…Says multiple exchange rates hurt Naira stability
Foreign investors who invested billions of dollars in the equities market are likely to exit the market ahead of the 2019 elections, the President, of the Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, said yesterday.
Speaking to finance journalists in Lagos, he said the negative implication of exit of portfolio investors from the local bourse raises major concern on naira’s continued stability.
According to him, there would be further external sector imbalances in a run-up to 2019 elections even as equity market imbalance is likely to increase.
He said the, “the development in the stock market and its closeness to campaign politics is worrisome. It raises lots of concerns on the relatively stable foreign exchange market. The investors in the stock market are largely portfolio investors from international markets and will at any given time decide to dump their holdings and take huge dollars from the economy as they repatriate both capital and their profits to other lucrative destinations.”
Gwadabe said ABCON has established the naijabdcs.com, a live rate engine room to be rolled out soon, as part of its strategy to enhance transparency, price discovery and attracting billions of dollars through Diaspora remittances. The group is also working with the Nigeria Inter-Bank Settlement System (NIBSS) to automate its operations for online real time returns rendition.
Gwadabe described the portfolio investors as capitalists driven solely by profits. He said the foreign portfolio investors will, ahead of the election, increase the volume of hot money in circulation, leading to naira depreciation as dollar demand rises. He explained that speculative capital flows or hot money is the flow of funds (or capital) from one country to another in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate shifts.