FOREIGN Portfolio Investors (FPIs) injected $1.7 billion into the Investors and Exporters (I&E) window in January 2020 raising hope of sufficient dollar inflow and stability in the foreign exchange market.
This comes as the acting Managing Director/Chief Executive of Coronation Merchant Bank, Banjo Adegbohungbe, hinted that the newly introduced 5-year naira denominated foreign exchange futures will encourage inflow of Foreign Direct Investments (FDI) into Nigeria in the long run.
The bank’s Head of Research, Guy Czartoryski, projected that Nigeria has a good chance of raising enough money to shore up its reserves in 2020, sufficient enough to prevent devaluation during the year.
According to him, the strong dollar inflow from FPIs when combined with inflows from oil and gas, bilateral loans and the proposed $3.3 billion Eurobond issue, vis-a-vis outflows through foreign debt service of $1 billion, roll-over in foreign-owned OMO bills with non-deliverable forwards, and demand from the NAFEX market, indicate that Nigeria has a good chance of raising enough money to shore up its reserves in 2020.
Foreign investors
Speaking at the Coronation Merchant Bank Breakfast Session on Foreign Exchange, Interest Rates and the economy, Czartoryski said that the level of FPI inflow in January implies positive response to the policy of the Central Bank of Nigeria (CBN) to limit investment in OMO treasury bills to banks and foreign investors.
He, however, noted that it is uncertain how the global spread of the coronavirus and recent decline in price of crude oil will impact FPI inflows into Nigeria this month.
Stressing the need to sustain FPI’s interest in Nigeria’s OMO market, he noted that a substantial part of the CBN’s forex reserves can be attributed to the FPI hence, the need to maintain foreign interest in the OMO market in 2020, adding that the high interest rate on OMO bills makes the country attractive in terms of competition with other emerging counties for FPI inflow.
New 5-yr FX future
Meanwhile, Adegbohungbe, while addressing journalists at the sidelines of the Breakfast Session stressed that though the country needs foreign portfolio investment (FPI) inflow for exchange rate stability in the short term, it requires FDI inflow to create jobs and grow the Gross Domestic Product (GDP).
He said: “The recent introduction of the OTC Non Deliverable Futures (NDF), for a longer term period, five years, means that it is an opportunity for FDI to grow, and we talked about how it is critical for the country to experience a shift from FPIs, which is very good for the short term. It has helped us to support the currency. But over time, what we actually need is foreign direct investment, FDI and we think that this initiative of the CBN is going to in the long term encourage FDI.”
He explained that the purpose of the breakfast session was to help the bank’s clients to focus on opportunities for growth and not on the challenges, especially recent apprehension over the exchange rate.
“I think the most important takeaway was that we addressed people’s concern about whether or not there is going to be a devaluation especially in 2020 and we provided sufficient clarity about a lot of measures that the Central Bank of Nigeria (CBN) has put in place and why we feel relatively confident about the stability of the exchange rate in the medium term especially in 2020″, he said.
Adegbohungbe added that the session was also an opportunity to engage with clients and assure them of the bank’s ability and readiness to help them take advantages of the opportunities in the economy.
“But also equally is an opportunity for us to engage our clients in a unique environment. We think that people need someone, a partner who understands how to navigate the market, who has earned a track record in critical product areas that are important to them and who can therefore help them and guide them to take advantage of the opportunities in the environment”, he said.