By Nkiruka Nnorom
Dolapo Ashiru is the Head, Stockbroking Services, Lead Capital Plc. In this interview, he spoke about the impact of the new foreign exchange window for foreign investors and importers announced by the Central Bank of Nigeria, CBN, last week, on the capital market.
LAST week, the CBN introduced new foreign exchange window for foreign investors and importers to stop the crunch in Naira. What will be the impact of this new policy on the capital market?
It will have a positive impact on the Nigerian Capital Market, NCM, because it is going to provide an avenue for foreign investors that want to repatriate their dividends from Nigeria.
But why there is no immediate effect is because foreign investors are still being cautious because they want to understand the framework of the new window, find out how sustainable it is and how flexible it is to exit the new window.
Once they are comfortable that they can actually take out their money and there is liquidity for them and there is no issue concerning taking out and bringing money in, then that confidence will bring in foreign portfolio investment into our market.
The issue is that in Africa, the three biggest exchanges are the Nigerian Stock Exchange, NSE, the Johannesburg Stock Exchange, JSE, and Nairobi Stock Exchange, NSE, but the issues is that most of the inflows that will come into Nigeria are bypassing us and going into other sub-Saharan Africa countries because we have not reached an efficient and perfect market.
So, what the CBN has done is a step in the right direction, but it still needs to go further. What the CBN needs to quickly do is to collapse the rate and the market into a single rate and market. This is, probably, going to be a fore-runner to the eventual sustainability of the FX market.
What the CBN has done is better than what we have last year, but they still need to do more to give foreigners the confidence to come into our market more aggressively than before.
You said that the impact is yet being felt, but the index moved up by 2.2 per cent on Monday and some operators are of the view that the new FX window was responsible for that movement.
Yes. First of all, they just announced it and the market opened on Monday. At least, investors are happy with, but they are still going to watch it. The market has not been opened for one week. They want to see how the market will be in the next one to two weeks and the next two to three months.
Once they are comfortable that the market is liquid; they are comfortable that it is sustainable, then they will begin to make decision whether to access the market or not.
It is a step in the right direction, but foreign investors are cautious, they want to find out how it is going to run before they can take decision because for one to invest in the capital market as a foreign investors, you have to think long-term. So, they have to sure that the market is very efficient before they come in.
Apart from having a single window for the FX market, are there other things the CBN and the monetary authority should do to make the new FX window sustainable and also retain the initial interest show by investors in the capital market?
As long as we have a very strong foreign reserve, we can to some extent intervene. But you also need to encourage foreign direct and portfolio investors to bring in money to complement government effort. Government cannot do it alone.
So, foreigners should bring in dollars. We also need Nigerians in diaspora to remit dollars back to the country. We need money from our foreign exchange reserve; we also need money from Nigerians in diaspora and foreign direct investors.
Do you see Nigeria being re-included in the JP Morgan index as a result of this?
We will ultimately be back in JP Morgan Index, but the foreign investors will want us to still do more and they will want to watch it for some time. Ultimately, we are going to be back in JP Morgan but they are going about it gradually.
I see a time when instead of us having multiple rates, we will have one main rate. Government has to unify the rates so that the foreign investors can come in.