, also on the South African markets. The conference was moderated by Wole Famurewa.
