Citigroup Expects More Foreign Investment in Nigeria and Others Despite FX Turmoil

Citigroup Inc. has stated that Nigeria, Angola, and Kenya are among the African nations that are anticipated to attract more foreign investment despite their massive currency devaluations. This comes less than a week after global financial services firm JP Morgan revealed that Nigeria’s net FX Reserve is estimated to be around $3.7 billion, significantly lower than the net figure of $14 billion that was reported, placing additional pressure on the country’s foreign exchange market.

According to Bloomberg, Citi’s Head of Markets for Sub-Saharan Africa, George Asante, stated in an interview in Nairobi that countries with significant forex adjustments are clear investment victors.

More possibilities

Asante stated, “Countries where we’ve observed significant FX adjustments have been evident investment winners. From a local market perspective, all of these present opportunities.”

The naira is reportedly one of the worst-performing currencies in Africa, having plummeted to a record low against the dollar following the unification of the exchange rate and the elimination of the heavily criticized gasoline subsidy.

Asante stated that the elimination of this gasoline subsidy was a crucial reform for Nigeria, while efforts to consolidate multiple exchange rates will also help to increase liquidity. He noted that the next step for the government is to ensure that the official FX market can continue to operate normally in light of the adjustments.

He stated, “I believe that this will be a major catalyst for the return of capital to the Nigerian market.”

Ivory Coast and Senegal will garner the most attention. Regarding the prospects for Eurobond issuance by African nations, Asante stated that the market darlings, including Ivory Coast and Senegal, will likely garner the most interest from investors when the market reopens, adding that both countries have Moody’s Investors Service long-term foreign debt ratings of Ba3.

He stated, “These two countries have fairly consistent high growth rates, diversified economic bases, substantial IMF programs with associated concessional financing, a history of economic reforms and fiscal prudence, and a low cost of debt service.”

What you ought to know

On June 14, 2023, the CBN proclaimed the consolidation of all foreign exchange market segments in Nigeria into a single window. This action was part of a succession of immediate modifications intended to enhance the liquidity and stability of the Nigerian Foreign Exchange (FX) Market.

This directive authorized commercial banks to eliminate the rate cap on the naira at the Investors and Exporters (I&E) window of the foreign exchange market, allowing the naira to float freely against the dollar and other global currencies. The organized private sector, financial experts, and economists have praised the CBN’s decision to float the currency and consolidate the country’s multiple exchange rates.

They believe that this action will bring transparency and stability to the foreign exchange market, as well as increase foreign investment and capital inflow.