In the face of significant currency depreciations, Citigroup Inc. predicts that countries like Nigeria, Angola, and Kenya are poised to attract higher foreign investment inflows.
This assertion emerges shortly after JP Morgan’s revelation that Nigeria’s net forex reserves stand at an estimated $3.7 billion, a stark contrast to the reported figure of $14 billion. This situation further exacerbates the pressure on Nigeria’s foreign exchange market.
On June 14, 2023, the Central Bank of Nigeria (CBN) initiated the unification of all segments of the country’s forex market, consolidating various windows into a single one. This step formed part of a comprehensive effort to bolster liquidity and stability within Nigeria’s forex market.
George Asante, Citi’s Head of Markets for Sub-Saharan Africa, shared these insights during an interview in Nairobi, highlighting that nations undergoing significant forex adjustments hold attractive investment prospects. Asante stated, “Countries where we’ve seen significant foreign exchange (forex) adjustments are clear winners from an investment perspective. All these, from a local market perspective, offer opportunities.”
Following the forex rate unification and the removal of the controversial petrol subsidy, the Nigerian naira’s performance has declined dramatically against the US dollar, reaching a historic low.
Asante recognized the removal of the petrol subsidy as a crucial reform for Nigeria. The merging of multiple exchange rates is anticipated to enhance liquidity. He underscored that the government’s subsequent task is to ensure the smooth functioning of the official forex market following these changes.
He expressed confidence, stating, “I believe that this will be a significant catalyst for flows back into the Nigerian market.”
Regarding the outlook for Eurobond issuance by African nations, Asante mentioned that market favorites such as Ivory Coast and Senegal are likely to garner substantial investor interest when the market reopens. He highlighted both countries’ stable economic growth rates, diversified economic foundations, substantial IMF programs with associated concessional financing, consistent economic reforms, fiscal prudence, and low debt service costs as key factors.
Asante concluded, “These two countries have fairly consistently high growth rates, diversified economic bases, large IMF programs with associated concessional financing and a track record for economic reforms and fiscal prudence as well as low cost of debt service.”
