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US investment specialist on Africa, Aubrey Hruby, has said the new policy for the Nigerian foreign exchange market will spark recovery of the country’s economy. She said investors now have a basis to return to the Nigerian market with the implied devaluation of the naira through the new policy that will see market forces determine the naira exchange rate.  

Yesterday, the Governor of Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, provided the guidelines for operating the new forex policy, which was announced after the meeting of the Monetary Policy Committee (MPC) in May.

In a comment sent to Financial Nigeria, Aubrey Hruby said: “This announcement has been a long time [in] coming and could help move Nigeria onto the road to economic recovery. A bold step, devaluation will give investors a solid rate at which to return to the Nigerian market and give future transactions a baseline from which to start.”

The MPC met last month following the grim economic data released by National Bureau of Statistics. The GDP contracted by 0.36 percent in Q1 2016; inflation accelerated to 13.7 percent in April, and unemployment rose to 12.1 percent in March. These proved decisive for a change in CBN’s policy which pegged the naira to the dollar at N199/$1 on the official market. The policy opened as much as 70% gap between exchange rates in the official market and rates in the parallel market.

Many investors believed the official exchange rate policy was unsustainable in light of the subsisting low oil prices, CBN foreign reserves that have fallen to $26 billion, and the need to reflate the Nigerian economy that was teetering towards a recession. Foreign investors had exited the Nigerian equity market, with those outside remaining on the sideline, in the anticipation of reform in the forex policy and inevitable devaluation of the naira.  
 
As traders on the Nigerian Stock Exchange reacted positively to the announcement of the new policy guidelines yesterday, NSE main index closed 3.17 percent higher, and extended its rally by 2.14 percent at market close today. Analysts interpreted the guidelines as introduction of a managed-float currency policy which many of them had clamoured would open the flood gate for foreign portfolio investment and generally boost dollar liquidity in the system.

Ms Hruby said: “After a short period of struggle and recovery by the Nigerian people, investment will return, the market will correct years of mismanagement and Nigeria can resume its place as an economic powerhouse in Africa.”

Aubrey Hruby is Managing Partner of Noveni Advisors, and formerly served as the Managing Director of the Whitaker Group, an Africa-focused strategy and investment advisory firm that has helped facilitate over $2 billion in investment and capital flows to Africa.

In another reaction, Ecobank said the new CBN policy guidelines will put Nigeria on a path of recovery. The pan African banking group, however, said that “uncertainty” would persist in the market, given near-term inflationary outlook and other pressures the economy faces.