Business

March 8, 2016

Devaluation: Nigerian stocks drop 16% since December — Control Risks

Stockmarket, week

Stockmarket

By Peter Egwuatu

Control Risks Services West Africa has revealed that stocks quoted on the Nigerian stock market has fallen by 16 per cent since December 2015, even as the Central Bank of Nigeria, CBN says that weakening the naira would raise inflation, already close to 10 per cent.

Commenting the impact of devaluation on business environment, Control Risk stated “Uncertainty about the timing and extent of any devaluation will remain a significant risk, particularly those whose operations rely on large quantities of imported goods, as well as to investors and prospective investors. Many potential investors are likely to stay shy of Nigeria until the fears surrounding the possible devaluation of the currency have been alleviated.

File photo: The  floor of Stock exchange

File photo: The floor of Stock exchange

Continuing, it said “ As assets in Nigeria continue to slide in value, investors who are prepared to take a longer term perspective will find there are buying opportunities.”

Daniel Magnowski, Senior Analyst, Control Risks said: “A lot more clarity is needed about Nigeria’s Fiscal and monetary policies before people regain the confidence to invest.”

According to him “Meanwhile, the central bank says that weakening the naira would raise the inflation rate, already close to 10%. Nigerian stocks have fallen 16% since the end of December 2015, the biggest drop in sub-Saharan Africa.”

Commenting further on devaluation, he said “After falling to a record low of   N390 to the US dollar on 18 February the naira (currency)’s gained value on the black market this week to trade at around 364 to the dollar. The demand for dollars in the market is still high as the price of oil – the foundation of Nigeria’s economy – remains around USD 33 per barrel and the central bank considers further restricting foreign-currency allocations by placing overseas medical and education on the list of activities for which banks will not provide dollars.

“While exchange rates on the black market – where most Nigerians source foreign currency – have fallen from around 270 naira to the US dollar at the start of 2016, the central bank has held the official rate at 197-199 for almost a year, in contrast to other oil-dependent countries including Venezuela and Angola, which have devalued their currencies.

The fall in the gap between the official rate and the actual rate at which dollars are bought and sold may temporarily dissipate the pressure for devaluation but there are still questions about the long-term outlook for the currency.”

Buhari, who is staunchly opposed to devaluing the Naira, has said that its advocates of devaluation must ‘work much harder’ to convince him that it would not punish poor Nigerians.