By Blaise Udunze
PRESIDENT Muhammadu Buhari administration’s economic woes worsened last week when JP Morgan announced the delisting of Nigeria from its Government Bond Index for Emerging Market (GBI-EM).
The global investment bankers’ action unfortunately came at a time the nation’s economy was already blighted by dwindling price of crude oil, Nigeria’s major foreign exchange earner and endemic public sector corruption. Faced with these debilitating challenges, economic experts have been wondering what options are there for Buhari’s economic team to rescue the country from running into a recession particularly as he was yet to name the cabinet ministers to run the affairs of the state with him.
While much of Nigeria’s borrowing is domestic, the latest move by JP Morgan will undoubtedly put pressure on the Naira resulting in more capital flight in the face of investor uncertainty. While President Muhammadu Buhari is yet to put forth an economic team, the CBN has been handling both monetary and fiscal policies of government. For instance, the government needs huge foreign capital inflow to create jobs and reactivate dormant sectors of the economy inherented from his predecessor.
Already, international business community and other stakeholders are perplexed by the recent turn of events and the likely effect of this development on their assets. So far, some foreign investors have divested over $5 billion out of $8 billion they were having in Nigeria. Investors paucky exit from now will only deplete our reserves by about $2.75 billion.
There are strong indications that more investors are likely to exit as the equities segment of the Nigerian Stock Exchange (NSE) recorded heavy losses with stocks plunging a day after JP Morgan hinted it would remove Nigeria from its government bond index.
A sell-off in the stock market, triggered by the move, saw market capitalisation of the listed equities fall by N311 billion or 2.98 per cent from N10.439 trillion to N10.128 trillion, while the NSE All-Share Index declined by 904.78 basis points (2.98 per cent) to 29,454.09 basis points.
Wednesday’s losses virtually erased the N331 billion gain made by equities in the last three trading sessions.
The president had at his inauguration three months ago told Nigerians that he inherited empty treasury even as the electorate are asking for constant electricity, which would need the investment of foreign investors to achieve. And if there is no partnership with foreign investors to tighten investment in infrastructure, it portends grave challenge to the existence of the country.
But experts are optimistic that the development will create a better opportunity for Nigeria to overcome challenges of many years, emphasising that it was high time Nigeria looked inwards to diversify its economy away from oil and generate funds to oil the economy.
The Head, Research & Investment Advisory at Sterling Capital, Sewa Wusu, said though it was an opportunity for the nation to commence the path of developing other sectors of its economy with potential for growth to boost foreign exchange earnings potential. The phasing out from the JP Morgan bond index would definitely have significant downside implication for Nigeria, particularly the foreign exchange market.
According to him, the announcement is expected to propel a massive sell-off of Nigerian instruments by foreign investors who track the bond index from their portfolios, to the effect that the country may witness significant capital outflows.
He recalled that the impact of this some three months ago when JP Morgan first announced its intention before extending it by six months to December, most foreign portfolio investors sold down their bond positions due to the currency risk implication.
“The CBN has done a lot to curtail the extremes in the foreign exchange market due to round tripping and arbitrage opportunities. If JP Morgan says there is no impact to Nigeria’s status in its EMBI or CEMBI suite of indices, why then do we worry as a nation? Or why then is our financial market responding negatively to this news? It is because our external reserves position is weak and solely dependent on oil receipts,” he explained.
To him, instead of adjusting to the fully functional two-way fix market as expected by JP Morgan, the country’s national interest is very paramount to its development as a nation, hence suggesting, “we can quickly, as a nation, commence the path of developing other sectors of our economy with potential for growth to boost our foreign exchange earnings potential. Clear-cut policies should be adopted to fund these sectors, namely, mining, agriculture, health, construction, education, tourism and transportation, among others.”
The Managing Director and Principal of Kuranga and Associates, a full-service investment, political and economic risk consultancy, and asset management firm that specialises in Africa, David Kuranga, argued that despite the delisting, all is not lost, affirming that Nigeria has the capacity and the ability to pull out of this current predicament if its priorities are put in order.
He said Nigeria has the potentiality to have a robust economy, which requires planning and consistent policy and the diversification of the economy.
Source : SunOnline