FOREX Africa: Ease Of Currency Restrictions In Nigeria Fails To Excite Investors
As a frontier market, the countries of Africa represent both tremendous opportunities and tremendous risks. On the risk side of the ledger are all the usual complications of international trade and investment compounded by the problems inherent in a developing, emergent continental market consisting of 54 countries and 1.1 billion people – it’s a lot to keep track of.
Luckily, the ups and downs of the African currency markets aren’t one of them if you know where to look. To help with that, AFKInsider has compiled all the news you need to know now in order to slim down your currency risk.
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A move by the Central Bank of Nigeria (CBN) to lift a ban on commercial banks accepting cash deposits in foreign currencies from their customers and transfer of hard currencies abroad has not excited investors as the regulator expected.
CBN came under fire from foreign investors and international institutions including the International Monetary Fund after it banned transfer and depositing on foreign currencies to curb speculation against the naira, which weakened more than 22 percent against the dollar last year.
Africa’s biggest economy and top oil producer has been hit hard by falling oil prices on the international market, which has almost wiped out its foreign currencies reserves.
According to a Vanguard report, banks in the west African nation got nearly zero foreign currency deposits from their customers as high net worth individuals and companies remained cautious on the reversal of the foreign currency deposit back by the CBN early last week.
CBN had hoped to buoy foreign currency supply from independent sources through the de-freezing of foreign currency deposits, and hence help douse the pressure on exchange rate which had accentuated last week and pushed the naira to a new all-time-low of 305 to the dollar on the black market.
The naira is pegged at around 198 to the dollar on the official interbank market.
Some analysts expect this “unexpected” reaction by investors and depositors could keep the pressure on the naira and drag the local unit much lower by the end of the week.
This, they say, could force the Nigerian government to consider a long awaited naira devaluation.
“This calls for a quick response of the monetary authority given the huge margin between the official and parallel (black) market rates,” financial sector analysts at Afrinvest Group said.
“With foreign reserves at lows of $28.7 billion and oil prices at $29.47 per barrel, a compelling argument to devalue the Naira at the next Monetary Policy Committee (MPC) meeting cannot be jettisoned.”
The ban on credit card use issued by Nigerian banks has however not been lifted. Nigerian’s are some of the top spenders in Africa, something that has made some top-end shops in London to sign up to Hausa to cater for the large number of customers from the country.