Nigeria’s Reform Pledge in Disarray as Naira Rout Deepens

As Nigeria’s President Bola Tinubu rang the closing bell at New York’s Nasdaq exchange this week, he exhorted investors to “be confident in Nigeria.”

(Bloomberg) — As Nigeria’s President Bola Tinubu rang the closing bell at New York’s Nasdaq exchange this week, he exhorted investors to “be confident in Nigeria.” 

His ebullience was a stark contrast with the mood on the streets of Nigeria, where confidence in the country’s currency is ebbing fast. The naira plunged to a new record low on Thursday and is on the cusp of touching 1000-per dollar on the parallel market, according to traders who track the exchange rate. As citizens and companies alike rushed to buy dollars, the naira was quoted almost 30% below where it officially closed Wedneday on the FMDQ OTC trading platform.

“The demand for foreign exchange is currently a stampede,” said Ogho Okiti, chief executive of ThinkBusiness Africa, a Lagos-based advisory and data services firm. “The demand is now not just for imports, but also for store and preservation of value.” 

The naira rout has dissipated much of the optimism generated by the reform program Tinubu unveiled soon after he took office in June. He pledged back then to unify a complex system of exchange rates, and scrapped a costly years-old system of fuel subsidies, sending Nigerian markets soaring. 

Tinubu reiterated his commitment to reform in New York, telling investors they were “free to take in your money and bring out your money.” Bottlenecks had been removed while the exchange rate had been retooled “to a reliable, one figure exchange rate of the naira,” he added.  

Market players disagree. Many attribute the latest naira plunge partly to the central bank’s failure to supply dollars to the official market. They say the bank has been on the sidelines since the start of the month, forcing buyers to flock to street traders for the greenback. That’s sharply widened the gap between the parallel and official exchange rates which had converged after Tinubu took office. 

Authorities are not allowing the market to function on a “willing buyer, willing seller” basis, which they had pledged to do, said Ayo Salami, chief investment officer at Emerging Markets Investment Management Ltd. in London. 

“With the current restrictions in the FX market, it is not possible to form a realistic judgement on the value of the naira,” Salami added.

Unease has grown over other reforms too, especially after Tinubu was forced last month to suspend a planned gasoline price increase. 

Hopes of a speedy and substantial interest rate hike to stabilize the naira were dashed meanwhile by a central bank announcement that it would postpone next week’s policy meeting until further notice. Interest rates are currently at 18.75%, compared with inflation approaching 30%. 

Its new governor, former Citigroup executive Olayemi Cardoso, is yet to be confirmed in his role, while the acting governor and four deputy governors have resigned, effectively leaving a policy-making vaccuum at the top. 

Foreign investors are still still holding off investing in local assets, fearful of exposure to a falling naira and the possibility of being unable to withdraw their capital from the country. Authorities are also yet to clear a backlog of hard currency arrears to the tune of billions of dollars owed to foreign companies and investors. 

The naira selloff has rippled into Nigerian dollar bond markets where the issue maturing 2033 fell more than half a cent on Thursday to 76.5 cents, some seven cents off end-July highs. The Lagos stock exchange closed modestly lower for a second day, though it is still hovering near the 15-year highs hit soon after Tinubu took office.

“People are not going to come in until they’re sure that there is a certain amount of stability around the exchange rate, and that’s where we are,” Segun Agbaje, chief executive officer of Guaranty Trust Holding Co., told investors last week. 

–With assistance from Ruth Olurounbi.

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