Nigeria’s naira problem sees no end

Bloomberg

Nigerian officials are increasingly confident the naira’s troubles are over for good. Some investors disagree.
Portfolio inflows have risen in the past three months with crude prices increasing above $60 a barrel and money managers taking heart from a new foreign-exchange trading window, in which the naira has converged with the black-market rate.
That prompted central bank Governor Godwin Emefiele and Patience Oniha, the head of the nation’s Debt Management Office, to tell investors in London that the currency was set to strengthen. Finance Minister Kemi Adeosun concurred, saying the government sees
no significant exchange-rate risk as it prepares to raise $5.5 billion of Eurobonds.
But Nigeria’s system of capital controls, multiple exchange rates and the trading window known as Nafex would struggle to survive a drop in oil revenue or sentiment turning against emerging markets, which may come as the US Federal Reserve raises interest rates, according to investors including Ashmore Group Plc and Standard Life
Aberdeen Plc.
“At the moment, it’s easy for them to manage the current system and muddle through,” said Brett Rowley, a managing director at TCW Group Inc. in Los Angeles, which oversees $200 billion and recently started buying naira debt again after pulling out during the 2014 oil crash. “That could change if we got a significant drop in crude production or prices. It’s not clear how Nigerian officials would react. That would be a key test to reassure investors they can get their money out even in times of stress.”
Yield-starved global investors have piled billions of dollars back into the country in the second half of this year, attracted by the naira’s devaluation after the Nafex window opened in April and yields on one-year Treasury bills of above 21 percent for most of the year.
Foreign holdings of Nigerian government debt may have more than doubled from around 5 percent a year ago, according to Standard Chartered Plc. That’s helped the naira to appreciate 2 percent since August to 360.25 per dollar, trimming its loss in 2017 to 12 percent. The yield on one-year T-bills has dropped around 400 basis points in two months to 18.2 percent, still among the highest in major emerging markets tracked by Bloomberg.