Ahead of the 2019 elections, the President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe has predicted increased ‘hot money’ in the fixed income securities market.
This, according to him might lead to a depreciation of the nation’s currency as dollar demand rises.
Hot money” refers to funds that are controlled by investors who actively seek short-term returns.
In a chat with journalists, the ABCON boss also stated that foreign investors in the stock market are likely going to exit the market ahead of the 2019 elections. He stressed that the negative implication of exit of portfolio investors from the market would affect the naira’s continued stability.
According to him, there would be further external sector imbalances in the run-up to 2019 elections even as equity market imbalance is likely to increase.
He said: “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 dollar 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.
Such funds, he added, can be moved very quickly in and out of markets, potentially leading to market instability.
Gwadabe further said: “The build up to 2019 campaign and politicking is also an albatross to the naira’s continuous sovereignty. Besides, the inaction of regulators and policy makers to address the multiple exchange rates will continue to endanger the achieved stability in the foreign exchange market,” he said.
According to him, the challenge of ineffective linkage between different sectors of the economy- the formal and informal sectors remains a big setback to economic growth.
He, however called for stakeholder’s engagements and opening up of other sources of dollar inflows like Diaspora remittances, foreign directs investments and competitive exports base.
He said that failure to diversify the dollar earning channels by government could also lead to depletion of the nearly $46 billion foreign reserves.
He said the monetary and fiscal policy authorities should intervene in other key sectors of the economy such as services, exports, manufacturing among others adding that the continuous mopping up of naira may not be effective as campaign spending starts. He therefore called on the CBN to come out with various interventions to all sectors of the economy and also the need to formalise the informal sectors.