NSE Downgrade Due To FX Woes, Says FTSE Russell

Global index provider, FTSE Russell, has said Nigeria’s ongoing foreign exchange problem is a key motivator behind the downgrade of Nigerian Stock Exchange (NSE) from ‘Frontline’ to “Unclassified Market”, erasing the gains of the prior week. The reclassification, set to take effect on September 18, 2023, prompted immediate selloffs that drove the All-Share Index down by 1.24 per cent to close at 67,296.18 points. This resulted in the market’s year-to-date (YTD) returns tumbling to 31.11 per cent and wiping out N463.66 billion ($1.14bn) in market capitalisation, which closed at N36.83 trillion ($90.81bn). Trade turnover also sagged relative to the previous session, down by a marginal 0.08 per cent. In total, 520.13 million shares worth N8.33 billion were exchanged in 9,914 transactions. The downgrade and subsequent market reaction raise pressing questions about the sustainability of investment in Nigeria, particularly in its once-robust banking sector. Investors and policymakers alike will likely be focused on how the country can stabilize its foreign exchange market and restore investor confidence in the wake of this critical development. According to the UK-based financial institution, these issues have hindered the ability of institutional investors to repatriate trapped capital. FTSE Russell in a statement expressed skepticism about the effectiveness of Nigeria’s recent foreign exchange reforms, including the adoption of a ‘willing seller, willing buyer’ policy at the Investor and exporter (I&E) foreign exchange window. FTSE Russell noted little or no improvement in foreign exchange supply trends, a factor that continues to deter capital inflows from institutional investors. The downgrade means Nigeria’s index status will be removed entirely from all five FTSE stock indices, effectively given a value of zero. This significant move is likely to have repercussions for Nigeria’s visibility on the international investment landscape, making it more challenging for the country to attract foreign capital.

Nigeria, Kenya, Angola to attract increased FDIs amid FX challenges -Report

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.”