I’m in torn about JP Morgan’s decision to remove Nigeria from its Government Bond Index.
The selfish part of me is naturally concerned about the negative impact it will have on business and my pocket. After all, the long line of foreign investors heading towards the nearest “Exit Nigeria” door is an inevitable consequence.
And therein lies the rub. Foreign portfolio investors don’t particularly care about our markets, let alone Nigeria. They’re just looking for their next quick buck.
Remember what happened to Indonesia a few decades ago? Foreign investors completely wrecked the place. They all ran for hell leather when Indonesia needed them most.
JP gave three reasons for its decision:
1. Lack of liquidity
Come on JP, bearing in mind the kind of year Nigeria has had – declining price of crude oil and uncertainty of the outcome of elections etc., it’s hardly surprising that liquidity has been a challenge. Add to that the intensified fight against corruption and it’s a surprise we can even spell the word “liquidity.”
2. Lack of transparency in the determination of the exchange rate
Actually my dear JP, the CBN long ago mandated that all foreign transactions be posted on Reuters. How much more transparent can one get??!!
3. Lack of a fully functional two way system
Nigeria has an order based, two-way forex market. Whether or not the CBN can claim this system has stabilised the exchange rate is another matter. It certainly didn’t feel too stable to me during the first six months of this year; but let me not go down that route as it may turn this rare pro CBN article into an anti one quicker than you can say “Where’s my cash?” The point is that a two-way system exists none the less.
Let’s be honest people, JP’s decision is a purely self motivated one; basically wanting the CBN to devalue the naira in order to protect its investments. Fair enough, I’m not judging. To each their own. But let’s not for one second put JP on any kind of moral high ground. This move is as selfish as they come.
In my opinion, the more a market is dependent on foreign investors, the more danger both the financial markets and the economy are in. As long as we continue to depend on foreign investors, we will continue to remain in our ever dilapidating “import” mindset. And do we really want to continue relying on the whims and caprices of people that couldn’t give a monkey’s ass as to whether our nation prospers or not?
Though painful at first, this is an opportunity for us to grow from within. So kindly excuse me as I politely give JP my middle finger, and encourage our markets to be a little more self-sustained and independent.
To devalue the naira would lead to all kinds of pain for so many Nigerians.
1. Whilst it would bring in investors, the cost of doing business and costs of goods would sky rocket; leading to double digit inflation.
2. Unemployment would soar.
3. Despite the pain of high costs of importation, we would become even more “import” reliant.
So allow me to say a hearty well done to the CBN, Federal Ministry of Finance, and the Debt Management Office for putting the interests of Nigerians first. This however does not in any way excuse the government’s lack of economic direction because in my opinion, the real problem we have at present is a non-existent economic policy, and zero communication regarding the direction this nation is heading.
– Akande Segun