FX reforms: Will foreign investors eventually return?

Jun 27, 2023|Yomi Ajayi

Key questions this article answers:

The capital market has welcomed bold reforms taken under the Tinubu administration to remove subsidies and unify the exchange rate. Would this be enough to sway foreign investors?
What else can the new administration do to bolster confidence in the Nigerian economy and improve investment flows?

A couple of months ago, I explored the impact of a Tinubu presidency on the Nigerian financial market, followed by a review of the Nigerian equities market in the first quarter and an outlook for the year's second quarter.

In both articles, I predicted a positive market performance premised on sustained domestic investor participation, especially in the Nigerian equities market (a.k.a; the NGX). This outlook held out in Q1 2023, and following the election of now-President Bola Tinubu and a drop in Nigeria’s Purchasing Manager’s Index (PMI), I became cautiously optimistic about the NGX’s positive performance in Q2 2023.

However, as I noted in both articles, “Tinubu’s first 100 days will play a major role in determining the direction of the NGX. His commitment to the subsidy removal and dealing with Nigeria’s Foreign Exchange (FX) crisis will be crucial to winning investor confidence in the market”. And my oh my, has Tinubu’s first month in office been surprising.

First came the removal of the 46-year fuel subsidies, and then came structural reforms to Nigeria’s FX policies. And despite the immediate and short-term discomfort these policies may cause Nigerians in the form of shrinking disposable income and higher inflationary pressures, they’re welcome due to their long-term growth-inducing potential.

However, Stears has pointed out that this growth potential rests on the new administration’s (fiscal and monetary authorities) ability to convince foreign investors and Nigerians that they’re ready to MNGA (Make Nigeria Great Again).