The Association of Bureaux De Change Operators of Nigeria (ABCON) has said that foreign investors who invested billions of dollars in the nation’s equities market are likely to exit the market ahead of the 2019 elections.
Speaking to finance journalists in Lagos, yesterday, President of the association, Alhaji Aminu Gwadabe, said the negative implication of exit of portfolio investors from the local bourse raises major concern on naira’s continued stability.
According to him, there would be further external sector imbalances in a run-up to 2019 elections even as equity market imbalance is likely to increase.
He said the: “The development in the stock market and its closeness to campaign politics is worrisome. It raises lots of concerns on the relatively stable foreign exchange market. The investors in the stock market are largely portfolio investors from international markets and will at any given time decide to dump their holdings and take huge dollar from the economy as they repatriate both capital and their profits to other lucrative destinations”.
Gwadabe said ABCON has established the naijabdcs.com, a live rate engine room to be rolled out soon, as part of its strategy to enhance transparency, price discovery and attracting billions of dollars through Diaspora remittances. The group is also working with the Nigeria Inter-bank Settlement System (NIBSS) to automate its operations for online real time returns rendition. Gwadabe, described the portfolio investors as capitalists driven solely by profits.
He said the foreign portfolio investors will ahead of the election, increase the volume of hot money in circulation, leading to naira depreciation as dollar demand rises. He explained that speculative capital flows, or hot money is the flow of funds (or capital) from one country to another in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate shifts.
Such funds, he added, can be moved very quickly in and out of markets, potentially leading to market instability. “Close to the elections, demand for dollar is going to rise, with buyers willing to pick it at any rate. This would result to more people, including importers chasing scares dollars, thereby weakening the status of the naira,” he said.
Continuing, Gwadabe said: “The build up to 2019 campaign and politicking is also an albatross to the naira’s continuous sovereignty. Besides, the inaction of regulators and policy makers to address the multiple exchange rates will continue to endanger the achieved stability in the foreign exchange market,” he said.
According to him, the challenge of ineffective linkage between different sectors of the economy- the formal and informal sectors remains a big setback to economic growth.
On solutions, he called for stakeholders engagements and opening up of other sources of dollar inflows like Diaspora remittances, foreign directs investments and competitive exports base. He said that failure to diversify the dollar earning channels by government could also lead to depletion of the nearly $46 billion foreign reserves.
He said the monetary and fiscal policy makers should intervene in other key sectors of the economy such as services, exports, manufacturing among others adding that the continuous mopping up of naira may not be effective as campaign spending starts. He therefore called on the CBN to come out with various interventions to all sectors of the economy and also the need to formalize the informal sectors.
He said Nigeria’s financial market will remain a sweet and attractive spot for both foreign and local investors once the government and regulators take the right steps to sustain its stability.
Although performance in the past year had been hampered by foreign exchange challenges, the improvements that have been witnessed since the introduction of Investors and Exporters forex window suggest that the market still has potential to attain new heights if the right steps are taken.
Gwadabe said ABCON under his leadership will continue to support the CBN and government to ensure that naira remains stable, through selling of foreign exchange to retail-end users at approved rate. He said the Bureau De Change operators will continue to operate within set guidelines to promote transparency and accountability in the sector.