Lagos – There are indications that foreign investors, who invested billions of dollars in the equities market, are likely to exit the market ahead of the 2019 elections.
Aminu Gwadabe, President, Association of Bureaux De Change Operators of Nigeria (ABCON), said yesterday while speaking to finance journalists in Lagos.
He 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 a 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 demand for Dollar 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 the Dollar is going to rise, with buyers willing to pick it at any rate. This would result in 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 policymakers 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.
Proffering solutions, he called for stakeholders engagements and opening up of other sources of Dollar inflows like Diaspora remittances, foreign direct investments and competitive exports base.
Warning against consequences of failure to diversify the Dollar earning channels by the government, he explained that this could also lead to depletion of the nearly $46 billion foreign reserves.
He said the monetary and fiscal policymakers 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.
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