By Chinwendu Obienyi
The economy as well as the stock market may experience further decline in foreign investors’ participation in 2022.
This will hurt the nation’s economy unless the Central Bank of Nigeria (CBN) implements a more transparent exchange rate model.
According to analysts who spoke in separate fora in Lagos concerning the outlook of the nation in 2022, the foreign exchange (FX) market is expected to come under strong pressure as interest rate hikes in advanced economies are expected to result in portfolio outflows from emerging markets.
While delivering his prognosis for 2022, the Group Managing Director, Afrinvest, Ike Chioke, noted in a report entitled: 2022 Nigeria Economic Outlook – A Mix of Boom and Gloom, that since attaining the decade’s peak of $23.7 billion in 2019, foreign capital flows into Nigeria have continued to decline sharply.
While citing data from National Bureau of Statistics (NBS), Chioke said the $4.5 billion recorded in nine months of 2021 as against $8.6 billion in 2020 suggests worsening foreign investors’ apathy for Nigerian assets.
He explained that although Emerging Markets (EMs) witnessed huge capital flows reversal in H1 2020 amid crash in commodities’ prices and weak fundamentals, Nigeria has been left out of the renewed interest in EMs’ assets which began since Q4 2020.
“We suspect that the continued decline in capital flows into Nigeria could be partly due to the unpleasant experience of portfolio investors that were trapped by the aggressive capital control measures of the CBN at the onset of the pandemic in 2020. Also, we believe that the lack of clarity on the exchange rate management policy played a part in the increasing apathy of foreign investors towards Nigerian assets despite the recent improvement in macroeconomic fundamentals.
We think that the current high global system liquidity presents an opportunity to the CBN to attract foreign capital (even at current yield levels) in 2022, if only a more transparent exchange rate model could be implemented”, he said.
For his part, the Managing Director, Morgan Capital Securities Limited and an economic analyst, Rotimi Olubi, who spoke at a forum organised by the Capital Market Correspondents Association of Nigeria (CAMCAN), said, foreign investors could not access FX due to policies dished out by the CBN, while adding that there would be more decline in foreign participation in 2022.
“Electioneering, rate hikes and capital controls by the monetary authorities are expected to cause further foreign portfolio outflows and cause FPIs to remain on the sidelines.
Domestic investors will be the key players responsible for the movement of the market and liquidity. Interest income of banks is expected to rise if interest rates rise as expected and this is because the U.S could decide to raise interest rates.
This act by the U.S could lead to downward pressure on commodity prices, drop in global liquidity, increase in the cost of funds from the international debt market and due to the fact that Ukraine and Russia are still having conflicts, oil prices might go up and production could decrease”, Olubi explained.
According to him, being an election year, government spending is expected to be at its highest complemented by improved oil revenues.