MSCI, the global equity index provider, says it will defer its plan to remove Nigeria from its list of frontier markets, to allow a review of the impact of foreign exchange reforms introduced in the country last week.
The index provider had considered reclassifying Nigeria as a “standalone country” in response to difficulties foreign investors faced accessing the Nigerian equity market and repatriating their money as a result of dollar shortage.
“FX liquidity issues have continued to impact the accessibility of the Nigerian equity market,” it said in a statement on Thursday.
“Since the onset of these issues in March 2020, there have been constraints in US dollar liquidity in the market, leading to constant capital repatriation concerns and a gap between the parallel and official exchange rates for the Nigerian Naira.”
With the new reforms, primarily the unification of exchange rates, MSCI said it will consult further with market participants until September 29, and will announce a decision on or before October 31.
– Why this matters
Investment index entities such as MSCI, S&P, and FTSE Russel classify countries as developed, emerging, and frontier markets considering certain indicators of their financial markets. The classification helps international investors decide on investing in those markets.
A frontier market is regarded as being higher than a least-developed country’s market, but too small, unstable, or short of forex to be an emerging market economy. An upgrade between the classes can boost investment in a country, and a downgrade can drive investors away.
– Learn more
“We decided to extend the consultation to allow more time for the liquidity situation in the Nigerian FX market to stabilize following the recently implemented measures by the Central Bank of Nigeria, abolishing the multiple exchange rate system,” said Jean-Maurice Ladure, Global Head of Index Management Research and a member of the MSCI Index Policy Committee.
“We will evaluate the impact of these measures in the context of market accessibility, in particular the impact on the clearing of the FX queue during the capital repatriation process.”
It said if such improvements were not to be observed by market participants during the extended consultation period, it would confirm that the ease of capital inflows and outflows in Nigeria is not to the standards expected from a frontier market.
Discover more from Pluboard
Subscribe to get the latest posts sent to your email.