The Central Bank of Nigeria (CBN) has launched a Nigerian portfolio investors (NPI); programme designed to attract more dollar inflows into the country and continues to build on the gains of the new foreign exchange (FX) market.
The CBN at the weekend issued a circular to this effect which is aimed at further addressing the FX supply challenge in the country.
An amendment to Memorandum 21 of the Foreign Exchange Manual has allowed for resident/non-resident Nigerian entities (such as nationals and companies) with foreign currency in flowed into the country, to invest same in the Nigerian fixed income, money and equity markets under certain conditions.
Analysts say this is akin to the investments by Foreign Portfolio Investors (FPIs), and such Nigerian entities investing in this manner may be aptly termed ‘Nigerian Portfolio Investors’ (NPIs).
“Foreign currency inflows of Nigerians that previously were excluded from receiving Certificates of Capital Importation (CCIs) and partaking in the attendant benefits and incentives enjoyed by FPIs, can now take advantage of the opportunity of hedging the exchange rate risk and repatriating their inflows at a future date through the inter-bank FX market,” a source at the FMDQ OTC exchange told BusinessDay.
“Nigerians can now inflow foreign currency, convert to naira and invest in the attractive yields in the financial markets and upon maturity of the investment, if the NPIs so wish, may repatriate their funds through the inter-bank market.”
Nigerian fixed income yields are quite high compared to emerging market peers or developed markets and should in theory attract investments from Nigerians living offshore or those that have dollars they wish to repatriate for such investments.
Twelve month treasury bills closed trading at a yield of 22.3 percent in the secondary market on Friday while the 16.39 JAN 2022 10 year sovereign bond had a yield of 14.82 percent, data from the FMDQ shows.
Analysts say this CBN amendment will serve to improve the supply of foreign currency to the Nigerian FX market.
Already, following the launch of the OTC FX Futures product at the end of June, the FX market has experienced an improvement in the FPI inflows, and now, Nigerians may take advantage of the same opportunity by being NPIs.
NPIs are expected to deal through the Authorised Dealers.
Nigerian banks operating in offshore markets and international banks operating in Nigeria are expected to act as ambassadors for the NPI programme; together with the FMDQ.
In a sign of increasing confidence in the new FX market, total spot FX turnover on trades between banks and clients in the last two months was recorded at $8.35bn, while the OTC FX Futures market saw contracts valued at over $3.00bn in more than 500 contracts purchased from the CBN as the OTC FX Futures market continues to be supported by efficient and effective governance standards.
The inter-bank FX market closed at $/314.77 for the week ending September 2, 2016, showing relative stability of the naira when compared with the previous week’s close.
Meanwhile price formation and transparency continue to improve as rates ranged between $/350 and $/305 in August.
A confirmation of this was seen when Travelex, a global leader in FX operations, commenced sale of FX to end-users in Nigeria at a rate of $/356.00 in the week just gone.
“This is encouraging and great news to end-users as, when compared to the ongoing parallel market or even rates of other BDCs, end-users of FX with the appropriate documentation, are able to save in excess of 13 percent,” said a banking source.
Analysts say overall assessment of the Nigerian FX market in the last two months can be judged “better than good” considering the FX market the nation was faced with for over a year prior to the reform.
The CBN over the last couple of months has introduced reform and embarked on initiatives in the FX market intended to help deliver on its objectives for the market, which include liquidity, transparency and a fully functional FX market that regains the confidence of offshore investors and Nigerians alike.
PATRICK ATUANYA
