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Nigeria ranks third on Africa’s best foreign investment market, scored low in forex control

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Absa-OMFIF Africa Financial Markets Index 2021 (AAFMI) report has pointed at Nigeria’s foreign exchange restriction measures as an albatross to the country’s foreign investment attraction.

AAFMI scored Nigeria low on access to foreign exchange and capacity of local investors, hence, ranking Africa’s largest economy behind South Africa and Mauritius, following a survey of 23 countries in sub-saharan Africa.

Nigeria made the top five list, taking the third spot, with a score of 63, South Africa and Mauritius were scored 86 and 70 points respectively, while Ghana received 62 points and Uganda was awarded 57 points by AAFMI, which based its best market for foreign investment on six pillars.

Read also: Foreign investments help drive Nigeria Sovereign Investment Authority income by 343%

The index, obtained by Ripples Nigeria on Friday, from OMFIF, scored Nigeria in the following areas; access to foreign exchange, 20; capacity of local investors, 44; in market depth, the country scored 62; for macroeconomic opportunities, 69; market transparency, tax and regulatory environment, 86; while enforceability of the standard master agreement got 100.

Government control creating a problem

AAFMI faulted the President Muhammadu Buhari-led administration’s policy around forex, stating that while the measures have their advantages, it also limits the use of FX in doing business.

It highlighted instances of import restriction on the famous 41-item list – which contains; Rice, Meat and processed meat products, Poultry (chicken, eggs, turkey), Cement, Vegetables and processed vegetable products, Margarine, Palm kernel, Palm oil products/vegetable oils – have continued to be denied foreign exchange access.

This affects FX supply, importation of goods and cost of importation into the country, as businesses involved in the banned forex item list have to depend on the bureau de change, where dollar and other foreign currencies are sold at expensive rate.

Also, investors face a challenge with repatration of funds, due to the government’s control of the FX and quest to stable the country’s foreign reserves, “While these measures restricted capital outflows and helped keep reserves stable, market liquidity remained below pre-pandemic levels.

“The volatile FX market and the delays in the repatriation of foreign currency out of Nigeria caused further problems,” the report stated, adding that, “Despite a rebound in oil prices and remittances, the FX shortage persists as imports recover faster than exports. All these factors contributed to Nigeria’s poor performance in Pillar 2 (Access to forex).”

Areas Nigeria received commendations

AAFMI stated that Nigeria was among nine countries that have introduced investment products known as green or sustainable, with the most popular instrument being the green bonds.

It also commended the country for introducing technology into its stock exchange to improve capital market participation, citing the FinPort, a fintech portal launched by the Securities and Exchange Commission (SEC), which was incorporated to ease fintech ventures’ understanding of the Nigerian bourse.

“Nigeria continues to make strides in creating an enabling investment environment for foreign investors, with the necessary regulatory developments and policy initiatives.” the report stated.

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