JP Morgan Chase will remove Nigerian debt from its main indices by the end of October, raising fears of a fire sale of government securities. However, many foreign investors had already abandoned the country. Bankers estimate that overseas holdings of local currency debt have fallen to approximately $3 billion, from $11 billion in 2013.
It’s not that investors aren’t hungry for Nigeria’s hefty yields, amongst the highest in the JP Morgan index. But many are growing increasingly worried about the central bank’s management of foreign exchange reserves. In June, the central bank banned the import of some 40 products – from rice to wheelbarrows – in an effort to prevent currency from leaving Nigerian shores. The restrictions have settled the naira into a tight band between 198 and 199 to the dollar.
The central bank is the only economic policy maker in town at the moment. More than three months after taking office, Buhari has yet to name a cabinet. His appointment of a former Exxon executive as head of Nigerian National Petroleum Corporate earned plaudits, but investors are reluctant to place bets until until Buhari appoints an economic team. Nigeria may be the continent’s biggest economy – with an burgeoning middle class – but economic uncertainty will keep foreign investors on the sidelines.