Naira Shines in Frontier Markets, According to J.P. Morgan
The Nigerian currency, the naira, is showing strong performance compared to other emerging markets, thanks to recent changes made by Olayemi Cardoso, the governor of the Central Bank of Nigeria (CBN). These changes have begun to attract foreign investors who are looking to invest in Nigeria in 2025.
During a recent call with investors from a well-known international bank that has significant interests in Africa, senior officials expressed a very optimistic view of Nigeria’s market. One of them boldly stated, “Sell everything and buy Nigeria, everything.” This enthusiasm reflects the growing confidence in Nigeria’s economic prospects.
This newfound confidence has been largely driven by the CBN’s efforts to reform the foreign exchange market. These reforms have made it easier and clearer for people to understand how the naira is valued against the dollar.
For example, the CBN introduced a system called the Electronic Foreign Exchange Matching System (EFEMS) in December, which helps in determining the price of the dollar more transparently. Additionally, the CBN has raised interest rates on treasury bills, which are government bonds that attract investment. These higher interest rates have drawn in more dollars from abroad and have helped stabilize the naira after a period of significant fluctuations.
Foreign investors and international banks are becoming more confident in Nigerian investments because the naira is becoming less volatile, thanks to these reforms that improve market transparency and efficiency. The CBN has also encouraged banks to sell off excess dollars and lifted limits on transactions made by International Money Transfer Operators (IMTOs) to attract more money from Nigerians living abroad.
Recently, the naira reached its strongest value in eight months, trading at 1474.78 naira to one dollar. This stability is welcomed news for both foreign investors and local businesses, who have struggled with the naira’s ups and downs in the past.
Alongside a more stable currency, interest rates in the market have also been rising. For instance, one-year treasury bills are now yielding 27 percent, while seven- and ten-year bonds were recently sold at rates around 22.50 percent. This trend of rising rates is expected to continue in the first half of this year.
In a recent report titled “Emerging Market Frontier Local Markets Compass,” J.P. Morgan highlighted that the reforms in Nigeria have made its financial securities more appealing to investors. The report noted, “We stay long Nigeria T-bills, as reform momentum has started to bear fruit,” indicating a positive outlook for Nigerian treasury bills.
The report also mentioned that investing in Nigeria’s treasury bills is closely linked to expectations about the naira’s performance. It stated that the naira has started the year as one of the best-performing currencies among frontier markets, which are developing economies.
Many local financial experts believe that these reforms could pave the way for Nigeria’s bonds to be reintroduced into the JPMorgan Government Bond Index for Emerging Markets (GBI-EM). This index includes local currency bonds from various emerging markets like Brazil, Thailand, and South Africa.
Nigeria was removed from this index in 2015 due to various measures by the CBN that made it difficult for foreign investors to invest in Nigerian bonds. One of these measures included the cancellation of a weekly auction for dollars by the CBN.
Sources close to the situation indicate that rejoining the JPMorgan index will depend on investor demand. They mentioned, “There’s not enough demand for it at the moment, but it’s there. Everything that needs to be done, on Nigeria’s part, has been done. It is now up to investors.”
In recent months, Nigeria has been visited by several international banks, including JP Morgan, which have shown renewed interest in the country. Many of these banks are visiting Nigeria for the first time in five years, indicating its growing importance in their investment strategies.
One source explained that these banks came last year to gauge the situation and were pleased with the progress made. They invested and saw significant returns, borrowing at low rates and achieving high profits due to the stable foreign exchange environment.
