The 71-year-old inherits an in-tray overflowing with tasks
that demand his urgent attention. But what foreign investors were especially
keen to hear about was how he intends to breathe life into Nigeria’s economy —
in particular, whether he had anything to say about the severe lack of foreign
exchange that has hamstrung international investors.
Tinubu did not disappoint: “I have a message for our
investors, local and foreign: our government shall review all their complaints
about multiple taxation and various anti-investment inhibitions. We shall
ensure that investors and foreign businesses repatriate their hard-earned
dividends and profits home.”
Soon, Tinubu suspended the much-censured central bank
governor Godwin Emefiele. Tinubu had been critical of Emefiele in his
inauguration speech, stating that interest rates must be lowered and Nigeria’s
multiple exchange rate systems should be unified.
The president’s comments, as well as the removal from office
of Emefiele, will be warmly received by non-domestic investors who have left
Nigeria in their droves in recent years. The problems they have encountered
come not from a lack of investment opportunities, but from not being able to
get their money back, and out of Nigeria.
As oil prices slumped at the beginning of the Covid-19
pandemic, the central bank imposed foreign exchange restrictions in an attempt
to ease a dollar shortage. This made it extremely hard for foreign investors in
Nigerian stocks to repatriate funds when they sold holdings. As a result,
international investors have stayed away, evidenced by the participation rates
of foreign investors within the Nigerian stock market.
In 2014, foreign investors dominated the Nigerian market,
accounting for 57 per cent of all trading. By the end of 2021, this had fallen
to 22 per cent and, by the end of 2022, to 16 per cent. Latest figures from the
Nigerian stock exchange show foreigners accounted for 4 per cent of Nigerian
equity trading as of April — a statistic that one international fund manager
described as “deeply worrying”.
“The poor political environment, turmoil in the currency
markets, along with the foreign exchange problems, make the situation very
problematic,” says veteran emerging markets investor Mark Mobius.
Some international fund managers have stopped investing.
Allan Gray, the South African wealth management group, has not invested any new
money in Nigeria for the past three years.
Rami Hajar, a portfolio manager at Allan Gray, says the
capital controls have had “a material impact on investor confidence” with many
“unwilling to bring capital into the country as they lack the confidence that
they will be able to get it out . . . thus, despite the fact we believe equity
valuations in Nigeria are attractive and, in some instances, highly attractive,
we have sought to redeem funds when the opportunity has presented itself.”
Andrew Schultz, head of frontier markets at Investec, the
South African bank and wealth manager, agrees: “Investors need to be confident
that they can get their money out before they will put it in.” He adds that the
problems in Nigeria “escalated when the Covid-19 crisis hit and the central
bank stopped supplying foreign exchange”.
Emefiele was in charge when that policy was implemented.
Nigeria is Africa’s biggest oil producer and relies heavily on crude sales for
its foreign exchange. But, when oil prices fell during the onset of Covid-19,
so did Nigeria’s FX reserves and Emefiele began rationing supply, with overseas
investors finding themselves a long way down the pecking order.
Nigeria’s top court halts botched plan to replace currency
notes
Emefiele was responsible for several other hugely unpopular
policies, including a botched redesign of the naira, which led to a chaotic
banknote shortage in the build-up to the presidential election. It was little
surprise that investors were buoyed and Nigeria’s sovereign dollar-denominated
bonds jumped on the first full day of trading after news of Emefiele’s
suspension broke.
“We believe the changes signal a new era of focused,
predictable monetary policy and a shift towards non-interventionism in the
foreign-exchange regime,” Barclays economist Michael Kafe told clients
following the suspension. He said it indicated that Tinubu was “keen to pursue
all the difficult reforms at the early stages of his term”.
Gregory Longe, portfolio manager of Africa frontiers
strategy at Cape Town-based Coronation Fund Managers, is equally optimistic.
“The suspension of the central bank governor is a significant step,” he says.
“Emefiele has implemented numerous unorthodox monetary policy measures that
have negatively impacted the banking sector and wider economy. We may finally
be getting closer to a return to normality.”