By Babajide Komolafe, Economy Editor

The proposed reclassification of MSCI Nigeria Indexes will worsen the apathy of foreign capital inflow into the country.

Co-Founding Partner and Head of Advisory, Comercio Partners, Steve Osho, gave this warning in a media interview on the performance of the Nigerian economy in the first half of the year and outlook for the second half of the year.

One of the major economic development in H1’21 was the announcement by MSCI Incorporation,  a global provider of equity, fixed income, real estate indexes, of its intention to reclassify the MSCI Nigeria Indexes from Frontier Markets to Standalone Markets status citing low liquidity in the Nigerian foreign exchange market.

The intended reclassification, according to Osho is a warning alarm to foreign investors, as the situation in the FX market has deteriorated to the point where foreign investment appetite should understandably weaken.

Explaining the need to forestall this development, Osho said: “Due to Nigeria’s abysmal oil production level and slowing foreign inflows, the supply of foreign exchange has been tight this year, with the World Bank estimating the forex  backlog at $1.7 billion, while the Investors and Exporters’ net flows stood at just $273 million from January 2022 to June 2022.

“Should the MSCI go ahead in downgrading Nigeria’s frontier status on or before the set deadline of August 31, 2022, the impact on the local bourse would likely be limited, as foreign investors have been the net sellers for over a year, hence, have a limited presence in the equity market.

“The last NGX Domestic and Foreign Portfolio Investment Report for May 2022 revealed that foreign transactions accounted for just 7.46% of total transactions in the review month, and the foreign quotient used to be well above 60.00% in 2019.

“However, there are long-term consequences of the MSCI reclassification, as the absence of a near to mid-term solution to Nigeria’s FX problems could translate to a sustained apathy of foreign capital.”