MSCI Holds Off On Nigeria Upgrade Despite FX Reforms

MSCI Inc. said it needs more time to assess the impact of foreign exchange reforms in Nigeria, suggesting the global index provider is not yet ready to restore the West African’s country’s frontier-market status.

Operational modifications in Nigeria’s foreign exchange market have improved liquidity, but “more time is needed to assess the impact of these changes,” MSCI said in its annual market accessibility review.

Nigeria was removed from the MSCI Frontier Markets Index in February 2024 due to persistent liquidity challenges in the foreign exchange market that left many foreign investors unable to repatriate profits and dividends.

The new assessment means that Nigeria is unlikely to be upgraded when MSCI announces the results of its annual classification review on June 24. Countries included in the index typically see greater foreign investor participation, resulting in higher valuations.

An upgrade could also boost capital flows to Africa’s largest crude producer.

“Upgrades prompt a short-term wave of enthusiasm accompanied by capital flows, including ahead of the upgrade taking effect,” London-based Dragon Capital said in a report earlier this month.

Nigeria has in recent years implemented a series of reforms designed to stabilize the naira and attract more foreign investment. President Bola Tinubu eased the naira’s peg against the dollar in 2023, triggering a 70% devaluation against the dollar that took most of last year to fade.

MSCI noted in its report that Nigeria maintains constraints on its onshore currency market. Not all information on market regulations is readily available to foreign investors, who also struggle to obtain details on shareholding structures at the country’s banks, MSCI added.