How $20 Billion Diaspora Remittances Can Boost Capital Market Liquidity | The Guardian Nigeria News


Operators urged market regulators to create investment instruments that could attract the $20 billion in Diaspora rebates to the market to help address the illiquidity challenge.

Heightened volatility and illiquidity continued to trigger a persistent downturn in the Nigerian Exchange Limited (NGX), a challenge that negatively impacted market performance.

There has been an underperformance of stocks listed on the Nigerian Exchange Limited (NGX) since the global financial crisis of 2007-2008. Much of the problem has been attributed to illiquidity and low investor confidence.

This development continued to fuel the persistent decline in listed company stock prices, with most blue-chip stocks hitting a 10-year low.

For example, a seven-year review of bank stocks showed that shares of Unity Bank Plc, which stood at N2.29 kobo in 2015, fell to 43 kobo at the close of a trade on Friday, losing more than 80 percent. cent in value. Similarly, Union Bank Plc also lost 35.5% over the same period to close at 5.60 kobo.

In the consumer goods sub-sector, PZ Cussons Plc lost 60.72% during the period from 29.18 kobN to 8.20 kobN, while Honeywell fell to 2.53 kobo N against 3.72 kobo N.

For the insurance sub-sector, Aiico also lost 32% to close at 0.56 kobo. Stakeholders argued that the gradual global economic recovery portends growing opportunities in diaspora remittances.

Nigeria leads Sub-Saharan Africa (SSA) in terms of remittances with $20 billion in 2021. The performance was a remarkable improvement from the $17.21 billion recorded in 2020.

Investors suggested that regulators should revise their strategy and reposition the capital market to take advantage of the windfall of remittances to stimulate the economy.

They argued that investor confidence in the market would remain low until more targeted policies were adopted that would boost liquidity and make the market flourish for both local and foreign investors.

Former President of the Chartered Institute of Bankers of Nigeria (CIBN), Uche Olowu, said regulators should segment their product offerings to high net worth individuals (HNIs) and small savers, while investment-friendly mechanisms that would ensure the security of the diaspora economies are created.

“They should be looking at bond offerings and real estate investment vehicles. Above all, create trust by establishing good corporate governance, as transparency is essential to its success,” he said.

Head of equity trading, Planet Capital, Paul Uzum, said if dollar-denominated equities or fixed income securities were introduced to the market, it would attract diaspora funds to the capital market. He said most diaspora investors are only interested in Eurobonds because of a lack of confidence in the local currency.

“The key issue is the naira and macroeconomic stability. When the economy is growing rapidly, with real GDP growth of at least five percent with low inflation and a stable exchange rate, diaspora funds and other foreign institutional investors will invest in the market.

“If you bring your $1 million to Nigeria today to invest in naira-denominated stocks, bonds and commercial paper, by the time you withdraw your funds over the next two years, your investment could drop to $800 000 dollars, not because you did not earn a dividend, capital gain or interest, but because of the perpetual depreciation of the naira,” he said.

He noted that those who hold this $20 billion sitting in Nigerian banks will never convert to dollars to invest in naira investments until economic conditions are favorable with a stable exchange rate, inflation at a figure and high GDP growth. “We have a derivative forex market on FMDQ, but price quotes today already tell you that the naira is going to go down. If, in the future, we introduce dollar-denominated equities or fixed income securities into our market, these will attract funds from the diaspora.

NGX Managing Director Temi Popoola stressed the need to attract these remittances to the capital market to boost liquidity. He said the exchange has a robust architecture to attract this fund to the market, adding that the exchange is putting measures in place to ensure this is achievable in the near future.

Former President of the Chartered Institute of Stockbrokers (CIS), Ariyo Orisekun, said that this money would hardly make it to the market unless the Nigerian Diaspora Commission works with the Nigerian Exchange Limited (NGX) to ensure that A significant amount of contributions from the Nigerian Diaspora Investment Trust Fund (NDITF) are deployed in the capital market to generate returns.

“When this diaspora investment fund is fully set up, it will be invested in different projects and instruments. On an annual basis, the fund will produce returns and they can send money to loved ones from the returns while the principal remains intact.

He added that it would help deepen the market and grow the economy while contributors still achieve their goal of sending money to loved ones.

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