Persistent foreign exchange shortages is likely to cost Nigeria its frontier market status, analysts have predicted.
The follows plans by MSCI Inc. to downgrade the MSCI Nigeria indexes to standalone markets status from frontier market.
The MSCI Inc., a New York-based company said there has been a continual and severe deterioration in the ability to repatriate funds from Nigeria.
The global head of Index Management Research at MSCI Craig Feldman, said that given the prolonged nature of the issues affecting the market’s accessibility, the company has put forth the consultation to reclassify the MSCI Nigeria Indexes.
Nigeria has been rationing dollars because of lower oil income that accounts for about 90 per cent of foreign exchange earnings. The nation’s foreign-exchange reserves have dropped four per cent this year to $38.8 billion, despite the government tapping the overseas bond market twice.
The naira weakened to N614/$ at the parallel market from N610 a week earlier, according to Abubakar Mohammed, a Lagos-based bureau de change (BDC) operator.
Also speaking, President, Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, said more individuals and businesses are finding it difficult to buy dollars at the banks and are resorting to the black market. “There is no liquidity; the banks are not meeting up,” he said.
At the official market, the naira rate declined 0.2 per cent to 417.79, widening the spread over the parallel market rate to 47 per cent.
In a report, Cordros Capital, said Nigeria’s foreign exchange reserves recorded another accretion this week, as it grew by $220.04 million week-on-week to $38.88 billion. Across the FX windows, the naira appreciated by 0.3 per cent to N420.17/$ at the I&E window (IEW) but depreciated by 0.8 per cent to N614/$ at the parallel market.
Senior Research Analyst at FXTM, Lukman Otunuga expressed concerns that despite oil prices surging to multi-year highs, Nigeria has failed to cash in.
He said the destructive combination of sub-optimal oil production, poor infrastructure, and fuel subsidies have drained oil revenues that account for roughly 90 per cent of foreign exchange earnings.
“The negative impacts continue to be reflected across the economy and local currency. But now the dollar shortages have attracted the attention of MSCI Inc. which is considering downgrading the MSCI Nigeria indexes to the status of a standalone market from frontier markets,” he said.
He explained that a developed market is the highest ranking, followed by emerging markets, frontier markets, and then finally standalone markets at the bottom.
“Given the difficulty in repatriating funds from Nigeria, this has placed the MSCI Nigeria Indexes in the crosshairs. Such a negative development may hit sentiment toward the county’s assets at a crucial period where economic growth remains fragile.”
“To add insult to injury, the NGX All Share Index has gained roughly 20 per cent this year in local currency terms. A blockbuster performance when compared to the MSCI Emerging market Index which is down roughly -19 per cent,” he said.
