Nigeria Investors Fear Being Able to Exit After Bank Clampdown

Foreign investors in Nigeria are concerned that measures taken by the central bank to prevent speculation against the falling naira will hinder their ability to sell investments in the country.

“The reality is that if you have $100 million dollars invested in Nigeria, in the current environment it would probably take you a year to source that foreign exchange,” Samir Gadio, head of African strategy at Standard Chartered Plc, said by phone from London. “Some people would argue that the lack of foreign-exchange liquidity these measures cause could implicitly be compared to capital controls, although they’re not formally.”

The Central Bank of Nigeria issued a circular on its website yesterday that any dollars bought from banks in the interbank market had to be used within 48 hours or sold back to the Abuja-based regulator. This followed a rule that cut banks’ maximum foreign-exchange net-open position at the end of each business day to zero from 1 percent of shareholder funds, which brought trading to a near halt.

The naira gained 0.7 percent to 183.55 per dollar as of 1:52 p.m. in Lagos. There were only six trades between 7 a.m. and 12:30 p.m., compared with almost 700 in the same period a week earlier, according to data compiled by Bloomberg. The currency has slumped 11 percent this quarter as Africa’s biggest oil producer, which derives 95 percent of export earnings from the commodity, struggles to deal with Brent crude prices collapsing to about $60 a barrel from over $111 in June.

The central bank’s measures are temporary and investors can still enter and exit Nigeria “very freely,” Ibrahim Mu’azu, a spokesman for the regulator, said.

Rules Reversible

“These measures are not capital controls,” Mu’azu said by phone from Abuja. “When the market stabilizes, they can be reversed.”

The central bank could be forced to devalue its target exchange rate of 168 naira per dollar, plus or minus 5 percent, before elections in February, according to Ridle Markus, an Africa strategist at Barclays Plc’s Absa Capital unit.

“Our estimates show that Nigeria loses potential average annual export proceeds of $740 million for every one dollar decline in oil prices,” Markus said by phone from Johannesburg. “That’s huge. The extent of foreign-exchange measures isn’t a surprise. It suggests the risk of devaluation has increased given the low oil prices. They’d want to avoid that for now, but I think it’s unavoidable.”

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